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The Helmets Have Been Dropped. How the Russian Coal Industry Was on the Verge of Collapse



January 26, 2023 - Putin remembered the coal industry only in 2021. In the summer, when it became clear that companies were not able to export coal that had risen in price due to bottlenecks on the railway, he demanded that those responsible for the disruption of the BAM modernization be found. And in September, he admitted that Russia had missed out on the global coal market.

The owner of Russia’s largest Elga deposit, Albert Avdolyan, did not see the point in waiting for the development of infrastructure from the state so much that he proposed building his own railway to the coast of the Sea of Okhotsk.

At the end of 2020, the structure of Rostec closed the Yurga Machine-Building Plant (Yurmash), bought a year earlier, the only site in Russia with the ability to produce expensive mining equipment. Analogues of its products, for example, mechanized roof supports for treatment complexes, can only be bought abroad, but this did not bother the state corporation – the city-forming enterprise did not wait for any investments and support.

Sanctions Cut Off Exports

The war with Ukraine has changed absolutely all the layouts in the country’s coal industry. European sanctions have led to a sharp increase in the load on the Eastern test site. Instead of coal, which accounts for more than a quarter of RZhD’s total loading, other goods had to be transported by rail.

In April, the Minister of the coal industry of the Kemerovo region Oleg Tokarev said that a critical situation had developed in the region with the export of fuel. During the first quarter, the enterprises shipped coal 18% less than planned. Tokarev warned that coal miners would lose revenue and markets due to broken contracts. The Ministry of Energy estimated the decline in coal exports by more than 9%.

An additional blow to Russian coal miners was dealt by the European Union: on August 10, a coal embargo came into force, affecting a quarter of all imports from Russia. By this time, European countries were resuming contacts with other suppliers, including the United States, Canada, Australia, Colombia, South Africa, Indonesia and others. Deliveries from Kazakhstan also increased sharply. Russia, in turn, was actively selling coal to Turkey, China and India, which did not impose sanctions.

However, new buyers had to provide a significant discount. Sergey Grishunin, managing director of the NRA rating service, noted in August that discounts reached 30% of current prices. In turn, the NKR rating agency indicated that China purchased coal two times cheaper than Europe – $170 against $330 per ton. However, the low cost of production allowed coal companies to avoid operating at a loss.