Ukraine has begun importing coal to cover the shortage of fuel

Photo: UNIAN

Minister of the Energy and Coal Industry Yuriy Prodan told Capital that national power generation companies are currently signing contracts for the supply of foreign power generating coal for the needs of thermal power plants (TPP). «Due to the decline in coal mining in the combat zone we are facing a shortage of AT and T grades of coal. This is forcing energy companies to sign import contracts,» he said.

Companies and countries

DTEK, DonbasEnergo and TsentrEnergo have signed the import contracts and are planning to sign more, said Prodan. The minister did not mention the amounts of contracted coal for the fear of «commotion on the market that could be incited by the volumes of future imports», though he added that coal will be delivered to Ukraine from Australia, South Africa, Colombia and New Zealand. He also could not specify the shortage of domestic production referring to the unpredictability of the situation in the Donbas. The minister did not mention the U.S. in the list of countries that will supply Ukraine with coal, even though last Thursday he discussed the issue of supplies with Deputy Assistant Secretary for Europe and Eurasia at the U.S. Department of Commerce Matthew Murray and U.S. Ambassador to Ukraine Jeffrey Payette. Murray pointed that the American companies offered to supply coal of required grades to Ukraine.

For the time being, Ukraine is not ready to import coal from the U.S., said Chairman of the Independent Trade Union of Miners of Ukraine (ITUMU) Mykhailo Volynets. «Ukrainian ports lack deep-sea platforms for receiving vessels with a tonnage of 100,000 — 200,000 and importing small cargoes of 20,000 — 30,000 t is highly unprofitable,» he said.

Volynets insists that the government should calculate an exact balance of coal in the country. «This is not difficult, but the Ministry of Energy and Coal Industry says that it is unrealistic due to the current military operations,» says the defender of miners. He believes that if the calculations are not carried out, Ukraine will suffer from arrangements which existed in the 1990s when import operations were carried out through so-called affiliated companies and were totally unpredictable. «Such an approach will do serious damage to the national coal industry and the national budget,» says Volynets.

DTEK rejected export

Chairman of the ITUMU says coal can also be supplied to us also by Russia. For example, Rinat Akhmetov’s DTEK was forced to stop exports of power generating coal and is currently importing it from its mines in the Rostov oblast to the Luhansk TPP, said Volynets. DTEK has confirmed this information. «Since August some coal resources from DTEK’s Rostov assets — Obukhovskaya Mine Administration — have been supplied to meet the needs of DTEK’s TPPs in Ukraine,» said a representative of the company in a conversation with Capital.

The company also reported that over seven months of 2014 DTEK mines have produced approximately 23.8 mn t of coal. «This is more than in the same period last year, when production totaled 23.6 mn t,» representatives of DTEK say. However, the company is experiencing difficulties with the transportation of raw materials. «There is plenty of coal. At the moment, its delivery to thermal energy generation enterprises is complicated by the breakdown in railway traffic due to the military conflicts. The company is considering alternative routes of delivery,» say representatives of DTEK.

The company did not specify the amounts that it would be able to import in case of coal shortage, but hinted that it would be willing to do so when necessary as DTEK is not only a manufacturer, but also a trader. According to sources on the energy market, during the heating season DTEK planned to import from Russia 600,000 t of power generating coal. «Russian companies are ready to sell high-quality brands of power generating coal. Their price has grown lately from US $70 to US $80 per tonne,» says Volynets. But Ukraine cannot become coal-dependent on Russia.

DonbasEnergo has a contract for the supply of 100,000 t of P brand coal products of Russian origin for the needs of the Starobeshiv TPP 100 at the price of US $80 per t (DAF), says the press release of the company provided to Capital. The delivery is expected in a uniform schedule throughout this September. In addition to that, the company operates on the possibility of import of 100,000 t of T brand coal from the U.S. at a price of US $100 per t (CIF) this September. «But for the resumption of deliveries of coal by railway to the Starobeshiv TPP we have to restore railway traffic on the Noviy Svit — Menchuhovo — Ilovaisk — Yasynuvata line,» DonbasEnergo pointed out.

Locations

Head of the Analytical Department at the Ukrpromzovnishekspertyza SE Oleksandr Krainikov says in January — July 2014 domestic mines produced 33.8 mn t of power generating brands of coal, which is 1% lower than in 2013. The aforementioned amount included 11.9 mn t of G brand coal, 11 mn t of anthracite, 6 mn t of T grade coal. Annually, Ukraine produces approximately 55 mn t of power generating coal, of which 5.6 mn t is exported. Accordingly, the demand of domestic enterprises is close to 50 million t per year.

«Taking a look at the map of coal deposits, one can see that many mines in the Donetsk oblast and almost all mines in the Luhansk oblast are located in the risk zone due to the current military operations. And only such enterprises as Pavlohradvuhillya and a number of mines located in the western part of the Donetsk oblast close to Chervonoarmiysk, Dobropillya and Selidove have not been affected by the anti-terrorist operation,» says Krainikov. Based on his information, these enterprises produced approximately 2.2 — 2.5 mn t of power generating coal during the first seven months of this year and Pavlohradvuhilly extracted another 11.7 mn t, which is 107% of the level of 2013. These enterprises will produce close to 24 — 25 mn t of power generating coal this year.

Expected shortage

Mines located in the ATO zone were to supply another 25 mn t for the needs of the energy sector. However, it is already clear that the enterprises located in the risk zone are unable to cope with such a task, stressed Krainikov. He says if by the end of the year the mines in the area fully suspend the production of coal, the shortage of coal this fall and winter may reach 9 mn t. However, more realistically, the majority of enterprises will still be able to continue production in the ATO zone, which might mitigate the coal shortage to 4 — 5 mn t, he said. Based on some estimates, this amount will require a minimum of UAH 5 bn from the national budget.

Volynets says this July compared to the same month in 2013 the decline in production was 1.8 mn t. «Presuming that the trend in decline of coal output remains at the same level by the end of March, the shortage of coal will exceed 16 mn t,» he said in a conversation with Capital.

Which is more expensive?

The promised imports from the U.S., according to Ukrpromzovnishekspertyza, could cover the shortage of volumes with plenty to spare. The question is how competitive is the cost of imported coal for Ukraine’s economy. For example, the average FOB price of U.S. exported coal over five months in 2014 is US $85/t. «In terms of delivery to Ukraine, the price of coal from the U.S. could reach US $125/t,» says Krainikov.

He cites coal prices formed on the Ukrainian energy market. According to analyst’s observations, in the period August 15-23, the cost of high-quality AK anthracite brands doubled from UAH 900 — 1,050/t to UAH 1,800—2,000/t, including VAT. «I believe the prices reflected the problems of coal mining in the Donetsk region,» says Krainikov. The price of anthracite culm of lower quality also increased over the same period from UAH 640 — 750 to UAH 1,000 — 1,200/t.

Interestingly, export prices over this period did not change. Companies sold AK brands in August at stable prices — US $128 — 152/t.