Russian Coal in the Era of Climate Change: Why it Will Survive and Will Not Become a Bargaining Chip in Relations with the West? 9819953693, 9789819953691

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Russian Coal in the Era of Climate Change Why it Will Survive and Will Not Become a Bargaining Chip in Relations with the West? Nikita Lomagin · Irina Mironova · Maxim Titov · Michael Oshchepkov

Russian Coal in the Era of Climate Change

Nikita Lomagin · Irina Mironova · Maxim Titov · Michael Oshchepkov

Russian Coal in the Era of Climate Change Why it Will Survive and Will Not Become a Bargaining Chip in Relations with the West?

Nikita Lomagin ENERPO Research Center European University Saint Petersburg, Russia

Irina Mironova ENERPO Research Center European University Saint Petersburg, Russia

Maxim Titov ENERPO Research Center European University Saint Petersburg, Russia

Michael Oshchepkov ENERPO Research Center European University Saint Petersburg, Russia

ISBN 978-981-99-5369-1 ISBN 978-981-99-5370-7 (eBook) https://doi.org/10.1007/978-981-99-5370-7 © The Editor(s) (if applicable) and The Author(s), under exclusive license to Springer Nature Singapore Pte Ltd. 2023 This work is subject to copyright. All rights are solely and exclusively licensed by the Publisher, whether the whole or part of the material is concerned, specifically the rights of reprinting, reuse of illustrations, recitation, broadcasting, reproduction on microfilms or in any other physical way, and transmission or information storage and retrieval, electronic adaptation, computer software, or by similar or dissimilar methodology now known or hereafter developed. The use of general descriptive names, registered names, trademarks, service marks, etc. in this publication does not imply, even in the absence of a specific statement, that such names are exempt from the relevant protective laws and regulations and therefore free for general use. The publisher, the authors, and the editors are safe to assume that the advice and information in this book are believed to be true and accurate at the date of publication. Neither the publisher nor the authors or the editors give a warranty, expressed or implied, with respect to the material contained herein or for any errors or omissions that may have been made. The publisher remains neutral with regard to jurisdictional claims in published maps and institutional affiliations. This Palgrave Macmillan imprint is published by the registered company Springer Nature Singapore Pte Ltd. The registered company address is: 152 Beach Road, #21-01/04 Gateway East, Singapore 189721, Singapore Paper in this product is recyclable.

Contents

1

Introduction About This Book Structure and Summary of Chapters Review of Existing Literature Authors References

1 1 5 7 21 22

2

Coal in the Soviet Economy Loss of Leadership and New Priorities of the Coal Industry The Growth of Social Tensions and Collapse of the Soviet Economic Model Who Is Behind the Changes? Conclusions References

27 28

Reforms in the Russian Coal Sector Why Reforms? From Peak Production to Decline Rosugol as a Reformer: Mission Unfulfilled From Trust Management to the Market Relations Private and Profitable, but Social Challenges Remain Conclusions References

59 59 66 73 79 82 85

3

40 46 52 53

v

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CONTENTS

4

Regional Trends Within the Russian Coal Sector: Cases of Komi, Kuzbass, and Sakhalin Komi, Vorkuta History of Coal Industry Development in Komi The Role of Coal in Komi Regional Economy The Case of Vorkutaugol Regional Problems and Perspectives Conclusions Kuzbass The Long Path of Big Development More Than Just the Energy Source One Way One Railway Coal Titans of Kuzbass Conclusions Sakhalin The History Revealed The Case of the East Mining Company The New Era Capital Owners The Role of Coal in the Economy of the Region The Window of Opportunities References

89 89 92 109 115 124 126 129 129 135 140 145 155 156 156 162 167 169 173 174

5

Modern Coal Companies of Russia The Links of One Chain Is the Russian Coal Business Effective? The Task for Managers The Case of ELSI: 2 Years and 12 Hours Conclusions References

187 187 189 192 197 202 203

6

Interconnections Between International Coal and Natural Gas Markets General Introduction to International Coal Market Volumetric Characteristics of the International Coal Market Major Coal Exporters: Assessing the Competitors Major Coal Importers: Assessing Actual and Potential Target Markets

207 208 209 215 217

CONTENTS

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International Coal Trade Flows Coal Pricing Interconnections Between Coal and Natural Gas Markets from the Standpoint of Interfuel Competition Coal Versus Natural Gas: A Case for Interfuel Competition? European Union China General Comparative Remarks Conclusions References

218 219

Russian Coal Sector in the Age of Climate Change History of Russia’s Ecologic Policy Key Trends Related to the Decisions of the UN COP26 Climate Change Conference in Glasgow Reducing the Use of Coal in the Electric Power Industry Refusal of Subsidies to the Fossil Fuel Sector Moving to Net Zero Overcoming Energy Poverty in the Context of Climate Change Issues The Impact of COP26 Decisions on the Prospects of the Coal Industry A Tangle of Contradictions at the UN Climate Change Conference COP27 in Sharm el-Sheikh Insufficiently Active Revision of Climate Commitments by Participating Countries The Aggravation of the Issue of Historical Justice in Relation to the Countries of the Global North and the Global South Tense Geopolitical Context Overall Assessment of COP27’s Progress Compared to COP26 The Climate Agenda in the Russian Context The Coal Club and its Position on COP26 Decisions Russia’s Position at the Glasgow Conference Russia’s Position at the Sharm el-Sheikh Conference Conclusions References

235 235

221 221 222 227 230 232 233

239 239 241 241 241 243 244 244

245 245 246 248 250 252 254 255 256

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CONTENTS

Conclusion

263

Annex 1: Glossary

273

Annex 2: Personalities

301

Index

307

8

Abbreviations

ACRF ACT APR BAM BRI CAPEX CIA CIF1 CIF2 CIS CFR CPSU COMECON COP COP26 COP27 GAR GOELRO Gosbank

Analytical Center of the Government of the Russian Federation Accelerating Coal Transition (investment program) Asia-Pacific Region Baikal-Amur Mainline Belt and Road Initiative Capital Expenditure Central Intelligence Agency of the USA Cost, Insurance, Freight (an Incoterm, or international commercial term) Climate Investment Funds Commonwealth of Independent States Cost and Freight (an Incoterm, or international commercial term) Communist Party of the Soviet Union Council for Mutual Economic Assistance Conference of the Parties of the United Nations Framework Convention on Climate Change The 26th UNFCCC Conference of the Parties which took place in Glasgow, UK, in 2021 The 27th UNFCCC Conference of the Parties which took place in Sharm el-Sheikh, Egypt, in 2022 Gross As Received (an Incoterm, or international commercial term) Soviet plan of electric industry development put together by the State Commission for Electrification of Russia State Bank of the USSR ix

x

ABBREVIATIONS

Gosplan Gossnab GULAG GURCh EC EEC EIA ELSI ENERPO RC ERIRAS EU EUSP FOB FSU FYP GDP GHG GRP HELCOM IAC IBRD IEA IFRI IMF IMO IPG JETP JSC KGB KRU KVU LNG MoE NAR NGCC

State Planning Committee of the USSR State Committee for Material and Technical Supply of the USSR Main Directorate of Camps and Places of Incarceration State Institution for restructuring and liquidation of uneconomical coal mines European Commission European Economic Commission US Energy Information Administration The Elga Coal Complex in the Republic of Sakha (Yakutia) The Research Centre on Energy Politics and Energy Transition in Eurasia (the European University at Saint Petersburg) Energy Research Institute of the Russian Academy of Sciences European Union European University at Saint Petersburg Free on Board (an Incoterm, or international commercial term) Former Soviet Union Five-Year Plan Gross Domestic Product Greenhouse Gasses Gross Regional Product Baltic Marine Environment Protection Commission Inter-Agency Commission for Socio-Economic Problems of Coal-Producing Regions International Bank of Reconstruction and Development International Energy Agency The French Institute of International Relations International Monetary Fund International Meteorological Organization International Partners Group Just Energy Transition Partnership Joint Stock Company Committee of State Security of the USSR Kuzbassrazrezugol East Coal Company (Kompaniya Vostochny Ugol ) Liquefied Natural Gas Ministry of Energy [of the Russian Federation, if not stated otherwise] Net as Received (an Incoterm, or international commercial term) Natural Gas-Fired Combined-Cycle Power Plant

ABBREVIATIONS

NKVD NLMK NSR OBOR OGPU OECD OPEC OPEX PRC RAS RFE Stroybank SUEK TORs TPP Transsib TTF RSFSR UGMK UMMC UNFCCC USC WB WTO WW2, WWII

xi

People’s Commissariat of Internal Affairs, a forerunner of the KGB Novolipetsky Metallurgical Plant/Novo-Lipetsk steel works Northern Sea Route One Belt – One Road Initiative Joint State Political Directorate Organisation of Economic Cooperation and Development Organization of Petroleum Exporting Countries Operational Expenditure People’s Republic of China The Russian Academy of Sciences Russian Far East Construction Bank of the USSR Siberian Coal and Energy Company (Sibirskaya Ugolnaya Energeticheskaya Kompaniya) “Territories of Accelerated Development” Thermal Power Plant Trans-Siberian Railway Title Transfer Facility Russian Soviet Federative Socialist Republic Ural Mining and Metallurgical Company, also referred to as UMMC (Uralskaya Gorno-Metallurgicheskaya Kompaniya) Ural Mining and Metallurgical Company, also referred to as UGMK (Uralskaya Gorno-Metallurgicheskaya Kompaniya) United Nations Framework Convention on Climate Change United Shipbuilding Corporation World Bank World Trade Organization The Second World War (1939–1945)

List of Figures

Fig. Fig. Fig. Fig.

2.1 2.2 2.3 2.4

Fig. 2.5 Fig. 2.6 Fig. 3.1 Fig. 3.2 Fig. 3.3 Fig. 3.4 Fig. 3.5 Fig. 4.1 Fig. Fig. Fig. Fig.

4.2 4.3 4.4 4.5

Fig. 4.6

The USSR’s Production by fuel type The USSR’s fuel and energy balance by source The USSR’s returns on Fuel Investment, 1970–1988 The share of exports in the production of certain types of industrial and agricultural products of the USSR The USSR’s energy sources production to the volume of 1990 The share of exports in the USSR’s coal mining by groups of countries Capital productivity of the Soviet coal industry Coal production in the USSR and Russia in 1988–1991 in million tons Privatization of the Russian Coal Industry, 1993–2006 Russia’s coal industry changes in productivity of workforce Financing of key areas of restructuring coal industry in 2015–2021, billion rubles Pechora coal basin: coal reserves and main transport connections to port infrastructure Coal production in Vorkuta, 1935–1980 Coal production in Vorkuta, 1980–2003 Shares of production of energy sources in Komi by type Dynamics of coal production volumes, number of production personnel, and labor productivity in OAO Vorkutaugol in 2000–2007 Total volume of coal production by Vorkutaugol, Mt

29 29 33 34 35 38 60 61 81 81 83 91 104 106 106

117 118

xiii

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LIST OF FIGURES

Fig. 4.7 Fig. 4.8 Fig. Fig. Fig. Fig.

4.9 4.10 4.11 4.12

Fig. 4.13 Fig. 4.14 Fig. 4.15 Fig. 4.16 Fig. 4.17 Fig. 4.18 Fig. 4.19 Fig. 4.20 Fig. 4.21 Fig. 5.1

Fig. 5.2 Fig. 5.3 Fig. 6.1 Fig. 6.2 Fig. Fig. Fig. Fig. Fig. Fig. Fig.

6.3 6.4 6.5 6.6 6.7 6.8 6.9

Vorkutaugol’s cost of coal production versus coal prices and resulting revenues Kuzbass coal basin: key characteristics and transport links to the ports of the Far East The structure of GRP of Kuzbass, 2021 The structure of fuel and energy balance in 2022 The number of miners in the Kuzbass’ coal industry The program of modernization of the Eastern Polygon of railways Total volume of coal production in Kuzbass, Mt Dynamics of dismissal of workers in the coal industry of the Kemerovo region for the period 1994–2005 Coefficient of migration growth (loss) per 10,000 people Duysky coal mine and quay for transshipment of coal, 1890 Total volume of coal production in Sakhalin by method, mt Sakhalin coal basin and transport infrastructure in the Russian Far East Total volume of coal production in Sakhalin Calculation of unit costs of coal mining based on financial statements Consumption of energy sources in the fuel balance of the region Coal Assets in Russia: the volume of production in 2022, effectiveness of modern companies with operating expenses and type of coal produced Export prices for coal in the main world trading platforms in 2022, USD/ton of coal The Map of the Southern-Yakut coal basin and Eastward coal transport infrastructure 1973–1992 delta in coal production 1973–1992 delta in coal exports, including supplies to other countries within the same region Change in global coal consumption by decade, 1900–2010 International coal trade in 1990 International coal trade in 2018, million tons Largest coal exporters in 2002, 2014, and 2021, Exajoules Largest coal importers in 2002, 2010, and 2021, Exajoules International coal trade flows in 2021, Exajoules Selected flows of coal and gas in the global energy balance, 2017

119 130 136 138 139 143 146 150 154 159 161 163 165 167 171

193 196 199 210 211 213 214 215 215 218 219 222

LIST OF FIGURES

Fig. 6.10 Fig. 6.11 Fig. 6.12 Fig. 6.13 Fig. 6.14

Fig. 6.15 Fig. 6.16 Fig. 7.1

US natural gas production VS Henry Hub price dynamics in 2005–2015 The share of coal and natural gas in the US power generation, 2005–2021 US coal exports in 2005–2015, Exajoules LNG prices (JKM, Japan CIF) and TTF price, 2005–2015, USD/mmbtu Difference in levelised cost of electricity from natural gas (CCGT) versus coal plants (supercritical) in China, 2013–2017 Rural and urban coal and urban gas use in China Change in shares of coal and gas in primary energy in selected countries and regions between 1990 and 2018 Geography of Russian coal exports split into groups according to coal phase-out approach

xv

225 225 226 226

228 229 231 249

CHAPTER 1

Introduction

The radical transformation of the Russian coal sector since the 1980s has witnessed an industry transition from a state-subsidized unprofitable behemoth into a lean(er) privately owned national sector of global importance. Today, the Russian coal sector faces new challenges in the form of global decarbonization, increased Western sanctions, and difficulties in achieving market competitiveness. This new state of the coal sector’s market environment warrants an examination of what lessons can be drawn from the past tribulations of one of Russia’s most iconic and strategically important industries.

About This Book The initial idea to write this book emerged from a series of workshops and seminars on green energy held by the ENERPO Research Center at the European University at Saint Petersburg from 2016 to 2020. One of them was attended by Alexander Etkind, Professor of History at the European University Institute in Florence. Alexander was engaged in research on the history of humankind through the prism of natural resources and delivered a very provocative talk on the future of fossil fuels. He argued that various types of raw materials have different political implications and give rise to a wide range of social institutions. When a country switches its reliance from one commodity to another, this often leads to changes © The Author(s), under exclusive license to Springer Nature Singapore Pte Ltd. 2023 N. Lomagin et al., Russian Coal in the Era of Climate Change, https://doi.org/10.1007/978-981-99-5370-7_1

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including wars and revolutions. But none of these crises go to waste—they all lead to dramatic changes in the relations between matter, labor, and the state (Etkind 2021). The debate following his presentation raised a number of issues. What does it mean for Russia and its vast energy sector which consists of all available energy sources, including oil, natural gas, coal, hydro, nuclear, and even new types of renewables such as solar and wind? What is going to happen with coal, which is viewed as a remnant of the dark past in light of the Paris Agreement, signed by 195 countries including Russia, at the end of 2015? Would Russia be ready to sacrifice its coal sector, one of the most polluting fuel sources, for the sake of a new global good aimed at curbing greenhouse gas emissions given the fact that coal’s abundance, low price, and global availability make it a difficult fuel source to give up not to mention the social dimension of coal mine closures? In fact, in parallel with the climate change agenda, another challenge exists, e.g., how to fight energy poverty across the globe, especially in less developed countries? Indeed, while some countries were transitioning away from coal, others continue to transition toward it. We knew that different strategies are applied in regions and countries when it comes to phasing out coal, despite the global agreement in Paris, and there is no single, global transition to lower-carbon energy. Which role does Russia play in such a transition? How does it see the climate agenda? What happened to the vast Russian coal sector represented in a dozen regions ranging from the Arctic in Vorkuta to Kuzbass in Siberia and Sakhalin in the Far East? It seemed to us that besides some common issues of economic transformation similar for all coal basins, there would be something unique about developments of various coal regions in Russia. Thus, we decided to undertake special research of the past, present, and future of the Russian coal sector when the climate change agenda became one of the top concerns for developed countries. Only now is it possible to study the evolution of the Russian coal industry from its Soviet past to the present using a wide range of different sources about its transformation. Also, we can read the candid memoirs of actual participants of liberal reforms in Russia, including those who designed them, took part in their implementation and participated in the coal miners’ protest movement. We regard this experience with the transformation of the coal sector as one of the most important social, economic, and political cases of building a market economy in Russia. Being cut from any external support since

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2014, this transformation provides a lot of food for thought about how it operated in reality, not in stereotypic form, and what we can expect in countries that will not be supported in the so-called “just transition” from coal. The book is unique for several reasons. It aims at interdisciplinary analysis of the oldest energy sector in Russia and addresses a series of questions that are relevant for experts in Russian studies, energy security, climate change, and global political economy. First, the project puts contemporary coal developments in Russia into complex historical and political contexts. It is built upon a comprehensive study of the coal sector in the Komi Republic under Stalinism by A. Barenberg “Gulag Town, Company Town: Forced Labor, and Its Legacy in Vorkuta” (Yale University Press, 2014) but goes beyond it both in terms of regional scope and content as it combines past and present. This approach was well explored by D. Rogers in his famous “The Depth of Russia. Oil, Power, and Culture after Socialism” (Cornell University Press, 2015) devoted to the largest Russian oil company, Lukoil, and its multifaceted activity in the Perm region. What does the coal sector mean for Russia? Will nostalgia for the Soviet legacy in Putin’s Russia be embodied, inter alia, in the USSR’s superstar miner Alexei Stakhanov—a poster man for communism and a symbol of a new workers’ movement dedicated to increasing production, does it translate into the state’s support of miners today? Conversely, this support might stem from bitter lessons of the late 1980s and early 1990s when the overall economic crises in the Soviet Union fuelled miners’ political activity that substantially contributed to the eventual collapse of the planned economy and the disintegration of the country. Besides its key role in providing energy security in more than a dozen Russian regions, in particular Eastern Siberia and the Far East, coal mining is still economically crucial for regions that are heavily dependent on coal production. Second, the project sheds light on the political economy of doing business in Russia in coal and the nature of Russian dirigisme in energy politics. The fact that the export of coal brings Russia about $15–17 billion USD per year implies not only the high degree of competitiveness of private coal mining companies but also assumes a great deal of potential for lobbying to obtain different types of support including new licenses, tax relief, and transport subsidies.

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Who are the main stakeholders in the coal business in Russia? What are the primary interests of mining companies at home and abroad? How do coal businesses and coal regions lobby their interests? Who are the main opponents of coal mining domestically and why? Which place does coal production occupy in the Russian energy security model and what is happening when Russian coal competes with Russian gas abroad, particularly in Asia? Third, the project presents the key tenets of contemporary dialogue between Russia (and other major coal mining states) and those who advocate for a speedy energy transition to phase out coal. China generates more than 60% of its energy from coal with India not far behind, and both refused to sign the COP26 agreement that pledged to “phase out” use of the fuel. The book addresses some hard economic realities working against the world’s shared climate goals. Global energy demand is steadily increasing as economies advance and nations develop, but the supply of renewable energy alternatives like wind and solar is not keeping pace. Simply put, there are severe supply constraints on rapidly expanding use of electric vehicles, wind turbines, and other mainstays of sustainable renewable energy. Thus, absent green alternatives, the energy supply continues to be largely a competition between different fossil fuels and coal appears to be winning currently. Additionally, the price of energy has skyrocketed. Finally, given the current crises in Russian relations with the West, some believe that the Kremlin could sacrifice its coal sector for the sake of rapprochement with the West, but how realistic is this hope? Will Russia instead work together with other potentially affected states and invoke WTO norms to protect its coal sector against the assertiveness of international “Greens”? The project is based upon research conducted by a team of experts at the European University at Saint Petersburg in cooperation with Climate Strategies (London) in 2020–2021. It focuses on a variety of primary and secondary sources, including energy strategy, energy security, numerous decisions by the government regarding the coal sector and mining company statistics as well as interviews with key stakeholders in coal oriented Russian energy sectors.

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Structure and Summary of Chapters The book is structured in the following way: after this introductory chapter with literature review, there are two historical chapters on the role of coal in the Soviet economy, the state of the late Soviet coal industry, its crises, and the reform process. Then we move on to discuss the three faces of the Russian coal industry: Komi, Kuzbass and Sakhalin. They are followed by the current state and investment climate of the industry. The last two chapters then focus on the international context for Russian coal: markets and climate agenda, respectively. A summary of the chapters is provided below. Chapter 2. Coal in the Soviet Economy. Russian coal has a whole world of history and heroes of its own. This chapter describes the path of the Russian coal industry from the moment it prevailed in the huge USSR energy balance to the beginning of its decline. The process was painful. The purpose of the planned economy to give the country more coal was drowned by the waves of crises of the political system. The system of state planning did not meet modern economic conditions, and the subsequent mistakes led to devastating consequences. How these processes took place and who stood behind them is explained in detail in this chapter. Chapter 3. Reforms in the Russian Coal Sector. The main objective of this chapter is to analyze the restructuring of the Russian coal industry through the 1990s–2010s. In this chapter, we focus on two dimensions of the coal industry transformation: its economic performance throughout the process of privatization, and the high social costs still being paid by those who became immediate victims of such transformation—coal miners and their families. Chapter 4. Cases of Komi, Kuzbass and Sakhalin. The main objective of this chapter is to present various trends within the coal sector in Russia. Three cases of Vorkuta, Kuzbass, and Sakhalin illustrate peculiarities of coal development in regional and national contexts, various configurations of agents involved in coal production transportation, and the role of those regions in contemporary Russia’s energy strategy. While Vorkuta’s glory as one of key coal suppliers of Soviet economy during WW2 is in the past, and remaining coal mines produce less than half of its peak in the 1980s but keep fighting for survival, Kuzbass became a major exporter of coal after the economic liberalization of the 1990s but

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faces tremendous challenges since 2022 with its aggravated transportation. Sakhalin, on the contrary, enjoys both a large resource base and proximity to markets. Chapter 5. Modern Coal Companies of Russia. Russian coal companies are no longer “hostages” of the Soviet past. Today, they are making their owners billionaires, employing thousands of people, developing rail and maritime infrastructure, adapting to rapidly changing market conditions, and maintaining a stable life in single-industry towns of Russia. At the same time, most of them prefer to keep a low profile and do not like publicity. Apparently, this is more profitable for the business. Modern coal companies are now a complex structure of numerous holdings, separately existing private enterprises, and traders, which are usually included in large industrial groups. Their owners are highly effective managers who see the industry’s long-term perspective and high profitability, while others perceive coal through the prism of risks. To survive in the face of sanctions and the global climate agenda, they are forced to actively rebuild their business while maintaining high production rates and low costs in order to maintain market share. The single best ways remaining are to own transport infrastructure, have access to the sea, and enjoy proximity to Asian markets. The lead author of this chapter is Mikhail Oshchepkov. Chapter 6. Interconnections Between International Coal and Natural Gas Markets. In this chapter, we focus on one of the alternatives for coal—namely natural gas—and discuss the question of coal-to-gas competition. Natural gas provides the easiest solution for such sectors as electricity generation, space heating, and some industrial uses. The main advantage of natural gas compared to other coal alternatives is the possibility of its use in existing infrastructure as opposed to the need to first provide the infrastructure and only then launch the switching process toward renewables or nuclear. In this context, it becomes essential to look at the coal-to-gas switching perspectives in Russia’s target external markets for coal—both in the West (Europe) and in the East (China). This chapter discusses the mechanisms which allow coal-to-gas switching, places Russia and the two target markets into the context of international coal market dynamics over the past 30 years and discusses the status and perspectives of coal-to-gas competition in European and Chinese energy markets. The lead author of this chapter is Irina Mironova. Chapter 7. Russian Coal Sector in the Age of Climate Change. The increasing importance of the climate change agenda for the prospects of fossil fuel market development is a characteristic feature of the

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current stage in global energy system development. One of the most explicit initiatives of the latest international climate summits—COP26 in Glasgow, UK, and COP27 in Sharm el-Sheikh, Egypt—placed particular emphasis on the issue of coal “phase-down.” The main objective of this chapter is to look at Russia’s policy approaches to the issue of climate change as well as to analyze potential impacts of global climate change mitigation efforts on the Russian coal industry. The lead author of this chapter is Maxim Titov. The book’s Conclusion brings together key lessons from the preceding parts to suggest a way in which the Russian coal sector will evolve. The overall conclusion, based on the last thirty years, is that hopes for a fast transformation of the coal sector in Russia or simply phasing it out should not be based on the assumption that Moscow will change its energy strategy and climate policy in the near future. Instead, the fundamental requirement for a stable and lasting relationship is understanding that Russia will handle its coal industry in its own way, given its views on energy security, regional development, and foreign policy goals.

Review of Existing Literature Scholarship on the transition of the Russian coal sector from the 1980s through the present day can be divided into three principal periods, with each being characterized by different debates. The first period coincides with the initiation of social and economic reforms during the tenure of Mikhail Gorbachev, which witnessed the progressive disintegration of the command economy model and concurrent preservation of the traditional structure of the coal sector. Research of the coal sector during this period reflects academic interest in industrial labor relations and the political activity of miners in shaping the USSR’s socio-economic transition from state socialism. The second period of analysis concerns the period of market liberalization and subsequent state-driven reorganization of the coal sector under the auspices of the World Bank, mainly during the mid-late 1990s. Scholars researching this period address questions of market transition and the political process of privatizing a bloated, inefficient, but strategically significant sector of the economy in conjunction with international actors. The final period begins, generally, in the late 2000s, with research reflecting the state of an industry which has generally matured and stabilized after the reforms of the 1990s. Scholarly research and debate on the coal sector during the past 1–2 decades

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focuses on addressing the challenges of cultivating competitiveness and innovation, Putin’s economic “pivot to the East,” decarbonizing markets in the developed world, and Western sanctions following the conflict in Ukraine. The academic literature on the Russian coal industry during the tail end of the Soviet Era problematizes the political participation of miners— in light of the 1989 miners’ strike—within the context of Perestroika. Many contemporary (Western) academics writing at the beginning of the 1990s apply what can be considered to be an “activist” research agenda. This genre of scholarship cheered on Perestroika and sought to inform policy direction for a liberalized USSR. For example, Caroline Kunhert argues that, in light of Perestroika’s inadequate economic reforms, the Soviet energy sector would need to increase electricity output, the industrial sector would need to conserve energy use, and international capital investment would need to be courted, with the potential dissolution of the USSR being of potential economic gain for the energy sector (Kuhnert 1991). Elizabeth Teague, writing in 1990, argued that worker activism presented a potential threat to market reform in the USSR due to the salience of nationality issues, the harmful short-term effects of economic reform, and the interest of the Party-state hierarchy to manipulate worker movements to oppose reform (Teague 1990). However, perhaps the most comprehensive and well-cited scholar researching Soviet coal as well as the general labor movement in the USSR of this time period is Stephen Crowley. In his article “Coal Miners, Cultural Frameworks, and the Transformation of the Soviet Political Economy” and his monograph Hot Coal, Cold Steel, Crowley explores the unique phenomenon of Soviet miners’ political participation for reforms which would ultimately lead to economic hardship and downsizing. In short, Crowley argues that Soviet miners became radicalized and lobbied for market transition as “rational actors seeking their interests, but with ideological interpretations of what those interests were and how they might be achieved” (Crowley 1997b, 199). Economic demands could not be separated from political ones given the structure of the state-led command economy and the ability to extract concessions from the ruling elite. Furthermore, the Soviet enterprise itself reflected and reproduced the injustices of broader society in its paternalistic management style. Perhaps most importantly, however, the miners interpreted their reality through the lens of the dominant ideology, Marxism–Leninism. The state was perceived as the exploiter of their labor with marketization being the only

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way that the workers would be able to reap the true value of their labor (as understood through the Labor Theory of Value). In this way, Crowley resolves the dissonance of an organized proletariat ostensibly lobbying for its own exploitation (Crowley 1997a, 1997b). Post-Soviet scholarship on Russian coal transitions away from Sovietology’s focus on political and sociological questions to so-called “transition studies,” seeking to understand the reasons for the successes and shortfalls of privatization in Russia. To this end, scholars have generally applied findings in the field of “transition studies” to the unique context of the Russian coal sector, where privatization is generally considered to have been executed successfully. On this assumption, academics have sought to explain why privatization of the coal sector was successful, identifying the factors which facilitated such a transition. In a comparative analysis of the Russian coal sector in the 1998 and 2008 financial crises, Solovenko, Trifonov, and Nagornov have illustrated the peculiarities of the industry’s shortfalls and strengths during and after the transition period. During both financial crises, the sector faced sharp decreases in global coal demand and prices, high rail freight rates, and dramatically underperforming labor productivity. However, in 1998, the coal sector was uniquely faced with wage arrears, defaults in payments, lack of appeal to investors, inadequacy of available financial services (such as credit) provided by the domestic banking sector, insufficient competition within the domestic energy sector, and an incoherent policy direction among elites prior to decisive privatization and restructuring, all of which led to social strain and protests. In contrast, in 2008, despite economic hardship, the coal sector proved relatively more resilient, with low industry competitiveness having a larger impact than in 1998, as did overproduction for a market of decreased demand between 2008 and 2009 (Solovenko et al. 2014). Artemiev and Haney argue that privatization of the coal sector in Russia succeeded for the following reasons: 1. The World Bank provided financial incentive and a framework for policy dialogue. 2. The Russian government held an underlying commitment to reform. 3. The 1997 liquidation of the Rosugol monopoly eliminated national opposition to privatization.

