According to data of the Ministry of Industry and Trade of the Russian Federation dynamics of coal production in 2008 is 103 % relative to 2207. If we consider statistics on January – September of 2008, growth of coal production was 107 % in relation to respective period of 2007. But financial crisis and companion decrease of demand for coal have corrected the final index. In the last quarter of 2008 monthly shipping of coking coal decreased from 3.5 millions tons to 800 thousands tons. During the last 5 years a stable increase of coal manufacture has been observed: in the period from 2004 till 2008 this increase was 15 % and reached 324 millions tons. The manufactured coal is structured by type of use in economy into power-generating coal (energetics) and cocking coal (metallurgy). During the last years a process of assets consolidation and formation of large holding proceeded in coal industry. This process complies with global practice of manufacture, processing, and sale of coal. In 2008 5 largest companies manufacturing power-generating and cocking coal have produced over 75 % and 66 % of total manufactured coal in the Russian Federation, respectively. Restrictions for development of coal industry
one of the key restrictions for this branch is insufficient development of transport infrastructure that is worsened by large distances. If decrease of availability and increase of cost of financial resources are of temporary nature, insufficient capacity of transport network (railways, ports, etc.) and logistic expenses are permanent restrictions of coal industry development. Main coal mining facilities are located in Kemerovo region and Yakutia. Transportation costs in this case are the main factor of pricing. Average distance from Kuzbas coal-fields to ports of the Baltic Sea and the Black Sea is 4500-5000 thousands kilometers, to eastern ports - 6000 thousands kilometers. Coal miners of Yakutia are in more favorable position – they are located only 2500 thousands kilometers far from the far-eastern ports that allows offering of the coal in Asian markets at more competitive price. According to data of fuel and energy complex of administration of Kemerovo region transport costs at the present time are one of the main components of price of Kuzbas coal and constitute in average from 35 % to 40 % of ultimate price. Low capacity of railways network and ports has negative influence on development of coal industry. That is why in May – July of 2008 when prices and demand for coal were high about 14 millions tons of coal were accumulated in stores that is for 3 times higher than any normatives. On the one hand, overstocking of stores reduces ratio of capital turnover and generates additional expenses, on the other hand – it has negative influence on products quality and decreases fire safety of enterprises. One more problem of coal industry is low level of coal use in power industry. Share of coal in electric power production in Russia is 26 %. Level of coal use during electric power production in Russia is significantly lower than this level in countries with the biggest coal resources. For example, in the USA share of coal in electric power production is 50%, in China – 75%, in Japan where coal is not manufactured at all - 25%. According to existing program for development of power industry of the Russian Federation up to 2025, share of coal in electric power production may increase to 40%. To reach this level it will be necessary to have additional 25 millions tons of coal. Increase of share of coal in electric power production up to 40 % will allow saving of 15 milliards cubic meters of gas. It should be noted that power stations depend on specific rank of coal manufactured in specific coal-field. Usually thermoelectric power stations have no possibility of maneuvers in coal market and their equipment is meant for specific supplier. Typical example is import of power-generating coal from Kazakhstan. Ekibastuzsk coal in spite of moderate quality is supplied to Russian thermoelectric power stations in amount of 35 millions tons annually. Difficulties with transition of power industry to coal are explained not only by insufficient coal generation, but also by low share of coal processing. Cleaning of power-generating coal according to evaluations of experts is 10 – 15 % for the whole country and up to 25 % in Kuzbas. In Russia there are power stations designed for burning of coal with ash level 50 %; with such parameters of ash level a half of coal supplied to the station is just ballast. so, production of power with use of coal is possible only in case when the State will invest into construction and modernization of coal power generation, and coal miners will improve their facilities for coal processing. Influence of crisis on coal industry
First effect of the crisis was directed on export-oriented industries of Russian economy. Coal industry was not exclusion. Manufacturers of cocking coal were in the most complicated situation. This is explained by crisis in ferrous metallurgy that was expressed in decrease of production and as a result in decrease of demand for coal. Overstated expectations of coal miners for coal demand from the direction of metallurgists led to unreasonable increase of coal production in 2008 that caused overproduction and created additional decreasing pressure on coal price after decrease in demand. This fact is confirmed by triple exceed of normative on mined coal reserves in summer of 2008. In opinion of experts of Rio Tinto and BHP Billiton companies in the fourth quarter of 2008 decline in production in metallurgical industry all over the world reached 30 %. Such forecasts are confirmed by Russian practice. For example, the biggest manufacturer of cocking coal “Raspadskaya” in November – December of 2008 supplied to the customers four times less of coal than in October of the same year: 150 thousands tons of concentrate versus 650 thousands tons. According to forecasts of FOC Company specialists prices for cocking coal in 2009 will decrease for 30-40%. Negative influence of financial crisis on coal industry is expressed in the following: Firstly, in decline in demand for coal as from the direction of metallurgists, so from the direction of energetics. Following decline in demand there was rapid decline in prices that led to worsening of effectiveness of companies of coal industry. Secondly, in increase of non-payments for supplied products. Crisis in