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Ukraine: Quick, Dirty Fix To A Long-Term Energy Problem

(RFE/RL) Officials have recently touted plans to diversify Ukraine's energy balance by turning to a familiar and readily available resource -- coal. RFE/RL regional analyst Roman Kupchinsky looks at whether the country's ailing coal-mining industry is up to the challenge.

WASHINGTON, December 21, 2006 (RFE/RL) -- The specifics of Ukraine's coal initiative have been made more clear since Prime Minister Viktor Yanukovych first floated the idea during his visit to the United States.

During his speech at the Center for Strategic and International Studies in Washington on December 4, Yanukovych reasoned that Ukraine's coal reserves would be an obvious solution to the country's efforts to reduce its dependence on natural gas.

Big Dig

Upon his return, Yanukovych and Coal Industry Minister Serhiy Tulub announced that Ukraine plans to build seven new coal mines.

"We will begin developing the technical-economic projections next year," Tulub told Interfax, adding that construction would begin in 2008.

Coal Industry Ministry officials estimate that Ukraine would have to invest 20 billion hryvnas ($3.9 billion) into the project at a time when it is being prodded by the West to close down inefficient mines and retrain miners.

Ukraine's coal production is already significant. In 2004, Ukraine imported 6.5 million tons despite mining 59.7 million tons of washed coal of its own. The new mines would increase annual output by 17.7 million tons

Estimates of the country's coal reserves vary. The World Energy Council estimates Ukraine's reserves at 52 billion tons -- 8th largest in the world. The Ukrainian government in 2006 put its estimate at 117.5 billion tons.

Ukraine's appetite for coal is voracious. It currently accounts for 40 percent of the fuel used in power plants, 10 percent in district heating plants, and 45 percent in industry.

But the country's dependence on foreign gas is equally great -- and the immediacy of its need to address the issue became crystal clear early in the year when Russian gas cut-offs and price negotiations made life miserable for citizens and the politicians who represent them.

Newfound Urgency

The suggestion of increasing coal production as a solution to Ukraine's overdependence on Central Asian and Russia gas is not a new one. It has been mentioned numerous times by the various administrations in Kyiv, yet none went so far as to construct new mines.

A lack of urgency -- one that no longer exists -- was one factor. When Turkmen and Russian gas destined for Ukraine was priced artificially low, former President Leonid Kuchma's government did not see the need to rush into expanding coal production.

Rampant corruption within the coal industry was another reason. Long regarded as one of the most corruption-prone industries in Ukraine, coal mining is the mainstay of regional coal barons and clans in the Donbas region. These powerful figures have been able to exercise their political influence by calling strikes that can threaten to cripple the national economy. Few in Kyiv have been willing to challenge the barons -- or hand them more power by building new mines.

Bad Economics

In addition, the overall inefficiency of coal mining in Ukraine has scared away foreign investors, while geological factors have made coal mining in Ukraine an expensive, inefficient, and dangerous business.

In the Donbas region, for instance, 35 percent of the coal beds are "steep enough to make extraction of coal possible only by hand," according to the International Energy Agency (IEA). This leads to highly dangerous working conditions and accounts for the high mortality rate among coal miners in Ukraine.

These realities have led the World Bank and other lending institutions to suggest for years that Ukraine would be better off giving up on trying to rehabilitate its aging and injury-plagued mines.

The construction of seven new large mines would mark a complete reversal of this thinking.
More miners would be needed, requiring the construction of housing, medical facilities, sports and recreational clubs, schools, and transportation networks.

A determination would also have to be made on whether the new mines would be state-owned or private.

In 2001, the government launched a program whereby it would first denationalize mines, then corporatize them, and finally auction them off to strategic investors. By 2003 privatizations were delayed and the mines were reorganized into state enterprises.

An underlying, and potentially more serious long-term issue, however, is Yanukovych's readiness to resort to a quick fix to Ukraine's energy crisis when the opportunity to implement conservation programs and find efficient fuel alternatives has presented itself.

Ultimately, the increased use of its coal reserves will reduce Ukraine's dependency on Gazprom and Turkmen gas. But that success will come at the expense of efforts to lower carbon emissions and to correct environmental damage incurred from past abuses. In addition, the country will be missing the chance to adopt a forward-thinking solution to the problem of ensuring future energy supplies.

Gas Facts

Gas Facts

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