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4. The eventual adoption of a direct sale approach to privatization of large, attractive assets facilitated a fundamental change in perception of the industry. 5. Coal’s relative lack of appeal to traditional investors resulted in acquisition by industry professionals with sector knowledge and experience. 6. The government’s closing of unprofitable mines and consistent decrease in allocated subsidies increased investor confidence. 7. Labor opposition to privatization evaporated once the elimination of state subsidies became certain, nullifying practical differences in state versus private ownership (Artemiev and Haney 2002). The last two arguments of Artemiev and Haney can be questioned. Investors do not typically gain confidence when the government takes away free money from a company/industry (subsidies) since this puts additional stress on the profit dynamics of said company/industry. Usually, having those subsidies provides investors with more confidence. Moreover, subsidies helped sustain arrears payments, guarantees of jobs, resettlement of displaced workers, etc. Both of these arguments have been criticized (Stiglitz 2002). Our analysis in Chapter 4 demonstrates that state subsidies did not prevent miners from protesting. Adding nuance to this analysis, Crowley applies Barbara Stallings’ framework for understanding international lending practices to construct a twofold explanation for the success of the coal sector’s privatization (Stallings 1992). On one hand, the World Bank was able to obtain the necessary leverage over the Russian government which had already allocated the Bank’s loans into its budget before they were even approved. However, to implement this policy direction, it was ultimately the presence of like-minded individuals in positions of power and influence which proved sufficient to execute such reforms (Crowley 2001). Importantly, as Milov, Coburn, and Danchenko have pointed out, Russian energy policy, which in the 1990s was focused on deregulation and privatization, in the post-privatization period assumed a lack of direction. Russia’s energy policy—or rather its absence—was characterized by an interventionist model preconditioned by short-term interests and the imperative to preserve and strengthen centralized management and government presence. Scholarship on the Russian coal sector during the Putin era has moved on from issues of privatization to addressing the shortfalls of the

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industry and ways that it could increase financial viability and competitiveness in the global market. In general, academics agree (at least, prior to the market conditions following the 2022–present conflict in Ukraine) that coal, despite facing many systemic challenges and unforeseen difficulties, will remain a significant player in Russia’s energy sector. Furthermore, there remains a consensus about the issues plaguing Russian coal and what circumstances must change to ensure its longevity. From a policy angle, Gorbacheva and Sovacool argue that while coal’s investment appeal includes low production costs, competitive returns on investment, rural modernization, expansion of exports, and acceleration of investments, this appeal is counterbalanced by inferior performance to oil and gas, development challenges, pollution and climate change, social degradation, and conflict with policies encouraging green transition (Gorbacheva and Sovacool 2015). On the industry side, scholars point out challenges rooted in export dependence, inertia of innovation generation, low quality of human capital, and environmental concerns. For example, Lakhno has illustrated that Russian coal is faced with low global prices, difficulty in domestic competition with oil and gas, high prices of rail transport, lack of interest in innovation, underdevelopment of infrastructure, social tensions in mining regions, and low sales margins. To resolve such issues, scholars have early on provided a rather consistent portrait of broad goals that the industry must achieve. In 2006, Rashevsky concluded that for the Russian coal sector to reach its full potential, domestic coal demand must increase (particularly coal-based electricity generation), mechanisms must be created to protect against fluctuations in the export market, and investment must be secured to modernize the industry, ensuring productivity growth and workplace safety (Rashevsky 2006). Petrenko concluded that to ensure the continued success of restructuring, encouraging innovation would solve many contemporary issues plaguing the industry (Petrenko 2006). Plakitkin has argued that the industry must increase its competitiveness in the global export market, ensure large-scale modernization and technological innovation, and exhaust the raw material model of economic development (Cherdantsev and Thurner 2017; Plakitkin 2010). Vodneva et al., recognizing the challenges of maintaining sustainable development in a volatile export-oriented industry, have established a mathematical formula to increase the ability of enterprises to reach informed decisions when faced with uncertainty in foreign markets (Vodneva et al. 2019).

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As can be seen, there is little debate on the general problems and key challenges facing the Russian coal sector. Rather, academic debate pertains more to how these favorable outcomes can be achieved and what concrete solutions should be taken at the policy level. To this end, contemporary research is divided into four principal categories: 1. questions of how innovation and productivity can be increased 2. analysis of Russia’s “pivot to the East” with regard to greater relations with China and spurring development of the Russian Far East region 3. issues related to climate change and global decarbonization 4. new challenges posed by Western sanctions. The greatest focus of scholars researching the Russian coal sector has been the issue of lagging innovation and productivity, which has been a well-documented and explored issue even prior to restructuring and privatization. Research on the issue has broadly focused on modernization strategies for coal enterprises, ways to create favorable institutional economic frameworks for sustainable development, and the role of the state in creating favorable economic conditions for a strategically important and socially crucial sector. To this end, research on this subject can be divided into three subsections: 1. reindustrialization or “neo-industrialization” 2. creation of institutional frameworks and relationships between workers, corporations, and the government 3. the impact of the state’s development and geo-economic strategies on the coal industry. Perhaps the most visible aspect of the imperative to revamping the coal sector is the focus on modernization of equipment and business practices which have hindered the industry’s growth. Such a transformation of the business environment and very nature of the Russian coal sector has been referred to as reindustrialization, or, more commonly, “neo-industrialization.”

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Neo-industrialization is viewed as a systemic policy of state reforms which creates: 1. The institutional, financial, social, and technological market conditions for innovative development of the heavy industrial sector. 2. The transformation of the technological and sectoral economic structure by developing a more advanced industrial sector capable of facilitating the modernization of heavy industry. 3. Profound changes of reproductive institutional and marketcompetitive social conditions, which facilitate neo-industrialization while simultaneously becoming its result (Gasanov et al. 2017). The literature on neo-industrialization and sector modernization generally relates to the market conditions of specific coal basins, although most findings can be applied to the sector at large. For example, in writing on the neo-industrialization of the Kuzbass, Balabanova et al. suggest that state-sponsored neo-industrialization should modernize and replace industry machinery which dates largely to the 1960s–1970s, create a regional investment machinery program to break the vicious cycle of investment and production woes, and increase the exchange of knowledge within the sector which has led to technological disparities and disconnection (Balabanova et al. 2017). Also writing on the coal industry of the Kuzbass, Zhironkin et al. argue that, to achieve the structural transformation of the Kuzbass economy, it is necessary to create: 1. an institutional framework of structural reform comprised of (a) public and private market agents (b) mechanisms of effective investment redistribution between raw material and processing sectors 2. innovation investment infrastructure to promote regional enterprises 3. the availability of necessary funds and forms of inter-sector capital flow 4. a system of scientific and methodological support for the implementation of targets of the National Energy Strategy of the Russian Federation

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5. public–private partnerships in R&D and applied scientific research (Zhironkin et al. 2016). It is important to note, however, not all the literature on this topic is explicitly framed in the context of neo-industrialization. For example, Shaydullina has argued that one of the most effective measures to improve investor climate in the energy sector would be the transition of coal enterprises to multi-commodity production—a move which would resolve the perpetual issue of capital scarcity to modernize the industry (Shaydullina 2018). Plakitkin and Plakitkina have argued that, to prevent a collapse of the industry, a second restructuring phase is necessary which would supplement the “Coal Act” with efforts to upgrade companies’ production facilities, implement the “Program for the second restructuring stage” with the use of private capital, and authorize coal companies to sign voluntary contracts with the government which would help companies achieve the program’s targets along a state-prescribed restructuring plan (Plakitkin and Plakitkina 2016). To a lesser degree, scholars have emphasized the lack of effective cooperation between the state, coal enterprises, and labor. Describing the low social and economic stability of Russian coal mining enterprises in 2006, Galkina and Makarov have argued that it is necessary to balance the interests and responsibilities of labor and capital by increasing management’s ability to improve individual workers’ productivity and effectively organize the workplace. Writing in 2007, Popov and Garkavenko stressed the importance of cultivating an environment of corporate social responsibility and social investment with the end of the state’s “crisis management strategy” during the restructuring process (Popov and Garkavenko 2007). As Rozhkov and Solovenko point out, one of the weak links in the institution-building process of the coal industry has remained that of financial institutions which would be able to provide the clear and transparent allocation of state funds to recipients of investment projects (Rozhkov and Solovenko 2018) While this subject strongly overlaps with some of the research on neo-industrialization, such scholars have focused, rather, on the lack of clear and effective roles and responsibilities within the sector, emphasizing the lack of clarity on who is responsible for the social and environmental issues caused the coal industry and how, as well as the implementation of investment schemes and development strategies. Scholars have also studied the importance of a concrete state strategy for the development of the coal sector as a way to modernize the industry.

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Lyubimova and Linnik have argued that in order for coal generation to become competitive, it is necessary to introduce new technology to increase efficiency and decrease pollution of power plants, lower prices for coal mining and transportation, have the state finance orders for coal-fired generators, form partnerships with foreign manufacturers, and organize the purchase of licenses and patents to rapidly stimulate the industry (Lyubimova and Linnik 2019). Plakitkin and Plakitkina have demonstrated the shortcomings of the government in taking steps to achieve the targets of the “Industry 4.0” project, with the government failing to provide conditions to “signal” the process of business development nor evaluate the implementation of the program itself (Plakitkin and Plakitkina 2017). Others emphasize the national energy security and regional development strategies to protect the industry against shocks while also stimulating development. To this end, Kozhukhovskiy et al. have argued that the establishment of a complex regional development strategy for Russia would be necessary to realize a long-term state energy policy which would benefit the coal sector (Kozhukhovskiy et al. 2016). Novoselov concludes that, since strategic trends are determined by innovative development related to the requirements of the energy market in conjunction with national energy security, it is necessary to create a financial reserve and organizational contingency plans to ensure flexibility in the face of external challenges (Novoselov 2015). Academic research on Russia’s “Turn to the East” since the 2010s has been at best cautious, and at most pessimistic about the country’s ability to execute a successful economic reorientation toward the Russian Far East (RFE) and the Asia–Pacific Region (APR). The main points of interest are, on one hand, the stimulation of resource extraction and manufacturing sectors in the RFE and, on the other hand, the creation of a sustainable and expanding coal export relationship with the APR, most importantly China. Stephen Fortescue, in his research on the execution of Putin’s policymaking with regard to the “Turn to the East,” has illustrated notable particularities in the process of executing the president’s strategic vision. Contrary to popular perception, the execution of the “Turn to the East” resembles an institutional bureaucratic approach rather than a personalist “hands on” approach characteristic of many of Putin’s national initiatives. However, the implementation process has been plagued with “policy irresponsibility” whereby established procedures have been undermined by overreach and manufactured urgency, thus leading to a situation where the representatives of law enforcement

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agencies or siloviki have not been in control of policy implementation, and bureaucratic decision-making has been ineffective. Fortescue concludes that this ineffectiveness is the cause of the genuine strategic complexity of the “Turn to the East” policy itself, as well as by process problems caused by the conflicting imperatives of urgent action and cool-headed evaluation and expectation-setting (Fortescue 2016b). In another article, Fortescue argues that while an export strategy of cultivating the manufacturing sector in the APR has been formed, in practice, a resource-export strategy still prevails. Furthermore, Fortescue finds that the RFE development strategy—characterized by the creation of “territories of accelerated development” (TORs) and the continuation of the resource strategy—is unlikely to adequately compensate for reduced revenues from resource extraction and export to the West. Specifically, the modest results of RFE TORs in their contemporary implementation and the outsized risk in financing additional resource export, given low forecasted profit margins and insufficient scale of increased resource export, provide a cautious, if not pessimistic outlook on the potential results of Putin’s geo-economic initiative toward the APR (Fortescue 2016a). In contrast to Fortescue, who negatively assesses the viability of expanded coal extraction in the RFE, scholars such as Ponomarev and Kuznetsova have instead contended that the RFE would strongly benefit from increased investment into coal and the broader resource extraction sector (Ponomarev and Kuznetsova 2011). Henderson and Mitrova, in evaluating Russo-Chinese energy relations, reveal the risk involved for the Russian coal sector in relying on exports to China. Despite major increases in Chinese imports in Russian coal following the 2010 “coal for loans” agreements, the CCP’s resolution to decrease coal in the country’s energy mix resulted in an immediate decrease of exports to China by about 30% from 2014 to 2015. Furthermore, China has many sources of alternative imports of coal, forcing the Russian coal sector to actively compete with other global producers (Henderson and Mitrova 2016). Literature on international coal markets that was studied in the course of writing Chapter 6, in particular, can be split into the following categories: 1. Theoretical aspects of coal market functions are discussed in the 1997 book by John Cameron (Cameron 1997). Chapter 6 stresses addressing the issue of evolution and maturation of the coal market, with significant attention to coal pricing and such aspects as marginal

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cost producers, coal as a source of base-load power generation; price transmission and arbitrage; setters of regional reference price. Although the substance of market realities has changed since 1997, the theoretical framework is still essential in understanding the trends as well as providing structure for our own analysis. We have also used the 2007 work of a group of authors of the Energy Charter Secretariat (ECS 2007) on the workings of international oil and natural gas markets to see parallels in market structure and evolution of the coal market. 2. Overview of the current market status can be found in energy market handbooks, such as the Palgrave Handbook of the International Political Economy of Energy (Hafner and Luciani 2022). The Handbook includes a chapter on coal market status by Carlos Fernández Alvarez, whose publications focus on such issues as coal supply and demand analysis, trade movements, and pricing. The Handbook of Global Energy Policy (Goldthau 2013) does not include a separate chapter on coal, although it does provide insights into coal market patterns in the light of energy transition. The International Handbook on the Economics of Energy (Evans and Hunt 2009), on the contrary, does pay attention to the coal markets and includes a chapter by R. Gordon who observes the shift of coal’s role in the energy sector from the main general-use fuel to primarily a fuel for power generation (Evans and Hunt 2009, 441– 455). Medium-term coal market reports by the IEA (IEA 2012, 2013, 2014) since 2018 have been replaced by the Market Report Series and provide elaborate information about both the supply and demand sides of the coal market (IEA 2022a). 3. Statistics are available from the current edition of the Energy Institute Statistical Review of World Energy (formerly known as the BP Statistical review of World Energy) (BP 2022; Energy Institute 2023). Besides the market data such as annual supply and demand volumes, the review covers average annual coal prices by region, and, since 2019, also includes interregional trade flow data. Key trends are usually briefly discussed in the review’s introduction. 4. Perspectives of the coal market can be found in numerous energy outlooks, such as the Russian and Global Energy Outlook by ERIRAS (Makarov et al. 2013, 2014) the World Energy Outlook by the IEA (IEA 2022c), and others. We took particular interest in studying the historical outlooks from the twentieth century

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(Barnes 1990; IEA 1995, 1998). Importantly, the current investment activities may signal the future of any industry development, and the coal industry is not an exception. Thus, the World Energy Investment report sheds light on the prospects of the industry (IEA 2021, 2022b). Scholarship addressing the challenges of climate change in the Russian coal sector focuses principally on Russia’s slow progress on emissions reduction and unique challenges posed by the Paris Agreement framework to both the coal sector and national energy policy at large. On one hand, international resolutions to reduce and eventually eliminate global carbon emissions inherently threaten Russian coal. Makarov, Chen, and Paltsev, in their analysis of the effects of global climate change policies on the Russian economy, conclude that coal is Russia’s most vulnerable sector, with the Ministry of Energy’s forecast of rising coal production and exports through 2035 directly contradicting forecasts that coal use in Europe and Asia will fall by 75% by 2050 (Makarov et al. 2020). Similarly, Plakitkin and Plakitkina have also emphasized the discrepancy in the MoE’s forecast, calling for a second industry restructuring to effectively deal with the effects of the global trend toward decarbonization (Plakitkin and Plakitkina 2021). Scholars have also reached consensus that the Russian government’s policy on climate change is both inadequate when it comes to decarbonizing Russia’s economy and in protecting coal and the broader resource extraction sector from future economic shocks and contractions. Ellie Marthus has concluded that while the Russian government has placed significant bets on the expansion of the coal sector and rejected planning for a low-carbon future, Russian coal enterprises have, ironically, been more likely to be proactive on climate policy, at least in rhetoric, largely due to reputational factors of specific enterprises and the presence of international investors (Martus and Fortescue 2022). Martus and Fortescue have also concluded that Russian government policy has been focused more on increasing coal exports rather than climate change policy, and that two principal narratives emerge from coal companies themselves: 1. a focus on the risks of climate change as they may pertain to reputational and economic risk

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2. a focus on the potential of technological innovation and green coal for the industry (Martus and Fortescue 2022). Korppoo and Kokorin, in analyzing the government goal to decrease 2020 emissions by 25% compared to 1990, have pointed out the disproportionate impact that declining GDP growth has had on decreasing emissions’ forecasts and unlikelihood of the implementation of domestic emissions mitigation measures (Korppoo and Kokorin 2015). Kokorin has also argued that Russia’s disappointing climate change policy is principally attributed to the fact that the country’s economy is heavily reliant on the fossil fuel industry, high-carbon businesses lobbying against green policies, and complications in accounting for forest CO2 absorption and methane emissions in the natural gas sector (Kokorin 2016). The high inertia toward both effective policies on climate and a necessary second wave of the coal sector’s restructuring or reindustrialization is also well documented. Makarov and Sokolova have pointed out Russia’s interest in revising the Paris Agreement’s accounting of global emissions. Since, under the Paris Agreement, a country’s total emissions are calculated based on the sum of emissions that take place in said country’s territory, exporters of carbon-intensive goods—such as Russia—are de facto penalized, while countries which import carbon-intensive goods do not have to account for the emissions released in the production of the goods that they consume. However, even a consumption-based accounting scheme, while potentially beneficial in its ability to draw green investment into Russia and balance out climate responsibility, also poses a risk of “carbon protectionism,” whereby countries would abstain from Russian imports to limit their carbon total (I. Makarov and Sokolova 2017). Thus, Russia is disincentivized from adhering to an agreement which disproportionately favors highly developed Western states with whom relations have deteriorated in recent years. Scholars, furthermore, are pessimistic about Russia’s potential to cope with a global transition away from fossil fuels. Golub et al. name ambiguous energy and climate policies, a deterioration of investment climate, and high costs of capital investment as the major obstacles to a low-carbon emissions pathway (Golub et al. 2019). With regard to national export and energy strategy, Lyubimov concludes that Russia’s level of export diversification is stagnant due to inadequate industrial policy, insufficient human capital, overreliance on import substitution, a product distribution system reliant on the state trade

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representation network, and a disproportionate dependence on neighboring developing economies for export partners (Lyubimov 2019). As is evidenced by the literature, climate change provides the most substantial threat to the Russian coal sector, insofar as policymaking has failed to account for the eventuality of a low carbon future and its consequences on Russia’s resource export model. Finally, a small and emerging section of the literature has begun to address challenges faced by the coal sector as a result of increased sanctions following the 2022 escalation in the conflict in Ukraine. Igor Bashmakov, one of the co-authors of the IPCC reports, argues that “coal production in Russia will be affected by sanctions on coal import from Russia, on the one hand, and sanctions on coal mining and enriching equipment supply to Russia, on the other” (Bashmakov 2023, 66). As such, the literature has started to broach the topic of the long-term outlook of Russia’s coal and energy sectors in a strongly sanctioned economy, with scholars generally agreeing on the necessity to conclusively reorient resource export to Asia while also being aware that the successful survival and development of the sector is contingent on sweeping structural changes to the current system. Simon et al., in line with pre-2022 scholarship, emphasize that although Russia has lagged in strategizing for a decarbonized future and investing in renewable energy, it still has great potential in the field of new energy technologies if it is able to leverage its human capital. However, the authors note that such a direction cannot be the result of “one-time” transformations since prospects for industrial development are contingent on the future of Western sanctions and a potentially new “energy paradigm” (Simonin et al. 2022). Pankov et al. predict that the Russian coal sector will be able to successfully compensate for its export losses to the West due to India’s urgent demand for coal, the possibility of export increases to China, and the ability to undercut market prices when selling to Asian clients. Furthermore, the authors mention the salience of the Soviet experience to the present situation, arguing that facilitating the growth of domestic demand of grade D coal is also a policy option (Pankov et al. 2022). Tsivileva and Golubev conclude that the long-term solution to challenges faced by the coal sector is the reorientation of logistics chains to China while simultaneously encouraging coal companies themselves to cooperate in order to coordinate export prices, maintain effective dialogue with Asian regulators, devise a methodology for ESG ratings, promote container transport of coal and gondola cars, and create jointly constructed coal processing plants with Chinese

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partners (Tsivileva and Golubev 2022). Although the literature on the subject is limited due to the new sanctions regimes, scholars concur that the future of Russian coal lies in Asia, with the urgency of the market’s reorientation eastward presenting the greatest short-term challenge. Thus, Russian coal literature is not insignificant in terms of both topics it addresses and the depth of research. Still, there are some issues that either still cause disagreements or are not properly studied at all. This book is written for anybody who cannot understand why Russia and its leaders do not want to phase out coal which is the single biggest contributor to global CO2 emissions.

Authors Any co-authored book requires an explanation. The team of the European University at Saint Petersburg, which worked on writing this book, has a different set of professional knowledge, competencies, and academic interests. We have tried to present the contents of the book in such a way as to consistently draw on each of our experiences to better reveal the broad array of aspects the Russian coal industry holds to those who want to immerse themselves in its study. This is truly a collaborative project. As each of us has a special area of expertise, initial drafts of book chapters were written accordingly. We then exchanged ideas, suggestions, source citations, and even documents about those drafts during our weekly online conferences. Such intensive team work on co-editing was aimed at presenting a coherent book on the Russian coal sector. Nikita A. Lomagin primarily focused on important historical processes, factors, and key personalities that will help our reader to get an accurate and consistent idea of what stages the Russian coal industry managed to endure on the way to its formation of its modern condition and how it dealt with the World Bank. Mikhail A. Oshchepkov, who has practical experience in analyzing and evaluating various projects in the Russian energy sector, helps the reader to understand how the domestic Russian market works, what challenges modern coal companies are experiencing, what margin of safety their business has, and what growth drivers Russian coal has in the future. Mikhail A. Oshchepkov is the lead author of Chapter 5. Having relevant long-term academic and practical experience in analyzing the world energy and raw materials markets, Irina Y. Mironova

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assists the reader in understanding the issues of coal competition with other types of energy resources, global coal trade flows, and the role of the Russian coal industry in this process. Irina Mironova is the lead author of Chapter 6. The uniqueness of our book is that it examines the Russian industry from its very formation to entering into a fight with the challenge of the twenty-first century—the problem of global warming. Maxim A. Titov, being a recognized international expert in the implementation of sustainable development, energy efficiency and renewable energy projects, introduces the reader to the problems faced by the Russian coal industry in the context of the global climate agenda and the discussions surrounding coal now being actively fought at the international level. Maxim A. Titov is the lead author of Chapter 7. We thank each other for this long, time-consuming, but fascinating process that we went through together, and we hope that our material will be useful to the reader.

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IEA. 1995. World Energy Outlook 1995. Paris: OECD/IEA. ———. 1998. World Energy Outlook 1998. Paris: OECD/IEA. ———. 2012. Medium-Term Coal Market Report 2012. Paris: OECD/IEA. ———. 2013. Medium-Term Coal Market Report 2013. Paris: OECD/IEA. ———. 2014. Coal: Medium-Term Market Report. Paris: OECD/IEA. http:// www.oecd-ilibrary.org/energy/medium-term-gas-market-report-2014_m trgas-2014-en. ———. 2021. World Energy Investment 2021. Paris: OECD/IEA. https://www. iea.org/reports/world-energy-investment-2021. ———. 2022a. Coal 2022. Analysis and Forecast to 2025. Paris. www.iea.org. ———. 2022b. World Energy Investment 2022. Paris. www.iea.org/t&c/. ———. 2022c. World Energy Outlook. Paris: OECD/IEA. Kokorin, Alexey. 2016. “Russia’s Post-Paris Climate Policy: Slow Progress and Problems.” Russian Analytical Digest (185): 9–14. Korppoo, Anna, and Alexey Kokorin. 2015. “Russia’s 2020 GHG Emissions Target: Emission Trends and Implementation.” Climate Policy 17(2): 113– 130. https://www.tandfonline.com/doi/full/10.1080/14693062.2015.107 5373. Kozhukhovskiy, I.S., R.E. Aleshinsky, and E.R. Govsievich. 2016. “Challenges and Prospects of Coal-Fired Generation in Russia [Problemy i Perspektivy Ugol’noj Generacii v Rossii].” Ugol’ (2 (1079)): 4–15. Kuhnert, Caroline. 1991. “More Power for the Soviets: Perestroika and Energy.” Soviet Studies 43(3): 491–506. https://doi.org/10.1080/096681391084 11940. Lyubimov, Ivan. 2019. “Russia’s Diversification Prospects.” Russian Journal of Economics 5(2): 177–198. https://doi.org/10.32609/j.ruje.5.34753. Lyubimova, N.G., and Yu N. Linnik. 2019. “Competitiveness of Coal Generation in Russia [Konkurentosposobnost’ Ugol’noj Generacii v Rossii].” Ugol’ (5 (1118)): 34–38. Makarov, Alexey, Tatiana Mitrova, and Leonid Grigoriev, eds. 2013. Global and Russian Energy Outlook up to 2040. Moscow: ERI RAS/ACRF. ———, eds. 2014. Global and Russian Energy Outlook up to 2040. Moscow: ERI RAS/ACRF. Makarov, Igor, Henry Chen, and Sergey Paltsev. 2020. “Impacts of Climate Change Policies Worldwide on the Russian Economy.” Climate Policy 20(10): 1242–1256. https://doi.org/10.1080/14693062.2020.1781047. Makarov, Igor, and Anna Sokolova. 2017. “Carbon Emissions Embodied in Russia’s Trade: Implications for Climate Policy.” Review of European and Russian Affairs 11(2): 1–21. https://doi.org/10.22215/rera.v11i2.1192. Martus, Ellie, and Stephen Fortescue. 2022. “Russian Industry Responses to Climate Change: The Case of the Metals and Mining Sector.” Climatic Change 173(3): 26. https://doi.org/10.1007/s10584-022-03420-0.

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Novoselov, C.V. 2015. “Russia’s Energy Strategy ES-2030, Its Priorities and New Responses to External Challenges (Aspect of the Specifics of Regional Fuel and Energy Sector Strategies) [Energeticheskaya Strategiya Rossii ES-2030, Ee Prioritety i Novye Otvety Vneshnim Vyzovam (A.” Ugol’ (12 (1077)): 52–55. Pankov, D.A. et al. 2022. “The Production and Consumption Trends of Russian D-Grade Coal under Western Sanctions: Soviet Experience and Prospects for Russian Exports [Tendencii v Oblasti Dobychi i Potrebleniya Rossijskogo Uglya Marki D v Usloviyah Sankcij Zapada: Sovetskij Opyt i P.” Ugol’ (12 (1161)): 49–53. Petrenko, E.B. 2006. “Development of Innovational Activity in Coal Branch of Russia [Razvitie Innovacionnoj Deyatel’nosti v Ugol’noj Otrasli Rossii].” Ugol’ (1 (957)): 30–33. Plakitkin, Yury A. 2010. “Possible Scripts of the Long-Term Program of Development of Coal Industry up to 2030 [Vozmozhnye Scenarii Dolgosrochnoj Programmy Razvitiya Ugol’noj Otrasli Do 2030 G.].” Ugol’ (10 (1014)): 27–30. Plakitkin, Yury A., and Lyudmila S. Plakitkina. 2016. “Has the Second Coal Industry Restructuring Stage Become Imminent? [Nazrel Li Vtoroj Etap Restrukturizacii Ugol’noj Otrasli?].” Ugol’ (6 (1083)): 65–68. ———. 2017. “The Industry-4.0 Global Innovation Project’s Potential for the Coal Industry of Russia. What ‘Requires’ the Fourth Industrial Revolution from the Russian Coal Industry? [Mirovoj Innovacionnyj Proekt «Industriya4.0»—Vozmozhnosti Primeneniya v Ugol’noj O.” Ugol’ (11 (1100)): 46–53. ———. 2021. “Paris Agreement on Climate Change as a Driver to Accelerate Energy Transition: Measures to Adapt the Coal Sector to New Challenges [Parizhskoe Soglashenie Kak Faktor Uskoreniya «energeticheskogo Perekhoda»: Mery Po Adaptacii Ugol’noj Otrasli k Novym Vyzov.” Ugol’ (10 (1147)): 19–23. Ponomarev, V.P., and G.A. Kuznetsova. 2011. “Formation of Innovative Strategy of Development of the Coal Industry of the Far East on the Basis of Inter-Regional Projects—Part 1, Part 2 [Formirovanie Innovacionnoj Strategii Razvitiya Ugol’noj Promyshlennosti Dal’nego Vostoka Na Baze Mezhregional’ny.” Ugol’ (3 (1019), 4 (1020)): 30–32, 51–54. Popov, V.N., and A.N. Garkavenko. 2007. “Social Investments into Restructuring Coal Branch of Russia: Experience, Problems, and Prospects [Social’nye Investicii v Restrukturizaciyu Ugol’noj Otrasli Rossii: Opyt, Problemy, Perspektivy].” Ugol’ (3 (971)): 19–21. Rashevsky, V.V. 2006. “The Domestic Markets of Power Coal. Prospects of Growth of Manufacture and Consumption [Otechestvennye Rynki Energeticheskogo Uglya. Perspektivy Rosta Proizvodstva i Potrebleniya].” Ugol’ (3 (959)): 31–34.

