Ukraine is entering the winter season with virtually no coal stocks. Instead of becoming independent from supplies of strategic anthracite and the decisions of the Kremlin, the government decided to acquire the raw material from the occupied Donbas region.
Half of the 14 Ukrainian thermal power plants are powered by anthracite which is mined in the mines of the Donbas region, currently controlled by the pro-Russian militias. In accordance with the official terminology used by the Ukrainian authorities, the militants are terrorists, and the region of Donbas occupied by them is an anti-terrorist operation zone. In recent years, the situation has been partly alleviated by the import of anthracite. This year, the government decided to terminate imports. As it turned out, it will replace the imported coal with coal purchased from the militants, whom it considers to be terrorists.
“With regard to the energy sector, I don’t want the president, the head of the government or the minister to be involved in the search for coal and the companies that will supply it. We have a 40 per cent deficit of coal in Ukraine. There has to be an objectively determined price at which it will be possible to ensure supplies,” the Ukrainian President Petro Poroshenko announced in June during a press conference.
Poroshenko’s statement came in the aftermath of the scandal associated with the decision of the National Commission for the Regulation of Energy and Public Utilities (NKREKP) to determine the price of domestic coal, for the purpose of setting electric energy prices, in accordance with the so-called “Rotterdam formula”, that is the price of coal at the port of Rotterdam, increased by the costs of delivery to Ukraine.
Coal stocks are missing
While Poroshenko spoke of a 40 per cent deficit, the Ukrainian government controlled by him assured that the issue of coal is under control and that there is nothing to worry about with regard to supplies.
“This year we no longer have to buy the “incomprehensible” coal from South Africa,” Igor Nasalik, Ukrainian Minister of Energy and the Coal Industry, declared declared at the beginning of May.
In an interview with the television station 112, he assured that a technological scheme had been developed and it would allow anthracite coal savings, and that coal stocks would fully secure the country for the winter.
Meanwhile, contrary to the Minister’s assurances, coal stocks are significantly lower than the year before, and in the second half of August amounted to a total of only 880,000 tons, out of which anthracite accounted for 330,000 tons. A year ago at this time the coal stocks amounted to approx. 1.2 million tons.
According to information provided by Igor Nasalik, in the summer season, thermal power plants consumed an average of 100,000 to 110,000 tons of coal a day which means that today Ukraine has coal reserves lasting for a maximum of nine days. As a result of the government’s actions, right before the winter the country is virtually defenseless against blackmail by the militants in Donbas and by the Kremlin, which controls their activities.
In addition, out of the 14 Ukrainian power plants, nine belong to the DTEK group owned by the Donetsk-based oligarch Rinat Akhmetov, who is accused of being linked to the mafia and of financing the pro-Russian militants in Donbas. Only three remain under the control of the state.
“I would not be as optimistic as the authorities, because the situation with coal and the creation of a coal balance in the country is far from ideal,” judged the energy expert Dmitry Marunich quoted by HolosUA.
His opinion is shared by Volodymyr Omelchenko, the director of energy programs at the Razumkov Centre. He has emphasized that the situation in the energy sector is not rosy and that coal reserves should be prepared a lot earlier.
Barrier to modernization
Although it has been over two years since Kiev lost control over the Ukrainian anthracite coal mines in the Donbas region, the state-owned thermal power plants still have not been adapted to accommodate to other types of coal. This is in spite of the fact that such an operation would not be particularly expensive. The Ministry estimated the cost of adapting two blocks of the Zmiivska thermal power plant in the Kharkiv Oblast at UAH175m (approx. USD26m), while the Energy Research Centre estimated the cost at UAH130m (less than USD20m). The operation would not take a lot of time either – the adaptation work would last about half a year. The effects, however, would be immediately noticeable – as a result of this investment the annual demand for anthracite would be reduced by about 1.4 million tons.
The oligarch Rinat Akhmetov also does not intend to switch his thermal power plants to types of coal other than anthracite. “We will not deal with this in the near future. Instead, we will focus on ensuring stable supplies of anthracite,” Maxim Timchenko, CEO of DTEK, announced at the end of August.
Shutting down mines and refusing to pay
In mid-July, Igor Nasalik announced the mass closure of Ukrainian mines. Out of the 36 mines operating on the territories controlled by the Kiev government, 11 or 13 are slated for closure. The State wants to keep only seven mines under its control, while the remaining non-liquidated mines are to be sold.
