EU-funded Project: Coal Sector Policy Support Programme

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Coal Sector Policy Support Programme,

September 2008 – June 2011
Beneficiary: Ministry of Coal Industry of Ukraine

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EU-funded Project: Coal Sector Policy Support Programme

  1. 1. EU-funded Project: Coal Sector Policy Support Programme EC-Contract – 2008/141-542 September 2008 – June 201 1 Beneficiary : Ministry of Coal Industry of Ukraine
  2. 2. Page <ul><li>Implementation of the EU-funded project by a consortium led by Hulla & Co, Human Dynamics KG, Vienna, Austria, </li></ul><ul><li>in cooperation with: </li></ul><ul><li>MWH, Belgium/UK, </li></ul><ul><li>Upper Silesian Regional Development Agency (GARR), Poland, </li></ul><ul><li>Kopex, Poland, and </li></ul><ul><li>Royal Haskoning, The Netherlands. </li></ul>
  3. 3. Page <ul><li>Assist the Ukrainian government in developing and implementing its coal sector reform policy. </li></ul><ul><li>Advance the development and restructuring of the coal-mining industry in a socially-responsible and cost-effective manner, </li></ul><ul><li>Improve mine safety standards </li></ul><ul><li>Help to eliminate ecological damage. </li></ul>Project’s objectives
  4. 4. Page Component A Institutional strengthening Component B Evaluation of mines Component C Social policy Component D Occupational health and safety Component E Environmental issues Analysis Recommendations Master Plan
  5. 5. Page Coal Sector Analysis Determination of Coal Demand Determination of „ coal supply lines“ <ul><li>Macroeconomic development </li></ul><ul><li>Energy mix </li></ul><ul><li>Steel sector development </li></ul><ul><li>Implementation of energy efficiency measures </li></ul><ul><li>Development of renewable energy sector </li></ul><ul><li>Domestic competitiveness of coal </li></ul><ul><li>International competitiveness </li></ul><ul><li>Reference scenario </li></ul><ul><li>Setting on coal development; </li></ul><ul><li>Setting on natural gas development; </li></ul><ul><li>Steel sectors develops well; </li></ul><ul><li>Renewable rules; </li></ul><ul><li>Energy efficiency measures bring effects </li></ul><ul><li>Conservative : </li></ul><ul><li>86 Mt in 2020 – currently state owned: </li></ul><ul><li>50 Mt </li></ul><ul><li>21.7 billion UAH investment </li></ul><ul><li>Realistic (most likely): </li></ul><ul><li>94 – 96 Mt in 2020 – currently state owned: 61 Mt </li></ul><ul><li>33.5 billion UAH investment </li></ul><ul><li>Optimistic (most coal “friendly”): </li></ul><ul><li>102 Mt in 2020 – currently state owned: 56 Mt </li></ul><ul><li>21.5 billon UAH investment </li></ul>
  6. 6. Available resources Page Commercial reserves: 37,6 bn ton
  7. 8. Page Analysis of the coal sector <ul><li>Strong points: </li></ul><ul><li>big deposits of all types of coal </li></ul><ul><li>well qualified workers </li></ul><ul><li>well qualified technical managers </li></ul><ul><li>proximity to the European markets </li></ul><ul><li>big deposits of anthracite </li></ul><ul><li>well spread transport infrastructure </li></ul>
  8. 9. Page Analysis of the coal sector (cont.) <ul><li>Weak points: </li></ul><ul><li>often high sulfur content in coal </li></ul><ul><li>high gas concentration in mines </li></ul><ul><li>difficult geology </li></ul><ul><li>weak business management in mines </li></ul><ul><li>worn out and outdated equipment </li></ul><ul><li>poor safety records of mines </li></ul><ul><li>poor quality of coal processing </li></ul>
  9. 10. Page Analysis of the coal sector (cont.) <ul><li>Opportunities: </li></ul><ul><li>expansion of exports to China, Turkey, India and EU (esp low S coal) </li></ul><ul><li>potential for the development of the new mines </li></ul><ul><li>underground gasification </li></ul><ul><li>utilization of methane </li></ul><ul><li>potential for development of large power station based on lignite </li></ul><ul><li>possible export of coal-based energy to SE and Central Europe </li></ul><ul><li>recycling of waste (reprocessing of tailings) </li></ul><ul><li>utilization of underground water </li></ul><ul><li>Retail marketing of anthracite in 10 and 20 kg packets </li></ul><ul><li>production and sale of briquettes made of coal and biomass </li></ul>
