Coal production is dropping, while coal shortage is one the rise

Photo: infopol.ru

September showed another failure in the extraction of coal in Ukraine. Last month it dropped by 50% to 3.4 mn t over September 2013, according to the Ministry of Energy and Coal Industry. Compared to August 2014 the decline reached the approximate rate of 8%. Following the results of the 9 months of this year production of coal fell by 13.2% (to 53.4 mn) compared to the same period in 2013.

Such depressing reports from Ukrainian mines are not encouraging at the start of the heating season. This means that combined heat and power plants (CHPs) and thermal power plants (TPPs) will have to deal with the growing shortage of coal at the expense of imports for which they are ambitiously borrowing funds. For example, Rinat Akhmetov’s DTEK had to allocate UAH 1 bn from its working capital for import of coal for the needs of its power generation companies. DTEK generating companies intend to borrow another UAH 960 mn for further purchases of coal from banks. DTEK scheduled its borrowing tender for October 28.

State companies cannot manage

The government measures taken to address the shortage of coal are far from effective. For example, out of 1 mn t of coal from South Africa and Russia, which Ukrinterenergo intends to buy by the end of this year to cover the shortage of domestic supply to power stations operated by Centrenergo, it imported only 84,200 t. This coal will only be delivered to the Trypillya TPP and the Zmiyiv TPP (34,200 t and 50,000 t, respectively) October 31.

Ukrinterenergo planned to import 250,000 t of coal every month, but even at the current rate of shipment it will manage to import only half of the planned amount by the end of the year – 0.5 mn t and only if the weather conditions do not disrupt the delivery schedule. The second vessel from the Republic of South Africa (79,000 t of coal) will arrive in Ukraine today and the third vessel is expected on November 8, according to Ukrinterenergo. In this case, the amount of shipment will reach 248,000 t.

Tangible shortage

The irony is that even such amounts will be sufficient for 3 days of operation of generating companies. Head of the Independent Trade Union of Miners of Ukraine Mykhailo Volynets said in a conversation with Capital that during the heating season generating companies burn at least 90,000 t of coal every day. Now they use only 43,000 – 57,000 t. The fact that the supply from South Africa is a drop in the bucket was also confirmed by Head of the Kyivenergo Supervisory Board Ivan Plachkov, who has been in charge of the country’s energy industry more than once. “In winter we consumed 4–4.5 mn t of coal for the needs of the CHPs and TPPs every month. At present, the stocks in coal storage houses are no more than 1.2 mn t, which is not enough for the heating season,” he says. Plachkov believes Ukraine ended up in such an energy crisis that was not even observed in the 1990s. “The real situation is being kept silent – Ukraine is not ready for the heating season and presuming that the government is not making arbitrary decisions, we may witness a serious social upheaval this winter,” says Plachkov. “Even today, due to the shortage of coal, six plants are on the verge of being shut down and one plant is shutting down operations completely,” say representatives of DTEK.

Debts hamper purchases

Plachkov believes that the National Commission for State Energy and Public Utilities Regulation (NCSEPUR) must make an urgent decision to raise tariffs for electricity and heat and create conditions for reducing debts for delivered energy sources: gas, heat and electricity. The current consumer debt, including the debts of state-owned companies, to fuel and energy companies is around UAH 3 bn, says CEO of DTEK Maksym Tymchenko. “Today, the situation with financing of further purchases of imported coal is critical.

Within nine months Energorynok’s non-payment to all generating companies was UAH 2.9 bn, of which UAH 2.3 bn accounts for the failure to pay for thermal energy generation. The main defaulters are the coal industry and state-owned mines which owe UAH 1.5 bn and water supply and waste water treatment companies owe another UAH 1 bn,” said Tymchenko.

Coal goes to Crimea

While Ukraine is seeking ways to patch the holes in the coal balance, the “government of the DPR” is cutting deals on the supply of coal to the occupied Crimea. In particular, Minister of Fuel and Energy of the DPR Oleksiy Hranovskiy said last week that since last Friday the DPR would start shipping Donetsk coal to Crimea. Fuel and Energy Minister of Crimea Sergei Yegorov confirmed the fact of negotiations with the DPR on the supply of coal. “I hope that in the near future we will be offered an acceptable price for the supply of coal to Crimea,” he said. This is approximately 60,000 t of coal for the autumn-winter season.

Authorities got no time to deal with a shortage

At the same time, the parliamentary coalition, which is currently being formed, has other priorities in the coal industry. The Petro Poroshenko Bloc offers to include to the text of the coalition agreement the provisions, according to which state-owned mines shall be privatized, liquidated or preserved. The sale of coal will be converted to the trading mode with the aim of switching to market-based pricing. The agreement contains no provisions regarding the plans of the coalition for dealing with the escalated crisis in the energy sector.

Such an attitude towards this problem may lead not only to the lack of electricity and heat in the homes of average Ukrainians. Volynets is afraid that we are about to face the “Alchevsk tragedy” in different regions throughout the country. “It is not the winter, but the bureaucracy that will put Ukraine in a deep freeze this winter. Today, we need to act very quickly: it takes 20 days to transport coal from the Kuzbas, while shipping by sea takes 30–40 days,” say representatives of DTEK.