“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
“Coal Sector Policy Support Programme”
This project isfunded by theEuropean Union
Implemented byHuman Dynamics
Consortium
Page 2
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.
“Coal Sector Policy Support Programme”
This project isfunded by theEuropean Union
Implemented byHuman Dynamics
Consortium
Page 3
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
“Coal Sector Policy Support Programme”
This project isfunded by theEuropean Union
Implemented byHuman Dynamics
Consortium
Page 4
Component AInstitutional
strengthening
Component BEvaluation of mines
Component CSocial policy
Component DOccupational health and safety
Component EEnvironmental issues
AnalysisRecommendations
Master Plan
“Coal Sector Policy Support Programme”
This project isfunded by theEuropean Union
Implemented byHuman Dynamics
Consortium
Page 5
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
“Coal Sector Policy Support Programme”
This project isfunded by theEuropean Union
Implemented byHuman Dynamics
Consortium
Page 6
Available resources
Commercial reserves: 37,6 bn ton
“Coal Sector Policy Support Programme”
This project isfunded by theEuropean Union
Implemented byHuman Dynamics
Consortium
“Coal Sector Policy Support Programme”
This project isfunded by theEuropean Union
Implemented byHuman Dynamics
Consortium
Page 8
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
“Coal Sector Policy Support Programme”
This project isfunded by theEuropean Union
Implemented byHuman Dynamics
Consortium
Page 9
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
“Coal Sector Policy Support Programme”
This project isfunded by theEuropean Union
Implemented byHuman Dynamics
Consortium
Page 10
Analysis of the coal sector (cont.)
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
“Coal Sector Policy Support Programme”
This project isfunded by theEuropean Union
Implemented byHuman Dynamics
Consortium
Page 11
Analysis of the coal sector (cont.)
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
“Coal Sector Policy Support Programme”
This project isfunded by theEuropean Union
Implemented byHuman Dynamics
Consortium
Page 12
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
“Coal Sector Policy Support Programme”
This project isfunded by theEuropean Union
Implemented byHuman Dynamics
Consortium
Page 13
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
“Coal Sector Policy Support Programme”
This project isfunded by theEuropean Union
Implemented byHuman Dynamics
Consortium
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
“Coal Sector Policy Support Programme”
This project isfunded by theEuropean Union
Implemented byHuman Dynamics
Consortium
Key recommendations (cont.)
• Speak with all stakeholders NOW
“Coal Sector Policy Support Programme”
This project isfunded by theEuropean Union
Implemented byHuman Dynamics
Consortium
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?
“Coal Sector Policy Support Programme”
This project isfunded by theEuropean Union
Implemented byHuman Dynamics
Consortium
Page 17
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
“Coal Sector Policy Support Programme”
This project isfunded by theEuropean Union
Implemented byHuman Dynamics
Consortium
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
“Coal Sector Policy Support Programme”
This project isfunded by theEuropean Union
Implemented byHuman Dynamics
Consortium
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
“Coal Sector Policy Support Programme”
This project isfunded by theEuropean Union
Implemented byHuman Dynamics
Consortium
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
“Coal Sector Policy Support Programme”
This project isfunded by theEuropean Union
Implemented byHuman Dynamics
Consortium
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
“Coal Sector Policy Support Programme”
This project isfunded by theEuropean Union
Implemented byHuman Dynamics
Consortium
Think twice before you allow for any private investment into any enterprise to be privatised