|
|
 |
Coal Industry 1991-2000
The coal industry has been a long-standing problem for Russia. The number of people employed there, had reduced from 900 000 in 1991 to 400 000 in 2001. Since 1994, the government has spent more than $2 billion on reforming coal industry and has closed 150 unprofitable mines. At the same time, coal production had been decreasing until 1998. The industry has showed signs of growth only in the last two years: coal production in 2001 was more than 265 million tonnes.
Meanwhile, coal reserves in the Kansko-Achinsk coal deposit alone exceed 210 billion tonnes, which is enough for more than 800 years at current production rate. Today coal makes up about 17% of the country's energy balance and 30% of electrical energy production. These figures are to be doubled by 2020.
Private coal companies supply more than 60% of the coal on the domestic market and about 80% of coal exports. Russia exports about 20% of its coal production (more than 50% of it to Europe) and imports about the same amount (21% of consumption) from Kazakhstan. Therefore the industry growth is mostly due to the increase in exports.
Thus in spite of slight increases in profitability the situation in the coal industry as a whole is still complicated. It is only in 2001 that the number of unprofitable companies fell below 50%.
HISTORY: 1991-2001
The history of the coal industry in Russia is a heroic epic with elements of farce. However, it clearly depicts the hard way of the Russian economy towards efficiency in the past ten years.
1991
In March, striking miners of Russia (more than 50% of Russian coal production) demanded the resignation of the union leadership and the introduction of direct state management of the industry.
At the end of April Boris Yeltsin went to Kuzbass . Following this trip 101 coal companies in the Kuznetsk basin and 13 in Vorkuta passed to Russian jurisdiction. This transfer meant that enterprises were granted full economic independence, including the choice of form of ownership.
In mid-June, it was announced that total subsidies to the coal industry in Russia would exceed the grants to the Pension Fund in 1991.
On August 19, Mkihail Shchadov, the Minister of the Coal Industry, announced that the State Emergency Committee (GKChP) would provide support and requested the committee to declare a state of emergency in the Kuznetsk coal basin, he did not rule out forcible suppression of the miners' strikes. The Ministry of the Coal Industry was disbanded in September.
1992
In October Prime Minister Yegor Gaidar formed a commission responsible for the creation of a joint-stock company Kuzbass Coal (AO Ugol Kuzbassa). Mikhail Kislyuk, the head of the Kemerovo regional administration, was appointed chairman of the commission. The meeting of the founding members of AO Ugol Kuzbassa, which was supposed to consolidate all the coal companies in the Kuzbass coal basin under the control of local administration and management, was scheduled for November 1.
In October, the British government provided credits worth $280 million for the development of the Russian coal industry. From then on, reform in the industry was usually associated with the granting of credits.
At the end of October, the managers of companies in the southern part of Kuzbass headed by Viktor Nekrasov, the general director of the Kuznetsk Coal (Kuznetskugol) concern, refused to join Ugol Kuzbassa.
The meeting of the members of AO Ugol Kuzbassa on November 1 ended in failure: no one except Viktor Kuznetsov, the general director of Kuzbass Open-Pit Coal Mine (Kuzbassrazrezugol), supported the creation of a regional coal company.
In November, the World Bank granted credits of $600 million to Russia, including $50 million in the form of a rehabilitation loan for the coal industry.
At the beginning of December, Mikhail Kislyuk announced that privatization of Kuzbass coal companies would begin in 1993, with provision for the transfer of up to 30% of the shares in regional coal companies to Kuzbass residents.
1993
Boris Yeltsin's decree on privatizing the coal industry was issued on January 3. The privatization plan was as follows: the labor collectives of the new companies would receive 25% of the shares free and would buy another 10% on preferential terms; the company's administration would receive the right to buy 5% of the shares at face value; and 22% of the remaining 60% of the shares would be invested in the charter capital of state companies, while the rest would be transferred to state ownership. The only exception was formation of Kuzbassinvestugol, which partially duplicated the concept of AO Ugol Kuzbassa but was state-controlled.