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Rozhkov, A.A., and Igor Solovenko. 2018. “Formation and Transformation of the Institutional System for the Russian Coal Industry and Coal Provinces Structural Transformations Management [ Formirovanie i Transformaciya Institucional’noj Sistemy Regulirovaniya Strukturnyh Preobrazovanij v Ugol’noj .” Ugol’ (2 (1103)): 40–47. Shaydullina, V.K. 2018. “Attraction of Investments into the Russian Coal Industry: Problems and Prospects [Privlechenie Investicij v Ugol’nuyu Promyshlennost’ Rossii: Problemy i Perspektivy].” Ugol’ (7 (1108)): 38–41. Simonin, P.V., N.M. Fomenko, O.A. Anichkina, and Yu.V. Kuznetsov. 2022. “Strategies and Prospects for Industrial Development of Russia and Europe in Conditions of Sanctions and Low Carbon Economy [Strategii i Perspektivy Promyshlennogo Razvitiya Rossii i Evropy v Usloviyah Sankcij i Nizkouglerodnoj Ekonomiki].” Ugol’ (12 (1161)): 72–77. Solovenko, Igor, V. A. Trifonov, and V. I. Nagornov. 2014. “Russian Coal Industry Amid Global Financial Crisis in 1998 and 2008.” Applied Mechanics and Materials 682: 586–590. https://doi.org/10.4028/www.scientific.net/ AMM.682.586. Stallings, Barabara. 1992. “International Influence on Economic Policy: Debt, Stabilization, and Structural Reform.” In The Politics of Economic Adjustment: International Constraints, Distributive Conflicts, and the State, eds. Stephan Haggard and Robert R. Kaufman. Princeton: Princeton University Press, 41– 88. Stiglitz, Joseph E. 2002. Globalization and Its Discontents. London: Allen Lane/ Penguin Books. Teague, Elizabeth. 1990. “Perestroika and the Soviet Worker.” Government and Opposition 25(2): 191–211. https://doi.org/10.1111/j.1477-7053.1990. tb00755.x. Tsivileva, A.E., and S.S. Golubev. 2022. “The Impact of Sanctions on the Work of Coal Industry Enterprises [Vliyanie Sankcij Na Rabotu Predpriyatij Ugol’noj Promyshlennosti].” Ugol’ (8 (1157)): 84–91. Vodneva, O.I., S.M. Popov, and A.A. Rozhkov. 2019. “Formation of the Organizational and Economic Mechanism for the Sustainable Development of Export-Oriented Coal Companies [Formirovanie Organizacionno-Ekonomicheskogo Mekhanizma Ustojchivogo Razvitiya Eksportno-Orientirovanyh Ugol’nyh Kompanij].” Ugol’ (7 (1120)): 98–102. Zhironkin, S.A. et al. 2016. “Economic and Technological Role of Kuzbass Industry in the Implementation of National Energy Strategy of Russian Federation.” IOP Conference Series: Materials Science and Engineering 142(1): 012127. https://doi.org/10.1088/1757-899X/142/1/012127.

CHAPTER 2

Coal in the Soviet Economy

Coal mining in Russia has a significant history and goes back about three hundred years. For a long time, the development of the coal industry was directly related to the needs of a growing economy, constantly requiring additional energy resources for the development of the industrial sector. To understand the events currently taking place in the industry, it is necessary to provide the reader with some history and show how the role and state of the Russian coal industry has changed over time. The transitional moment, starting from which the coal industry began to experience crises, is the Soviet period. Therefore, we will start looking for answers about the future of Russian coal starting from this time. This chapter explores the role of coal in the Soviet economy and changes in its position in the energy balance. It analyses the condition of the industry by the major turning point—the late 1980s and early 1990s and the collapse of the USSR. Then it delves into the miners’ strikes, their meaning and effects, and essentially sets the scene for the modern stage of coal industry development in Russia.

© The Author(s), under exclusive license to Springer Nature Singapore Pte Ltd. 2023 N. Lomagin et al., Russian Coal in the Era of Climate Change, https://doi.org/10.1007/978-981-99-5370-7_2

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Loss of Leadership and New Priorities of the Coal Industry The Soviet period may be divided into a number of separate stages, each characterized by large-scale changes in energy sources used (Melentyev and Makarov 1983). The first stage began with the Fifteen-Year Programme of Electrification (the so-called GOELRO plan, 1920–1935) and continued until 1955 (Kovalchuk and Hardinge 2002, 3). During this period coal remained a major energy source, with production increasing tenfold from 8.8 to 389.9 million tons (Mt) (The USSR Economy: Statistical Yearbook 1956). The second stage is considered to have begun after World War II, when the Soviet economy was one of the most dynamic in the world. In 1960, GDP per capita in the USSR was about the same as that of Japan. The country was a united powerful “machine” with tremendous economic potential, significant human resources, and the necessary scientific and technical base for the further economic development of the country. Industrial progress and extremely professional engineers made it possible to create a powerful and highly efficient fuel and energy complex in the USSR. As a result, the Soviet Union was the only large industrialized state that fully provided itself with fuel and energy from its own natural resources (Main Provisions of the Long-Term Energy Programme of the USSR [Osnovnye polozheniya energeticheskoi programmi SSSR na dlitelnuyu perspektivu] 1984, 1). The existing raw material base of the USSR was able not only to meet the country’s internal needs, but also had a significant potential for exports (Sinev 1987, 46). Along with oil and natural gas, coal was one of the main energy sources for many years (Fig. 2.1). In the structure of the fuel and energy balance of the Soviet Union, coal was the main source of heat and electricity generation until the active development of oil and natural gas fields in the 1950s, which coincided with the global trend of reducing the share of coal in electricity production (Fig. 2.2). Oil and natural gas production provided greater savings in capital investments and lower operating costs in the extraction, transportation, and use of these higher-quality fuels. Alternative technologies for the use of coal at that time also did not receive their development, although the USSR had the opportunity to occupy this niche in the 1930s. By then, in the inter war period the Soviet

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Fig. 2.1 The USSR’s Production by fuel type (The USSR Economy in 1960: Statistical Yearbook 1961; The USSR Economy in 1989: Statistical Yearbook 1990)

Fig. 2.2 The USSR’s fuel and energy balance by source (Sinev 1987, 47)

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Union kept a close eye on international developments in coal chemistry, in particular in Germany. A special attention was paid to commercialization of coal-to-liquid processing by German scholars Bergius1 and later by Fischer and Tropsch. In 1935, the Soviet embassy in Berlin wired Stalin and the minister of heavy industry Pyatakov several messages about potential cooperation with German IG Farben on buying the Bergius technology and equipment to build in Russia a CTL plant with annual capacity of 200,000 tons of gasoline. It was well established technology—by the time of World War II, the Bergius process had seen considerable use throughout Germany as a part of Hitler’s four-year plan and was key in supplying Germany with fuels and lubricants, especially for military applications (Lesch 2000). The contract would cost the Soviet Union about 100 million German marks. The Soviet diplomats informed Moscow that the German side was very much interested in cooperation and had already begun to study chemical composition of coals designed for processing. The only concern on the German side was whether the final product would be exported by the Soviet Union or not. Having received assurances that all liquid fuels would be used at home, the Germans, according to the diplomatic document, showed their willingness to go ahead (RGANI. Fond 3. Opis 37. Delo 15. List 89). The Soviet embassy outlined the main advantages of the new method, including simpler technological process, wider spectrum of raw materials for processing ranging from anthracite to lignite and even turf, and lower cost for patent and equipment by almost 40 percent. The only concern was the fear that IG Farben would do its best at the level of the German government to prevent the deal between the Soviet Union and Ruhrchemie. For this reason, the Soviet diplomats called for fast and decisive actions, and one of them even went to Moscow to deliver a detailed report on the issue (RGANI. Fond 3. Opis 37. Delo 15. List 90–94). Eventually, the Politburo rejected the deal with Ruhrchemie by its special decision on April 14, 1937. No reason was indicated in the document (RGANI. Fond 3. Opis 37. Delo 15. List 127). The future of CTL

1 The Bergius process, originally patented by Friedrich Bergius in 1913, was the very first commercialized process designed to convert coal into alternative liquid fuels. The Bergius process saw first commercialization in 1919, after the end of World War I. In 1931 he shared the Nobel Prize with Carl Bosch for their contributions to the invention and development of chemical high-pressure methods.

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use in the Soviet Union in the late 1930s was challenged by its high cost compared to conventional petroleum-derived fuels. Also, some political issues could be involved due to the fact that almost all participants of the CTL decision-making process in the Soviet Union both in the foreign service and the ministry of heavy industry including its boss Georgi Pyatakov were purged. Since the 1950s, the abundant oil reserves and relatively low prices of energy caused the lack of interest in CTL technology, and alternative technologies for the use of coal have not been on the agenda since then. In 1959, speaking at the XXI Congress of the Communist Party of the Soviet Union, the First Secretary of the Central Committee of the CPSU Nikita S. Khrushchev outlined the “Seven Year plan” (1959– 1965), according to which the share of coal in the energy balance of the USSR was to be reduced from 60 to 43% due to the predominant development of oil and gas production and processing (Khrushchev 1959, 27). This strategy was called the “gas pause” and marked the beginning of a new milestone in the development of the Soviet energy industry. From the late 1960s, coal began to lose one area after another: on the railways, there was a transition from steam locomotives to next-generation locomotives running on fuel oil and electricity; most power plants and urban boiler houses switched to gas fuel (Bakanov 2018). Since 1955, natural gas has been used even in metallurgical production (Nikitin 2015). In a conversation with a member of the Labor Party of Great Britain K. Zilliacus in 1958 in Moscow, Nikita Khrushchev even proclaimed: “…we will transfer the Ural industry, including metallurgy, to gas fuel. This will give us the opportunity to save up to 15% of the consumed coke” (Presidium of the Central Committee of the CPSU 2008, 824). Although the transition from coal to natural gas in metallurgy was not widespread, metallurgical enterprises highly appreciated the qualities of the new fuel type. By the beginning of 1962, natural gas had already been used in 175 open hearth furnaces and demonstrated high production rates while reducing the consumption of expensive coke (Nikitin 2015; Zapariy 2001). The successful experience of using natural gas in metallurgy opened wide opportunities for the implementation of the ambitious plans of the Soviet leadership for the development of the national economy of the country. It was necessary to increase the output of metallurgical products and at the same time increase the power supply of Soviet industry. The use of natural gas made it possible to solve both of these problems.

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In the production of ferrous and non-ferrous metals, the Urals traditionally occupied the leading place in the Soviet Union. However, the solid fuel deposits available in the region did not adequately meet the needs of growing production, and the transportation of additional volumes of coal became an expensive process. Metallurgists began to transition metallurgical furnaces to heating with natural gas in an everincreasing amount (Stroganov 1966). The transition of metallurgical furnaces to natural gas led to increased productivity, a decrease in the amount of flue gases, and an increase in the thermal power of furnaces. By replacing solid fuel with natural gas, the design of furnaces and their operation were simplified, better conditions were created for automation and control, and the sanitary working conditions of the maintenance personnel were improved. The bet on natural gas also turned out to be successful in terms of investments, and by the end of the 1980s, the USSR had created the world’s largest gas supply system, providing over 40% of the USSR’s fuel needs and covering a significant share of fuel consumption in Eastern Europe and many Western European states (Feygin 1998). While the creation of a unified gas supply system (UGSS) has become the most capital-intensive programs of all implemented in the economy of the USSR (Kovalev 2008), the increase in the amount of capital outlay required for investment in the coal industry would only have been stalled by improvements in coal technology, and delayed the increased use of low-cost, more efficient methods of production (Kovalchuk and Hardinge 2002, 4). So, the limited level of investments in the development of the coal industry did not lead to any noticeable results (Fig. 2.3). Gradually, natural gas began displacing coal both in energy and in production. As a result, coal had lost its position in the domestic market to just 21.8% by 1989. Meanwhile, natural gas and oil made up 72% of the total energy output in the USSR (Fig. 2.2) (Osband and Kumar 1991). No less important processes were those associated with the export of hydrocarbons. As the Soviet oil and gas industry developed, oil and gas exports began growing from the late 1950s. There were also attempts to sell coal, but it did not generate the desired returns (Fig. 2.4). During the energy crisis of 1973, the USSR took a principled position in the statements of the Minister of Foreign Affairs A. Gromyko, that the country was not going to participate in the oil intimidation of Western

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Fig. 2.3 The USSR’s returns on Fuel Investment, 1970–1988 (CIA 1990)

countries. On the contrary, the Soviet Union was ready to help in every possible way to overcome the energy crisis and become a reliable supplier of energy resources (Gromyko 1978, 330–340). Europe breathed a sigh of relief, and a large-scale expansion of Soviet oil and gas to the Western market began. All this happened against the backdrop of rapidly rising energy prices (Slavkina 2016, 129). In 1970, the USSR’s oil revenue was $1.1 billion, and by 1980 it had increased 15 times to $15.7 billion (Slavkina 2002, 113–131). The same was true for natural gas. In the 1970s, agreements on its export began to be concluded between the Soviet Union and Western European countries. By 1980, the total volume of Soviet gas exports to Europe amounted to 54.8 billion cubic meters (bcm) (Ministry of Foreign Trade 1981).

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Fig. 2.4 The share of exports in the production of certain types of industrial and agricultural products of the USSR (The USSR Economy in 1960: Statistical Yearbook 1961; The USSR Economy in 1989: Statistical Yearbook 1990)

The volume of foreign exchange earnings of the USSR from oil and gas exports were astounding. Oil and natural gas became the main items of Soviet export. They were supplied both to socialist and capitalist countries (Sudo and Kazankova 1998). Under the influence of new financial sources, the Soviet political leadership had a strong idea that now the most acute economic and social problems could be solved not by improving the efficiency of the economic system, but by growing export revenues, mainly from oil and gas (Slavkina 2016). Against the backdrop of oil and gas successes, coal exports had only a secondary function, since there were fewer benefits from its sale, while production and logistics costs were higher. By the second half of the 1970s and early 1980s, in the view of the country’s leadership, there was a clear relationship between petrodollars and providing the population with food and consumer goods (Slavkina 2002, 193). In the declassified transcript of the meeting of the Politburo of the Central Committee of the CPSU in May 1984, Chairman of the Council of Ministers of the USSR N.A. Tikhonov even stated: “Mainly the oil that we sell to the capitalist countries is used to pay for food and some other goods. In this regard when developing a new five-year plan,

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it seems expedient to provide for a reserve of 5–6 million tons of oil for a possible additional supply in the future” (Slavkina 2016, 132). In other words, the work of the economy was supported by the import of consumer goods, food, and technology, which was carried out with funds received from the export of hydrocarbons, mainly oil and natural gas. Hidden problems began to pile up in other industries, and the coal industry was no exception (Fig. 2.5). Despite “oil and natural gas priorities,” coal production in the USSR was still constantly growing. Growth in the 1960s–1970s averaged 1.3% per year and was supported by extensive involvement in the turnover of new deposits in the east of the country and an increase in the level of mechanization of the industry (Bakanov 2018, 195–207). Coal still occupied a significant share of the country’s energy balance and was one of the key elements of energy and economic security. Thus, coal was losing the battle but did not lose the war. In the 1980s, the Soviet Union’s energy infrastructure entered a new phase, characterized by attempts to curb wasteful consumption of intensively used oil and natural gas through increasing the energy efficiency

Fig. 2.5 The USSR’s energy sources production to the volume of 1990 (Tsypin and Ovsyannikov 2014)

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of the country’s energy sector. These ideas were reflected in the USSR’s Long-Term Energy Programme (adopted in April 1983) (Main Provisions of the Long-Term Energy Programme of the USSR [Osnovnye polozheniya energeticheskoi programmi SSSR na dlitelnuyu perspektivu] 1984). As declared, the program was developed with the aim to improve the structure of the fuel and energy balance of the USSR by reducing the share of liquid fuel consumption and replacing it with natural gas and coal. In addition, other important elements of the program were the acceleration of nuclear energy development, the use of energy-saving technologies, as well as the search for fundamentally new sources of energy, such as thermonuclear fusion. In reality, the genuine goal of this program was not to improve or modernize the Soviet energy complex, but to free up additional reserves of oil and natural gas that could be exported and exchanged for foreign currency. The main provisions of the program were supposed to be achieved through the creation of large fuel and energy clusters and the redistribution of the organic fuel consumption structure by thermal power plants on a nationwide scale. In the European part of the USSR, it was planned to radically restructure the system of power generation, to concentrate on the development of gas and nuclear energy. In the eastern regions of the USSR, a course was chosen to further expand coal mining and increase its supply to thermal power plants in order to reduce the consumption of gas and fuel oil (Makarov and Papin 1988). In terms of the development of the coal industry, the emphasis was placed on the design and adoption of advanced technologies for openpit mining and the widespread implementation of automated systems. It was also planned to massively upgrade obsolete equipment at thermal power plants (TPPs) using coal as the main fuel. Responsibility for the implementation of the provisions of the Energy Programme in the coal industry was assigned to the USSR Ministry of the Coal Industry (Main Provisions of the Long-Term Energy Programme of the USSR [Osnovnye polozheniya energeticheskoi programmi SSSR na dlitelnuyu perspektivu] 1984), functioning until the end of 1991 under the leadership of Mikhail Shchadov.

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Mikhail Shchadov, Minister (1985–1991), First Deputy Minister (1981–1985)

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Shchadov was to ensure the implementation of the adopted Energy Programme and provide the development of the Soviet coal industry in accordance with that program Under his leadership, the share of open-pit coal mining increased from 33.8% to 50.8%, and the level of mechanization of mining processes was improved. Despite the miners’ strikes that began in 1989, the period of Shchadov’s work belongs to the “golden age” of the coal industry. At that time there was no reduction in the number of employees in the industry. The number of coal miners reached 923.8 thousand by 1989. The industry reached its peak with 771.8 Mt of coal production, but then began to decline rapidly. (A Legend. Commemorating the 90th Jubilee of Mikhail Shchadov (14.11.2027–13.11.2011) [Chelovek Legenda. K 90-Letiyu Shchadova Mikhaila] 2017)

However, despite the rational ideas laid down in the Energy Programme, no serious steps had been taken toward the practical implementation of the energy efficiency strategy. The practice of centralized management of energy savings proved to be ineffective. Energy prices remained low. The result was the lack of incentives for energy saving, the growth rate of energy efficiency of the country’s economy increased slightly, up to 1% per year. The USSR was still maintaining an energywasting and export-oriented structure of the economy (Demin 2011). In such configuration, the Soviet economic model was able to successfully hold out until August 1985, when oil production in Saudi Arabia jumped from two to nine million barrels per day. Prices collapsed. To top it off, the United States announced a reduction in oil imports. From November 1985 to April 1986, the price per barrel fell from $30 to $12 USD, as a result of which the export of expensive Siberian oil became unprofitable. The collapse in oil prices halved the flow of foreign currency into the country and seriously affected the state of the Soviet economy (Kampaner 2007). This moment turned out to be very important in the further development of the coal industry, since the decrease in foreign exchange earnings began to force the Soviet leadership to increase the export goods that were in demand abroad and could bring foreign currency: timber, certain types of engineering products, textiles, and, of course, coal.

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In total, 181.33 Mt of coal were exported from 1986 to 1990, which brought the Soviet economy $US 9.67 bln2 in foreign exchange earnings over 5 years (USSR State Statistics Committee 1987). Undoubtedly, the export of coal was started earlier (Fig. 2.4), but it was mainly carried out to the socialist countries until new markets began to open up for coal (Fig. 2.6). So, starting from the mid-1980s, Soviet coal entered the Western markets: the USA, Great Britain, Austria, Belgium, Denmark, Italy, France, and Germany. In addition to Western markets, coal was sold to Turkey, Egypt, and Lebanon. The USSR State Statistics Committee recorded coal supplies even to countries such as North Korea, the Philippines, and Liechtenstein (Ministry of External Economic Affairs and USSR State Statistics Committee 1990). It is noteworthy that coal had become an export commodity precisely because of the energy crisis that had occurred. There are versions that the crisis was caused artificially, as a measure to combat the growing influence of the Soviets in the West. The 1980s were also characterized by US

Fig. 2.6 The share of exports in the USSR’s coal mining by groups of countries (Ministry of External Economic Affairs and USSR State Statistics Committee 1990)

2 Currency converted at the official rate set by the USSR State Bank.

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trade sanctions against the USSR and Washington’s attempts to disrupt the construction of a gas pipeline to Europe by intimidating European companies with sanctions. At the same time, in 1984–1985, visits by the American administration (primarily CIA Director William Casey and Defense Secretary Caspar Weinberger) to Saudi Arabia were scheduled to meet with members of the royal family—King Fahd and Prince Bandar (ambassador to the United States from 1983 to 2005), as well as with Sheikh Ahmed Zaki Yamani, an influential oil minister (Kampaner 2007). Needless to say, the decision to increase oil production by Saudi Arabia followed a year after a series of visits by high-ranking US officials. Sales of coal to new markets were extremely small, but the fact remains that there was a demand for coal in these markets and the Soviet Union was able to satisfy this demand. Unfortunately, a miracle for the USSR did not occur. By the end of the 1980s, serious problems had accumulated in the industry, which, against the backdrop of records in coal production and success in the oil and gas industry, the country’s leadership did not notice. First, coal mining records and continuous growth of coal production were ensured by the increasing share of open-pit coal mining, not due to a high level of production efficiency. Second, the systematic commitment of the miners to increase production volumes during the “five-year” development plans had led to the deterioration of underground mining facilities and geological conditions: the depth of mining increased, the gassiness of mines came to a head, the thickness of seams was significantly reduced and the quality characteristics of coal were deteriorated (Kovalchuk and Hardinge 2002, 7). Third, by 1990 about 54% of the total coal (380 Mt of coal) were produced by underground coal mines, while more than half of them were commissioned before 1960 and had never been upgraded since then. Moreover, there were more than 20 old mines that were commissioned before 1917, including seven that had been producing coal since the last quarter of the nineteenth century (Kovalchuk and Hardinge 2002, 7). Fourth, the fall in oil prices set off a chain reaction in the country’s economy and affected the well-being of industry workers. The growth of the balance-of-payments deficit, external debt, and shortage of food and consumer goods led to the discontent of the working class. Wages were delayed, and with the money paid, it became more and more difficult for miners to maintain a decent standard of living.

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The Soviet coal industry was in dire need of upgrades to its main production capacities, requiring partial or complete modernization of 70% of its mining assets. However, the economic situation in the country did not allow for a quick response to the urgent problems. The Soviet leadership began to liberalize its political and economic regime, which led to disorganization of inter-republic relations, reduction of budget reallocations in favor of economically weak republics, unbalancing the national economy, and strengthening the power of the local party and administrative elites. Thus, in just a few decades, the coal industry had gone from the main and the most powerful industry of the country to a “hotbed of tension” in the Soviet economy. The combined negative effect led to the beginning of the coal industry crisis and the growth of a strike movement among miners who made radical economic and political demands. To some extent, these strikes contributed to the collapse of the Soviet economy and the final disintegration of the country. Therefore, we will pay special attention to the strikes of miners.

The Growth of Social Tensions and Collapse of the Soviet Economic Model The beginning of the strike movement was an important milestone in the coal industry and showed how important social aspects could be. The phenomenon of mass strikes emerged in the late 1980s, but this was preceded by a number of important events and processes that had begun earlier. As we discussed previously, since the late 1970s, the economy of the Soviet Union has embarked on a path of dependence on the export of hydrocarbons abroad. The country could hardly withstand the cost burden, paying off debt obligations and servicing the debts of allies in the “socialist camp.” Despite the apparent economic power, huge amounts of money were spent on the Cold War with the United States, on confronting China, and local military conflicts in Afghanistan and African countries. As a result, from the mid-1980s, the situation was further complicated by the fall in world oil prices and Soviet revenue contraction. The USSR was the leader in terms of basic industry indicators, but completely lagged behind the developed countries of the West in technological progress. In ideological terms, the demand for innovations has matured in society. And the innovations were nowhere to be taken

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from—the average age of a member of the Politburo of the CPSU Central Committee was approaching 70 years (Levchik 2020, 27). The foreign exchange earnings of the USSR from the export of products went directly to the Soviet budget, bypassing the enterprises that produced these products. Buying foreign technology abroad was extremely difficult. The developed regions of the country and large industrial enterprises, represented by their leaders, demanded greater independence in the distribution of profits from their regions or factories (Zyuganov 1995). In 1985, with the appointment of Mikhail Gorbachev as General Secretary of the CPSU Central Committee, a transformational process of accelerating the development of the country called “Perestroika” began. Positive changes were expected from the new General Secretary including solving the problems of class contradictions in Soviet society, improving life, and increasing the material well-being of citizens. The basis of the exploited class at that time was made up of poor people, meager housing, and dissatisfied with their wages (Osipov et al. 1994, 24). The contradiction between the exploited class and the ruling class was obvious—the party nomenclature was imperceptible only to a blind man. The whole essence of “Perestroika” came down to attempts to reform the non-market economy of the USSR. However, at its initial stage, it was decided to start reforming the economy with the purchase of heavy engineering from abroad (Barsenkov and Vdovin 2003, 331). This did not provide a quick return, which means that the problems that had been accumulated in the country’s economy were not solved in time to make an impact. It soon became obvious that it was impossible to reform a non-market economy on a non-market basis, and a course was taken to build a market system. The basis of the new reforms relied on ideas of cutting costs for maintaining the world socialist system and the military industry, rejuvenating the ruling class, legalizing business activities, and bringing the most profitable enterprises to the world market (Osipov et al. 1994, 30–34). These reforms were supposed to free up large financial resources, bring additional budgetary revenues, contribute to the efforts of the USSR to catch up with technological progress, and ease the dissatisfaction with the regime among Soviet citizens (Levchik 2020, 30). It is clear that the ruling class did not plan to give up its power, and in the new conditions there was only one way to save power—to turn it into property. This could only be achieved by privatizing state property, preserving its economic potential. This task of the ruling class was solved

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by bringing Soviet state-owned enterprises to the world market under their own patronage, having a part of the union budget as start-up capital. It was necessary to somehow explain to the population, waiting for changes, that such reforms were the very necessary inoculation for the Soviet economy, which would solve all the pressing problems and create new impulses for the development of the country. For this purpose, Gorbachev put forward his most successful slogan: “Each family will get a separate apartment by the year 2000,” thereby gaining wide national support and a wave of approval from the Soviet people (Central Committee of the CPSU 1986). In fact, the implementation of the reforms only fueled the degree of social tension in the USSR. It was proposed to achieve an acceleration of the economy through the introduction of an anti-alcohol campaign, but this idea failed miserably. The expected economic effect did not follow, but serious political damage was inflicted on the country’s leadership. However, that was far from the point. The main source of growth in protest activity was attempts to build capitalism in the USSR. In 1986, they allowed the creation of the first non-state enterprises and cooperatives. Then industrial enterprises began to receive the right to enter the international market, bypassing the monopoly state system of foreign trade. Coal, just at that moment, began to enter new, previously considered exotic markets in small volumes. We have already found out why this was done—the ruling nomenklatura began to gradually transform into the production bourgeoisie, choosing for itself “the most tidbits.“ Coal enterprises were not among them, since, from the 1960s, most of the coal mining enterprises in the country were considered unprofitable (Bratchenko 1960, 415). So, at that time, about 90% of coal trusts and plants in the USSR received state subsidies to cover production costs (Gordon et al. 1999, 44–47). In 1987, the construction of capitalism continued with the adoption of the State Enterprise Law. The law gave the heads of enterprises broad rights to change and regulate the wages of workers (USSR Law No. 7284-XI “On State Enterprise (Union)” [Zakon SSSR ot 30.06.1987 N 7284-XI ‘O gosudarstvennom preppriyatii (ob’edinenii)’] 1987), which immediately led to wage increases and inflation. For the first time in the history of the USSR, the law and subsequent resolutions raised the question of stopping the operation of unprofitable enterprises, which included many enterprises in the coal industry. The situation then started to escalate.

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Additionally in 1988, preparations for financial reform began in the country, which consisted of changing the main function of the ruble, its transition from a unit of account and a means of payment to a means of accumulating wealth. Barter and non-payments appeared, and wage delays at industrial enterprises became commonplace (Levchik 2020, 34). Meanwhile, the process of transformation of the sectorial Soviet Union ministries into a kind of “concern” was occurring. The coal industry became a two-tiered system: all state, scientific, and other production associations were directly subordinate to the USSR Ministry of Coal Industry (Council of Ministers of the USSR 1987). However, control over the sale of products until 1990 was carried out by the USSR Gossnab (in 1990 the functions of supplying and marketing coal was entrusted to the Ministry of Coal Industry of the USSR) (Council of Ministers of the USSR 1990), whose management did not understand how to sell the company’s products in a crisis and the absence of resellers. Before the start of the reforms, Gossnab was engaged in the distribution of coal products among the enterprises of the USSR, depending on their needs, now a different approach was required (Barsenkov 2001, 183). Gossnab obviously was not suitable for the new role, but the understanding came too late—crisis was just around the corner. The “earthquake” stage also began in domestic politics. In the autumn of 1987, a new figure, the First Secretary of the Moscow City Committee of the CPSU, Boris Yeltsin, entered the political arena, actively criticizing the ongoing reforms and entering into an open confrontation with Gorbachev. A wave of rallies swept across the country in support of the new political figure with slogans such as “Fight Boris!”3 The formation of a new intra-apparatus center of power, capable of influencing the non-party opposition, began (Levchik 2020, 40). From that moment, trying to retain power, which resembled “shifting sand,” Gorbachev focused his efforts not on the implementation of reforms. Instead, his new credo became the concentration of all power in the country and the removal of all political opponents. Having taken the post of Chairman of the Presidium of the Supreme Soviet of the USSR in 1988, he concentrated the highest legislative power in his hands and switched to fighting the intra-party and intra-apparatus opposition

3 This slogan addressed to Boris Yeltsin used on posters and badges at democratic opposition rallies in Moscow since summer 1989.