  10. 11. Page Analysis of the coal sector (cont.) <ul><li>Threats: </li></ul><ul><li>new anti CO2 regulations </li></ul><ul><li>import of coal from countries like Russia, Kazakhstan, South Africa, Brazil or Australia </li></ul><ul><li>possible shortage of suitable equipment for refurbishment of mines </li></ul><ul><li>possible collapse of elements of infrastructure (mainly railways) </li></ul><ul><li>possible shortage of qualified miners </li></ul><ul><li>outdated research in mining and geology </li></ul><ul><li>low capacity in ports </li></ul><ul><li>lack of stability in business regulations </li></ul>
  11. 12. Key elements of President ial reform Page <ul><li>Liberalise the coal market, sale and pricing mechanisms </li></ul><ul><li>Remove restrictions on import of mining equipment </li></ul><ul><li>Privatise all viable enterprises of the sector and close the non-profitable coal mines </li></ul><ul><li>Re-channel subsidies from subsidizing the production cost into investment in work safety </li></ul>
  12. 13. Page Key recommendatio ns <ul><li>Promote Ukraine as investment destination </li></ul><ul><li>Full privatisation of mines </li></ul><ul><li>Incorporate of all existing state mines </li></ul><ul><li>Legalise or close all illegal mines </li></ul><ul><li>Free market coal prices </li></ul><ul><li>Wherever suitable implement vertical integration before privatisation </li></ul><ul><li>Removal of restrictions for import and export of coal </li></ul>
  13. 14. Key recommendations (cont.) <ul><li>Stop subsidies to non-profitable mines </li></ul><ul><li>Promote investment in the news mines </li></ul><ul><li>Speed up closure of the mines </li></ul><ul><li>Comprehensive reform of the pension system </li></ul><ul><li>Coordinate social assistance on the local level </li></ul><ul><li>Discuss art 22 of the Constitution </li></ul><ul><li>Review the vocational education system </li></ul><ul><li>Develop safe work culture </li></ul>
  14. 15. Key recommendations (cont.) <ul><li>Speak with all stakeholders NOW </li></ul>
  15. 16. Privatisation <ul><li>Transparent, open, fair and non-discriminatory </li></ul><ul><li>Full and unrestricted access to ALL information related to the privatised mines </li></ul><ul><li>Pilot privatisation </li></ul><ul><li>Assess possibility of donor financing </li></ul><ul><li>Transfer of ownership of auxiliary functions to the local authorities (district heating, water supply etc) </li></ul><ul><li>Stock exchange sales? </li></ul>
  16. 17. Page Examples of successful investors (cont.) SADOVAYA (SGR – Warsaw Stock Exchange) reserves: 48,1 mln ton of steam coal current production 1,2 mln ton / year current capitalisation: EUR 115 mln
  17. 18. Pilot Privatisation <ul><li>Would flush out most of the problems </li></ul><ul><li>Would speed up and simplify the other privatisations </li></ul><ul><li>Should attract foreign investors </li></ul><ul><li>6 – 10 mines from all groups </li></ul><ul><li>Approx cost EUR 2,5 – 3 mln </li></ul><ul><li>Should take about 24 months </li></ul>
  18. 19. Closure of mines <ul><li>In 15-24 months not in 15-24 years </li></ul><ul><li>Sell all sellable assets of the closed mines in the privatisation process </li></ul><ul><li>Ask for international advise (esp. from Germany and Poland) </li></ul><ul><li>Ask for donors assistance </li></ul>
  19. 20. Social assistance <ul><li>Community capacity building </li></ul><ul><li>Involve all local stakeholders </li></ul><ul><li>Pay special attention to wives of laid-off miners </li></ul><ul><li>Prepare measures prior to restructuring </li></ul><ul><li>Secure a long term funding for the mitigation measures </li></ul><ul><li>Adapt social mitigation to the local conditions </li></ul><ul><li>Secure a broad – based political and institutional support </li></ul>
  20. 21. Safe work culture <ul><li>Safe work culture – the key for the improvement of the work safety standards </li></ul><ul><li>Understanding of the financial value of the safe work practice </li></ul><ul><li>International safety standards </li></ul>
  21. 22. <ul><li>Think twice before you allow for any private investment into any enterprise to be privatised </li></ul>
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