In February, the government recommended that coal companies conclude cartel agreements on coal prices with metallurgical companies and other users, since it could no longer subsidize coal production. The Russian Coal (Rossiysky ugol) corporation headed by the director of the Rostov Coal Association (Rostovskoe ugolnoe obedinenie), Viktor Zaidenvarg, was assigned the task of coordinating this process.
The state company Russian Coal (Rosugol) was established in April to manage the state shareholdings of 90% of Russian coal companies.
On June 20, the government issued the instruction "On Emergency Measures for Financial Stabilization of Coal Industry Operations," which prescribed the creation of a Fund for the Financial Support of the Coal Industry under the Ministry of Finance as of July 1, 1993. Wholesale coal prices at that moment covered only about 15-20% of production costs in the industry. The Fund was never created.
On June 21, Boris Yeltsin issued the decree "On Measures to Stabilize the Situation in the Coal Industry," which fully liberalized pricing in the industry. As of July 1, 1993, companies were released from the obligation to sell their foreign-currency earnings from coal exports, the export duty on coal was removed.
On July 28, the Council of Ministers suddenly backtracked on reform, since it was discovered that full price liberalization would threaten metallurgical companies with closure. An "excise tax" was introduced on cheap coal produced from open-pit mines, and budgetary subsidies for coal companies were transferred to Rosugol, headed by Igor Malyshev; the Rostopprom association; and the Kemerovo Regional Coal (Oblkemerovougol) association.
On August 9, there were token strikes at mines in Rostov, Kuzbass, and Vorkuta. In addition to demands for higher pay, indexation of working capital, and an end to price increases for energy resources, there were also political demands for the government's resignation.
A program for closing unproductive mines in Russia was adopted on October 26. It was vehemently opposed by the miners, since according to Rosugol's estimates, between 13 and 30% of the operating mines would have to be closed.
On December 6, miners in Vorkuta and Norilsk halted coal production in protest against the government's decision to introduce open coal prices on July 1, 1994, with the aim of reducing subsidies to the coal industry.
1994
On March 1, miners in Vorkuta held a one-day strike to demand an increase in subsidies to the coal-producing region and what is more, for the first time in history, - President Yeltsin's resignation.
In June, Rosugol presented the first coal company withdrawn from state ownership - AOZT Raspadskaya and Co. based on the Raspadskaya mine in Mezhdurechensk. The mine was completely privatized by 1995.
1995
On February 8, miners all across Russia went on a one-day token strike.
In March, First Deputy Minister of Finance Vitaly Artyukhov claimed that coal companies had become totally opaque to the control of government coal production subsidies with the connivance of the Ministry of Fuel and Energy and Rosugol. This was the first statement by a government representative on how money allotted to the coal industry was being stolen. In the meantime, an increasing number of mines in the region were coming under the financial control of organized crime.
At the beginning of summer, the Communist leader of Kuzbass, Aman Tuleev, began attacking the former general director of the Kuzbassshakhtostroi concern, Viktor Bocharov, accusing him of unlawful privatization of the concern's property while creating the private Zadubrovsky open-pit mine. The Prosecutor General's office laid criminal charges against Bocharov, and Tuleev made a career as public protector out of exposing Bocharov and the "coal generals."
In December, the Kemerovo regional Prosecutor General's office stopped the public prosecution against Bocharov for lack of evidence.
1996
From January 24 to 26, the Russian Committee of the Independent Coal Industry Workers' Union picketed Government House, for the first time on the notorious Gorbaty Most (a bridge behind Government House). The total amount owing to coal companies for coal dispatched in 1995 was 3.9 trillion rubles.
In February, strike actions in the coal industry had spread to 163 out of 182 existing mines and 52 of the 63 open-pit mines. At least 500 000 miners were involved in the strikes.
On February 12, Boris Yeltsin virtually abandoned industry reform. He transformed the state company Rosugol into AOOT Russian Coal Company (AOOT Rossiyskaya ugolnaya kompaniya); extended the period for assigning shares in coal companies to federal property to December 31, 1998, thus reversing privatization; and allowed state shareholdings to be committed to trust.