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(Levchik 2020, 40). Apparently, this could only be achieved through the dismantlement of the CPSU as a whole. Therefore, the dissolution of the Communist Party began in 1988. First, at the XIX All-Union Party Conference, a course of action was proclaimed for the “de-partisation” of the country (XIX All-Soviet Union Conference of the CPSU, 28.06.1988–01.07.1988: Stenographical Report 1989), then in September 1988, the apparatus of the Central Committee of the CPSU was reorganized. In the summer of 1989, elections were initiated for the next XXVIII party congress based on platforms. Several platforms arose in the CPSU—Democratic, Marxist, and Bolshevik. Violent divisions began to break out within the party, which escalated into civil unrest. Mass strikes of the labor movement began, the main driving force of which was the coal miners (Osipov et al. 1994, 19–20). In 1989, mass strikes of miners, builders, and industrial workers began in support of Yeltsin. From January to March 1989, 11 strikes took place in the mining regions, and from January to August 1989, the loss of working time in the RSFSR due to strikes amounted to over tens of millions of man-hours (Gavrilov and Lavrov 1989, 173). The first mass regional strike took place in Kuzbass in July 1989. Then, during the week, over 1/3 of all workers in the region, working at 209 enterprises out of 589, took part in the strike (Kemerovo Regional Committee of the CPSU 1989). A week later, the miners of Kuzbass were supported by the miners of the Pechora coal basin, who announced a solidarity strike. Three weeks later, all 13 Vorkuta mines went on strike. Thus, in modern Russia, it took only three months for the strike movement to move from a strike at enterprises to a mass strike within the borders of Kuzbass (Levchik 2020, 55). The first all-Russian sectoral political strike took place in the country in the spring of 1991, only eighteen months after the all-Kuzbass strike. This was a powerful strike of miners demanding higher wages, the reorganization of the Soviet Union, and the conclusion of a new union treaty (Levchik 2020, 55). It is noteworthy that the all-Russian strike began where the separatist aspirations of the party nomenklatura were most strongly manifested, which was transformed into the industrial bourgeoisie. On March 1, 1991, the strike of the miners in the Ukrainian and Kazakh Soviet Republics began, and only a few days later the wave reached the miners of the RSFSR (Miners’ Movement: Documents and Analytics [Shakhterskoe

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dvizhenie: dokumentalniye i analiticheskie materiali] 1992). By the end of April 1991, the main wave of protest was extinguished. However, by this time almost nothing was left of the Soviet Union—an attempt to create a new union4 did not lead to anything. The division of the property of the USSR followed. The enterprises of the mining industry began to leave the Union jurisdiction under the republican ones. The USSR “lived out” its last months. It can be assumed that in order to continue market reforms in the Union Republics, their leaders became uncomfortable with the central leadership, and such protest movements were beneficial. The party nomenclature rapidly transformed into an industrial bourgeoisie, and the presence of a central government simply prevented it from seizing control over industrial assets of interest. How did it happen that under the current conditions, it was the miners, representatives of the least attractive industry for privatization, that became the strongest driving force behind the protests? Yes, it was hard for the miners, their work is rightfully considered some of the harshest, but why was it possible to significantly raise the representatives of this profession? Here it is important to understand that in addition to problems in the economy and in the industry itself, the miners were a separate caste, a community. They lived, as a rule, in mining settlements or single-industry towns, such as Vorkuta, Donetsk or Kuzbass. Close professional relations gradually turned into neighborly ones, and between the miners, the signs of communality were most visible. Such a way of life led to an environment where problems at work flowed into the community and vice versa. The second reason was the urgent need to reorganize state-owned coal enterprises into other forms of ownership in order to be able to independently determine production rates and sell coal at market prices, including abroad. In fact, the beginning of coal exports to new markets in the mid1980s showed coal miners that their product could be in demand outside the USSR and other countries were ready to pay a higher price for it than inside the country. The political demands of the miners were the result of the accumulated hatred being displaced from the loathsome management structure at the

4 The so-called “Novogarevsky process.”

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enterprises. It was possible to blame only the bureaucrats and the current government, which, apparently, the political forces in opposition to the current government took advantage of in time. How exactly the unrest within the miners’ movements was fueled is a mystery. However, their demands were fully consistent with the program of the bourgeois nomenklatura: changing the form of ownership of coal enterprises, raising prices and allowing the sale of coal to the world market, setting production standards by enterprises on their own, as well as reorganizing the government of the USSR. At the same time, it is also impossible to draw conclusions that the miners were not independent forces. Although the parties interested in the protests certainly existed at that time, it is not possible to list them and prove their degree of participation. In reality, the demands of the miners were of a market nature. This means that the dynamic strike struggle of the miners was a movement for the speedy introduction of market capitalist relations, and we will assume that the protests were a delayed reaction to the problems accumulated in the industry and a self-organized attempt to save the industry in the context of a deep social, economic, and political crisis on the national scale.

Who Is Behind the Changes? The Role of Personalities. During the existence of the USSR, the coal industry experienced both a rapid rise and a strong decline. However, it is worth remembering that history is written by people, which means that not all changes in the industry occurred spontaneously—there are always reasons and decision makers who stand behind the changes. The events that took place in the last decade of the USSR have many faces and names. Without a doubt, the apparatus of the Central Committee of the CPSU played a key role in these events—not the CPSU Central Committee, but precisely its apparatus and these are two different things. The CPSU Central Committee included members of the CPSU and candidate members of the CPSU, as a rule, from among the highest party dignitaries. They came together twice a year to participate in the Plenum or to vote on a particular issue (candidates for members of the Central Committee had the right to speak, but not vote). Unlike the CPSU Central Committee, the apparatus of the CPSU Central Committee worked daily and was engaged in solving specific practical problems (Eremenko 2002, 3).

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The Economic Department (until December 2, 1982, it was called the Department of Planning and Financial Bodies) of the apparatus of the CPSU Central Committee at that time dealt with all issues of the Soviet economy. There were such organizations under its supervision as the Ministry of Finance of the USSR, the State Bank of the USSR (Gosbank), the Construction Bank of the USSR (Stroybank) and other state banks. The sector, to which we will pay special attention, and in which Stanislav Anisimov happened to work, was responsible for the work of the State Committee for Material and Technical Supply of the USSR (Gossnab) throughout the Soviet Union.

Stanislav Anisimov, Minister of Trade and Material Resources of the RSFSR (1991–1992), USSR Minister of Material Resources (1991–1991), Gossnab of USSR (1988–1991), Apparatus of the CPSU Central Committee (1978–1988)

Stanislav Anisimov was to manage the control over the work of Gossnab. His duties included supervision of the supply of all Soviet ministries, identification of specific problems, and preparation of reports to the management of the Gossnab Having risen through the ranks from a simple pipe-rolling worker to the Minister of Material Resources, Anisimov was one of those who stood behind the economic reforms of the 80s, sincerely believing that the USSR could be saved by repeating the successes of the Chinese reforms. Thanks to his work, Soviet industry began to free itself from the “administrative fetters” and gradually began to enter foreign markets

In turn, Gossnab of the USSR or the State Committee of the USSR Council of Ministers for material and technical supply was the central economic body of the country and dealt with the most important tasks of material and technical supply and marketing of finished products based on a study of the national economy needs in the material and technical resources of the entire Soviet Union (Council of Ministers of the USSR 1962). The organization was independent of the USSR Council of Ministers, gave its opinions on the ministries’ plans, and controlled their implementation in all sectors of the economy.

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When, in the late 70s, Anisimov came to the apparatus of the CPSU Central Committee, the situation in the USSR seemed stable as the mechanism for distributing resources, at the very least, worked. The need for changes was not yet obvious. However, from year to year, problems in the country’s economy began to grow and the economic department began in 1982 to actively develop a reform to change the management of the economy. Nikolay Ryzhkov, Secretary of the CPSU Central Committee, was appointed as the head of the department (Zhirnov 2014, 55). Ryzhkov was included in the group for the development of reforms by the General Secretary of the CPSU Central Committee, Yuri Andropov. Starting in 1982, he had been actively fighting corruption, looking for new approaches to regulating economic processes, trying to strengthen labor discipline, and expanding the rights of enterprises and associations in planning economic work. Under him, in the depths of the apparatus of the CPSU Central Committee, a working group was created to study the experience of the private and cooperative sectors of the economy (Barsenkov 2001; Shubin 2001, 280–281). In addition to Ryzhkov, Gorbachev also became a member of Andropov’s team of like-minded people. The work went on for three years, and in April 1985, Gorbachev came up with a program of action, on which the supporters of reforms worked for three years (Sochnev 2015). The changes were needed vitally. Awareness of the need for change came in a matter of years. Enterprises that manufactured products and sent them for export could not use foreign exchange earnings to import advanced equipment as all those earnings were intended for the state and went to the needs of the defense industry. This situation had to be changed. The rails of the planned system led the Soviet economy to a dead end. The energy, metal, and material intensity of Soviet industries was twice as high as their American counterparts (Zhirnov 2014, 55). Coal enterprises lagged behind their foreign counterparts, perhaps most of all. Most of the operating mines were either created during the first five-year plans or were generally a legacy of tsarist Russia. Until the mid-80s, not a single leader of the country had planned serious investments in such an industry. Gorbachev, who came to power in 1985, began to solve two problems at once. The first was the implementation of reformist ideas. The second was connected with the need to consolidate and strengthen power, since until 1988 the highest legislative power was not under his control, and the highest executive power did not have its own “nominees.” Consequently,

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Gorbachev had to fight for real leadership in the Supreme Soviet of the USSR, in the apparatus of the CPSU Central Committee, in the USSR Council of Ministers and, in parallel, look for his allies. At the same time, positive changes and an improvement in life were expected from the new Secretary-General. A year after Gorbachev came to power, the nationalization and privatization of the economy began. First, the formation of a small and medium industrial bourgeoisie was encouraged, and then the 60 largest enterprises of the USSR received the right to enter the international market, bypassing the state system of foreign trade. This marked the beginning of the formation of a large industrial bourgeoisie (Levchik 2020, 34). Needless to say, former representatives of the party nomenklatura became the owners of medium and, in particular, large enterprises. This was obvious, since Gorbachev needed to form a new class—an industrial elite loyal to him, on which his power would rely. In 1988, the real privatization of the most profitable industries and the gradual process of transferring the power of the nomenklatura into private ownership began. The already mentioned “State Enterprise Law” of 1987 (USSR Law No. 7284-XI “On State Enterprise (Union)” [Zakon SSSR ot 30.06.1987 N 7284-XI ‘O gosudarstvennom preppriyatii (ob’edinenii)’] 1987) created the conditions for the bankruptcy of part of the industrial enterprises of the USSR and subsequently allowed the transforming bourgeoisie to buy them out practically for next to nothing. Successful reform of the economy required significant amounts of foreign currency for the purchase of modern new equipment, and with the collapse of oil prices, foreign exchange earnings in the USSR began to decrease. In 1988, the apparatus of the CPSU Central Committee was reorganized, and Anisimov was offered to go to work directly in the USSR Gossnab as a deputy chairman. In his new capacity, he responsibly began to implement the ideas accumulated over many years of work. “We understood that foreign exchange earnings were declining, and we tried to prepare for further complications in the economy. We have sharply reduced import purchases. We stopped buying everything that could be produced in the country, everything that could be dispensed with,” he said in an interview (Zhirnov 2014, 55). At the same time, a food crisis unfolded in the country. There was not enough food because the country largely lived on imports.

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To improve the critical situation, it was apparently decided to turn to the Chinese experience. In China, there was a general rule: if the product can be exported, then it will be exported first, even if the domestic market was in dire need of these products. The fundamental was to obtain currency (Koch and Aven 2019, 214). So, in Gossnab, the idea arose to increase the export of what was in demand abroad and could bring currency: timber, machinery, textiles, fertilizers, chemical products, and, of course, coal. It was then that coal began to “sneak” into the conversation for export and enter new markets. However, this process was interrupted by the miners’ strikes that began to break out. Ongoing Political Clashes. Attempts to normalize the economic situation in the country did not lead to measurable results. The people who stood at the origins of the reforms fought unsuccessfully with the forces that benefited from the collapse of the USSR. The confrontation between the two leaders, Gorbachev and Yeltsin, played a fatal role. “As soon as the independence of the RSFSR was declared in 1990, any revenues to the union budget ceased,” Anisimov recalls (Zhirnov 2014, 55). In addition to the growing economic problems, the boat began to rock from the inside, and the miners’ strikes were only a consequence of political clashes. “Economic power at that time was in the hands of Ivan Silaev, Oleg Lobov… they deliberately committed to the destruction of this system. They were quite experienced and qualified people, they could not help but understand that they were ruining the Soviet Union,” as Alfred Koch, who has been in charge of privatization since 1993, recalls (Koch and Aven 2019, 227). The crisis became stronger and deeper. All agreements on the movement of goods and mutual supply collapsed. Workers’ strikes were actively going on across the country in support of Yeltsin and against the leadership of the USSR. Gorbachev did his best to hold on. Consequently, in March 1990, under pressure from Gorbachev, the post of President of the USSR was established, to which he himself was elected. Immediately after the election, the President of the USSR began to engage in personnel purges. The vacated post of the Chairman of the USSR Supreme Soviet was taken by his associate Anatoly Lukyanov, and the Chairman of the USSR Council of Ministers Nikolay Ryzhkov was forced to resign. Valentin Pavlov became the new prime minister, whom

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Gorbachev appointed at the end of December 1990. It can be said that by 1991 Gorbachev received full power, but it was already too late. With the appointment of Pavlov, an accelerated reorganization of the Gossnab took place. The main task was to weaken the centralized management and transfer as much as possible of the product range from planned to market sales. First of all, it was needed to weaken the centralization of steel for metallurgy (Koch and Aven 2019, 217). Metallurgical enterprises were allocated quotas for the free sale of products. In all regions of the country, commercial centers were created to organize the marketing of their products. Since July 1991, with the appointment of Silaev5 as a head of the Russian government, an active stage of trade in products abroad began in the RSFSR. Foreign partners were more interested in rare and nonferrous metals, but there was also a demand for ferrous metallurgy products. As a result, metallurgical enterprises became a center of profit, and the industry became a “tasty morsel” for the industrial bourgeoisie that was continuing to transform. It is important to realize that the end of the 80s and the beginning of the 90s for the industrial enterprises of the RSFSR was the time of preparation for the “transition under the jurisdiction of Russia,” the withdrawal from the control of the union ministries and departments and subordination to the Russian ministries (Council of Ministers of the RSFSR 1991), and therefore to the nomenclature of the Russian Federation. The task of transforming the nomenklatura into the bourgeoisie was solved by bringing Soviet state-owned enterprises to the world market under the leadership of the same nomenklatura, which had part of the budget of the Soviet Union as start-up capital (Levchik 2020, 29). The next goal of the industrial bourgeoisie was to get out of union control and gain independence. So, by 1991, the transforming nomenklatura no longer needed Gorbachev. Its leaders could continue economic reforms and create a market infrastructure on the basis of independent republics of the

5 On July 12, 1991, Ivan Silaev was appointed to the post of Prime Minister by decree

of the President of the RSFSR Boris Yeltsin after approval by the Supreme Council. On July 13, 1991, he was approved in office by the Congress of People’s Deputies. In August 1991, contradictions escalated between Ivan Silaev and Boris Yeltsin on the issue of preserving the USSR. After that, on September 26, 1991, Silaev was released from the post of chairman of the government of the RSFSR.

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Union—without central leadership. The confrontation with Yeltsin was lost, and the republics finally moved toward independence (Levchik 2020, 46–47). The miners’ strikes also had a hidden meaning: in the process of expropriating union property, the transforming nomenklatura imposed on the workers a “social role-playing game of a hero and team,” financed it, solving their economic and partially political tasks (Levchik 2020, 197). The workers who fought for a better future, in reality, became only instruments of struggle in the hands of a new class that was gaining strength—the industrial bourgeoisie. In fact, the coal enterprises turned out to be unnecessary and went into free fall mode. Yes, coal retained its socio-economic importance as a fuel for thermal and electric power stations, but no one sought to own unprofitable enterprises. In addition, the “State Enterprise Law” of 1987 allowed the industrial bourgeoisie to lobby for the appointment of directors of coal companies that were beneficial to them. Thus, they controlled the supply of the required amount of coal for the production needs of other more profitable industries. Remaining for the most part independent enterprises, some of them tried to develop new markets, but they have not yet managed to achieve large volumes of exports as the efficiency of Soviet coal enterprises was low, it was difficult and unprofitable to export coal. The coal industry gradually entered the most difficult stage in its history—the stage of overcoming an even deeper crisis and restructuring the entire industry.

Conclusions By the mid-twentieth century, the Soviet Union was the only large industrialized state that fully provided itself with fuel and energy from its own natural resources. Coal remained one of the main energy sources within the Soviet energy balance for a long time. Coal was the main source of heat and electricity generation until the beginning of active development of oil and natural gas fields in the 1950s. Since the 1950s, the share of coal in various sectors including power, heating, and railway transportation started to decline. Even the use of coal in metallurgical production suffered. Natural gas had competitive advantages over coal in terms of efficiency and productivity, investment effectiveness, and not least importantly, ecological benefits and sanitary working conditions. By the end of the 1970s, another aspect made oil

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and natural gas sectors more attractive for development: export earnings, which were astounding. As a result, coal had lost its position in the domestic market to 21.8% by 1989. Meanwhile, natural gas and oil made up 72 percent of the total energy output in the USSR. By the end of the 1980s, serious problems had accumulated in the coal sector including an extensive (i.e., not intensive) growth model based on open-pit mining, and aging assets with some mines dating back to pre-1917. As a result of the specific closeness of community and social organization around the coal industry, the crisis of the industry led to a broad strike movement at the end of the 1980s. To a certain extent, these strikes contributed to the collapse of the Soviet economy and the final disintegration of the country as strikes tended to coincide with most separatist aspirations of the regional nomenklatura. Demands included changing the form of ownership of coal enterprises, raising prices, allowing the sale of coal to the world market, setting production standards by enterprises autonomously, and reorganizing the government of the USSR. The dynamic strike movement of the miners was a struggle for the speedy introduction of market capitalist relations. The strikes of the miners hastened the transformation of the Soviet Union, but in the end, the workers who fought for a better future, in reality, became only instruments in the hands of a new class that was gaining strength—the industrial bourgeoisie. The beginning of coal exports to new markets in the mid-1980s demonstrated that coal could find markets outside the USSR, and other countries were ready to pay a higher price for it than inside the country. This would be one of the directions where the new bourgeoisie would take the coal industry. But before that turn could be taken, the inefficiencies inherent to the Soviet coal industry organization would have to be overcome.

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Ministry of Foreign Trade. 1981. Foreign Trade of the USSR in 1980. Statistical Digest. Moscow: Finansy i Statistika. Nikitin, Dmitry. 2015. “The Switch of the Urals Black Metallurgy from Coal to Natural Gas in the 1960s [Perevod Chernoi Metallurgii Urala s Uglia Na Prirodnyi Gaz v 1960h Godah].” Vestnik of the Chelyabinsk State University (24 (379)): 173–177. Osband, Kent, and Manmohan S. Kumar. 1991. Energy Pricing in the Soviet Union. Washington, DC. Osipov, G.V. et al. 1994. Reforming Russia: Myths and Reality [Reformirovanie Rossii: Mify i Realnost]. ed. G.V. Osipov. Moscow: Academia. Presidium of the Central Committee of the CPSU. 2008. 1954–1964. Vol. 3. Resolutions [1954–1964. T. 3. Postanovleniya]. Moscow: Rosspen. RGANI. Fond 3. Opis 37. Delo 15. In Russian State Archives of Modern History [Rossiiskii Gosudarstvenny Archiv Noveishei Istorii]. Shubin, A.V. 2001. From Stagnation toward Reforms. The USSR in 1917–1985 [Ot Zastoya k Reformam. SSSR v 1917–1985 Gg.]. Moscow: Rosspen. Sinev, Nikolay M. 1987. Economics of Nuclear Power: Fundamentals of Technology and Economics of Nuclear Fuel Production. Nuclear Power Plant Economics [Ekonomika Iadernoi Energetiki: Osnovy Tekhnologii i Ekonomiki Proizvodstva Iadernogo Topliva. Ekonomika AES]. Moscow: Energoatomizdat. Slavkina, M. 2002. Triumph and Tragedy. Soviet Oil and Gas Complex Development in 1960–1980s [Trumph i Tragediya. Razvitie Neftegazovogo Kompleksa SSSR in 1960–1980e Gg. ]. Moscow: Nauka. ———. 2016. “Sharp Edges of the ‘Black Gold’: The History of ‘Oil Needle’ in the Soviet Union [Ostrie Grani ‘Chernogo Zolota’. Istoriya ‘Neftyanoi Igli’ a Sovetskom Soyuze].” Rodina—Federal Print (4 (416)): 128–133. Sochnev, A. 2015. “Interview with the Former Chairman of the USSR Ministerial Council Nikolay Ryzhov about the Beginning of Perestroika: ‘With All Disrespect toward Gorbachev, He Did Not Want to Destroy the Country’ [Intervyu s Byvshim Predsedatelem Soveta Ministrov SSSR].” Lenta.ru. https://lenta.ru/articles/2015/03/19/ryzhkov/. Stroganov, A.I. 1966. New Equipment in the Black Mettalurgy of the South Urals [Novaya Tehnika v Chernoi Metallurgii Yuzhnogo Urala]. Chelyabinsk: SouthUrals Books Publ. Sudo, M.M., and E.R. Kazankova. 1998. “Energy Resources. Oil and Natural Gas. Century Foregone.” Rossiya v okruzhayushem mire 1(6): 1–10. The USSR Economy: Statistical Yearbook. 1956. Moscow: Central Statistical Administration of the USSR. The USSR Economy in 1960: Statistical Yearbook. 1961. Moscow: Central Statistical Administration of the USSR. The USSR Economy in 1989: Statistical Yearbook. 1990. Moscow: State Statistics Service of the USSR.

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Tsypin, A.P., and V.A. Ovsyannikov. 2014. “Comparative Analysis of Growth (Decline) Dynamics of Natural Resources Production in He USSR and the USA in 1970–2013 [Sravnitelniy Analiz Dinamiki Tempov Rosta (Snizheniya) Dobyshi Poleznih Iskopaemih a SSSR i SShA v 1970–2013 Gg.].” FƏNNauka (8): 7–10. USSR Law No. 7284-XI “On State Enterprise (Union)” [Zakon SSSR Ot 30.06.1987 N 7284-XI ‘O Gosudarstvennom Preppriyatii (Ob’edinenii)’]. 1987. USSR State Statistics Committee. 1987. Soviet Economy during the 70 Years: Jubilee Statistical Yearbook. [Hapo oe]. XIX All-Soviet Union Conference of the CPSU, 28.06.1988–01.07.1988: Stenographical Report. 1989. Moscow: Politizdat. Zapariy, V.V. 2001. Black Metallurgy in the Urals in XVIII–XX Centuries [Chernaya Metallurgiya Urala v XVIII–XX Vv.]. Ekaterinburg: Bank of Cultural Information. Zhirnov, E. 2014. “Interview with S. Anisimov: ‘We Tried to Get Ready for Further Complications’ [Intervyu s S. Anisimovym: ‘Mi Pitalis Podgotovitsya k Dalneishemu Oslozhneniyu Del’].” Kommersant Vlast (15): 55. Zyuganov, G.A. 1995. Russia and Contemporary World [Rossiya i Sovremenniy Mir]. Moscow: Obozrevatel.

CHAPTER 3

Reforms in the Russian Coal Sector

Why Reforms? From Peak Production to Decline In 1989, the number of employees of the coal mining enterprises of the USSR (directly involved in coal extraction) amounted to 896,700 people. Until 1988, the continuous growth of total coal production was ensured by the increasing share of open-pit coal mining. In the meantime, the intensification of mining operations was not accompanied by a serious shift of coal mining centers to the most profitable deposits. From 1981 to 1990, only 10 new mines were put into operation, and over the same period from 1971 to 1980—37 mines were commissioned. By 1988, the Soviet Union reached its peak in total volume of coal production of 771.8 million tons and became one of the three world leaders after China and the United States. At the same time, the core of coal mining was in Russia (RSFSR) with a share of 55.1%, and the main coal basin was Kuzbass (West Siberia), with an output of 159.2 million tons of coal. The coal industry was crucial to the Soviet economy. The share of coal in the country’s fuel and energy balance was declining, but by the end of the 1980s it was still about 20%. More than 1.7 million people were directly involved in the industry, and the total contribution to the country’s GDP, calculated on the basis of European price values, reached up to 10% of the total gross product of the Soviet Union (5–6% of GDP calculated at the USSR average export prices). © The Author(s), under exclusive license to Springer Nature Singapore Pte Ltd. 2023 N. Lomagin et al., Russian Coal in the Era of Climate Change, https://doi.org/10.1007/978-981-99-5370-7_3

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The systematic commitment of the miners to a quantitative increase in production during the five-year development plans of the national economy of the USSR had led to a number of negative trends, reflected in the deterioration of mining and geological conditions for the extraction of coal by underground methods. As a result, despite continued growth in production, the return on capital indicator was declining (Fig. 3.1). The deteriorating conditions of mining operations were not the only problem in the Soviet period of the industry’s development. In 1990, about 380 million tons of coal were produced by underground coal mines (54% of the total), while more than half of them were commissioned before 1960 and had never been upgraded since then. About 210 mines throughout the USSR operated for more than 35 years, 64 of which were put into operation before the Second World War and 73 were commissioned during the next five years after it began. Their total production capacity was about 20% of the total production potential of the USSR. In the late 1980s, the external economic environment for the Soviet Union also did not contribute to the development of the country’s coal industry. The growth of the balance-of-payments deficit, external debt, and shortage of food and consumer goods led to the beginning of the disintegration of the USSR. Thus, the current economic situation in the country by the end of the 1980s did not allow for a quick response to the urgent problems. The Capital productivity, product units per 1 ruble of the cost of fixed assets 93 91 87 83 81

80 78

1981

1982

1983

1984

1985

1986

1987

Fig. 3.1 Capital productivity of the Soviet coal industry (Source USSR State Committee on Statistics [Goskomstat SSSR] 1988)

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combined negative effect instead led to the beginning of the coal industry crisis in 1989 and the growth of a strike movement among miners. In the late 1980s and the early 1990s, Russia was driven to adjust its coal sector as part of wider macroeconomic reforms. As the economy contracted, coal demand declined and the government initially tried to prop up its coal industry with very large subsidies to cover losses rather than closing mines, undertaking orderly layoffs, and reducing losses. However, the coal subsidies became unmanageable and reached over 1% of GDP in the early 1990s (World Bank 2018, 23). Growing wages in arrears and uncertainty fueled anger toward the government in Moscow. In the spring of 1991, an eyewitness reported that “there are pickets and patrols on streets by well-built workers in white shorts. In ideal order, there are no crimes in the town. Local authorities voluntarily transferred their power to those whom they did not allow entering their offices. Kirovsk, Snezhnoye, Shakhtersk, Torez, Donetsk… It was not a strike – it was a revolution”1 (Gaidar 2013, 464). Strikes by coal miners had already led to a radical decline in coal production in 1988–1990 both in the Soviet Union and Russia (Fig. 3.2), and the situation became worse with every month. The fall in production of coke coal fueled the crisis in metal mills as well. Also, the number of blackouts nationwide increased 2.4 times in 1990 from 1989. Due to a decrease in production of oil and gas condensate by 16.5 million tons and of coal by 22 million tons, there was a shortage of electrical capacity of 8 million KWt in the winter of 1990– 1991. Finally, supplies of energy fuel for the winter season of 1991 was

USSR Russian Federation

1988 772 425

1989 740 410

1990 703 395

1991 629 353

Fig. 3.2 Coal production in the USSR and Russia in 1988–1991 in million tons (Sources Economy of the USSR in January–September 1991 [Ekonomika SSSR v janvare-sentiabre 1991 goda] 1991; Soviet Economy in 1990: Statistical Yearbook/State Statistical Committee of the USSR [Narodnoje khoziajstvo SSSR in 1990 g.: Statisticheskij-ezhegodnik/Goskomstat SSSR] 1991; Gaidar 2013, 428)

1 This is coal mining agglomeration in Donbass (Gaidar 2013, 464).

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reduced from an average of 69–73 million tons to mere 43 million tons. It caused disorganization of the whole national economy (Gaidar 2013, 385, 387). Thus, risks of energy security accelerated to the threats to national security. Of course, the oil sector was much more important for the Kremlin than the coal industry. The growing crisis in oil production was fateful for the country and the system as such. Nikolai Ryzhkov who was chairman of the Soviet government in 1990 made it very clear in a meeting with cabinet members on September 17, 1990. “In such [drastic] situations our oil industry has never been before, even in 1985… Our minimum is 560–570 million [tons], otherwise we will not be able to provide socialist countries and the rest—food and machine building… It is a pity that while oil prices grow, we deliver less and less… I see if there will not be enough oil, it will be fatal for the economy of the country… In the beginning of the year, we talked about 625 million tons, but today we expect just 547 million…” (Gaidar 2013, 384–85). In fact, in the first half of 1991, daily production of oil decreased even further to about 530 million tons of annual output with an export capacity of just 61 million tons (Gaidar 2013, 387). Meanwhile, the coal sector was not on a priority list for the new Russian government. The main architect of liberal reforms in Russia, then acting prime minister Yegor Gaidar, did not pay any particular attention to the restructuring of the coal sector in his numerous publications about that period in Russian history. His previous research into the minutes and correspondence of the Politburo made it clear, there was no doubt that the fall in world oil prices and a drop in Soviet oil production did hurt the Soviet system and eventually led to its bankruptcy (Goldman 2008, 383– 87). Thus, he was thinking about those industries of the Russian economy that through liberalization and privatization could provide macroeconomic stability and sustainable growth. Not less importantly, this process of transformation was thought to be fast. As far as the coal miners are concerned, the government did not pay particular attention to them during the first year of reforms. The collapse of the Soviet Union and the ensuing sharp downturn in economic activity led to rapidly shrinking demand for coal from big customers like power plants and steel mills. Coal consumption in Russia fell to 304 million tons in 1993 from 395 million tons in 1990. While coal prices remain partly under government control, the industry’s costs, especially rail freight