metallurgy caused increase of non-payments for supplied coal. According to data of FOC Company total debt for the supplied coal is 22 milliards of rubles; the share of metallurgists in this sum is 20 milliards rubles. Thirdly, in increase of deficit of available credit resources. Fourthly, in change of exchange-value of ruble in relation to dollar and euro. Change of rates of exchange first of all influences on cost of programs for modernization of production realized by coal industry because major part of equipment is imported from abroad. Climatic and geographic specificities of main coal resources location make coal production sensible for demand and price fluctuations. According to data of FOC Company investment projects realized in coal industry are financed at own charge only for 40 %. Loss of effectiveness of coal companies, growth of non-payments and decrease of solvency of coal industry bring into a question as realization of programs for modernization of coal enterprises, so development of new coal-fields. Attempts to minimize consequences of crisis
Reduction of production – is main anti-crisis measure realized at this moment in coal industry. Not only Russian coal miners, but also coal companies all over the world declare about reduction of production. Global leaders of coal industry - BHP Billiton and Rio Tinto declared about planned reduction of coal production in 2009 for 10–15%. According to forecasts of FOC Company coal production in Russia in 2009 may reduce for 20%. Expected reduction of coal production in Russia lower than global level is connected with complicate entry of domestic companies into the external markets. Decrease in domestic demand for coal made coal traders to direct coal supplies abroad. Additional volumes of coal caused traffic congestions on Eastern Siberian Railways and in the Far Eastern ports. For example, volumes of daily coal supply to ports for 1.5 times exceed existing facilities of ports for handling of goods. One more problem of coal export is railway tariffs. For example share of railways services in price of Russian coal reaches 40 %. For example, the same share is taken for freight expenses in foreign companies (BHP Billiton, Rio Tinto, пр.). However, financial crisis caused decrease in activity of international transportations (from June of 2008 indicator of global freight market state Baltic Dry Index has reduced for more than 90%), that naturally led to decrease of freight cost. At the same time Russian Railways not just have not decreased prices for their services, but also plan to increase transport tariff for 8 % in 2009. These circumstances decrease competitive advantages of Russian coal exporters. Significant difficulties for coal industry are created by fixed customs-tariff that is effective irrespectively of price change in global market. In opinion of FOC Company experts the State should introduce a scheme of customs duties analogous to the scheme used for oil. Social risks
According to evaluations of FOC Company, after financial crisis companies of coal industry have reduced or sent to unpaid leave about 5-7 % of the staff. In case of rapid reductions the most vulnerable region is Kemerovo region – about 50 % of coal production is located here. To maintain social stability in coal regions it is necessary to develop a program of state support for coal industry and social sphere of these subjects of federation. Monoindustrial specificity of settlements located at coal enterprises may become a social catastrophe in case of reduction of production, interruption of mines, open-casts, concentration plants. Coal producing regions of Ukraine are in the same situation. Situation in coal industry of Ukraine depends from grants from budget. According to data of FOC Company prime cost of coal production in Ukraine is for two times higher than the prime cost in Russia. To maintain demand for Donbas coal Ukrainian Government grants coal industry annually. But in 2009 for support of coal industry there will be granted five times smaller amount than in 2008 that will have negative effect on coal industry. Investment programs and development projects will be reduced in coal industry. Refuse of companies to develop new coal-fields is the clearest example of development plans freezing. Role of the State
To support development of coal industry in Russia it is necessary to strengthen role of the State. In opinion of FOC Company specialists support of the State may divided in to the following blocks of measures: 1. Financial support of coal industry. It is necessary to simplify access of coal companies to credit resources of state banks. It is also necessary to apply such tool as funding of credit interest rate. Besides that during the period of low prices it is necessary to grant development of strategic coal-fields. 2. Infrastructural development. It is necessary to increase capacity of transport network, to develop carriage engineering. These measures are necessary to increase competitiveness of domestic coal in international markets. Crisis gives additional opportunities for strong companies to hold positions of outsiders. 3. Development of coal generation. The State should pass from declarations to real work in this direction. It is necessary to create conditions for exclusion of import (Kazakh) power-generating coal from domestic market. 4. Customs and tax methods. It is necessary to apply customs duties for coal export analogous to export of oil, in this case domestic coal miners under conditions of price reduction could compete in foreign markets more effectively. It is necessary to consider a question of implementation of protective customs duties for coal import. For the period of crisis and/or to support investment projects it is necessary to use such instruments as tax holidays and tax credit. Coal companies shall not become passive recipients of state assistance. In disposal of coal miners there is an instrument that was not used before – money from Investment Fund of the Russian Federation. With the help of state investments the companies may strengthen their competitive advantages, create preconditions for rapid overcoming of crisis. In opinion of FOC Company experts the most effective way to use money from Investment Fund of the Russian Federation in the nearest time are infrastructural investments directed on support of projects for development of local production facilities.
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