On June 27, the World Bank granted loans totaling $500 million to Russia "to create socially stable conditions for coal sector reform."
In December, the joint-stock companies Bashkiria Coal (Bashkirugol), East Siberian Coal (Vostsibugol), Krasnoyarsk Coal Company (Krasnoyarskaya ugolnaya kompaniya, Krasnoyarskugol), Leningrad Shale (Leningradslanets), and Khakassia Coal (Khakasugol) were committed to trust to the regional administrations by presidential decree.
1997
In April, Vice-Premier Anatoly Chubais held talks with the World Bank on allotting Russia a second coal credit tranche. The Bank's board of directors demanded that 25% of the country's coal had to be be produced independently of Rosugol by the time the credit was allotted. The Russian Fund for Federal Property (RFFI) and the Ministry of Property were preparing to privatize Kuzbass Coal (Kuzbassugol), the Southern Kuzbass (Yuzhny Kuzbass) company, and Krasnoyarskugol. However, Kuzbassugol was withdrawn from the tenders, the privatization of Krasnoyarskugol was suspended, and the World Bank did not give out the money.
In June, a control packet of shares in the open-pit mines of Krasnoyarskugol were sold to Metaleks Bank, AO Krasnoyarsk Power (AO Krasnoyarskenergo), and structures with close ties to Anatoly Bykov, head of the Krasnoyarsk Aluminum Smelter (KrAZ).
In summer, Anatoly Chubais expressed his opposition to the Rosugol state monopoly headed by Yury Malyshev. In November, Boris Yeltsin signed a decree liquidating Rosugol. All industry management functions, including distribution of World Bank funds and budgetary subsidies, were transferred to the Ministry of Fuel and Energy. Yury Malyshev resigned.
1998
In May, miners' unions and the coal lobby connected with the Coal Producers' Association of Russia (Soyuz uglepromyshlennikov Rossy) began a new strike campaign in response to the government's program for closing unprofitable mines.
In the same month, the government granted tax concessions to a number of Kuzbass enterprises.
At the end of the year, Anatoly Chubais, who by this time was the head of RAO UES of Russia (RAO EES Rossii), announced plans to create AO Buryat Fuel and Energy Complex (AO BurTEK) around Vostsibugol; the new company would unite coal companies with Buryat Power (Buryatenergo) and several Siberian state regional electric power stations and would be managed by Promtorgbank. The project was not implemented.
In July, Prime Minister Sergei Kirienko negotiated with Japan for credit totaling $400 million "to develop the coal industry and create new jobs." The August crisis dashed hopes both for this money and for World Bank coal credits.
On September 25, the Kemerovo Region Prosecutor General's office opened a case concerning illegal coal exports from the Chernigovets open-pit mine. Valery Tysyachny, the general director of ZAO Chernigovets, had no choice but to form an alliance with a politically powerful ally, in this case, Mikhail Zhivilo's MIKOM Group (MIKOM).
1999
In January, Metaleks Bank initiated a bankruptcy procedure against Krasnoyarskugol in a court of arbitration. Metaleks Bank was controlled by Anatoly Bykov, who made no secret of his plans to unite all the energy, raw material, and metallurgical enterprises of Krasnoyarsk Territory into a holding under KrAZ. Bykov suggested the creation of a trader based on Krasnoyarskugol, i.e., a territorial fuel company, to Governor Aleksandr Lebed.
On February 16, the Court of Arbitration of Krasnoyarsk Territory postponed consideration of the bankruptcy case against Krasnoyarskugol. Governor Lebed made an agreement with Anatoly Chubais to transfer control of Krasnoyarskugol to the energy monopoly in exchange for liquidation of the company's debts.
At the end of February, Prime Minister Evgeny Primakov ordered acting head of the Ministry of State Property Aleksandr Braverman to immediately transfer control of all state shareholdings in coal companies to the Coal Committee under the Ministry of Fuel and Energy, which essentially meant the recreation of Rosugol. Vladimir Shchadov, the son of Mikhail Shchadov, was appointed acting head of the committee. The Ministry of State Property managed to delay the matter until Primakov's dismissal.