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charges to make deliveries to customers, jumped sharply, worsening the industry’s financial crisis. In 1992–1993, the situation in the coal sector deteriorated. It became clear that restructuring the Russian coal sector, the largest in the world, which employed almost 900,000 people, was on the agenda. Indeed, growing inefficiency of the coal industry resulted in a huge burden for national finances as annual subsidies amounted to about $2 billion. They were larger than any sector of the economy except military-related industries and agriculture. There was a need for structural changes aimed at creating competitive enterprises that would ensure that the country’s economy would meet the demand for coal products while reducing the financial burden on the Russian budget. To solve this problem, a mechanism of creating joint-stock companies (JSC) was formed, through which it was intended to change the ownership forms of coal enterprises. On December 30, 1992, the decree of the President of the Russian Federation Boris Yeltsin No. 1702 “On the transformation into joint-stock companies and privatization of associations, enterprises, organizations of the coal industry” (Decree of the President of the Russian Federation of December 30, 1992 No. 1702 “On the transformation into joint-stock companies and privatization of associations, enterprises, organizations of the coal industry” 1992) formally launched mass privatization of state-owned enterprises of the industry. Contrary to juicy sectors of the Russian economy such as oil and metals, there were few people in Russia who considered coal as a viable field for investment. Traditional consumers of coking coal had first to settle their own scores about who would own major steel mills and only then to look for related assets. Also, as most coal mines were in operation for decades, the industry as a whole needed large investments with no chance for rapid returns. Last but not least, few if any knew how to deal with the coal miners—the most consolidated and active group of workers in post-Soviet Russia. The announced transformation was to take place within just three months more or less to remain in line with the overall strategy for privatization. The government had to develop a program of state support for the coal industry which as we will see was entrusted to Rosugol, a special company, established in March 1993 by the Russian government. The issue of coal had a particular sensitivity for President Yeltsin, who long benefited from strong support among the miners. In 1994, he faced

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a difficult choice: either to risk the whole economy, or to make coal miners losers. Given their strong support during Yeltsin’s struggle for power in 1990–1991, it would mean creating a political and social crisis by causing widespread unemployment among former loyalists. Indeed, the coal miners have played an important political role since 1990, when the increasing chaos in the Soviet economy led them to begin striking over poor pay and working conditions. During a long strike in the spring of 1991, the miners adopted Yeltsin as their champion, undermining Mikhail Gorbachev’s position as Soviet leader. In 1994, a World Bank study predicted employment in Russian coal mining declining to between 287,000 and 338,000 over the following three years, meaning job losses of roughly 600,000, including miners and those in jobs dependent on the industry. The hardest hit was expected in the Kuzbass region of western Siberia and the Pechora Basin in the Komi Republic north of the Arctic Circle, with other coal mining regions like Tula, Chelyabinsk suffering large job losses as well. The World Bank, which was pushing the government to move quickly to bring its finances under control, recommended that subsidies be phased out by 1998. It also recommended that in the meantime some part of the subsidies be redirected to finance programs to retrain, relocate, or otherwise help laid-off miners (Stevenson 1994). While these recommendations had some support among the more aggressive reformers, they provoked a backlash from the industrial lobby and the Ministry of Energy. “Some of the arguments are quite reasonable,” Minister of Energy Yuri Shafranik said in an interview with a Moscow newspaper, referring to the World Bank report. “They should not be rejected. But on the whole, the report is unacceptable, especially in regards to the pace of the coal industry’s reorganization.” Thus, the second part of Russia’s coal industry equation was the fate of a huge number of workers and their families who were supposed to lose jobs over a very short period of time. The miners’ influence had clearly vanished since the beginning of the 1990s. However, they remained a force both because of their numbers and because coal, while not as important an energy source as it once was, remained vital to some industries and was still burned to heat homes in villages across the country. As we have already mentioned, the Soviet Union remained more reliant on coal than most Western countries, and elevated miners to the status of socialist heroes. To ensure an adequate supply of labor for the dirty,

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dangerous work—often in remote areas—central planners bestowed relatively generous salaries and pensions on miners, and made sure that they received other benefits as well. The ability of coal miners to speak in one voice with state authorities about their concerns through independent trade unions and even go on strike by blocking rail traffic in Kuzbass region and other coal regions or by organizing widely broadcasted marches to Moscow posed not only financial but also political risks for the Kremlin. Those risks have existed for quite a while in coal mining regions. Joseph Stiglitz later observed that the transition from communism to a market economy was more than just an economic experiment according to the market fundamentalists preached in textbook economics such as prices, private property, and profits. Indeed, together with competition, these fundamentals provided incentives, influenced economic decisionmaking, ensuring that firms produced what consumers wanted at the lowest possible cost. But reformers in Russia and those who provided technical assistance “tried to take a shortcut to capitalism, creating a market economy without the underlying institutions, and institutions without the underlying institutional infrastructure” (Stiglitz 2002, 139). In fact, reforms meant much more than liberalization and privatization. It was a transformation of societies and of social and political structures, and the dynamics of change were critical as well (Stiglitz 2002, 135, 138). In this chapter we will focus on two dimensions of the coal industry transformation: its economic performance through the process of privatization, and the high social costs still being paid by those who became immediate victims of such transformation—laid-off coal miners and their families. They not only lost their jobs and incomes but also a chance for a stable future. Even today, many Russian families seek assistance in relocating from depressed coal regions. In comparison to widely discussed programs on a “just transition” in coal regions across Europe, supported by the EU and the World Bank, Russia has been meeting various social and economic challenges alone by using local resources and lessons learned during previous periods of transition. The most difficult choice centered on the speed of reform. Some experts and officials worried that if they did not privatize quickly, creating a large group of people with a vested interest in a market economy, there would be a reversion to communism. Others were concerned that if they moved too quickly, the reforms would be a disaster—economic failures compounded by political corruption—opening up the way to a backlash,

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either from the extreme left or right. The former school was called “shock therapy,” the latter “gradualist” (Stiglitz 2002, 140–41). The neoliberal approach led to the widespread firing of workers to create a lean and mean market economy leading, in the worst cases, to widespread misery. In Russia, “shock therapy” with its destructiveness reached colossal proportions. The population dropped by about 8 million between 1994 and 1999, and “Russia’s decline could not be explained in terms of war and violent upheaval.”2 High mortality rates are directly linked to the radical reforms and the country’s socio-political situation. As we will see later, restructuring of the Russian coal sector was a mix of both approaches. It took reformers almost three years to prepare for massive privatization. But within just a few years, reformers managed to ensure a predominance of private companies. As far as the social dimension of reconstruction is concerned, the process of reforms moved much slower than expected as it required not only will and strategy but also significant financial resources for the mitigation of mine closures, job losses, and the subsequent socio-economic impacts borne by families and communities in coal-dependent regions (World Bank 2018, 7–8).

Rosugol as a Reformer: Mission Unfulfilled The large-scale program of restructuring the Russian coal industry, which was actually launched in 1994, had become a necessary condition for the industry’s survival in the context of the prolonged crisis that had been going on since 1989 and the transition of the Russian economy to a free market. During the period of coal industry reform, the government of the Russian Federation allocated more than $10 billion of budget funds for the implementation of this program, and the World Bank adjustment loans for industry restructuring amounted to more than $1 billion. Restructuring of the coal sector and its modernization basically meant two things—first, to identify unprofitable mines and properly distribute budget funds intended for mine closures, local development programs,

2 On New Year’s Day 1992—the time of the beginning of liberal reforms—Russia’s

population was estimated at 148.7 million. As of mid-2003, according to the Russian State Statistics Committee (Goskomstat), the Russian Federation’s population was 144.5 million. During its first eleven and a half years of post-Communist independence, Russia’s population had apparently declined by over four million people, or about 3 percent (Ebershadt 2004, 9; Nikitina 2000, 23).

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and severance pay to laid-off miners, and second, to manage a competitive privatization of the sector. Unprofitable mines were supposed to be closed within 18 months, but the government had not come up with a plan to help the miners find new jobs, and it was unclear what severance pay or welfare benefits, if any, they would receive. The challenge was to translate the reform agenda into effective actions. The Russian government demonstrated a substantial commitment to reform including not only liberalization of coal prices but also a significant reduction in the levels of subsidies in real terms (from 1.04% of GDP in 1993 to 0.45% of GDP in 1995). Institutional steps were made as well. In mid-1993, the Inter-Agency Commission for Socio-Economic Problems of Coal-Producing Regions (IAC) was created for the purpose of advising the government on coal industry restructuring. Since then, the government has prepared a large-scale restructuring program aimed at transforming the coal industry into a sustainable and competitive sector of the economy. The principal objectives of the program were fourfold. First of all, the program aimed at reducing the impact of the coal sector on the federal budget by phasing out subsidies. The second goal was to promote the long-term sustainability of the coal sector through the establishment of a non-monopolistic, commercial industry. The third priority was increasing efficiency through reduction in the size of the industry. Finally, the program was intended to soften the impact of the restructuring on coal miners, their families, and affected communities. Created as a successor to the Soviet Ministry of Coal Industry, Rosugol retained many of its functions, and in fact, was a republican state-owned coal producer. It controlled 232 mines, 65 open-cast mines, and 68 coal preparation plants. In 1995, it was the fourth largest company in the country by revenue. Rosugol operated as a national coal monopoly, and its functions included allocating subsidies to mines and running some preparatory projects for privatization. Yuri Malyshev was the company’s chairman, but given the negative trends in the coal sector and uncertainty with numerous issues, the fundamental changes in the industry’s ownership did not happen. As part of the country’s transition to a market economy, Rosugol classified mining operations based on their economic viability (Lovei and McKechnie 2000). Those deemed unlikely to survive market conditions were closed down, with miners being relocated to other regions. A large part of the subsidies has been used to cover operational losses of regional

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coal companies and mine investments, thus hindering competition and financial discipline in the coal sector. The problems inherent in this subsidy system were exacerbated by a lack of transparency and financial accountability in the subsidy management system and by the practices of Rosugol. It dealt with a wide spectrum of issues such as allocation of budget subsidies, management of state shares in regional coal companies, ownership in a broad spectrum of service industries in the coal sector, and enforcement of state directives pertaining to mine health and safety standards. Despite its predominant role in the sector, Rosugol found itself in a competitive environment when it comes to ideology of reforms. In July 1993, the World Bank became a participant in the restructuring of the Russian coal industry, and in 1993 it allocated $50 million for lending investment projects for development of the industry. With World Bank’s technical assistance, the Russian government developed and approved in July 1995 the program titled, “Main directions for restructuring the Russian coal industry.” Then, in 1996, the World Bank issued its first loan of $500 million to restructure the industry. At the same time, the state enterprise Rosugol was transformed into an open joint-stock company, and the shares of coal enterprises that had been in federal ownership were transferred to its trust management. The role of Rosugol in the allocation and distribution of subsidies declined. Specifically, starting from 1996, about 90% of the subsidies were distributed by the treasury departments of the federal and regional governments. Moreover, the IAC was entrusted to allocate quarterly subsidies starting from the third quarter of 1996. Worth noting is that a Presidential Decree allowed organizations other than Rosugol to act as trust managers for the state shares in regional coal companies. This new quasi-competitive environment opened up opportunities for parties interested in privatization to get acquainted with coal assets directly. Finally, the government undertook rather radical measures to increase efficiency, including cessation of coal production at 37 unprofitable mines and a 20% reduction in the total workforce by 1996. During those early closures, many of the laid-off workers were re-employed in nearby mines. However, as the mine closure program expanded, the scope for such transfers diminished which led to the necessity to implement adequate measures for softening the social impacts of downsizing. In other words, the more radical reforms expected, the more funding was needed for various social programs including remote relocations, diversification, retraining, etc.

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According to the World Bank, the initial restructuring efforts began to pay off, and coupled with sharp increases in domestic coal prices, the industry as a whole reported 1.5 trillion rubles of net income in 1995 and an increase in labor productivity of 11% (Memorandum and Recommendation of the President of the International Bank for Reconstruction and Development to the Executive Directors on a Proposed Loan in an Amount of US$25 Million to the Russian Federation for a Coal Sector Restructuring Implementation 1996). In 1994, the Russian government allocated $2.8 billion in direct subsidies to the sector through Rosugol, or more than 1% of the country’s GDP (Lovei and McKechnie 2000). In the new economic realities, Russia was no longer able to support the functioning of inefficient enterprises and, starting in 1995, the volume of state support for them began to decrease ($1.63 billion). Subsidies were mainly used to support unprofitable mines, preventing their closure and the emergence of new efficient enterprises in the industry. To overcome the crisis, it was necessary to reduce the amount of assistance provided to unprofitable enterprises and redirect funds to the restructuring of the industry, including the closure of unprofitable mines, payment of entrance allowances to released miners and support for various social programs. Part of the support came from the World Bank. It was expected that Rosugol and its regional network could successfully combine managing the sector and distributing budget funds intended for mine closures, but in reality, Rosugol often misused funds sometimes from a lack of expertise in the uneasy process of closures3 or lobbying of its regional branches. Lack of a clear program for reforming the coal sector in Moscow at the time of price liberalization and radical decline in living standards caused the emergence of the strike movement in 1992 (Solovenko 2016, 126– 27). In the 1990s, coal miners became the vanguard of the national protest movement. By 1995, the protests radicalized as non-payments reached several months and social conditions degraded. In February 1995, the all-national strike of coal miners began. With 80% of the industry (189 coal mines and 21 opencast coal mines) on

3 Restructuring envisaged a broad spectrum of activities which Rosugol could hardly provide such as technical assistance and training for commercialization and demonopolization of coal companies, technical assistance for environmental management and provision of consultant services for the legal, organizational, and informational support for the development of procedures for closure of unprofitable mines.

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strike, demanding the government to cover its debts, it signaled a potential political crisis on the eve of the national election later that year and upcoming presidential elections in 1996 (Levchik 2020, 168–69). 500,000 coal miners declared their readiness to remain on strike as long as necessary. The government has taken this message from the coal miners very seriously and made a commitment to fully meet their demands starting with miners in Rostov on Don. A special government commission led by then all-powerful Anatoly Chubais, the Head of Staff of the President of Russia, visited Rostov to settle the issue. In addition to financial commitments, this commission fired the CEO of Rostovugol pointing out a shared responsibility for non-payment (Levchik 2020, 169). Chubais’ extraordinary visit mirrored growing concerns in Moscow that the situation in coal regions was moving out of control. Indeed, protests increased in terms of their forms and duration. In addition to usual strikes in coal regions, there were also hunger strikes, and few cases of suicides as well as threats of terrorist acts4 and closure of railways. The median duration of strikes in November 1994 was 1 to 3 days, and in 4 out of 22 strikes there were also hunger strikes up to 4 days long. In other words, every sixth work stoppage went together with a hunger strike which lasted even longer than the average strike. Also, protests were broadcast nationwide. On October 5, 1994, about 500 coal miners blocked the Trans-Siberian railway for four and a half hours. Worth noting, the local forces of the interior ministry did not prevent this action. They just escorted the columns of strikers to the rail station (Levchik 2020, 170). The reaction by top managers of Rosugol was rather fast. In order to stop the strike, Rosugol promised to transfer protestors 200 million rubles immediately. The remaining debt, 4 billion rubles, was promised to be paid shortly with 1 billion in a week, another 1 billion in two weeks, and the remainder within the next month. This decision was announced to the strikers in the presence of Rosugol managers in Kuzbass and top managers of the coal mine on strike. The rail was subsequently unblocked. It was the first successful case of the so-called “rail-war” that spread across the whole country in the spring of 1998 (Levchik 2020, 179). 4 During the strike in coal mine Sudzhenskaja in Kuzbass in November–December 1995, there were some threats by coal miners to blow up a natural gas pipeline near the town Anzghero-Sudzhensk.

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This case illustrates two things. First, the protests by coal miners went far beyond the coal industry itself. It was much more radical than similar processes in other countries such as the UK coal sector reform under the government of Margaret Thatcher. Second, it was the Russian government with massive budget subsidies who somewhat softened the situation. It was not a final solution, and deep reforms were still needed as well as the help (both technical and financial) of the World Bank. Since late 1994, the World Bank’s role in restructuring Russia’s coal sector was increasing quickly (Thompson 2002). Meanwhile, political sympathies of coal miners varied from region to region. In Kuzbass, they actively supported communist Aman Tuleyev who later became the governor of Kemerovo province. In Rostov Region, another leftwing party—Social democrats of Russia—succeeded in local and regional elections. As for the strikers in Anzhero-Sudzhensk who blocked the Transsib rail, they voted for the Zhirinovsky ultra-nationalist party—the so-called liberal democrats (LDPR). All three parties stood in strong opposition to the government and President Yeltsin. However, they could hardly communicate with each other. As a result, the call by the independent trade union of coal miners Rosugleprof (or Coal miners of Russia) for an all-Russian strike failed. On October 12, 1995, the popular weekly illustrated magazine Ogonek sarcastically evaluated this failure as the political funeral of “Coal Miners of Russia” in its op-ed titled “Anthracite bluff” (Levchik 2020, 190). James D. Wolfensohn, the President of IBRD, viewed the situation pessimistically. He was deeply involved in coal sector reforms in Russia and Eastern Europe,5 and understood the political sensitivity of the situation. On the eve of the Presidential election in the summer of 1996, he issued a “Memorandum and Recommendations” to the executive directors on a proposed loan for a coal sector restructuring in Russia. Together with the IMF’s

5 The World Bank made eleven loans for coal sector adjustment as follows: (i) Russian Federation Coal Sector Adjustment Loan (SECAL I); (ii) Russian Federation Coal Sector Restructuring Implementation Assistance Project (IAP); (iii) Russian Federation Coal Sector Adjustment Loan (SECAL II); (iv) Ukraine Coal Pilot Project Loan; (v) Ukraine Coal Sector Adjustment Loan (SECAL); (vi) Poland Hard Coal Sector Adjustment Loan (SECAL I); (vii) Poland Hard Coal Sector Adjustment Loan (SECAL II); (viii) Poland Hard Coal Social Mitigation Loan; (ix) Poland Hard Coal Mine Closure Loan; (x) Romania Mine Closure and Social Mitigation (MCSM) Loan; and (xi) Romania Mine Closure, Environmental and Socio-economic Regeneration (MCESR) Loan” (World Bank 2018, 58).

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$10.2 billion commitment to Russia, this proposed loan aimed at demonstrating strong support for Boris Yeltsin in his fight against Communist Party candidate Gennady Zuganov. In addition to political significance, this Memorandum stipulated ambitious goals of restructuring, putting strong emphasis on its social dimension based on the results of consultation with key stakeholders, including social assessment in two coal basins (Pechora and the Kuzbass) most affected by the mine closures. Taking into account protest activity in coal regions, the WB put forward the need of setting up various platforms of stakeholders to avoid direct clashes between coal miners and the government. To this end, it aimed to support stakeholders’ participatory activities, including improving industrial relations and social partnership in the coal sector, which included the IAC (both federal and regional commissions), trade unions, local governments, and the Association of Mining Cities. Also, the loan was intended to strengthen capacity of a newborn institution Reformugol6 (the Coal Industry Restructuring Fund) which among other things took some important functions of distributing subsidies from Rosugol. Social programs were also broad,7 and included social impact monitoring in coal mining regions and provisions of various consultant services and training in social protection of coal industry employees. It also covered the design of community support and employment programs in the most affected coal regions such as Kuzbass, Eastern Donbass (primarily Rostov on Don coal basin), Pechora (Komi republic), Moscow, and Kiselevsky (near Kemerovo) coal basins. It was believed that “if implemented successfully, the program would move the Russian coal sector toward an increasingly profitable and competitive industry through judicious closure of unprofitable mines, commercialization and de-monopolization of regional coal companies and 6 The Fund was registered on July 12, 1996 and existed till 2018. 7 The Project aimed at alleviating poverty in coal mining communities “through the

provision for assistance in addressing the inadequacies of the existing social safety net to meet the needs of those people most affected by coal sector restructuring… including social assessment, development and implementation of community support and employment programs, capacity building for better maintenance and operation of social assets, and social impact monitoring. Under these social programs, a network of communitybased services, notably employment and income generation initiatives, will be developed to assist redundant coal industry workers and affected people in mining settlements and towns.”

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improvements in operational efficiency over time. This would, in turn, decrease and eventually eliminate subsidies and the related impact of the coal sector on the federal budget. In addition, the Project would promote sustainability of the coal industry through a participatory approach by key stakeholders and capacity building in key areas, including improved measures to mitigate social and environmental impacts in the affected areas” (Memorandum and Recommendation of the President of the International Bank for Reconstruction and Development to the Executive Directors on a Proposed Loan in an Amount of US$25 Million to the Russian Federation for a Coal Sector Restructuring Implementation 1996). In 1997, an agreement on a second coal loan of $800 million was concluded, $400 million of which was credited to the federal budget of the Russian Federation immediately, and the remaining amount was to be paid as Russia fulfilled commitments to the World Bank. While Rosugol Chairman Malyshev worked up schemes with the government to preserve the status quo, the bank insisted the agency be split into two separate units. One of them would focus on the closure of unprofitable mines, and the other on the financial reorganization of promising companies. Thus, Rosugol, in view of the World Bank, was not fit for handling World Bank funds (Desai and Idson 2001, 127). With the World Bank as the key donor, it decided in mid-July 1997 to postpone the second $500 million loan to the coal sector until April 1998. Under such pressure, President Yeltsin made a decision to eliminate Rosugol and transfer all the functions of the state management of the coal industry to the Ministry of fuel and energy of the Russian Federation (Decree of the President of the Russian Federation of November 20, 1997 No. 1243 “On the Improvement of the Coal Industry Management” 1997).

From Trust Management to the Market Relations At the end of 1997, the period of competitive direct privatization began. Due to the close surveillance of the World Bank, inefficient production facilities were closed during the restructuring of the industry. The number of operating coal enterprises was also reduced. In 1994, there were about 294 enterprises in the industry—229 mines and 65 open-pit mines, but by 1998, the number had fallen to 219 total units, and the number of

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underground mines was almost halved—to 122 units. The number of open-pit coal mines increased by a third to 97 production units. Coal regions were not ready for such drastic cuts of labor. In 1997– 1998, of the 75,290 laid-off coal miners only 11,802 found new jobs (Rozhkov 2016, 60–62). In Kuzbass, for instance, in 1998–2000 only 7096 new job vacancies were open and just 4084 were permanent. Allocated funding for social protection was far from what was needed (Report on violations of the rights of citizens in the coal towns of Kuzbass. Special report of the Commissioner for Human Rights in the Kemerovo Region 2002). Unemployment was a serious economic and psychological challenge for coal miners. From 1992 to 1998, in Kuzbass it grew twofold, while hidden unemployment was even higher. In all coal industry towns, the vast majority of jobless were coal miners, including young workers. Trends for aging among coal miners became evident. By 2007, there were 210,000 workers employed in the coal industry. Stratification by age groups was as follows: 30 years or younger constituted 21% of the workforce, 30–50 years—57,9%, above 50 years—21%, and the share of working pensioners was rather high—14,4%. From 1996 to 2006 the age group of 30 to 50 years declined from 62.6% to 57.8% of the workforce (Rosinformugol 2018, 2–3). Many young people left coal towns in the hope to find decent jobs either in bigger towns of their regions or moved even further (Solovenko 2012, 273). As far as coal miners are concerned, they had few options for relocation in effective coal mines with all vacancies having been filled. Funding for diversification and social protection of laid-off workers was not sufficient, and a part of it was either misused by Rosugol regional subsidiaries or even stolen (Solovenko 2012, 273). Under pressure from the World Bank, authorities of coal industry towns became deeply involved in social programs related to mine closures. Money transfers went directly to end-users. As a result, the rate of corruption declined. Also, in November 1997 the government built two new institutions to facilitate social dimensions of restructuring. Sozugol (the Federal institution for coordination of local development programs to handle coal industry restructuring)8 and GURCh (State Institution for 8 Sozugol was set up according to the Presidential decree from November 20, 1997 № 1243 “O sovershenstvovanii upravlenia ugolnoi promyshelennostiju” [On management improvement if coal industry] and decisions by the government and the Ministry of fuel and energy. It dealt with assistance to 200,000 laid-off coal miners. In 2011, Sozugol was

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restructuring and liquidation of uneconomical coal mines).9 Both entities contributed to building effective mechanisms of restructuring and avoiding imminent controversies of Rosugol. Sozugol was in charge of local development and social programs in localities affected by restructuring while the second institution provided analytical and managerial support of work in liquidated non-profitable coal mines (Solovenko et al. 2018, 172–73). Fighting unemployment was one of the most difficult challenges. Transfer of workers to new or profitable mines was the best solution but the number of vacancies was limited and by 1998 it was almost exhausted. Moving to other industries which did not require special skills such as road construction was the second-best option. Involvement in entrepreneurial activity by providing basic training in business and “initial” capital through financial certificates equal to the amount of 20 month’s wages was the most widespread solution. The laid-off miners could buy cars, trucks, or tractors to generate income (Solovenko et al. 2018, 147). As far as workers of ineffective coal mines in the regions of the High North are concerned, some of them were relocated to regional centers or to the European part of Russia (Rozhkov 2016, 102–103). In 1994–2004, 36.8 billion rubles were spent on social and ecological programs tied to coal industry restructuring (Rozhkov 2016, 109). The lion’s share of social activities were financed through the “Program for local development and employment in coal towns.” 85% of the funding went for creating new jobs and relocation (Rozhkov 2016, 127). Private investors also took part in financing new jobs. They provided about 55% of the needed resources while the rest was covered by the government (Rozhkov 2016, 141). Input to the program of social protection of coal miners made by the state and new owners was not enough to stop a new wave of protests. The number of operating coal enterprises sharply declined. As a result, history was repeated with new waves of wage payments in arrears, delayed severance payments, and other related issues.

transformed into a budgetary organization in charge of coordination of local development programs in areas affected by coal industry restructuring. 9 GURSh was built the same day as Sozugol and handled reorganization and liquidation of uneconomical coal mines. It was reorganized into a budgetary organization with the same scope in 2010. http://www.gursh.ru/.

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There are disagreements on actual cases of non-payment crises in the coal sector. Some blame the government for cash-flow problems and its inability to collect taxes or pay its suppliers, which led the latter to withhold taxes. Some mention the government’s tight monetary policy which contributed to the cash shortage starting in 1995 or the conversion of cash by enterprise managers into foreign currency and its diversion for private enrichment. Perhaps, all the aforementioned arguments are correct to some extent, but the road to this non-payment crisis was paved by Yeltsin himself even before the collapse of the Soviet Union. Indeed, Yeltsin and his government instituted “shock therapy” in 1992 after urging Russia’s regions during the late Soviet period to “seize as much autonomy as they could handle.” Yeltsin also ordered Russian banks to withhold tax payments by enterprises to the Soviet Union budget— thus teaching enterprise managers not to pay taxes. The subsequent mushrooming of regional autonomy, together with the weakness of state institutions meant that little or no tax could be collected. This was the true precondition of the arrears crises (Survell 2003). Managers also contributed to the crises. According to bankruptcy laws, Russian enterprises were required to pay three months’ severance pay to workers who lost their jobs due to workforce cutbacks. Faced with the severance pay requirement, managers found it less costly to retain workers at the enterprises with reduced wages imposed via delayed wage payments and forced administrative leaves without pay. Workers also had incentives to retain their jobs in the face of pay delays. They were accustomed to receiving various benefits, including school, hospital, and other services attached to large enterprises. Some workers therefore were ready to settle for continuation of these practices with reduced pay in preference to losing their jobs and the associated benefits (Desai and Idson 2001, 134). The Accounting Chamber’s findings on performance of Chelyabinskugol (Chelyabinsk Coal Company) by 1999, provided some evidence of reforms failure in a situation which seemed favorable for all its five coal mines. Despite sound geological conditions, full mechanization of coal extraction processes, high quality of coal (it was the best in the region in terms of calories and of sulfur and liquid), and guaranteed demand by local coalfired power stations at agreed price (168–170 RUB/ton) for the period of four years, Chelyabinskugol ended this period of operation in a critical financial situation and was on the brink of bankruptcy.

