Ukraine coal mining sector 2008

Viachaslau Herasimovich, CASE Ukraine, September 2008

During the Soviet Union times Ukraine considered to be the main source of coal for the whole USSR, as it supplied 23% of the total coal extraction of the Union. Ukraine has different kinds of coal: hard coal, bituminous coal, anthracite, etc, the country occupies the 8th place in the world on amount of coal resources – 117.3 billion tonnes. This potential predetermined dependence of Ukrainian industry and power sector on coal supply. Although the coal‐mining industry of Ukraine occupies a leading position in supplying the country with power and the amount of coal resources is sufficient, coal mining continually has decreased. Coal mining decreased over the decade 1990‐2000 by half from 164.8mln tonnes in 1990 down to 76.2mln tonnes in 1999). The decay of the coal mining industry was partially conditioned by its development in the last years of the USSR existence. Thus, the investment policy of the Soviet Union supported the idea of reducing investments in the coal‐mining operations in the Donbass region. The main reason for such actions was a possibility to develop coalfields in the eastern regions of Russia, containing cheaper coal.

The decline in coal production during the 1990s was caused in large part by the collapse of domestic demand and the recession of heavy industry as Ukraine's economy contracted. Since Ukraine became independent in 1991, the country's coal sector has fallen into disarray. The industry suffered from labor strikes, hazardous working conditions, inefficiency and low productivity, corruption, consumer non-payments, unpaid wages and huge debts, and outmoded equipment.

One of the major reasons behind that was technological and technical state of mines. Currently almost 40% of all Ukrainian mines have been functioning for more than 50 years, and 15% for more than 70 years. Attempts to reform the Ukrainian coal sector began in 1994 when the ministry of coal industry was created. However all reform attempts have failed up to the present moment to tackle unprofitability of the existing coal mines. About a hundred loss-making pits have been closed so far but with so many pits sunk deep in debt, the privatisation programme is still stuck. Although mines are expensive to operate, the Ukrainian government has been reluctant to reduce the number of mines due to the social costs of closing so many pits in an area with few other jobs.

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