On March 22, Aleksandr Lebed refused the assistance of RAO UES of Russia in opposing Anatoly Bykov: Lebed's brother Aleksei, the Governor of Khakassia, found 72 million rubles to pay Krasnoyarskugol's debts.
In May, the Russian government decided to privatize the state shareholdings (75.6%) in Krasnoyarskugol.
On May 31, Lebed declared that the privatization of Krasnoyarskugol was "an issue of power in the country" and opposed the sale. He demanded that half of the state package be transferred to the regional administration.
In June, the World Bank released the second tranche of the coal credit for reforming the industry and paid Russia $50 million. As a result, international creditors acknowledged that the government was intent on reforming the coal industry.
In the autumn Kuzbassrazrezugol was sold to the Siberian Aluminum Group.
At the end of November, Lebed agreed to the privatization of Krasnoyarskugol on condition that investors transfer a portion of the company's shares to the regional administration. Sergei Generalov, a former Minister of Fuel and Energy, began the search for investors.
At the end of the year, the Russian coal industry recorded an 8.1% increase in coal production, the first increase in ten years.
2000
The results of a sale tender for 75.6% of Krasnoyarskugol's shares were calculated in Moscow on January 11. The winner of the tender was KATEK-Invest, which bought the company for $30 million dollars and promised to invest in it a total of $40.006 million and 776 million rubles. Sergei Generalov, who had organized the sale, was none the worse fop the deal: about 40% of KATEK-Invest's capital was owned by ZAO Kolorit, which represented its interests; 33.99% belonged to ZAO Rosuglesbyt owned by Filaret Galchev; and only 25.01% went to an outside investor, ZAO Invest-Inter, controlled by Kirill Minovalov, president of AKB (Joint-Stock Bank) Avangard of Moscow.
In February, MIKOM sold the shares of a number of enterprises that were members of Prokopevsk Coal (Prokopevskugol) and its own holding of shares in Kuzbassrazrezugol and OAO Mezhdureche to Avtobank and the Stilteks metal trading company. Mikhail Zhivilo left the coal business.
In March, a new board of directors controlled by Siberian Aluminum (Sibal) was elected at Kuzbassrazrezugol. However, Sibal soon transferred Kuzbassrazrezugol's management and part of its sales to Evrazholding companies and Iskander Makhmudov's Ural Mining and Smelting Company (Uralskaya gorno-metallurgicheskaya kompaniya). The coal business turned out to be too complicated for Oleg Deripaska's company (Sibal).
On November 1, Prime Minister Mikhail Kasyanov signed a resolution abolishing the coal industry committee under the RF Ministry of Energy, destroying the coal lobby's last hope for reestablishing centralized management of the industry either by the Ministry of Energy, the Ministry of the Coal Industry, Rosugol, or the committee.
In October, the Ministry of Energy presented the project "An Energy Strategy for Russia for the Period to 2020 and Structural Reform in the Power Industry" to the State Duma. The government approved the document, which for the first time stipulated an increase in coal production in order to gradually decrease the use of natural gas at Russian electric power stations.
2001
On February 1, MDM Group (MDM) announced the acquisition of 36% of the shares in Vostsibugol. On February 12, MDM bought the 40% state share holding in Vostsibugol at an RFFI auction and became the company's owner. The head of Vostsibugol, Ivan Shchadov, the second son of Mikhail Shchadov, was later replaced by MDM representative Oleg Minsevra.
In February RAO UES of Russia faced the first complaints about coal purchasing prices from the new coal industry owners. Mikhail Abyzov, the vice-president of governing board of UES of Russia, responded by announcing that UES would try to get quotas put on foreign coal exports. In his opinion, the coal industry's infatuation with exports was a threat to the country's security.
In April, the government refused to use its "golden share" in Kuzbassrazrezugol and AO Yuzhny Kuzbass, marking the government's final withdrawal from an industry that was now on the rise.
In April, MDM bought 51% of the state shares in the Chita Coal Company (Chitinskaya ugolnaya kompaniya), which MDM combined with Vostsibugol under the control of the Siberian Power Coal Company (Sibirskaya energougolnyaya kompaniya, SUEK) headed by Oleg Minsevra.
