“Coal Sector Policy Support Programme” This project is funded by the European Union Implemented by Human Dynamics Consortium EU-funded Project: Coal Sector

“Coal Sector Policy Support Programme”

This project isfunded by theEuropean Union

Implemented byHuman Dynamics

Consortium

EU-funded Project: Coal Sector Policy Support Programme

EC-Contract – 2008/141-542

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




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Implementation of the EU-funded project by a consortium led by Hulla & Co, Human Dynamics KG, Vienna, Austria,

in cooperation with:•MWH, Belgium/UK,•Upper Silesian Regional Development Agency (GARR), Poland,•Kopex, Poland, and•Royal Haskoning, The Netherlands.




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Assist the Ukrainian government in developing and

implementing its coal sector reform policy.

Advance the development and restructuring of the coal-

mining industry in a socially-responsible and cost-

effective manner,

Improve mine safety standards

Help to eliminate ecological damage.

Project’s objectives




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Component AInstitutional

strengthening

Component BEvaluation of mines

Component CSocial policy

Component DOccupational health and safety

Component EEnvironmental issues

AnalysisRecommendations

Master Plan




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Coal Sector Coal Sector AnalysisAnalysis

Determination of Determination of Coal DemandCoal Demand

Determination ofDetermination of„„coal supply lines“coal supply lines“

• Macroeconomic development

• Energy mix

• Steel sector development

• Implementation of energy

efficiency measures

• Development of renewable

energy sector

• Domestic competitiveness of

coal

• International competitiveness

• Reference scenario

• Setting on coal development;

• Setting on natural gas

development;

• Steel sectors develops well;

• Renewable rules;

• Energy efficiency measures

bring effects

• Conservative:86 Mt in 2020 – currently state owned:50 Mt21.7 billion UAH investment

• Realistic (most likely):94 – 96 Mt in 2020 – currently state owned: 61 Mt33.5 billion UAH investment

• Optimistic (most coal “friendly”):102 Mt in 2020 – currently state owned: 56 Mt21.5 billon UAH investment




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Available resources

Commercial reserves: 37,6 bn ton




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Analysis of the coal sector

Strong points:

•big deposits of all types of coal

•well qualified workers

•well qualified technical managers

•proximity to the European markets

•big deposits of anthracite

•well spread transport infrastructure




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Analysis of the coal sector (cont.)

Weak points:

•often high sulfur content in coal

•high gas concentration in mines

•difficult geology

•weak business management in mines

•worn out and outdated equipment

•poor safety records of mines

•poor quality of coal processing




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Opportunities:

•expansion of exports to China, Turkey, India and EU (esp low S coal)•potential for the development of the new mines•underground gasification•utilization of methane•potential for development of large power station based on lignite•possible export of coal-based energy to SE and Central Europe•recycling of waste (reprocessing of tailings)•utilization of underground water•Retail marketing of anthracite in 10 and 20 kg packets•production and sale of briquettes made of coal and biomass




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Threats:

•new anti CO2 regulations

•import of coal from countries like Russia, Kazakhstan, South Africa,

Brazil or Australia

•possible shortage of suitable equipment for refurbishment of mines

•possible collapse of elements of infrastructure (mainly railways)

•possible shortage of qualified miners

•outdated research in mining and geology

•low capacity in ports

•lack of stability in business regulations




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Key elements of Presidential reform

Liberalise the coal market, sale and pricing mechanisms

Remove restrictions on import of mining equipment

Privatise all viable enterprises of the sector and close the non-profitable coal mines

Re-channel subsidies from subsidizing the production cost into investment in work safety




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Key recommendations

•Promote Ukraine as investment destination•Full privatisation of mines•Incorporate of all existing state mines•Legalise or close all illegal mines•Free market coal prices•Wherever suitable implement vertical

integration before privatisation•Removal of restrictions for import and export

of coal




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Key recommendations (cont.)

• Stop subsidies to non-profitable mines

• Promote investment in the news mines

• Speed up closure of the mines

• Comprehensive reform of the pension system

• Coordinate social assistance on the local level

• Discuss art 22 of the Constitution

• Review the vocational education system

• Develop safe work culture




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Key recommendations (cont.)

• Speak with all stakeholders NOW




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Privatisation

• Transparent, open, fair and non-discriminatory

• Full and unrestricted access to ALL information related to the privatised mines

• Pilot privatisation

• Assess possibility of donor financing

• Transfer of ownership of auxiliary functions to the local authorities (district heating, water supply etc)

• Stock exchange sales?




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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




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Pilot Privatisation

• Would flush out most of the problems

• Would speed up and simplify the other privatisations

• Should attract foreign investors

• 6 – 10 mines from all groups

• Approx cost EUR 2,5 – 3 mln

• Should take about 24 months




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Closure of mines

• In 15-24 months not in 15-24 years

• Sell all sellable assets of the closed mines in the privatisation process

• Ask for international advise (esp. from Germany and Poland)

• Ask for donors assistance




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Social assistance

• Community capacity building

• Involve all local stakeholders

• Pay special attention to wives of laid-off miners

• Prepare measures prior to restructuring

• Secure a long term funding for the mitigation measures

• Adapt social mitigation to the local conditions

• Secure a broad – based political and institutional support




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Safe work culture

• Safe work culture – the key for the improvement of the work safety standards

• Understanding of the financial value of the safe work practice

• International safety standards




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Think twice before you allow for any private investment into any enterprise to be privatised

Documents

“Coal Sector Policy Support Programme” This project is funded by the European Union Implemented by Human Dynamics Consortium EU-funded Project: Coal Sector