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In 1995–1998, the company’s economic performance sharply declined. None of the five operating coal mines produced as much coal as was planned. In 1998, their overall coal production was 4.828 million tons while in 1995 it was 6.06 million tons—a decline of 21.5%. Meanwhile, net cost price increased more than twofold primarily due to growth of wages by 2.4 times, and fuel by 3 times. As a result, the cost price of one ton of coal reached 201.5 RUB/ton while coal-fired power stations paid just 168 RUB/ton according to a trilateral agreement between the regional government, Chelyabinskugol, and energy companies. Hence, profitability had been declining year to year: in 1995 it was 0.71 billion rubles, in 1996—0.54 billion rubles, and in 1997, Chelyabinskugol had already suffered losses of 0.1 billion rubles which doubled in 1998. Overall losses of Chelyabinskugol for four years amounted to 1.37 billion rubles. Delayed payments by consumers affected production plans of the company and did contribute to the emerging crisis, but they were not the main cause of it. The main reasons were keeping a significant number of surplus workers and economically unjustified increases in salaries. By January 1, 1999, the total workforce in the company was 20,885 people, but only 14,401 people dealt with coal production. According to conclusions by a specialized institution of geology research, production of 6 million tons of coal in Chelyabinsk Region required just 7,000 people. It, in fact, implied the need for radical cuts of personnel. From 1994 until 1999, delays in paying wages increased fourfold. In January 1994, its amount was equal to two month’s wages (0.07 billion rubles) and by 1999, it was already at eight months (0.244 billion rubles) (Beskhmelnitsyn 1999). Also, due to strikes in 1998, the production plan was only 79.4% fulfilled. Under such circumstances, managers used funds earmarked for closing and operating mines to clear wage arrears in order to soften the strike movement. It was planned to allocate 0.601 billion rubles for Chelyabinskugol but in fact it received 0.918 billion, or 152.8% while funding intended for social protection of laid-off workers and their families was 87% of planned. In 1998, non-payments for delivered coal were significant and covered just 80% of wages. For this reason, federal funding aimed at restructuring of the coal sector addressed the most burning needs of Chelyabinskugol including an outstanding 70 million rubles for wages. This includes wage arrears both to workers of operating and closing mines, severance

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payments, payments for temporary unemployment, as well as payments to those who reach retirement age. Clearing wage arrears was financed from several sources. In addition to the federal funding, the company used revenues from its operational activity, and received loans from the administration of Chelyabinskaya oblast. Also, managers resorted to barter practices that amounted to some 100 million rubles. The latter exceeded the size of loans provided by the local administration more than tenfold. Even removal of 1882 surplus workers did not change the situation with wage arrears for the better. Overall non-payments grew by almost 50 million rubles (Beskhmelnitsyn 1999). The situation in Kuzbass and some other coal regions were even worse. Not surprisingly, a new wave of strikes began. In January–June 1998, the protests reached their peak, and became radicalized. The coal miners of Kuzbass used the most effective tactic—they blocked rail traffic and some of them went on strikes in underground facilities. In August 1998– 1999 after financial crises erupted and a new left-wing government by Primakov took hold, the nature of relations between coal miners and Moscow changed. The government began negotiations with protestors and managed effectively to co-opt their leaders. Aman Tuleyev was promoted to the governor of Kemerovo oblast. Federal and regional mass media also contributed to downgrading the protests paying primary attention to various planned socio-economic programs. Trade unions were split as well. Eventually, some local development programs came to fruition (Solovenko 2016, 117–20). Municipalities took control over resources provided for development of coal towns. Coal production costs began to decline, and this led to growing investments by many new players including owners of steel and energy companies. The coal sector was integrated into new supply chains. By 1999, private companies’ performance outpaced the remaining state companies. A fragile social stability was finally achieved. In Kuzbass, for instance, 10 coal mines and 28 opencast mines became profitable and did not need subsidies (Solovenko 2014, 46–52). By the end of 2001, privately owned Russian coal companies produced around 77% of the industry’s output, and privatization proceedings were underway for the last major coal companies remaining in State ownership. By the end of 2002, over 90% of the industry’s output was in private hands. This remarkable ownership transformation had taken place over just a few years despite the widespread perception of the Russian coal industry

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as a troubled, loss-making industry with a potentially militant workforce. Seen from this point of view, the experience of the privatization of the Russian coal sector clearly demonstrates that perceptions of a major industry and its attractiveness to investors can change dramatically over a short period of time. Though the trend was rather positive, the overall situation in the coal industry was far from ideal. The report by the Accounts Chamber in December 2002 about privatization outcomes revealed mixed results. In 2001, capacity of coal mines increased from 267.5 million tons to 277.9 million tons but over half (20 of 36) of the largest coal companies remained unprofitable, and some of them suffered losses at about 125%. One of the reasons for this worrisome dynamic was a speedy and premature closure of some coal mines. In order to change the situation for the better, significant investments were needed. The Accounts Chamber evaluated them at 20 billion rubles annually (Pavda.ru 2002).

Private and Profitable, but Social Challenges Remain Though privatization of the coal industry was almost completed by 2004, the restructuring of the industry was far from over. By January 1, 2005, the Federal Agency of Energy put 225 organizations including 203 coal extracting companies (188 coal mines and 15 open-cut mines) and 22 other legal entities on the list of those that suffered the largest losses and were subject to closure. All of them were financed under a restructuring program. It was up to state and regional authorities to take care of already closed mines and those in the process of closing, as well as abandoned towns and workers and their family members. New owners played a marginal role in tackling issues related to restructuring. In general, the state was not a bystander in this restructuring, and it was not the type of shock therapy that the Russian economy went through in the early 1990s. At the same time, the social part of restructuring was far behind initial plans. Relocation and providing new housing was the most challenging part of the whole program. Before 2022, it was expected that the program for relocation of more than 8,000 families of coal miners could be completed by 2031. Reality might be even worse for the growing budget deficit and increased potential for a new wave of coal mine closures after the EU coal

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embargo and serious contraction in global coal demand. It will primarily hit the Kuzbass Region with a big number of coal-based towns. In general, restructuring led to closure of 203 ineffective coal enterprises and almost three-fold cuts in workforce—from 859,600 people in 1993 to 241,100 in 2004 and 139,700 in 2015. By 2017, restructuring of the Russian coal industry resulted in its almost total privatization with just one exception—a federal unitary company called Arcticugol (Bogomolov 2019, 178). Due to technical modernization, coal production grew from 271 million tons in 1994 to 276 million tons in 2003 and 438.4 million tons in 2021 (Ministry of Energy of the Russian Federation 2021). Productivity grew more than twofold (64 tons/month in 1994, and 138 tons/month in 2003). Also, privatization received a new boost with new owners taking more care of coal towns. As a result, the intensity of confrontation subsided, and eventually mass and radical types of protests disappeared (Solovenko 2015, 143–149). The privatization of the coal industry eventually made it possible to transfer most of the state-owned enterprises to private ownership. This process was not without controversy and delays of various kinds and was particularly sensitive to changes in government. Also, other developments in the country threatened to undermine the overall commitment to privatization or jeopardize the transparency of privatization transactions. Nevertheless, by 1998, the ten-year coal crisis had ended, and by the early 2000s, in the new economic conditions, a profitable and competitive industry was formed as well as a viable core consisting of private enterprises. The process of privatization of former industrial associations and state-owned enterprises was almost completed. More than 400 joint-stock companies of the coal industry were registered, more than 200 of which were directly engaged in coal mining. The share of private companies in the industry had reached 80%. After years of decline, coal production began to grow. The industry began the transformation into its modern form (Fig. 3.3). In sum, during restructuring in 1994–2017, 188 coal mines and 15 open-cut mines that belonged to the state were liquidated. As far as social support for the workforce of closed mines is concerned, the state paid salaries in full and made proper dismissal payments as well as provided miners with free coal for private use. Also, 11,800 families were relocated from the regions of the High North. 42,200 families that lived in unsafe conditions, received new housing. Finally, in order to support retired coal

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85.8 64

68.3

2000

2001

93.4

98.5

99.9

2005

2006

74.1

54

5.5

7.2

7.4

1993

1994

1995

7.4 1996

25.3

25.3

1997

1998

1999

2002

2003

2004

Fig. 3.3 Privatization of the Russian Coal Industry, 1993–2006 (Source Rosinformugol 2023; Kozhuhovskij Igor 2003; Urinson 2006) Work force, thousands of people

379.5

Productivity (average), tons per month

373 341.7 308.3 275.7 236.4 211.5

46.1

43.1

43.2

47.8

50.5

56.4

60.3

1992

1993

1994

1995

1996

1997

1998

196.1

191.2

189.7

70.5

75.0

82.1

86.4

1999

2000

2001

2002

175.5

Fig. 3.4 Russia’s coal industry changes in productivity of workforce (Source Federal State Statistics Service 2023)

miners, the government issued 221,000 additional policies. As a result of restructuring, productivity grew significantly (Fig. 3.4). The coal industry with its 0.3% in total workforce became the third largest with 14.6% in the energy balance and 3.2% of export revenues while its contribution to GDP was just 0.4%, as well as 0.4% of budget revenues, and 0.7% of investments. The MoE was planned to complete restructuring in 2016–2020 and the main challenge was significant social expenditures, first of all housing and relocation (Bogomolov 2019, 179).

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Still, the social side of restructuring was far from over. By January 1, 2018, there were 10,726 families of coal miners to be relocated. Given allocated and planned financial resources, the program of relocation is supposed to be completed as early as in 2031. Lack of transparency in defining the waiting list for housing was the most sensitive and caused a large number of complaints.10 The only item that was financed in full was providing free coal for personal use to coal miners and their families. In 2015 for that purpose, 834.4 million rubles were allocated, and in 2021 this sum fell to 730.8 million (Bogomolov 2019, 189). Re-cultivation of abandoned coal mines and related projects were also financed almost in full. However, several critical social programs were underfinanced despite ongoing requests by the Ministry of Energy for extra funding. As a result, restructuring of the coal industry was not completed as planned even in 2020 (initially the goal was to finalize the program as early as in 2010). Figure 3.5 illustrates substantial gaps in financing of key areas of restructuring the coal industry in 2015–202111 in billion rubles.

Conclusions Reforms stemmed not only from the general logic of liberalization and moving away from the command economy that would penetrate coal industry anyway, but also because of political reasons, e.g., growing protest movements by coal miners that took a dangerous form of blocking rail traffic, work stoppages in underground facilities, and even “marches” to Moscow. Initially, coal miners appeared to be the most organized cohort of labor with strong leaders and clear demands. Not surprisingly, the state was interested in minimizing political risks as soon as possible and approached the World Bank with a proper request for support which 10 Relocation does not take place automatically. It is up to coal miners and their families to apply to municipalities to get either housing or certificate to buy a new apartment or a house. The size of certificate varies from case to case, and depends on the number of family members. For singles, it is 33 m2 ; for a couple, the social norm is 42 m2 ; but if a family consists of three or more persons, the minimal norm for each person is established at 18 m2 Then the size of housing area according to social norm is multiplied with the average market based price of one square meter defined by the Ministry of Construction of Russia (Bogomolov 2019, 183, 187). 11 Data for 2019–2021 refers to plans.

3

Type of program Planned budget allocation Extra financing requested by the Ministry of Energy (MoE) Factual extra allocation

REFORMS IN THE RUSSIAN COAL SECTOR

2015

2016

2017

2018

2019

2020

2021

3805

3516

3237

2935

4527

4470

2588

8466

1597

3561

5076

3798

3789

8466

0

1144

78

100

1,589

1526

1469

83

Fig. 3.5 Financing of key areas of restructuring coal industry in 2015–2021, billion rubles (Source Accounting Chamber of the Russian Federation 2019)

was delivered. Though it was the Russian state that covered the lion’s share of expenses related to restructuring, technical advice, and some funding was provided by the World Bank. Russia experienced very severe initial distress as almost 600,000 miners left the industry in the early 1990s with large wage arrears and no severance packages or income support. Only as the crisis deepened and coal miners went on strike including their “rail war” on Transsib rail did the government design and implement a sector reform program. It was developed in cooperation with the World Bank which included allocating resources for a social protection response in the form of paying wage arrears and making severance payments. From 1995 on, the government to some extent became the World Bank’s hostage and had to follow its strict recommendations. It was the World Bank that insisted on institutional reforms and made the government eliminate Rosugol as the prime agency of reforms because it, in fact, often misused funds and caused problems with the restructuring. Though the World Bank declared its intention to make the Russian coal sector market-based (close ineffective pits) and even competitive, it seems that its primary goal was to help Yeltsin and his team to keep power and avoid a comeback by the Communists. Not surprisingly, there is a clear message in all feedback reports related to the World Bank support of restructuring of the Russian coal sector—it was only the central government that was viewed as an agency in conveying reforms while other real stakeholders such as coal mine trade unions, local authorities, etc., were simply ignored. However, since 1996, a “participatory” approach was declared by James D. Wolfensohn. Thus, there are all reasons to believe

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that the main beneficiary of this support (technical and financial) were liberal reformers in Moscow. In fact, the World Bank cooperation with Russia in this particular area was at least partly a success story as most of the important objectives have been achieved: the industry became private and profitable within just a few years, and it managed to find a way to avoid becoming a permanent political troublemaker for the Kremlin. The latter also required a comprehensive program of restructuring aimed at solving, first and foremost, social issues such as employment, relocation, and different types of support for those who lost jobs at closed mines or had to retire. Thus, restructuring brought mixed results. On the one hand, surprisingly enough, the sector became profitable within just a few years, making $17 billion by 2021. Few could expect such a development back in 1992. On the other hand, social costs of reforms were extremely high and are still not paid in full today. By and large, the future depends on owners and regional authorities while the federal government basically defines the rules of the game by providing support to coal regions with transportation of coal via rail, or by funding social programs in some mono-industry towns. Russia privatized its coal industry from 1999 to 2001 as part of an overall large-scale privatization policy. Industry with the lowest cost mines were able to stabilize largely through mechanization, and operate profitably. The overall impact was a substantial recovery in coal production after 2000 with well over 350 million tons of production in 2016. Even as production increased, the sector continued to shed labor. The privatization of the coal industry eventually made it possible to transfer most of the state-owned enterprises to private ownership. This process was not without controversy and delays of various kinds and was particularly sensitive to changes in government and other developments in the country that threatened to undermine the overall commitment to privatization or jeopardize the transparency of privatization transactions. Nevertheless, by 1998, the ten-year coal crisis had ended, and by the early 2000s with new economic conditions, a profitable and competitive industry was formed as well as a viable core consisting of private enterprises. The process of privatization of former industrial associations and state-owned enterprises was almost completed. More than 400 joint-stock companies of the coal industry were registered, more than 200 of which were directly engaged in coal mining. The share of private companies

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in the industry had reached 80%. After years of decline, coal production began to grow. The industry began the transformation into its modern form.

References Accounting Chamber of the Russian Federation. 2019. Bulletin No. 5 (257). [Byulleten’ Schetnoj palaty. 2019. No. 5 (257)]. Beskhmelnitsyn, M.I. 1999. Report on the Results of the Spending of Funds Distributed from the Federal Budget to OJSC Chelyabinskugol within the Framework of State Support of the Coal Industry. Moscow: Accounts Chamber of the Russian Federation. Bogomolov, V.N. 2019. “Report on the Controlling Event ‘Federal Budget Spending on Coal Industry Restructuring in 2015–2017 and Part of 2018’ [Otchet o Rezultatah Kontrolnogo Meropriyatiya ’Proverka Ispolzovaniya Sredstv Federalnogo Byudzheta, Naprevlennyh Na Realizaciyu Meropr.” Bulletin of the Accounts Chamber (5 (257)): 169–211. Decree of the President of the Russian Federation of December 30, 1992 No. 1702 “On the Transformation into Joint-Stock Companies and Privatization of Associations, Enterprises, Organizations of the Coal Industry. 1992. Moscow. http://www.kremlin.ru/acts/bank/2766. Decree of the President of the Russian Federation of November 20, 1997 No.1243 “On the Improvement of the Coal Industry Management.” 1997. Moscow. https://legalacts.ru/doc/ukaz-prezidenta-rf-ot-20111997-n-1243/. Desai, Padma, and Todd Idson. 2001. Work Without Wages: Russia’s NonPayment Crisis. Cambridge, Massachusetts: MIT Press. Ebershadt, Nicholas. 2004. “Russia’s Demographic Straightjacket.” The SAIS Review of International Affairs 24(2): 9. Economy of the USSR in January-September 1991 [Ekonomika SSSR v JanvareSentiabre 1991 Goda]. 1991. Moscow: Informacionno-Izdatelskiy Centr. Federal State Statistics Service. Unified Interdepartmental Information and Statistical System. Number of employees of organizations in coal mining. Electronic resource [Federalnaya sluzhba gosudarstvennoj statistiki. Edinaya mezhvedomstvennaya informacionno-statisticheskaya sistema. Chislennost’ rabotnikov organizacij v dobyche uglya. Elektronnyj resurs]. Accessed on September 20, 2023. https://fedstat.ru/. Gaidar, Yegor. 2013. Collapse of Empire. Lessons for a New Russia [Gibel Imperii. Uroki Dlia Sovrememmoi Riossii]. Moscow: AST. Goldman, Marshall I. 2008. Petrostate. Putin, Power and the New Russia. Oxford: Oxford University Press.

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Kozhuhovskij Igor. 2003. “Restructuring the Coal Industry of Russia.” Russian Academy of Sciences. Moscow: Higher School of Economics, 2003, p. 96, 98, 118, 123. [Kozhuhovskij Igor. Restrukturizaciya ugol’noj promyshlennosti Rossii. RAN, VSHE. Moskva, 146 s.] Levchik, D.A. 2020. Russia at Strike. Miners’ Strike Committees and Professional Unions, 1988–1995 [Bastujushchaja Rossia. Shakhtreskie Zabastovochnie Komiteti I Profsojuzi. 1988–1995]. Moscow: Direct-Media. Lovei, Laszlo, and Alastair McKechnie. 2000. Public Policy for the Private Sector The Costs of Corruption for the Poor - The Energy Sector. Washington, D.C. https://documents1.worldbank.org/curated/en/343191468 762311247/pdf/268330VP0note0no102070lovei.pdf. Memorandum and Recommendation of the President of the International Bank for Reconstruction and Development to the Executive Directors on a Proposed Loan in an Amount of US$25 Million to the Russian Federation for a Coal Sector Restructuring Implementatio. 1996. Washington, D.C. https://documents1. worldbank.org/curated/en/559791485895862107/pdf/multi0page.pdf. Ministry of Energy of the Russian Federation. 2021. “Coal Production in Russia.” Main Parameters of the Coal Industry. https://minenergo.gov.ru/ node/435 (June 28, 2023). Nikitina, Svetlana V. 2000. Population Decline and Population Ageing in the Russian Federation. New York: Department of Economic and Social Affairs, United Nations Secretariat. Pravda.ru. 2002. “Accounts Chamber Believes the Coal Industry Needs Rb.20 Billion. More than a Half of Largest Coal Mines Are Unprofitable [Schetnaia Palata Ischet 20 Milliardov Dlia Ugolnoi Otrasli. Bolee Poloviny Krupneishikh Shakht Nerentabelni].” Pravda.ru. https://www.pravda.ru/news/ economics/8310-resourses/ (June 28, 2023). Report on Violations of the Rights of Citizens in the Coal Towns of Kuzbass. Special Report of the Commissioner for Human Rights in the Kemerovo Region. 2002. Kemerovo. Rosinformugol. 2018. Section of the Research and Development Report “Development of Scientifically Based Directions for the Structural and Innovative Transformation of the Coal Industry in Russia.” Moscow: Rosinformugol. Rosinformugol. 2023. History of the Industry. Electronic Resource. [‘Rosinformugol’. Istoriya otrasli. Elektronnyj resurs]. Accessed on September 20, 2023. https://rosugol.ru/museum/. Rozhkov, A.A. 2016. Regulation of the Socio-Economic Consequences of Industrial Restructuring (on the Example of the Coal Industry) [Regulirovanie SotsialnoEkonomicheskikh Posledstvii Promyshlennoi Restrukturizatsii (Na Primere Ugolnoi Otrasli)]. Moscow: Rosinformugol. Solovenko, Igor. 2012. “Social Problems of Kuzbass Miners During the Transition to Market Relations (1992–1999) [Sotsialnye Problemy Shakhterov

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Kuzbassa Vo Vremia Perekhoda K Rynochnym Otnosheniiam (1992–1999 Gg.)].” Gornyi Informatsionno-Analiticheskii Biulleten (S4): 269–77. ———. 2014. “Features, Results, the Values and Lessons of the Protest Movement Kuzbass Miners during the Transition to the Market (1992– 1999) [Osobennosti, Rezultaty, Znachenie i Uroki Protestnogo Dvizheniia Shakhterov Kuzbassa vo Vremia Perekhoda k Rynku (1992–1999 G.” Vestnik Tomskogo Gosudarstvennogo Universiteta. Istoriia 4(30): 46–52. ———. 2015. “Goals and Objectives of Russian Miners’ Protest Movement During the Transition To Market Economy (1992–1999) [Tseli i Zadachi Protestnogo Dvezheniya Shahterov Tossii vo Vremya Perehoda k Rynochnym Otnosheniyam (1992–1999 Gg.)].” Vestnik Tomskogo gosudarstvennogo universiteta 94(394): 143–49. ———. 2016. “Principal Directions To Control Protest Campaigns of Russian Miners in 1992–1999 [Principal Directions to Control Protest Campaigns of Russian Miners in 1992–1999].” Vestnik Tomskogo Gosudarstvennogo Universiteta 94(402): 117–30. Solovenko, Igor, Ronel Ferreyra, Vladislav Lizunkov, and Yekaterina Policinskaya. 2018. “On Solving the Socio- Economic Problems of Russian Miners in the 1990s [Resheniye Sotsial’no-Ekonomicheskikh Problem Shakhterov Rossii v 1990-Ye Gg.].” Vestnik Tomskogo Gosudarstvennogo Universiteta (427): 169– 77. Soviet Economy in 1990: Statistical Yearbook / State Statistical Committee of the USSR [Narodnoje Khoziajstvo SSSR in 1990 g.:Statisticheskij-Ezhegodnik / Goskomstat SSSR]. 1991. Moscow: Finansi i Statistika. Stevenson, Richard W. 1994. “Russian Miners Become Victims Of Upheaval They Helped Start.” New York Times (October 29): 1. https://www.nyt imes.com/1994/10/29/world/russian-miners-become-victims-of-upheavalthey-helped-start.html. Stiglitz, Joseph E. 2002. Globalization and Its Discontents. London: Allen Lane/ Penguin Books. Survell, Jeff. 2003. “Padma Desai and Todd Idson, Work Without Wages: Russia’s Nonpayment Crises.” Science & Society 67(1): 121. Thompson, Lawrence. 2002. Russia: Bank Assistance for Social Protection. Washington, D.C. https://documents1.worldbank.org/curated/en/748041 468184442994/pdf/103706-WP-IEG-SEP-2002-OED-working-paper-ser ies-PUBLIC.pdf. Urinson, Yakov. 2006. “Economic Reforms as Seen by the Ministry of Economics.” Preprint WP11/2006/03. Moscow, Higher School of Economics, p. 19. [Urinson Y.M. Ekonomicheskie reformy: vzglyad iz ministerstva ekonomiki. Preprint WP11/2006/03. — M.: GU VSHE, 2006. — 24 s.] https://www.hse.ru/data/2010/05/06/1216458188/WP11_2006_03.pdf.

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USSR State Committee on Statistics [Goskomstat SSSR]. 1988. “Statistical collection: Industry of the USSR [Statisticheskij sbornik: Promyshlennost’ SSSR]”. Finance and Statistics. Moscow: 96. promyshlennost_sssr_1988.pdf (istmat.org). World Bank. 2018. Managing Coal Mine Closure: Achieving a Just Transition for All. Washington, D.C.: World Bank.

CHAPTER 4

Regional Trends Within the Russian Coal Sector: Cases of Komi, Kuzbass, and Sakhalin

The main objective of this chapter is to present various trends within the coal sector in Russia. Three cases of Vorkuta, Kuzbass, and Sakhalin illustrate the peculiarities of coal development in regional and national contexts, the different circumstances of agents involved in coal production transportation, and the role of those regions in contemporary Russia’s energy strategy. Vorkuta’s glory as one of the key coal suppliers of the Soviet economy during WW2 is in the past, remaining coal mines produce less than half of the 20-million-ton peak in the 1980s, and it continues fighting for survival. Meanwhile, Kuzbass became a major exporter of coal after the economic liberalization of the 1990s but faced tremendous challenges with its transportation aggravated since 2022. Sakhalin, on the contrary, enjoys both a large resource base and proximity to markets.

Komi, Vorkuta A handful of courageous people abandoned here against their will, came to the deserted coast of Vorkuta and, at the cost of superhuman efforts and their lives, wrote the first lines of their history into a page as pure as snow. These lines were: the first flag, the first ton of “industrial coal,” and the first thoughts about the future of the richest coal basin,—from the memoirs of Nikolay Inkin, a geologist, one of the first coal explorers in Vorkuta (Yakovenko and Granovich 1987). © The Author(s), under exclusive license to Springer Nature Singapore Pte Ltd. 2023 N. Lomagin et al., Russian Coal in the Era of Climate Change, https://doi.org/10.1007/978-981-99-5370-7_4

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The Komi Republic is a region in the North-Western Federal district of the Russian Federation with the capital city of Syktyvkar. On the territory of the Komi Republic there are extensive deposits of coal, quartz, and manganese ores. Deforestation is actively underway, and pulp and paper and woodworking production is well established (Fig. 4.1). The region’s economy is based on the extraction and processing of combustible minerals such as oil, gas, and coal. Ferrous, non-ferrous, and precious metals are also mined in the republic. The fuel industry accounts for about 50% of total industrial production. Currently, in the Republic of Komi, out of 152 hydrocarbon fields listed on the State balance sheet, oil and gas production is carried out at 87 fields, of which 65 are in commercial operation and 22 are in trial or pilot production. Komi, home to the second largest coal basin in Russia in terms of reserves—Pechora basin (Vorkuta: past, present, and future [Vorkuta: vchera, segondja, zavtra] 1981)—has traditionally been the second largest region of coal production after Kemerovo, albeit of a much more moderate scale. Komi’s coal output is some 20–30 times smaller than that of Kemerovo (between 8 and 13 million tons from 2015 to 2022), and with an overall declining trend, particularly in 2015–2018. The majority of coal produced in Komi finds use in the region, particularly to meet the energy needs of the Russian steel company Severstal (whose main supplier Vorkutaugol is also the largest regional coal producer) and, to a smaller degree, another steel producer NLMK. Some coal from Komi was also exported to metallurgical markets of Europe, where about 1.2 million tons of coking coal were supplied annually. The situation changed after the Russia–Ukraine military conflict began. In April 2022, the EU adopted the fifth package of sanctions, prohibiting the purchase, import, or delivery of coal from Russia (Amaro 2022). The sanctions package came into effect in August after the transition period ended. Though later the European Commission updated its directive and stated that sanctions on Russian coal would not prevent coal shipments from Russia to third countries, the European market for coal miners from Russia was lost (Kilic 2022). At the same time, the Pechora coal region is the largest in Europe and the only coking coal basin in the European part of Russia. Commercial reserves of Vorkuta coking coal are about 500 million tons. Almost 39% of the best type of coke developed in Russia is located in Vorkuta.

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Fig. 4.1 Pechora coal basin: coal reserves and main transport connections to port infrastructure (Source Created by the authors based on open data)

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Unlike the Kemerovo Region, which predominantly depends on the coal sector for its regional economy, the mineral resource base of the Komi Republic is more diversified. The economy of the region is based on the extraction and processing of oil and gas, besides coal. Ferrous, non-ferrous, and precious metals are also mined in the republic. The timber industry plays a significant role in the regional economy as well (Sherstyukova and Perepelitsa 2023). History of Coal Industry Development in Komi Opening the Pechora Basin and Building Vorkuta as a GULAG Camp Until the 1960s, the Soviet economy was a coal-fired economy. Then the discovery of giant oil fields in the Volga-Ural basin and then in West Siberia pushed coal into the background in favor of oil and then gas (Gustafson 2021, 104). In Komi, the era of coal began in the 1930s. During the industrialization of the Soviet economy mainly due to the work of prisoners, the extensive reserves of the Pechora coal basin, the largest coalfield in European Russia, began to be systematically exploited. In 1920, the Presidium of the Russian Supreme Economic Council set up a Northern industry-scientific expedition to undertake a geological study of the Pechora river basin (Coal Endowment of the North. Collection of Documents [Ugolnije Sokrovischa Severa. Sbornik Dokumentov I Materialov] 1984; Khlevniuk 2004). Within a few years, work under the leadership of Professor Aleksander Chernov led to the conclusion that “there are visible contours of a large coal basin in North-East part of the Soviet Union, and it is natural to call it Pechora basin” (Pechora Coal Basin. 1934–1959. Collection of articles [Pechorskii ugolnii bassein. 1934–1959. Sbornik statei] 1956). Six years later, George Chernov, son of Alexander Chernov, discovered a high-quality coal basin near Vorkuta River. He recalled later that in those years “I could not assess properly that discovery. Coal was everywhere on Pechora, but these deposits were located in the very remote part of tundra. I could hardly imagine that the coal industry would get interested in them. I could not see how one would not only develop but also conduct geological works” (Vorkuta: past, present and future [Vorkuta: vchera, segondja, zavtra] 1981). Discovery by George Chernov led to a detailed study of the basin and its development. On April 20, 1931, the Russian Economic Council

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issued a decree titled “On development of fuel base in Northern region.” It envisaged the building of three or four mines and extracting about 100–150 thousand tons of coal in 1932. There is a legend that after Stalin was informed about enormous deposits of high-quality coal in Pechora, he summoned the Narkom (minister) of interior, infamous Yagoda and gave him an order: “Take care about it, Genrikh. You have a good experience of building Belomorkanal. Keep me informed.” From the late 1920s and early 1930s, the labor of prisoners in the USSR was considered as an economic resource, and all large-scale construction in the Soviet Union was carried out by the system of GULAG camps (Khlevniuk 2004, 120). It facilitated the development of strategic resources in remote regions in the High North and Far East, and it allowed the use of highly mobile labor that was at hand where and when needed. The GULAG labor was extremely cheap and was subject to practically unlimited exploitation. Fear of becoming a prisoner and a part of the GULAG system “disciplined” free workers. Finally, a significant number of prisoners and other categories of oppressed people reduced the pressure on scarce resources (housing, basic consumer goods, etc.). In general, the GULAG system was a type of labor mobilization that corresponded to the needs of the initial stage of the extensive Soviet industrialization (Van der Linden 1997, 351–62). Stalin’s GULAG system and its economy was born on June 27, 1929, by the Politburo decree titled, “On the use of labor by prisoners” (Gregory 2004, 108). In addition to the only Solovetsky camp on the White Sea, the document provided for creating a network of new camps in remote areas of the country in order to colonize and develop natural wealth by those who were imprisoned. Also in July 1929, the Soviet government issued a special decree on the use of forced labor in remote regions of the country—the High North, Ural, Kazakhstan, and Far East. At that time, GULAGs had already accumulated about 23,000 prisoners. Initially, the plan was just to double the size of those camps up to 50,000 people. But as a result of collectivization followed by the “mass terror,” the number of prisoners in newly built camps reached almost 180,000 by January 1, 1930. On November 16, 1932, the Council of Labor and Defense issued another special decree titled, “On building Ukhta-Pechora Trust” under

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the Joint State Political Directorate (OGPU).1 The Trust sought to undertake works aimed at the discovery and exploitation of deposits of minerals of industrial significance, including oil, coal, radium, and other materials. The decree envisaged building and developing rail and gravel roads, shipping infrastructure, the development of agriculture, commercial hunting, and fishing. Colonization of areas of operation of the Trust was set as one of the major objectives. The Ukhta-Pechora camp became a main pillar of colonization. OGPU was to provide housing and some other basic cultural and living conditions for prisoners and their family members. Also, about 3000 families of spetspereselenets (“special resettlers”) were to come a bit later after opening navigation on the Pechora river (Khlevniuk 2004, 380, 383). In January 1934, GOSPLAN (State Planning Committee) held a meeting on natural resources with the participation of geologists who studied the Pechora basin. It summed up their projects in 1931–1932 and set priorities for further study and work. From 1924 to 1941, twenty coal fields in total were found in the huge Pechora basin of about 900 thousand square kilometers. Later, another few coal fields to the north and south of Vorkuta were discovered. As far as Vorkuta is concerned, its coal development was to begin in late 1932 near the Usa river (Coal Endowment of the North. Collection of Documents [Ugolnije Sokrovischa Severa. Sbornik Dokumentov I Materialov] 1984, 37–40). The first builders of Vorkuta ranged from highly qualified specialists to political convicts sentenced to imprisonment for 1 to 5 years and occasionally up to 10 years. However, the end of imprisonment only changed the status of the prisoners as former convicts became the so-called special settlers. They remained and lived in the same extreme conditions. As for the guarding of the camps, it was rather soft security as any attempt to escape from Vorkuta was almost impossible due to the deserted expanses of the tundra. In 1934, the annual coal production originally planned at 117,000 tons had reached only 61,146 tons (52.3%) as the building of the railway from Vorkuta to Usa had huge delays and there was no way to deliver coal to external consumers and was mainly used only for navigation in the Arctic.