On April 16, Sergei Bogdanchikov, the president of the Rosneft oil company, signed an agreement with the administration of Sakhalin Region and the Khabarovsk company Urgal Coal (Urgalugol) to develop the local coal industry as part of its plans to develop the coal sector of its business.
On June 9, Evrazholding acquired a control stock of shares in Kuznetskugol from the government at an RFFI auction. The company was renamed Southern Kuzbass Coal (Yuzhkuzbassugol)
On June 7, Yuzhny Kuzbass shareholders announced plans to begin a merger with the metallurgical and coal companies under its control, starting with AO MECHEL. At present, Igor Zyuzin's group owns only 20% of the shares in MECHEL, and the merger will not be completed before the end of 2002.
On June 21, coal trader RATM-Energo, which was part of the RATM group, sided with the management of joint stock company Novosibirsk Power (AO Novosibirskenergo) in a dispute with RAO UES of Russia. In response, UES stopped RATM's coal deliveries to a number of Siberian power companies.
In September and October, RFFI sold by auction80% of the shares in Kuzbassugol. The Magnitogorsk Metallurgical Combine (Magnitogorsky metallurgichesky kombinat) and Severstal bought 51% of these shares, and what later became the Russian Steel (Russkaya stal) partnership bought a package from the remaining 48%. At the end of 2001, Russkaya stal included the Novolipetsk Metallurgical Combine (Novolipetsky metkombinat), Evrazholding, AO Coke (AO Koks) of Kemerovo, and the Novosibirsk trading company Belon. Since the "golden share" was still valid, shareholders could not elect a new general director of the company or decide how they would manage it until the beginning of 2002.
On December 27, President Vladimir Putin planned to take part in the opening of the joint stock company Rosterminalugol terminal in the port of Ust-Luga. Bad weather prevented the President from personally opening the large coal export facility. However, it turns out that the terminal will only start operations in the middle of next year at the earliest: at the time of the opening ceremonies, there was still no railway line leading to the terminal, not to mention the fact that numerous disputes had made investors stop investments in the project. But this fact will come to light only in 2002.
by Dmitry Butrin
PRESENT
The Russian coal industry today is a complex structure consisting of a large number of holdings, independent traders, and separate state and private enterprises. The coal industry faces the prospect of working under these various forms of ownership for some time to come.
Elements of the Fuel Balance
The Russian coal industry reflects the whole history of world coal production. A year ago, a commission of the Ministry of Energy was surprised to discover that a coal conveyer operating in one of the Rostov Coal (Rostovugol) mines had been made in Belgium in 1908. However, coal mines that are extremely inefficient exist in Russia alongside modern and superefficient even by world standards.
Sixty percent of Russian coal is produced in Siberia, some of it - within the polar Circle. This region is scarcely populated and only a few industrial users operate there.
Russian coal companies are generally the successors of territorial associations that operated within a single coal basin, where open-pit mines usually coexist with underground mines. However, the major players on the coal market have already started to amalgamate a number of these companies. There are also more or less separate underground and open-pit operations that left the associations in the mid-1990s. In addition, there are coal distributors operating on the market who act as middlemen for production companies and earn their living from coal sales. All of these make up the elements of the Russian coal market.
Basin Owners
The Krasnoyarsk Coal Company (Krasnoyarskugol), known in Soviet times as the Kansko-Achinsk Fuel and Energy Complex (KATEK), is considered to be the largest Russian coal-producing enterprise. Since its production consists predominantly of power-generating coal, Krasnoyarskugol supplies fuel to 50 Russian regions; therefore, its owners are the largest players in the energy market. Krasnoyarskugol is owned by KATEK-Invest, the largest portion of whose shares belong to Rosuglesbyt and structures with close ties to Sergei Generalov, a former Minister of Energy and now a State Duma deputy.