“Instead of protecting the remnants of the coal sector which are still under State control, the authorities have chosen to destroy it,” argue the Ukrainian trade unions. They accuse the Ministry of deliberately causing the collapse of the mines that are still under State control and could provide fuel supplies from their own production.
In late July, desperate miners from the mines in Western Ukraine, where the government had not paid salaries for many months, blocked the Lviv-Rava Ruska-Hrebenne route. On August the trade union representatives began a hunger strike and occupation of the headquarters of the Ministry of Energy and the Coal Industry in Kiev. The Ministry reacted to the protest only several days later, after a trade union leader Victor Trifonov set himself on fire during a press conference convened by the protesters.
According to Mykhailo Volynets, Head of the Independent Trade Union of Miners of Ukraine, UAH100m allocated for the payment of salaries was purposely kept on the bank account by the Ministry of Energy and Coal Industry. At the same time, the miners had not received their wages for many months.
Problems are an opportunity to profit
According to many experts, the coal catastrophe was deliberately caused by the government. Its goal was, on the one hand, to create the conditions for obtaining incomes from corruption associated with the coal trade with Donbas, and on the other hand, to create an instrument of coal blackmail, in order to force the citizens to accept the implementation of the provisions of the Minsk Agreements regarding autonomy for the part of the Donbas region controlled by Moscow, which are currently rejected by the Ukrainian society.
Commentators in Kiev are convinced that the authorities want the supply of coal to be carried out with the least transparency possible. “Cheap coal? No, we don’t need that,” Yuri Romanenko from the think-tank Institute for the Future of Ukraine ironically commented on Facebook. His opinion was echoed by economic expert Alexander Ochrymenko.
“You have to understand: business is business. Each minister who assumes his office wants to earn a percentage from the transaction. If it’s profitable for him to buy coal through tax havens in the United States, there will immediately be a decision to buy coal from the Americans. If it is profitable to bring coal from the “anti-terrorist operation zone”, that is where we will buy it,” Ochrymenko said on the news service Znaj.
An expert of the Institute of Energy Strategies, Yuri Korolchuk, argued in his commentary for the news agency Galinfo that the government had failed to gather sufficient coal stocks (and especially anthracite) in the coal depots of the thermal power plants.
“The ordinance [of the Council of Ministers] containing the approved plan for the preparation of the fuel and energy sector for the winter will not be executed. We can say unequivocally that the government has deliberately sabotaged the execution of its own ordinance. As a result, the question of the supply of imported coal from the Republic of South Africa and Russia will determine the course of the heating season 2016/2017. The energy system’s dependence on the supply of coal from the territories of Donbas remaining outside the control of Kiev will be maintained,” the expert said. He also added that the crisis over securing the thermal power plants and ensuring the supply of coal was artificial in nature and that it was profitable for the entourage of president Petro Poroshenko.
Just how much money can be made on trade in anthracite from Donbas was shown in the case of the purchase of fuel by the State Hydrographic Service, which was revealed by the media in mid-August. The state enterprise had paid twice the market price for the supply of fuel from a company with a share capital of UAH100 (EUR3.58) that had been registered in Kiev by an inhabitant of Antratsyt (a town in the separatists-controlled part of the Donbas region).
In early August, it turned out that instead of “incomprehensible” coal from South Africa, the Ukrainian government decided to become openly dependent on the dictates of the Kremlin-controlled pro-Russian separatists from the Donbas region.
“I will state it openly: we will not be able to cope without supplies from the Donbas region, unless we cover the shortages with supplies from the Russian Kuzbas,” minister Nasalik said in early August, just two months after he had claimed that the Ukrainian demand for anthracite was fully secured.
Two weeks before that the Ukrainian media published a recording from a meeting between Nasalik (then still an MP from President Petro Poroshenko’s Bloc) and one of the leaders of the pro-Russian militants, which took place in 2015 in occupied Donetsk.
The disclosed recording shows Nasalik in a restaurant in Donetsk, developing a plan for the purchase of coal from the Donbas region with one of the leaders of the militants – Alexander Timofeev, the “Minister of Revenues and Taxes” in the so-called Donetsk People’s Republic.
On that occasion the media in Kiev recalled that Timofeev had supervised the “nationalization” of the Zasyadko Mine, had brought about the bankruptcy of the Makeev Coal company (a mining group in Donbas), illegally exported coal to Russia and organized contraband of arms to the Donbas region.
When the situation was revealed, Nasalik argued that he had gone to Donetsk because he was asked to help locate a Ukrainian soldier detained by the militants.