1 OGPU was a predecessor of NKVD or the ministry of interior.

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For 1935, the plan was to produce 140,000 tons of coal with “exports” of 100,000 tons (Khlevniuk 2004, 120). Within the next few years, the importance of Vorkuta as the key region for providing coal to Northwest Russia had grown significantly. The biggest problem with Vorkuta coal was not its production but the lack of a reliable way to ship it to consumers. The transportation routes which existed then included several shipping stages. The first one was the Vorkuta river to the Usa river, the second was through Pechora where the coal finally went to the main port of Arkhangelsk. The route was available only for a short polar summer. For this reason, a 64-kilometer narrow-gauge railway (Rudnik–Vorkuta–Vom) was built to link the new coal basin with the city of Narjan Mar and then through the Barents Sea with Arkhangelsk. This railway remained in demand till 1943 when the North-Pechora railway entered into operation (Levshin 2002, 87). Implementation of the first five-year plan in building large industrial and infrastructure projects involved a high concentration of labor. In addition to the economic development of the country, such work was intended to contribute to the rehabilitation of prisoners. After serving their sentence, this labor was supposed to become a major source for colonization of new regions. The future of former prisoners became a subject of debate at the very top level in 1938 when the NKVD offered to cut the terms of imprisonment of those workers that exceeded plans. The issue was on the agenda of the Presidium of the Supreme Soviet on August 25, 1938. Stalin strongly opposed this proposal. In his remarks, he said: “Is it the right thing to consider now a list of prisoners to make them free? … Can’t we do something else instead, in order to keep them working (in camps)—to give them awards, medals perhaps. Otherwise, we will release them; they will come home and band together again with criminals. In the camp everything is different. It is impossible to get spoiled over there. … Let us postpone this project and authorize the NKVD to offer us some other means to make people stay (in camps) … We should strike a previous conviction off records and let families come and stay, and soften the regime a bit, or maybe to consider them as hired labor. As we say of state loans, that is voluntary in theory but compulsory in practice. Here is the same thing—‘voluntary-compulsory’ detention” (Borodkin et al. 2008, 134). Following this recommendation, the Presidium of the Supreme Soviet issued a decree on June 15, 1939, which prohibited conditional early release from punishment within a GULAG.

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To stimulate productivity of prisoners in camps, the decree recommended better provision, higher pay, and a softer regime (Borodkin et al. 2008, 135). It seems that in remote areas where vested industrial interests were visible, the fair-wage model did work to some extent. Otherwise, workers would reduce their work effort when they conclude that they should be offered a higher fair wage (or compensation). As Gregory argued, the archives reveal that Stalin and his team believed in a trade-off between effort and workers’ living standards, and many of their actions, such as rationing, Stackhanovism,2 and some others were designed to keep this fragile balance. The long-run lesson from the introduction of force into the GULAG camps was that prisoners react to reduced incentives by producing less. The investment-first strategy, which left workers with compensation levels that they regarded as unfair, exacted the price of an unproductive workforce. The long-run equilibrium is captured by the Soviet slogan: “They pretend to pay us, and we pretend to work” (Gregory 2004, 108). The Second World War Makes Vorkuta Strategically Important In 1940–1943, preliminary assessed reserves of coal were 550 million tons, making Vorkuta the third largest coal basin in the Soviet Union. On June 14, 1940, the head of the NKVD, Lavrentiy Beria, reported to the Soviet government that the Vorkuta–Pechora basin would be able to produce 2.5 million tons of coal in 1942, 4.6 million tons in 1943, 12 million tons in 1945, and 25 million tons in 1946. Just six months later, in January 1941, the once small mining settlement “Rudnik” was transformed into the village of “Vorkuta” (Presidium of the Supreme Soviet of RSFSR 1943). In order to attract engineers and skilled technical workers to Vorkuta, the NKVD even urged the government for a 10% increase of salaries for highly qualified workers (Khlevniuk 2004, 384).

2 Stakhanovism was a combination of incentives and patriotic appeals. In the mid-1930s, workers received base pay plus piece rates based on fulfilling output norms. Output norms, which determined worker compensation, specified how much workers were expected to produce per unit of time. Output norms were supposed to reflect “best practice,” but they were usually based on past results. The campaign to raise labor productivity was named after Alexei Stakhanov, a coal miner, who on August 30, 1935, cut 102 tons of coal in less than 6 hours versus a quota of 7 tons. Encouraged by Stakhanovism, plans grew more ambitious. But Stakhanovism also carried with it a risk of worker resentment. Ordinary people interpreted this movement as a plot to extract more work for the same wage (Gregory 2004, 103, 105).

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The German invasion of the Soviet Union in 1941 and the following occupation of the Western part of the country, including its main coal region of Donbass, meant contraction of the coal production by 60%. Naturally, this undermined the fuel balance in the USSR. Hence, the development of energy sources in the High North and East became vital for withstanding the aggression. In parallel with an increase of coal production in the region, the railroad between Kotlas and Vorkuta was put into operation in December 1941. It greatly facilitated material and technical supplies of Vorkuta which, in turn, provided for manifold increase in production and transportation of Vorkuta coal to the more populated areas, including Arkhangelsk, Murmansk, Severodvinsk, Kirov (Perm), Gorky (Nizhniy Novgorod), and Moscow. In June 1942, the coal from Vorkuta was already being delivered to Leningrad. Vorkuta had become important. Wartime was the fastest growth period of Vorkuta. The North-Pechora railway played a decisive role in this development. Equipment needed for opening new pits was now available, and several new mines were put on line during the war. Growth of industrial production went hand in hand with the population size of Vorkuta. As before, it was the NKVD which was assigned to provide a labor force for the coal mining industry. In addition to local labor, hundreds of miners from Karaganda and Donbass arrived in Vorkuta in 1941 and 1942. On August 19, 1943, the State Defense Committee issued a special decree on mobilizing 25,000 people for the industry. However, only a few hundred came to Vorkuta (Sorokin 2022). The overall coal sector workforce was 37,100 people, and the vast majority of them were prisoners (30,000). From 1940 to 1945, 20 mines were simultaneously being built in Vorkuta and 10 were put into operation. During this period, the annual production capacity of the mines increased from 262 thousand tons to 2.9 million tons (Kazakovtseva 2021; Zadavin and Smirnov 2007). During the war, Vorkuta mines produced 6.5 million tons of coal. On November 26, 1943, Vorkuta received city status3 and on March 9, 1944, the mining

3 On November 20, 1943, the Russian authorities decided to transfer Ukhta into a category of cities with proper legal status. By that time, it has got already quite developed social infrastructure including 290 living houses, a hotel, three hospitals, a drug store, a House of Culture for oilers as well as oil and mining college, three secondary and two elementary schools, six kindergartens, and seven nurseries (Borozinets 2015).

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facilities of Vorkuta were transformed into the “Vorkutaugol” integrated coal plant.4 It opened the way for building social and cultural infrastructure, which in turn, stimulated the city’s growth. Thus, during wartime and postwar reconstruction, Vorkuta became one of the fastest-growing coal towns in the Soviet Union. Besides thousands of prisoners who worked in Vorkuta camps by the mid-1950s, the city began to grow and acquired its own political and economic institutions, housing, and public spaces. At the same time, the GULAG complex shrank considerably following mass prisoner releases after Stalin’s death in 1953. The war with Nazi Germany substantially changed the importance of remote areas of the Soviet Union as the Wehrmacht had occupied a huge amount of territory including resource-rich Ukraine, especially the coal mines in Donbass. Oil regions in the North Caucasus were also destroyed. For this reason, intensive geological work was initiated to discover new deposits of fossil fuels and other raw materials in the north (Komi Republic) and east (South Urals, West Siberia, and Kazakhstan). The Komi Republic’s development benefited significantly from these efforts. Geologists discovered huge deposits of coal in the Kemerovo region (Kuzbass) and new opportunities for coal and oil developments in the Pechora region (Levshin 2002, 87). Focus on oil production in Komi as well as in Volga region became vital for the overall capacity of the Soviet Union to wage a successful war of engines with Nazi Germany and its allies (Khlevniuk 2004, 366). Another important trend in the economy of the Komi Republic was the emergence of the growing oil and gas sector in the Ukhta region. By 1943, Ukhta was a GULAG camp town with a population of 16,000 people. It grew mainly due to heavy oil development and its refining. The importance of Ukhta increased as two North Caucasus oil regions, Maikop and Grozny, were destroyed by the Nazi invaders. In 1941– 1945, Ukhta produced more than 550,000 tons of oil, 1.4 billion cubic meters of natural gas, and about 15,000 tons of black carbon and provided the only production of bituminous varnish in the country

4 On March 9, 1944, the Narkom (minister) of Interior of the USSR issued the order to transform entities of Vorkutastroi into Vorkutaugol.

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(Barenberg 2014, 231). Thus, the city has become a very important industrial center of the Komi Republic.5 Over time, oil and gas production grew even faster. In 1949 alone, Ukhta produced 450,000 tons of oil and almost 1 billion cubic meters of natural gas. The industrial production in Ukhta has tripled since 1940. The population reached 48,000 people including 14,800 civilians. For 20 years, Ukhta Trust produced 2.1 million tons of oil, 4 billion cubic meters of natural gas, 47,000 tons of black carbon,6 and 30,000 tons of bituminous varnish (Khlevniuk 2004, 386). The city and ten nearby towns were still much smaller than Vorkuta, but the dynamics of their development indicated a new trend both within the Komi Republic and the Soviet energy sector (Barenberg 2014, 4). The social landscape of Ukhta has radically changed as well. It no longer resembled a typical GULAG town.7 Oil and gas began to play a predominant role in the national and regional economy, successfully competing with coal for investments. Also, the recovery of Donbass8 and the fast development of the Kuzbass coal 5 On November 20, 1943, the Russian authorities decided to transfer Ukhta into a category of cities with proper legal status. By that time, it has got already quite developed social infrastructure including 290 living houses, a hotel, three hospitals, a drug store, a House of Culture for oilers as well as oil and mining college, three secondary and two elementary schools, six kindergartens, and seven nurseries (Borozinets 2015). 6 It was used as dye for car paints used to be imported from the United States. 7 The city’s growing apartment blocks have increased by 180,000 square meters, it had

11 schools, 16 hospitals, 24 kindergartens as well as well-established mining college and many cultural and household institutions. The Ukhta Industrial Trust and some of its managers have been awarded with orders and medals for successful development of Ukhta region (Khlevniuk 2004, 386–88). By 1956, the Ukhta labor camp with 30,300 prisoners alongside with other large GULAG camps in the Soviet Union was liquidated (Khlevniuk 2004, 365). 8 Recovery of Donbass and its coal mines began in 1943. By the end of that year, 4 million tons of coal was produced in Donbass, and in 1944 production reached 21 million tons. In 1945, the output of coal in Donbass almost doubled and reached 38 million tons (Grun and Rozhkov 2017, 9). On September 10, 2022, together with eleven cities of Russia Vorkuta was awarded a status of the “City of Labor Valor” for its tremendous contribution during the war, nonstop production of coal and massive labor heroism. Indeed, during the war 377 workers of Vorkutaugol were decorated with orders and medals, and the top Soviet authority during the war—State Defense Committee—praised four enterprises in Vorkuta for their achievements and supplies with coal of North-West Russia.

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basin undermined the importance of Vorkuta. Though coke was still in large demand, the growth of its output was limited by transportation problems. The situation could radically change for the better were Vorkuta connected by a railroad with industrial centers in the Urals. Instead, the Vorkuta coal sector continued to move only by inertia from the wartime period. “Our Basins Do Not Compete with Each Other” Meanwhile, the fate of Vorkuta could be different, if a 600 km long railway between the Urals and Pechora coal basin was built. Such an idea was presented as early as the end of 1941, when Sverdlovsk Party bosses were looking for ways to compensate for the shortage of coal coming from Kuzbass (Mikheev 2018). The problem then was almost the same as today—the capacity of the railway between Kuzbass and the Central industrial region was inadequate to the demands of the Urals industrial region. Yet another incentive for Central and Northern Urals for switching to Pechora coal was a plan to develop huge metal works. In such a scenario, all coke and chemical plants in the region could use coal from Komi. Indeed, the distance from Pechora coal mines to consumers in Nizhniy Tagil, Gubakha, and Chelyabinsk is about 700 km shorter than the transportation route from Kuzbass. The Ural–Pechora railway could also contribute to the development of the pulp industry in Northern Urals (Mikheev 2018, 332). The movement of the resource base further north would save the forest in the Central Urals for feeding its numerous rivers. The capacity of the Ural–Pechora railway should be about 10 million tons per year. Coal from the Pechora basin would occupy the lion’s share of all transportation via this railroad with 70% (7 million tons). As a result, the Ural–Siberian railway would get substantial relief, but the project has failed. Despite transportation bottlenecks, the coal from Kuzbass was much more competitive than coal from the Pechora basin. Labor in Kuzbass was almost half the cost than in Vorkuta, and open-pit coal mining was much more effective while transportation costs did not differ much (Gustafson 2021, 106). In 1948, Ivan Bardin, who was a prominent Soviet metallurgist and an active participant in solving the main engineering issues of the domestic ferrous metallurgical industry, made a point that the main principles of the development of resources under socialism are not the same as under capitalism/market economies. “Our basins do not compete with each

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other, and given the high Soviet tempo of industrial development, we have to develop all the main natural resources of our country. If we opt for transporting coal from Pechora and Karaganda to the Urals instead of coal from Kuzbass, we do it only because of very limited consumption of coal on spots of its development—in the case of Pechora it is its circumpolar location, and in the case of Karaganda—the lack of water and other resources. That is why refusal from long distance delivery of coal from Pechora and Karaganda would contradict principles of socialist economic policy.” Thus, the Soviet project of coal basin development rested upon the principle to evenly use its energy and mineral resources (Mikheev 2018, 336). By the end of the Stalin era, the share of the GULAGs in the Soviet economy substantially declined. In 1952, industrial production by all entities of the Ministry of Interior constituted just 2.3% of national industrial output. Still, there were some sectors where the GULAG played a crucial role. It was gold and platinum production at almost 100%. Also, the Ministry of Interior controlled the production of some other indispensable industrial raw materials such as asbestos, mica, cobalt, lead (70%), and nickel (one-third of national output). Also, after Stalin’s death the Soviet government came to a conclusion about the inefficiency of forced labor.9 The number of prisoners in the Vorkuta camp was reduced from 72,300 in 1953 to 39,700 in 1958 (Khlevniuk 2004, 366). By December 1961, Vorkuta already had over 183,000 residents, making it the largest city in the Komi Republic. In general, the main challenge for a growing coal mining city was a shift from the GULAG system to free labor, even though this transformation began in the mid-1950s (Barenberg 2014). In addition to the growing costs of production, Vorkutaugol had to manage the development of social infrastructure, including housing and the service industry for the population. Mechanization of miners’ work and enlargement of coal pits did make a difference. Vorkuta increased the productivity of its main industry and again became competitive within the command economy.

9 Oleg Klevnyuk surveys the economy of the OGPU-NKVD-MVD, its size, structure, and development trends in the 1930s–1950s in his book chapter in GULAG: The Economics of Forced Labour (Borodkin et al. 2008, 67–89).

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By the end of the 1960s, the Soviet economists made a decision to return to extensive development in Vorkuta by building the Vorgashorskaja coal mine, the largest in Europe, alongside further expansion of existing mines. Moreover, some supporting enterprises were built, including a brewery, a garment factory, and a research institution. This measure aimed not only at providing some services for the population but also at reducing female unemployment. As a result, gender balance stabilized, and Vorkuta prepared to receive a new cohort of workers. This time, however, Vorkuta required far more qualified labor than those who arrived in the 1950s and were mostly retired soldiers from the country’s depressed rural regions (Puro 2011). The main donor of the workforce for Vorkuta became the Donbass region, which was a historical center of coal mining in the Soviet Union. Donbass had an excessive population, including dynasties of miners. Also, some graduates of vocational-technical schools in Donbass were ready to take a risk and go to the Arctic. Chances to make a living and get higher wages were two of the most important triggers for people to move from the sunny south to a gloomy and cold north. Therefore in the 1970s, the newcomers to the Vorkuta agglomeration represented mostly Donbass, and it substantially changed the social dimension of the town. The former social and ethnic heterogeneity of Vorkuta was over. Over a short period of time, thousands of workers of the same profession came from one single region and formed a significant new group of migrants. As the anthropologist Kirill Istomin found out, this group has never formed a full-fledged diaspora, but its mere existence has had a huge impact on the social life of Vorkuta.10 Besides a large group of coal miners from Donbass, there were some other professional groups in Vorkuta who came to the town in accordance with postgraduate assignments. In the 1970s, graduates from certain universities were required to work for two or three years in particular regions or towns. Graduates from Yaroslavl’s School of Medicine (later the Academy of Medicine) were assigned to go to Vorkuta. The Arkhangelsk College of Communication provided its graduates to Vorkuta as well. The aforementioned two professional cohorts were

10 As far as the ethnic composition of Vorkuta is concerned, in 2022 the Russians constituted a strong majority with 77.7%, while Ukrainians were the second with 9.1%, and Komi (the local population) had just 1.7%.

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substantially smaller in number than coal miners from Donbass (Istomin 2021). By 1965, the mines in Vorkuta were producing over 12 million tons of bituminous coal per year. Additionally in 1975, the largest coal mine in Europe, Vorgashor, with a projected annual output of 4.5 million tons of coal per year was completed in Vorkuta. In his fundamental book on Vorkuta, Alan Barenberg describes one of the most fascinating events in the history of the coal industry in the Komi Republic, the opening of its largest mine on November 4, 1975. “Journalists, miners, engineers, managers, and the top party leadership of Vorkuta and the Komi ASSR crowded into an unfinished assembly hall. They were celebrating an auspicious occasion, the arrival of the first hopper of coal from a new mine. The gathering was supposed to be held outside in the mine’s courtyard, but a sudden blizzard necessitated a change of venue. Top city and regional party officials, as well as construction bosses, delivered speeches… Smashing a bottle of champagne over the first hopper of coal, those gathered marked the unofficial opening of the Vorgashor mine. Under construction for just over a decade, this was not only the largest and most modern coal mine in the history of Pechora coal basin, but it was also the most productive mine in all of European Russia” (Barenberg 2014, 231). By this time, Vorkuta had become a desirable place for those seeking social mobility as various subsidies and bonuses made it possible to secure a comfortable retirement after a relatively short working career. “The city itself became something of a Soviet showpiece as a thriving industrial city in the tundra, Vorkuta came to embody the Soviet Union’s stunning achievements in settling the Far North” (Barenberg 2014, 4). Komi Coal Industry During Late Socialism of the Late 1980s The opening of the Vorgashor mine was the culmination of more than a decade-and-a-half-long project to rebuild, expand, and generally improve the efficiency of Vorkuta’s mines during the Khrushchev and Brezhnev eras. At the time of Khrushchev’s ouster in late 1964, the reconstruction project had been over budget and behind schedule. Although the Brezhnev team that replaced Khrushchev was highly critical of the way in which the reconstruction had been carried out, it nevertheless renewed its commitment to the project in June 1965, promising new investment. In the end, the first of the rebuilt mines opened in 1970.

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The last became fully operational only in 1976, some eighteen years after the rebuilding process had begun. Despite the considerable cost and time overruns, by the middle of the 1970s Vorkutaugol now boasted large, modern, and productive coal mines, including the new Vorgashor complex (Barenberg 2014, 232; Zadavin and Smirnov 2007). By the end of the 1970s, Vorkutaugol’s mines were producing just over 20 million tons of coal per year, approximately double the amount that had been extracted in 1953 (Fig. 4.2). Continued investment in mine construction helped establish a new social and economic equilibrium during late socialism. After the wrenching upheavals of the 1950s and early 1960s, Vorkuta expanded during the 1970s. Whereas population growth had been relatively flat in the 1960s, between 1970 and 1989 the population of Vorkuta and its surrounding settlements increased by nearly one-fifth and surpassed 200 thousand (Barenberg 2014, 232). New residents were attracted to the city by steadily improving living conditions. Taller and more energy-efficient reinforced concrete panel apartment blocks continued to be built, and in fact spread beyond the city proper into the mining settlements on its outskirts. In 1976, the city embarked on its most ambitious housing construction project ever. It was intended to house 16,000 people in buildings rising as high as nine stories, an impressive engineering feat considering the poor soil conditions that prevailed. Total Volume of Coal Production, Mt 19.9 12.6

12.0

1960

1965

10.2

14.3

16.1

6.8 2.8 0.1

0.4

1935

1940

1945

1950

1955

1970

1975

1980

Fig. 4.2 Coal production in Vorkuta, 1935–1980 (Source Zadavin and Smirnov 2007, 26)

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High wages and generous benefits for miners continued, ensuring that new migrants, as well as the former prisoners and recruits who had settled in the city in the 1950s and 1960s, could take advantage of what had become the “traditional Vorkuta strategy”: earn high wages in the mines, receive an early pension, buy an apartment in a city to the south, and relocate. The 1970s and 1980s, it would seem, constituted the golden age of Vorkuta as a company town. Yet, this state of relative equilibrium depended on the political economy of late socialism, which promised slow but steady improvements in living standards in exchange for political and social acquiescence. When Mikhail Gorbachev began to launch a series of political and economic reforms in 1986, the disruption of equilibrium in Vorkuta came swiftly, manifesting itself in a series of high-profile strikes beginning in 1988. The Declining Soviet Coal Legacy While Komi Diversifies Its Economy After the collapse of the Soviet Union in late 1991 and the launch of economic reforms bu Yeltsin and his team, the economic status of Vorkuta’s residents began to decline swiftly. Strikes and work stoppages continued throughout the 1990s and into the beginning of the twentyfirst century, but now they were bent on restoring the equilibrium of late socialism. Meanwhile, the oil and gas industry in Komi was booming and significantly challenged the predominance of coal in the regional energy balance. Still, it was in demand, but its share was shrinking. One of the largest consumers—the Leningrad region—was switching to nuclear energy and gas. Four reactors of 1000 MW each put in operation in 1973–1981 in the Leningrad nuclear power plant significantly reduced the need for coal. Increased consumption of natural gas in Leningrad resulted in total replacement of coal in the city’s energy balance by the 1980s. The Komi Republic was not running out of coal, but demand for it had decreased (Fig. 4.3). It still remained a regional fuel (Fig. 4.4). “In the western two thirds of the country, the low price of gas, combined with coal’s high transportation costs, excludes coal from the power market. As Gazprom’s pipeline network expands, coal retreats further” (Gustafson 2021, 106). Yet another pillar of the economic development of Komi was the fastgrowing forestry—Komilesprom Trust and the related pulp and paper industry. While the Vorkuta coal sector had been relying on its previous

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Total Volume of Coal Production, Mt

19.9

22.3

21.4

20.6 13.8

12.3 8.7 6.3

1980

1985

1988

1990

1995

2000

2002

2003

Fig. 4.3 Coal production in Vorkuta, 1980–2003 (Source Zadavin and Smirnov 2007, 26)

Natural Gas

Coal

Black Oil*

1985

1990

Wood

100% 80% 60% 40% 20% 0% 1970

1975

1980

1995

2000

2003

Fig. 4.4 Shares of production of energy sources in Komi by type (Source Statistical Yearbook of the Republic of Komi [Statisticheski˘i ezhegodnik Respubliki Komi] 2010, 251)

business model and developed as a company town, Komilesprom driven by a boundless hunger for labor had welcomed hundreds of thousands of students primarily from Leningrad who came to Komi in construction brigades in summer to build and repair housing in remote villages of foresters. It was an important precondition for further expansion of forestry and attracting investments. As a result, long before 1991, the

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Komi Republic was going through the process of economic diversification, while company towns remained stagnant (Zadavin and Smirnov 2007). It seems that nothing could reverse or even stall the city’s rapid decline. The closure of mines and settlements, rising unemployment, and rampant non-payment of wages all contributed to a dramatic decline in the size of the city’s population. By the turn of the twenty-first century, the city was considering the possibility of large-scale population transfers, and foreign pundits were predicting that it would soon disappear entirely (Maslov 2019). Yet when the economic reforms launched by Yeltsin and his government actually began to take effect, it quickly became clear that the spread of the “market” would not be the panacea that many imagined. Although great short-term profits were reaped from selling coal abroad, corruption and the spread of criminal organizations in Vorkuta meant that miners gained little from it. The late payment of wages, which allowed industries to essentially take interest-free loans from their workers, became a systemic part of the Russian economy by the mid-1990s. In Vorkuta, it was not unusual for a mine to owe workers an entire year’s salary. Although miners were paid a “subsistence minimum” wage and allowed to buy goods in “company stores” on credit against their unpaid wages, they were much worse off than workers elsewhere in Russia. At the time when most of the country came to rely on produce from small private agricultural plots, residents of Vorkuta and other northern cities had no choice but to purchase food in private shops, where shortages and high prices prevailed. Instead of benefiting from the transition to a market economy, most miners were reduced to a subsistence existence, unable to save toward the nest eggs that they had hoped to build by working in Vorkuta, but also unable to afford to leave the city. Mine closures soon followed the shuttering of non-competitive industries. In December 1992, the President of Russia issued a decree to reform the coal industry (Decree of the President of the Russian Federation of December 30, 1992 No. 1702 “On the transformation into joint-stock companies and privatization of associations, enterprises, organizations of the coal industry” 1992). The key institution in charge of the implementation of this decree was the new state-owned Russian coal monopoly, Rosugol, which at that time was too weak to facilitate a soft transformation of the huge Russian coal sector. That is why in 1993 it asked the

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World Bank to develop a plan for privatization and restructuring. Taking into account the sorry state of the post-Soviet coal sector, as well as a longer-term global decline in coal mining, the World Bank recommended both the privatization of the entire coal sector, and a significant reduction in production. One of its political goals was to help Yeltsin to withstand growing dissatisfaction by miners. Nobody in Washington was thinking about making the Russian coal industry competitive and export-oriented (Artemiev and Haney 2002). Although productivity in the long term would be improved through modernization, in the short term, a large number of unprofitable mines were to be closed. Khalmer-Iu, a mine located some 30 km from Vorkuta, was the first mine in Russia to be closed under the plan in 1994 (Council of Ministers of the Russian Federation 1993). The closure of the surrounding settlement of Khalmer-Iu soon followed. The dwellers received housing certificates (18 square meters per family member) and an allowance to cover transportation of luggage to a new place of residence. Miners would also get compensation equal to four months’ salary. Federal and republican authorities had to provide help with employment in new places of residence. By 1998, three more mines in Vorkuta had shut down because of their perceived unprofitability, and a fourth closed after a tragic gas explosion killed twenty-seven miners and caused considerable damage. In 2003 and 2009, two more mines were closed, bringing the total number of operational mines down to only five from thirteen. In the process, thousands of men and women lost their jobs. Even in 1997, before a number of mines were shut, the size of KVU’s workforce was only 55% of what it had been in 1988. Privatization itself dragged out for nearly a decade, until Vorkutaugol became a private company in 1998. Yet, over 85% of the resulting private company remained in the hands of the Russian state, suggesting that this privatization was in name only. Despite initial hopes that the arrival of capitalism would boost coal mining, by the end of the 1990s Vorkuta was in the midst of a deep economic slump with little end in sight. Economic and political turmoil, inflation, wage arrears, and badly managed privatization all contributed to a sharp rise in net migration from the city in the early 1990s. In 1994, for example, 9,800 people came to the city and 18,000 left, a net outflow of 8,200 people. But this was apparently much less than it would have been had all those who wanted to