The second-largest coal company owner is the Siberian Power Coal Company (Sibirskaya energougolnyaya kompaniya, SUEK) created in 2000 by the MDM Group (MDM). SUEK controls the largest territorial production facilities after Krasnoyarskugol, i.e., East Siberian Coal (Vostsibugol) of Irkutsk and the Chita Coal Company (Chitinskaya ugolnaya kompaniya). It is headed by MDM representative Oleg Misevra.
Finally, the third major structure in the industry is an informal alliance of two state companies in the Komi Republic, the joint-stock companies (AO) Vorkuta Coal (Vorkutaugol) and Inta Coal (Intaugol). Viktor Ekgardt, the head of Vorkutaugol, is usually considered the leader of this alliance. In 2001, the companies discussed a possible merger into a single structure; however, negotiations were broken off after the government made the decision to privatize Vorkutaugol in 2002. Ekgardt believes that this decision makes no economic sense, since Vorkutaugol and Intaugol's polar underground and open-pit mines are generally profitable. Aleksei Mordashov, the head of Severstal, one of the largest consumers of Vorkuta coal, also opposes privatizing Vorkutaugol. Opponents say that Severstal simply does not want to compete with the Ural Mining and Smelting Company (UGMK) and Evrazholding at a privatization auction.
The structure of the coal industry in the remaining coal-producing regions, including Kuzbass (see below), is virtually identical. One or two companies usually operate in a region (for example, Tula Coal (Tulaugol) operates in the Podmoskovye basin, and Rostovugol and Gukovugol operate in the Rostov basin); and 38% of their shares belong to the Ministry of Property, about 20% to local administrations, and the rest to the companies' management. With rare exceptions, for example, Gukovugol and Siberian Anthracite (Sibantratsit), these companies, located in isolated regions and are unprofitable. However, closing them or breaking them up is out of the question, since small regional power plants (boiler plants, etc.) depend on them as imported coal is too expensive. The prospect of their privatization is rather vague.
A Kuzbass to Suit Any Taste
The assets of the Kuzbass basin, the country's largest coal-producing region, are spread among more than one owner. The stormy history of the Kuzbass miners' movement, which from 1992 made it possible for any entrepreneur to buy almost any asset of a territorial facility, influenced the future development of the region.
Today, the largest Kuzbass coal-company owners are structures connected with Evrazholding, headed by Aleksandr Abramov, and UGMK, headed by Iskander Makhmudov, although it is difficult to separate Evrazholding's coal-industry assets from UGMK's. Makhmudov and Abramov are partners in many industrial sectors; in addition, some of the coal companies they control have a common trader. Nevertheless, it is certain that Evrazholding controls Southern Kuzbass Coal (Yuzhkuzbassugol), formerly Kuznetsk Coal (Kuznetskugol), and UGMK controls Kuzbass Open-Pit Coal Mine (Kuzbassrazrezugol). The main objective of both Evrazholding and UGMK is to supply coal and coke to their metallurgical enterprises and only then dominate the Russian energy market.
It was previously assumed that Siberian Aluminum (Sibirsky aluminii), now the Sibal investment and industrial group headed by Oleg Deripaska, would become the main player in the coal industry. In 1999, Sibal even gained control over Kuzbassrazrezugol but transferred it to UMGK in 2000. Besides Sibal controls Khakassia Coal (Khakasugol) and trades in energy resources. Evidently, Mr. Deripaska has not quite worked out his coal strategy.
Another large market player in Kuzbass is the Southern Kuzbass (Yuzhny Kuzbass) group, which includes a coal company of the same name, Mezhdurechensk Coal (Mezhdurechenskugol), a number of smaller production companies, and processing plants. Yuzhny Kuzbass is owned by a management team headed by local oligarch Igor Zyuzin through the Uglemetkooperatsiya company and the Sibir processing plant. Yuzhny Kuzbass is the first company to show an interest in metallurgical assets rather than vice versa. In 2001, Zyuzin's company began buying shares in AO MECHEL, a large metallurgical combine in Chelyabinsk Region.
