Ukraine may lose fuel due to the scandal with the supplies of coal from South Africa

Photo: Reuters

The conflict over coal from South Africa resulted in the disruption of supplies of the sought-after coal to Ukraine. Taking advantage of the situation, Russia’s largest exporter Kuzbass Fuel Company stated that it would not increase supply of coal to Ukraine.

Furthermore, the unrecognized people’s republics in Donetsk and Luhansk said there would be no supplies to Ukraine, even though on Monday they suggested that the Ukrainian authorities could purchase coal from them. Given this, it remains unclear where Ukraine will get its coal from.

Squabbles in high offices

The scandal with the supply of coal from South Africa, which broke out at the end of last week, took a new turn. As a reminder, at the meeting of the National Security and Defense Council on November 7 President Petro Poroshenko instructed the Prosecutor General’s Office to review the honesty and transparency of the transaction for the acquisition of 1 mn t of South African coal. After that, the PGO questioned the management of the state-owned company Ukrinterenergo (it signed the contract for the supply of coal from South Africa), Centrenergo (the consignee for the coal) and Minister of Energy and Coal Industry Yuriy Prodan. After questioning, nobody was detained or arrested.

However, yesterday at the meeting of the Cabinet of Ministers there was a new development to the scandal. Interior Minister Arsen Avakov said that inspections could be backed not by the desire to ensure the transparency of transactions, but attempts to disrupt coal purchases by Ukraine. “I believe that the Ministry of Energy and the government are being manipulated and that the company should resume supplies of coal from South Africa. There are companies interested in making Ukraine dependent on Russia or pseudo-organizations of the DPR and LNR,” said Avakov.

Premier Arseniy Yatsenyuk said that after inspection and questioning of officials began Ukraine lost the opportunity to purchase coal in countries other than Russia or in the territories controlled by the DPR and the LPR. For this reason, the premier instructed the SBU to immediately find out who was behind this.

We shall wait

Because of the inspection of the deal for supplies of South African coal Steel Mont Trading, which was planning to deliver 1 mn t of coal from South Africa, refused to make further deliveries fearing non-payment or blocking of shipment. Prodan said that the signing of new contracts with suppliers (except Russia and the DPR or the LPR) will take at least six weeks.

Back on November 11, Ukrinterenergo explained that only 250,000 t of the contracted 1 mn t of coal was delivered to Ukraine. Documents were issued for another 250,000 t, but only 85,000 t of that amount were delivered to the Ukrainian port. At the same time, the supply of the remaining 0.5 mn t remains undecided.

Yesterday, representatives of Steel Mont Trading confirmed the company was planning to supply only 0.5 mn t. Asked whether the company held talks with Ukrinterenergo on the delivery of the second 0.5 mn t batch of coal, Director of Steel Mont Trading Hardeep Beri said: “Not at the moment. We will wait until the problems in Ukraine are resolved. At the same time, Beri noted that “in view of the facts, we will ask the government of Ukraine to hold an international tender for the future supply of coal”.

Wedges everywhere

Chairman of the Independent Trade Union of Miners of Ukraine Mykhailo Volynets says there are 2 mn t of coal in the warehouses of public and private mines, which have remained on the territory of the DPR and the LPR. Part of that coal will be used for their own needs, but the rest could be sold to the territory controlled by Ukrainian authorities. After all, authorities of the self-proclaimed republics need to support the region and pay salaries, he says.

Prodan confirmed that thanks to the supplies of coal from the mines controlled by the DPR and LPR Ukraine will be able to cover its needs for this commodity. “We can supply almost 1 mn t of coal a month from this region, which will be sufficient to cover the shortage,” he said. However, the minister said that so far no formal negotiations have been held on this matter.

But by yesterday evening it became clear that the scandal with coal from South Africa was only the tip of the iceberg. Russia’s largest exporter of coal – Kuzbass Fuel Company – said that it did not plan to increase supplies of power generating coal to Ukraine in the short-term, even though there is a demand for fuel.

Director of the company’s representative office in Moscow Vasili Rumyantsev told Interfax that at present the KFU supplies to Ukraine only a few thousand tons of coal a year under three agreements. “Not talks on increased supplies are currently being held,” said Rumyantsev, adding that even if Ukraine is interested in the company’s coal, “interaction will be implemented through the Ministry of Energy of Russia and we will work with the end users – namely, power stations”.

The self-proclaimed DPR also decided not to sell coal to Ukrainian authorities. Fuel and Energy Minister Oleksiy Hranovskiy told Interfax that coal supplies are possible in any direction, but not to Ukraine. He attributed the reluctance to supply coal to Ukrainian authorities to the military operations in the Donbas.

We will have to look further

Analyst at Ukrpromvneshekspertyza Oleksandr Krainikov says at present it is hard to find anthracite on international markets, because that is a rare type of coal. There are only five major coal miners in the world: Ukraine, Russia, South Africa, Vietnam and China. The last two countries are focused on themselves. Therefore, Ukraine may buy this fuel only in Russia and South Africa. However, if Ukraine manages to sign a contract for the supply of coal, its transportation will take up most of the time.

The expert explained that coal is sold on a contract basis when transactions are made in advance and on the spot market, when customers can buy only those volumes that are in stock at the time of purchase. “We will not be able to sign a long-term contract at the moment,” said Krainikov. He was also surprised that the Ukrainian side claimed that coal from South Africa was overpriced: “We will not find it any cheaper”.

Krainikov also says that the approximate volume of exports of A and T coal brands is 6–7 mn tons a year, while other brands of coal are exported in much smaller quantities.

Yesterday, the Cabinet hastily decided to limit or even completely ban exports of Ukrainian coal. However, this is of little help: the export of coal has declined significantly over recent months. According to the State Fiscal Service, while in January–August Ukraine exported 6.2 million t of coal, in September-October it exported only 0.6 mn t.