Dark days for Russian coal mines — Privatization not a quick fix for ailing industry

The Russian government has announced that it will sell or close about one-third of its operating coal mines in 1998 in an effort to unload unprofitable operations and encourage the privatization of the sector.

Citing increased production costs, Russian authorities have announced that 86 of the country’s 230 mines will either be closed or sold. In 1997, costs at Russian coal mines rose 30%, to an average of US$23 per tonne. The price of coal rose only 4%, to US$25.2 per tonne.

The move is also an effort to step up the privatization of Russia’s coal industry. The government estimates that, following the tender bid, which is expected to be announced soon, half of the country’s coal will be produced by private companies.

But even privatization of state-owned coal producers is not a guarantee of increased production and profitability. In neighboring Kazakstan, a country that has embraced the privatization of its resource industry with the same verve as Russia, new, foreign owners are reeling under a massive debt load and decreased production.

The three former state-owned mines in the coal-producing Ekibastuz basin of north-central Kazakstan were bought by companies from Russia, the U.S. and Japan. Total production from those mines, which the companies bought in 1996, was down in the first 11 months of 1997, to 45.6 million tonnes from 51.7 million tonnes in the similar period a year earlier.

Losses at the mines were as high as US$17 million in November, compared with US$2 million over the same period in 1996. Those losses are blamed on land taxes, fines for non-payment of outstanding government debt, interest charges and exchange rates.

There are also rumblings that those companies could be saddled with a portion of the debt of the mines’ former state owner, Ekibastuzugol. That entity owes more than US$103 million to the Kazakstani government and pension fund.

— With files from Interfax News Agency.