Kuzbass Coal (Kuzbassugol), another large company in the region, still has more than one owner. Severstal and the Magnitogorsk Metallurgical Combine (MMK) bought 51% of Kuzbassugol's shares in October 2001. Aleksei Mordashov and Viktor Rashnikov, the head of MMK, later agreed on joint management of the company. However, Novolipetsk Metallurgical Combine (NLMK) and Evrazholding also bought a large block of Kuzbassugol shares at the same privatization auction and formed an alliance on the basis of the Russian Steel (Russkaya stal) noncommercial partnership. The Belon concern, a minority Kuzbassugol shareholder headed by Andrei Dobrov, was invited to join the alliance. Russkaya stal acquired about 48% of Kuzbassugol's shares and had no wish to reconcile with Severstal and MMK, especially since there was still a "golden share" controlled by the Ministry of Energy that prevented either side from gaining a majority on the board of directors. The question of who would head Kuzbassugol was not resolved until January 2002. As a result, the company was temporarily headed by Severstal representative Igor Yaroslavtsev, who was seconded by a Belon official as first deputy general director. The final division of spheres of influence at Kuzbassugol still lies ahead.
Coal Traders' Street
The other side of coal business is the companies that sell coal.
Russia's largest coal trading company is ZAO Rosuglesbyt, created in the 1930s as a state coal trading trust. Rosuglesbyt was privatized by a team led by general director Filaret Galchev. The company's primary business is selling Krasnoyarskugol's production in Siberia and the Far East (recall that Rosuglesbyt controls a large holding of shares in Krasnoyarskugol). Rosuglesbyt also works with RAO UES of Russia within the Rostopenergo trading company. The second "strategic" coal trader in the Far East is SUEK.
The situation in continental Russia is more complicated, with traders operating in several regions joining Rosuglesbyt and SUEK. The Novosibirsk company Belon, Kuzbassugol's former exclusive trader, is one example. RATM-Energo, which supplies coal to the heating and power plants of many Siberian power companies (AO-Energos) as part of RAO UES of Russia, is another large middleman on the Siberian coal market. RATM-Energo is part of the diversified RATM group headed by Eduard Taran. However, RATM-Energo's prospects are uncertain. The group fell out with RAO UES in 2001 during a dispute over Novosibirskenergo, which Taran's group lost.
The trading structures of UGMK, Sibal, and Evrazholding stand alone in the coal business. These partners are forming their own coal business and set up trading companies to meet specific objectives. Thus, the Kuzbass Coal (Kuzbassky ugol) trading house, a joint UGMK-Evrazholding company, mainly delivers power-generating coal outside Kemerovo Region. Coal sales within Kemerovo Region are handled by the Siberian Coal (Sibirsky ugol) trading company, a subsidiary of UGMK. Soyuzmetallresurs, formerly a joint Sibal-NLMK company, markets a significant amount of coking coal for Sibal coal enterprises. The independent company Karbotrans, a subsidiary of the diversified trading company ROSKO, is responsible for exporting various sorts of coal.
Coal trading companies are growing dynamically. However, what will happen in the future or whether there will be enough room on the market for all traders is unknown. RAO UES of Russia, the country's largest coal consumer still has not determined which traders it needs or whether it needs any at all. The situation should change when RAO UES is restructured in 2004, when independent power-generating companies rather than AO-energos will become coal buyers. Reforms at RAO UES of Russia will more than likely bring about major changes in the Russian coal market.
by Dmitry Butrin
TRENDS
The fate of the largest coal-industry players depends on the reform of the Russian power supply system.
As late as 1999, the metallurgical companies Evrazholding, Sibal, Novolipetsk Metallurgical Combine (NLMK) and Ural Mining and Smelting Company (UGMK) were interested in coking coal only as a raw material for metallurgical plants; however, in 2000, they began to take an interest in a longer production chain,: coal -electric power - metal prices. When Sibal's partners, Russian Aluminium (Russky alyuminii) and the Siberian-Urals Aluminum Company (SUAL), took control of the large private power company Irkutskenergo, it was clear that the new coal magnates were more interested in coal as a power source than as a raw material for the market.
It was RAO UES of Russia (RAO EES Rossii) that caused a boom on the coal market in 1998-2001. After Anatoly Chubais replaced the team of Anatoly D'yakov at RAO UES, coal companies got the opportunity to earn revenues from deliveries of power-generating coal.
However, the influx of new investors to the coal industry and mass privatization of coal companies in the Kuznetsk basin in 2001 gave rise to new trends that destroyed the myth of Anatoly Chubais as an opponent of metallurgists on the coal market. East Siberian Coal (Vostsibugol) of Irkutsk and the Chita Coal Company (Chitinskaya ugolnaya kompaniya), which are controlled by the MDM's Siberian Power Coal Company (SUEK), signed a contract with RAO UES for coal deliveries to electric power stations in 2002. For the first time in years, RAO UES was committed to buying specified amounts of coal at fixed prices, while MDM had to adhere to a delivery schedule and could not set prices higher than RAO UES could support. This shows that SUEK's interests in the coal business in 2002 lie in a steadily increasing output and profitability through higher coal production.
In contrast, negotiations with traditional RAO UES partners Krasnoyarsk Coal Company (Krasnoyarskugol) and Rosuglesbyt in 2002 were very complicated. Krasnoyarskugol is also interested in increased coal purchases by RAO's federal electric power stations but it has no intentions of setting limits on delivery prices. Paradoxical as it may seem, it was much easier for Chubais to reach an agreement with MDM, which was unofficially on his list of adversaries, than with partners with whom RAO UES had once created the joint trading company Rostopenergo. Meanwhile, the same situation can be observed in the Kuzbass and a number of other regions, where allied groups of metallurgists are starting to work with regional subdivisions of RAO UES on commercially acceptable terms, whereas traditional coal-industry organizations, i.e., medium-sized and large coal associations, are increasingly at odds with power companies.
This process will probably intensify in 2003-2004, when the restructuring plan for RAO UES, which Chubais' team successfully defended against opponents in the government, goes into effect. The present coal-industry structure is based on the existence of large coal associations, such as Vorkuta Coal (Vorkutaugol) or Kuznetsk Coal (Kuznetskugol). The economy of such associations helps to prevent fluctuations in coal prices within a company, which favors the existence of a single buyer, e.g., a regional power company (AO-energo) or federal electric power stations (RAO UES). However, when power-generating companies are separated from RAO UES into individual production facilities with their own balance sheets, the most appropriate partners for these companies will be not large coal companies but rather individual underground or open-pit coal mines that produce a specific grade and quality of coal for a specific power-generating unit at a suitable price.
Reform in the power supply system will probably lead to the restructuring in the coal industry in the next year or two. New players in the fuel and energy complex (TEK) will start working with coal companies three proposed models. The first model, which is favored by oil companies, involves a unified energy producer. Thus Sergei Bogdanchikov, the head of Rosneft, has announced that Rosneft's first step toward becoming a Russian Enron (sic!) will be to buy a number of coal companies in the Far East. The second model, put forward by MDM, involves capturing the maximum possible market share in the coal industry, regardless of coal company's location, and influencing the energy market as a whole. The third model is Anatoly Chubais' earlier idea of creating power-generating coal associations, which has been implemented (though not overly successfully) in the amalgamation of the Luchegorsky Open-Pit Mine (Luchegorsky ugolny razrez) and the Primorye Heating and Power Plant (Primorskaya TETs) into AO LuTEK.
Against this background, the habitual entreaties of Aman Tuleev, head of the Kemerovo regional administration, about the need to uphold the interests of coal producers in the entire industry seem outdated. It is obvious that the authorities in traditional coal-producing regions will have to prepare for a new threat. None of the three proposed models anticipates an investor's interest in a region as a whole. A business unit under these patterns is a specific producing company, which is either competitive or not in which case it will be gradually closed down. The example of Rostov Coal (Rostovugol), which could not cut its production costs to an acceptable level and is now planning to go on strike over demands to transfer the company to the executive office of the President's administration, shows that the social problems as well as miners' strikes are far from being over.
Dmitry Butrin
All the Article in Russian as of Feb. 05, 2002
|
|
|