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leave the city been able to do so. Surveys administered in 1994 and 1995 suggested that many more people wished to leave the city immediately, but were prevented from doing so by the dire state of their household budgets. Vorkutaugol was no longer building cooperative apartments for retirees as it had in the late 1980s. Prices on apartments had increased astronomically outside the city, whereas the value of real estate in the city had plummeted because of concerns about Vorkuta’s future. The cost of moving one’s family and possessions by rail had also increased significantly. But most importantly, the balance of savings accounts, which had been accumulated over the course of years and decades to buy an apartment in another city, was wiped out by the hyperinflation of the early 1990s. While the poor state of the economy led to a significant population decline, it also prevented a mass exodus from the city. The Role of Coal in Komi Regional Economy On the Way to Dirigisme in Vorkuta: Company Town, Mono Town, and Arctic Town Dirigisme is a policy that is based on the belief that the government should be in charge of allocating resources to ensure the best outcomes for the country. This doctrine puts the state above other actors and assigns it to play a strong directive role contrary to a regulatory interventionist role over a market economy. Dirigiste policies often include indicative planning, state-directed investment, and the use of market instruments (taxes and subsidies) to incentivize market entities to fulfill state economic objectives. All these features are visible in the transformation of the Vorkuta coal sector after the collapse of the socialist-command economy. As we have seen, there was a long and painful period of reform before Vorkutaugol was created in 1996 (Zadavin and Smirnov 2007). It took another seven years in order to secure its supply of high-quality coking coal after it was purchased by private Severstal (Northern Steel) in June 2003. An era of true capitalism then began where economic performance became the main objective and the final goal. The company would strive to generate wealth and not to merely exist. Severstal is an international steel conglomerate controlled by Russian oligarch Aleksei Mordashov, which owns steel plants in Russia and previously owned others abroad (Italy, France, and the United States) emerged from the privatization of Vorkuta’s most important customer,

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the Cherepovets Metallurgical Factory in the Vologda region (Forbes 2023b; Khlebnikov 2018). The mines were now part of the international economic network of one of Russia’s wealthiest oligarchs rather than an economically weak, and only nominally private, state-controlled company. Collaboration of industrial potential of steelers from Cherepovets and coal miners from Vorkuta made a strategic change in development of steel production in the European part of Russia and to a large extent in the Central and North-Western industrial regions. Besides Cherepovets, the main consumers of Vorkutaugol are Novolipetsky Metallurgical Plant, Moscow Coke and Gas plant, as well as Metallurgical plants in Nizhnii Tagil and St. Petersburg industrial clusters. Under Severstal, the mines began to once again subsidize some city services. According to the company’s own press releases, it spent over 40 million rubles ($1.3 million at that time) in 2011 on schools, public buildings, sports, and on maintaining the city. However, the size of such payments is almost nothing in comparison to the level of subsidies that Vorkutaugol provided during the Soviet times, when the company had been responsible for a large share of city services, including building and maintaining housing and providing health and child care. Severstal took real care about its hometown Cherepovets with social programs worth billions of rubles, while Vorkuta was treated more like a step-daughter (Barenberg 2014). As far as business interests of Severstal in Vorkuta are concerned, overall investments into technical re-equipment, reconstruction, and maintenance of coal pits were about 31 billion rubles ($1 billion at that time). Finding a balance between profitability on the one hand, and social spending, on the other, is always a tricky thing. Social and corporate responsibility for the company listed in London was not just lip service. With the mines in the hands of their most important customer, production stabilized after a severe decline in the 1990s. Although one additional mine was closed after the takeover by Severstal (Aiach-Iaga in 2009), investment in new equipment and new sections of the remaining mines meant that production remained steady with a total raw output of 12.6 million tons in 2010, roughly the same as the amount produced in 2000. Further, the company won a bid in December 2011 to develop part of a

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new coal field, Usinsk-1, located southwest of the city near the Northern Pechora main line.11 In general, industrial coal supplies in five mines of Vorkuta are estimated at 350 million tons (Puro 2011, 10). It means they will work at an established capacity level for another 30–40 years (Ekgardt et al. 1999). Annual demand for coking coal from Vorkuta in 2000 was about 9 million tons and had a growth trend for its quality not only for Severstal but also for steel works in Novo-Lipetsk, Magnitogorsk, Nizhny Tagil, and Chelyabinsk (Serdiukov 1996). Besides the high quality of coking coal for aforementioned factories, lower transportation costs also matter for consumers in North-West and Central regions of Russia. As far as traditional energy coal is concerned, Vorkuta mines target thermal power plants in the Komi Republic as well as in the Arkhangelsk, Murmansk, and Vologda regions. The decarbonization agenda and ambitious plans of Severstal owners to keep its market share in Europe forced Alexei Mordashov to sell his assets in Vorkuta in order to decrease the company’s overall CO2 emissions by 14.3% (Biryukov 2022; Severstal 2022). In December 2021, a private company “Russian Energy” owned by billionaire Roman Trotsenko agreed to purchase Vorkutaugol for 15 billion rubles ($185 million at that time). It does not mean, of course, that Severstal will not buy coke coal from Vorkuta. It still needs coke coal, and Vorkuta is the best option (Biryukov 2022). While it seems likely that new owners of Vorkutaugol will continue to subsidize the city in order to remain on good terms with regional and local government, and support the remaining workforce in the city, a return to the previous level of support appears impossible given the company’s obligation to turn a profit for shareholders. Ownership by an oligarch may have improved the prospects for Vorkuta’s coal mines, but the new company town is clearly very different from its Soviet predecessor. Obviously, Vorkuta cannot count on Severstal any longer in terms of the company’s social and ecological responsibility. But its owners have done quite a lot besides pure financial contribution. Alongside different

11 According to Alekasnder Remiga, who is the Komi republic minister of finance, industry, and transportation, by 2037 two coal mines in Usinsk town can be developed as well if the federal government provides some support (The Komi government counts on bringing into operation the Usinsk coal deposit [V pravitelstve Komi rasschitivayut vvestiv ekspluataciyu ugolnoe Usinskoye mestorozhdeniye] 2019).

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lobbying groups—regional and federal—Alexei Mordashov has supported Vorkuta in obtaining new status and even becoming visible on federal radars. Vorkuta was included in numerous federal programs, including the development of the Arctic and the so-called “mono towns” (Government of the Russian Federation 2015). Indeed, the situation has changed significantly and favorably for the town. The first novelty refers to a phenomenon known as “mono town” status which, according to Russian law, provides some privileges to its holder in terms of federal support and preferential investment climate. Mono towns represent a serious challenge for the Russian economy. In total, there are about 900 mono towns in the country. Their economy is dominated by a single industry or company, meaning that most employment (except for services to residents like schools and shops) is by the main company or industry. Most mono towns were built essentially as residential extensions of particular enterprises (city-forming enterprises), their population being either engaged in the city-forming enterprise’s manufacturing process or providing various services to the former group (Sapozhkov 2021). The mono towns suffered greatly in the late 1990s recession, leading to mass unemployment in the cities. Having no other hope, people were left with only one option—to protest. According to Russian law, mono towns with high levels of unemployment (20% of all workers in the town) can claim various forms of state support in order to overcome negative socio-economic trends. Vorkuta received this status in 2009 and joined the “club” of over 320 member towns (Solovieva 2022). The Russian government supports and develops infrastructure in mono towns.12 Investors enjoy some privileges such as subsidized credits for 15 years and a low tax regime. The state also covers expenses to build infrastructure for new investment projects. It might be providing access to electricity grids, building roads, etc. In 2022, overall support for mono towns in Russia from the federal budget was about 2.9 billion rubles ($40 million)—a substantial reduction from 4.7 billion rubles in 2020 and 4.2 billion rubles in 2021 (Government of the Russian Federation 2022). The government planned to cut the list of mono towns in half in 2022 for those which are located no more than 50 km to republic capitals (Petrova 2022). In any case, Vorkuta is located more than 1,000 km away 12 Till December 26, 2022, there was a special Endowment for development of mono towns. It was the part of national bank of development VEB (2023).

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from Syktyvkar, will remain in the list, and receive support from Moscow anyway. Another reason for coal mono towns to gain the state’s support comes from the risks of energy transition. The government was ready to ease the threshold for obtaining such status for coal towns of Kuzbass if the “reduction of workforce in coal mining enterprises exceeds 10% of the total labor force in a given municipality” while the general rule for being in the list of mono towns is 20%. The energy transition and decarbonization problems, which are largely socio-economic, of Kuzbass may significantly rise in the future, and the government de facto takes those risks into account (Sapozhkov 2021). Ironically, the case of Vorkuta is less risky as the unemployment rate in the town was well below 2% (Shaposhnikov 2022). It is a bit higher than the average level of unemployment in the Komi Republic at 1.3% for a total of 5,400 unemployed people overall in the republic officially (Sherstyukova and Perepelitsa 2023). Still, the status of Vorkuta as a mono town did not change. It is in the “risk” category which is in between two other subgroups of mono towns whose situation is identified either as “crises” or “stability.” For instance, in Kuzbass alone, there are nine mono towns in the “crises” zone and 11 in a “risk” zone. The second new feature of Vorkuta refers to its Arctic status. In some ways, it bridges the gap between its Soviet past and contemporary developments in the Russian Arctic. As we have seen, the relative prosperity of Vorkutaugol during the Brezhnev era stemmed from the fact that coal miners enjoyed significant privileges in terms of their wages. The socalled “northern” coefficient more than doubled incomes in Vorkuta in comparison with similar work in other parts of Russia. In 2014, the President of Russia issued decree No 296 which provided Vorkuta with the status of a “land territory of the Arctic zone of Russia.” On August 31, 2017, the Russian government included the town into the support (opornaya) zone of Russia’s Arctic. Then Russian Prime Minister Dmitri Medvedev clarified this term as zones of economic growth (Stenographic Report of the Sitting of the Government (31.08.2017) [Stenogramma Zasedaniya Pravitelstva 31.08.2017] 2017). Vorkuta became one of eight such zones. From 2017 to 2025, the government allocated 160 billion rubles ($2 billion) in order to develop natural resource centers in those zones and upgrade the infrastructure of the Northern Sea Route as the national transportation core in the Arctic. In addition to industrial development, eight Arctic support zones receive

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financing for the overall development of their infrastructure on the basis of private-state and municipal-private partnerships. Also, the Ministry of Defense plays a significant role in financing the program. As far as the Vorkuta support zone is concerned, the program goes beyond the development of vast natural resources in the region and focuses also on the infrastructural potential of the town. Though the existing transportation hub in Vorkuta13 does not have direct access to the Northern Sea Route, it provides for the shipment of coal and other natural resources to adjacent regions. In the future, natural resources from non-Arctic regions of Russia will be transported via Vorkuta to the port of Sabetta in the Kara Sea. Thus, in the long run, the extension of Karskomur which is the branch of the Northern rail road from Vorkuta to the port of Arktur in Ust’-Kar will ensure the connection of transport corridors between ports on the Kara Sea (Arktur and Sobetta), Barents Sea (Barentskomur and Indiga), and White Sea (Belkomur and Arkhangelsk) with ports on the Pacific. The willingness of Komi authorities to avoid competition with the neighboring Arctic regions of Nenets and Yamal-Nenets reminds some of the arguments by Ivan Bardin articulated in 1948 when he compared the logic of development of natural resource basins in market and planned economies (Gaplikov 2017, 45). In addition to coal, the Vorkuta industrial region is rich in many other resources such as vein and alluvial gold, silver, copper, zinc, and lead. The region also includes the largest baryte deposits in Russia with an industrial potential of 3 million tons. A wide spectrum of these natural resources is in demand both in Russia and abroad, especially in Asia. Diversification of resource development aims at bringing new investors to the region. Given the fact that a natural gas pipeline from the Bovanenkovo giant gas field in Yamal runs just 30 km from Vorkuta, the Komi governor believes that it opens a new opportunity for shifting to gas in the town itself making the life of its residents much more comfortable. Energy transition in Vorkuta is one of the preconditions to improve the living standards of its citizens. Komi authorities believe that one day Vorkuta might become a leading training center of civil and military 13 Vorkuta connects with Central Russia by railway (Moscow–Kotlas–Vorkuta railway) and air (from airport of class B it is possible to fly to Moscow, Saint Petersburg, and Syktyvkar). Railway to Labytnagi passes through Urals and connects Vorkuta with Western Siberia. Automobile connection between Vorkuta and the rest of Russia does not exist.

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personnel for working in the Arctic. In cooperation with academic institutions of the Komi Republic, Vorkuta-based educational and research institutions participate in R&D programs sponsored by Moscow including studying climate change in the Arctic and permafrost, developing Arctic medicine, and studying human adaptation to low temperatures. Other priorities include research of fragile nature ecology as well as further geological exploration of the region (Gaplikov 2017, 47). Last but not least is the military-strategic importance of the Vorkuta region. It hosts the Arctic contingent of border troops and some detachments of military-aerospace forces. Also, the presence of strategic air forces with all supporting infrastructure as well as maintenance of civil airports equipped with dual-use runways makes the Vorkuta region vital for providing transportation security for the state. If needed, the infrastructure of closed coal mines and abandoned work settlements of miners can be transformed for the purpose of national defense. Early warning radar stations near Vorkuta contribute to restoring the united radar system over the whole territory of Russia. Thus, the new “Arctic” status of Vorkuta guarantees increased attention to the town for its strategic location. Vorkuta’s remoteness suddenly turned out to be a valuable asset with direct and indirect positive consequences for residents. Since 2003, Vorkuta, in the words of Alan Barenberg, was once again a company town, albeit under very different circumstances. Other mighty investors have come to the city making Vorkuta a multi-company town. Novo-Lipetsk steel works (NLMK) is one of Russia’s industrial giants which won a tender to develop the Usinsk-3 coking coal field. NLMK is investing 45 billion rubles ($550 million) and signed a special “socialeconomic agreement” both with the Komi Republic and Vorkuta. As a result, besides taxes, the city lands 1,250 new jobs and financial resources in order to train engineers and technical workers in the Vorkuta Mining Institute (Puro 2011, 110). Though activities by NLMK contribute to increasing of economic performance of Vorkuta, it does not change its overall dependence on coal. The Case of Vorkutaugol The Rise of an Entrepreneur in a New Era In the story about the birth of Vorkuta, we described how the demand for high-quality coal for the needs of metallurgy and energy gave rise

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to new industrial clusters. It is natural that, possessing reserves of the most valuable coking coal, the region eventually became dependent on metallurgists. Having passed the Soviet stage and in 1997 transformed into a jointstock company, Vorkutagol did not remain under state control for long. A new page in the history of the Vorkuta coal industry began in 2003, when Alexey Mordashov’s company Severstal acquired a controlling stake in Vorkutaugol from the state. The unification of the production potential of metallurgists and coal miners of Vorkuta was an important event that determined the future prospects of the coal and metallurgical industry in the European part of Russia. It is worth saying a few words about the biography of the future owner of Vorkutaugol. Born in 1965 in a family of employees of the Cherepovets Metallurgical Plant, Alexei Mordashov decided to continue the family labor dynasty. Having settled down at the enterprise, the young man began to rapidly climb the career ladder and by 1992 he had earned the trust of the general director of the Cherepovets Metallurgical Plant, Yuri Lipukhin. He appointed the young Mordashov director of economics and finance and instructed him to privatize the plant. For the old generation of leaders who had just stepped over the threshold of the Soviet past, the new format of the market economy was alien and incomprehensible. Mordashov, on the contrary, was friends with Anatoly Chubais, who taught at his institute and introduced him to the club of young reformers. Standing at the helm of the corporatization of the company, Mordashov gradually built the process in his favor. At the same time, having established his own company, Mordashov took advantage of the full disposition of the plant’s management and began to buy metal from the Cherepovets factory at low prices and sell it abroad at much higher prices. With the profit from successful transactions, Mordashov bought vouchers and shares from workers, and saved up funds to participate in a voucher auction for the privatization of the parent company, Severstal. “Alexey received the plant ‘on a plate with a blue border’, I simply gave the plant to him and faded into the background,” former director Lipukhin recalls bitterly (Barenberg 2014, 241). Having gained full control over the assets of the metallurgical plant, Mordashov followed the path of creating a diversified holding company, later called Severstal Group, and began to buy up industrial assets throughout the country, reaching the Vorkutaugol coal mining enterprise in 2003.

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We must say that by this time Vorkutaugol was far from the best condition. Although by 2000 the structural reforms carried out as part of the restructuring of the coal industry had already been completed, the enterprise was many months in arrears in wages to the miners. The situation of the miners was disastrous and they did not have the resources to even feed themselves since the metallurgical plants that consumed Vorkuta coal had stopped. Becoming part of one production chain, the situation at the enterprise began to change. On the one hand, stability appeared, since almost all of the coal produced was used for the needs of Severstal. On the other hand, the decision was made to increase labor productivity, reduce the number of miners, and increase the load on existing coal faces (Fig. 4.5). Vorkuta was born along with the coal industry and developed when the entire Soviet economy needed coal and mines were being built. Now, 18.1

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Fig. 4.5 Dynamics of coal production volumes, number of production personnel, and labor productivity in OAO Vorkutaugol in 2000–2007 (Source Zadavin and Smirnov 2007, 26)

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the dynamics of the development of the coal industry in the region depended on the needs of one specific company—Severstal, and one specific person—Alexei Mordashov. Currently, coking coal is mined at the Vorkutinskaya, Komsomolskaya, and Zapolyarnaya mines, as well as at the Yunyaginsky open pit near the village of Severny, for the production of concentrate. In recent years, the dynamics of coal production at the enterprise have been relatively stable (Fig. 4.6). All coal produced is consumed by Severstal almost completely (Vorkutaugol covers about 85% of the metallurgical holding’s need for fuel). Also, thermal coal is mined at the Vorgashorskaya mine, which is used as fuel by Russian electricity generation company T-Plus. However, the region’s problem lies not only in the fact that the pace of development of the coal industry is limited by the demand for Severstal’s products, but also in the fact that Mordashov’s main task is to maximize profit from the sale of his main and more marginal product—steel. Coal for him is just a source of the necessary raw materials, and the cheaper this raw material is, the better for the manufacturer of metal products. This fact is easily verified in practice. From the financial statements of Vorkutaugol over the past few years, it becomes clear that the pricing of coal sales was based on a cost-plus pricing model, which involves adding a markup to the cost of goods and services to arrive at a selling price (Fig. 4.7). Total Volume of Coal Production, Mt 12.1

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Revenue, $/t Cost of Production and Sales, $/t Australia (FOB), $/t 184.4

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Fig. 4.7 Vorkutaugol’s cost of coal production versus coal prices and resulting revenues

Against the backdrop of high market prices for coal (Australian coal is traditionally a benchmark for world prices), Severstal gets coal almost at cost, which once again is reminiscent of Mordashov’s “Buy low and sell high” philosophy. Similar conclusions are confirmed by local residents, believing that “Mordashov … keeps Vorkutaugol as his garden. As long as the garden gives a harvest, it is interesting to him. But he has no particular desire to invest in development in order to expand and improve this garden” says a retired activist Volodymyr Zharuk, who calls himself the leader of the “Hostages of the North” movement in Vorkuta (not officially registered) (Maslov 2019). This is how the ideal business scheme looks—a whole region works for you and your company, and you get excellent profits from products that are in high demand on the market and are sold at high prices. At the same time, you have low production costs. However, in 2021, Severstal unexpectedly announced the sale of Vorkutaugol to a new owner—Russian Energy, owned by billionaire Roman Trotsenko. The official reason for the sale is Severstal’s plans to consistently reduce the carbon footprint of its products (Severstal 2022). The deal was completed in April 2022 at a valuation of 15 billion rubles (approximately $207.5 million) (Biryukov 2022), while retaining Severstal’s role as a key consumer of Vorkuta coal by entering into a long-term contract with Russian Energy for the next 5 years.

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Such an unexpected turn in the development of the company gives rise to two possible hypotheses. The first hypothesis is that the global decarbonization processes and Severstal’s commitment to sustainable development have hit steel products and forced them to make a decision that deprives the company of access to cheap raw materials. Either way, the coal plant accounted for 14.3% of Severstal’s total GHG emissions (Scope 1 and 2) per year, and this posed significant future risks for the company. However, we know from Severstal’s annual report that until 2021, the company did not experience a negative impact of the climate agenda on its sales. On the contrary, Severstal expanded exports of steel to such new markets as Italy and South America (Severstal 2021). At the same time, Mordashov apparently began to prepare for the sale of Vorkutaugol back in 2020, when the coal company received revenue that barely covered the production cost of its products—this allowed Severstal to become a profit center within the corporate structure. Already in 2021, the company’s revenue significantly exceeded the cost of coal mining. This was obviously done to increase the company’s valuation before its sale, since Severstal could buy coal from its subsidiary at any price. In addition, in 2023, Severstal approved the company’s Sustainability Strategy until 2030 (Severstal Approved the Programme of Sustainable Development until 2030 [Severstal utverdila programmu ustoichivogo razvitiya do 2030 goda] 2023), firmly anchoring in it the goals of combating climate change, improving air quality, as well as occupational safety and improving corporate governance. Apparently, a series of accidents at the mines Vorkutinskaya in 2013, which claimed the lives of 19 miners, and Severnaya in 2016, which resulted in 36 miner deaths, did not fit into Severstal’s new strategy for sustainable development. The last accident occurred in August 2020 at the Vorgashorskaya mine, where 4 more miners died due to the collapse of a faulty coal conveyor. So, Mordashov decided to get rid of the troubled asset, since the solution to accumulated problems required significant investments, which the previous owner considered to be an inappropriate decision. In addition, the frequent accidents at the mines began to attract the attention of various government agencies (Prokuratura 2021; Rostekhnadzor 2021), and Mordashov did not need or want such attention at all. The image of the first Russian billionaire who got rid of his assets for the sake of the climate seems to be more advantageous for him today.

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The second hypothesis is related to the fact that the price of the transaction for the sale of Vorkutaugol turned out to be only 1.5 times the net profit of the enterprise for the entire 2021. Even taking into account the unattractiveness of the industry, such an assessment seems quite low even for such a “troubled asset.” Of course, this amount does not reflect the real value of Vorkutaugol, a knowledge-intensive multifaceted concern whose production facilities cover an area comparable to a small EU country. Perhaps Mordashov was forced to sell such a profitable company, on which the profitability of his core business depends, because he was just asked to do so. Who could “ask” the Russian billionaire to sell Vorkutaugol and why? The reason lies in the fact that the Komi is an important region for the Russian Federation in terms of geopolitics, which has significant reserves of valuable coking and thermal coals. The gradual death of the region is by no means in favor of achieving new national goals and solving strategic tasks for the development of the Northern Sea Route, voiced personally by Russian President Vladimir Putin in May 2018 (Presidential Decree of 07.05.2018 No. 204 “On National Targets and Strategic Purposes of Development of the Russian Federation for the Period until 2024” [’O Nacionalnikh Celyah i Strategicheskih Zadachah Razvitiya Rossiiskoi Federacii na period do 2024 go 2018). In 2015, even before the accidents at the company’s mines, Vorkuta was included in the list of mono-industry towns in which “there are risks of a deterioration in the socio-economic situation” (Government of the Russian Federation 2015). The main reason is the fall in tax revenues of the regional budget, the lack of dynamics of industrial production, and the reduction of the population. Since then, the situation has only continued to deteriorate and the situation in the region had to be somehow improved and brought under control. If Vorkuta was “born along with the coal industry” (Puro 2011), then it can be assumed that the improvement of the situation in the region is impossible without an influx of new investments and an increase in coal production. Vorkuta is alive as long as the city’s mines are alive. Moreover, in order to save Vorkuta, an absolutely new concept for the integrated development of the region’s industry and, consequently, a new owner was now needed. The new owner of Vorkutaugol is Russian billionaire Roman Trotsenko, who is known to have close ties with the state (Shleinov 2012). In the late 1990s, he worked for the Ministry of Transport of the Russian

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Federation, where he oversaw everything related to new port projects. Then in 2009, he was invited to head the state JSC United Shipbuilding Corporation (USC), and in 2012 Trotsenko became an adviser to Igor Sechin, the president of the state company Rosneft. Now the billionaire is executing the May Decree of the President of Russia regarding the increase in cargo traffic along the Northern Sea Route (NSR) by 2024 from 31.5 to 80 million tons of cargo per year. The billionaire’s idea is understandable—coal is the most suitable means to quickly increase the volume of cargo traffic along The Northern Sea Route (NSR). To this end, Roman Trotsenko’s AEON Investment Holding has been systematically consolidating coal assets in Taimyr (the largest peninsula in northern Eurasia) in recent years. The license for the Syradasayskoye deposit was bought by a businessman back in 2008, which became the forerunner of today’s processes of coal blocks consolidation. In 2019, AEON began designing the Indiga seaport in the Arctic with a transshipment capacity of 80 million tons of cargo per year. Then, in 2020, Trotsenko acquired Arctic Mining Company, which owns other coal deposits in Taimyr: Malolemberovskoye deposit with reserves of 2 million tons of coal and Nizhnelemberovskoye with reserves of 67 million tons. Another acquisition by AEON was made in 2021, the Polar Mining Company, which has three exploration licenses for coal sites in Taimyr. Vorkutaugol was the last purchase of Roman Trotsenko. The businessman was clearly waiting for his finest hour, when the Arctic would be at the forefront of macroeconomics. The development of the macro-region has been placed by the government as a national priority. Therefore, the Arctic region today is the most favorable for doing business, as its residents are promised tax cuts, preferential loans, and the provision of land without an auction at a predetermined price. Only a person with a completely different credo could be entrusted with such a responsible area. “Firstly, I am a wealthy and accomplished person, and I wanted to do something for the country in which I live, without commercial interest, but treating it as a duty. Secondly, for the last fifteen years I have been specializing in anti-crisis management. The situation in shipbuilding was difficult, and when I was invited to do it, it was a professional challenge. And thirdly, I like ships. So everything came together.”—Trotsenko commenting on his appointment to USC back in 2012 (Shleinov 2012). The development of the Arctic industrial cluster has obviously become the next task, corresponding to the well-deserved level of trust on the part

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of the top officials of the state, as well as the managerial and professional competencies of Trotsenko. The main specialization of the AEON investment holding is to “search for large companies that, due to various circumstances, are in a difficult situation, require a change of business concept, or additional investments. AEON invests in such projects and further transforms them. Where possible, the holding carries out sectoral consolidation, creating a large company” Trotsenko explained in an interview with Forbes (Movchan 2019). It is also worth noting that AEON is a holding that implements heavy infrastructure projects with a payback of 7–20 years and aims to grow national champions (Movchan 2019). If Mordashov saw only climate risks for his business in Vorkuta, and sought to maximize profits without almost any investments in the modernization of coal mining enterprises, it seems that the new owner sees the future of this region much differently. By investing in coal mining in the Arctic, Trotsenko demonstrated his belief that the demand for coal in the world will not decrease in the long term and, in his opinion, Trotsenko provides several reasons for this: First, the continued high demand for coking coal for metallurgy in the world is the opportunity to enter the market with new grades of premium coal, to compete with Australian companies. The second is global warming, which improves the ability of ships to navigate the Northern Sea Route and reduces logistics costs, since the reduction in ice area reduces the need for icebreakers. The third and the last reason is a personal challenge. Trotsenko said in an interview to TASS. (Borodayevskaya 2021)

Despite the fact that the development of coal projects in the era of energy transition seems to be a very difficult task, the businessman believes in his success and forecasts that the energy transition will primarily affect thermal coal, and not coking. In his opinion, “so far we should not expect a significant reduction in the cost of coal or the volume of its production. Humanity still needs coal. I expect this now unfashionable product to still be in demand for the next 50 years” (Borodayevskaya 2021). Thus, if Vorkuta is a mirror of the Russian Arctic, then it still shows a bleak reflection. Until now, the industrial potential of the entire region was in the hands of one person who squeezed the last resources out of it and did not invest in its development. Naturally, the level of industrial development was constantly reduced to the needs of Severstal, and the

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socio-economic situation was getting worse and worse. Closing the city was still only a matter of time for Vorkuta. With the advent of the new owner of Vorkutaugol, the region has hope today. If the business activities of Trotsenko are really at the intersection of state and his personal interests, then once they are successfully implemented, the Komi industry will receive new growth drivers. The transport and raw materials cluster created on the basis of the region is capable of bringing new jobs in the long term, increasing revenues to the regional budget, and improving the socio-economic situation of the locals. However, only time can show how effective the proposed solutions will be and whether Vorkutaugol will once again become a means to achieve other goals, since its future depends on too many factors. Regional Problems and Perspectives Stable Coal Production and Unstable Demography Stabilization of coal production in the 2000s has nothing to do with stabilization of demographics. The population continued to decline, falling to 95,900 citizens according to the 2010 census. Consequently, the population in 2010 was less than half of what it had been before the Soviet Union collapsed in 1991. For the next ten years, it shrank almost by half reaching 51,321 people in the beginning of 2022. Vorkuta now is the third largest city in Komi after Syktyvkar and oil and gas rich Ukhta.14 Year to year decreases in population in the 2010s was about one thousand people. After a round of layoffs in the second half of the decade, the number of people employed by Vorkutaugol fell to 9683 in 2010. By comparison, in its heyday in 1967, Vorkutaugol employed just over 45,000 people in the mines, mine construction, and various subsidiary industries (Barenberg 2014, 241). Although there have been numerous attempts to relocate pensioners and other unproductive parts of the population elsewhere, the results have been mixed at best. For example, from 2002 to 2007 the World Bank committed up to $80 million in loans to help resettle households with pensioners or multiple children from Vorkuta and two other 14 It is worth noting that population of “big” Vorkuta that includes also 15 urban-type settlements including operating coal mines Vorgashor, Zapoljarniy, Komsomol’skiy, is 71 279 people. The number of children in the age of 5–18 years has increased from 13,175 people in 2020 to 13,353 in 2021 (Shaposhnikov 2022).

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areas of the Far North, Norilsk and the Susuman district of Kolyma. Each of these regions had once been the site of a large prison camp complex but had become company towns in the decades after Stalin’s death. While the program provided funds for 5358 Vorkuta residents to buy apartments and resettle in other cities, this does not appear to have had a significant effect on the overall population structure of the city. While Severstal has promised to fund the relocation of all families of those who have died in mining accidents, there seems to be little political will to carry out the kind of large-scale resettlement program that would be needed to significantly alter the structure of the city’s local population. As for the number of coal miners in Vorkutaugol in 2022, it is rather stable for quite a while and is in the range of 5630–5860 people (Severstal 2022). Those people are employed at four coal mines (Vorkutinskaya, Vorgashorskaya, Zapoliarmaya, Komsomoslkaya), the coal processing plant “Pechorskaya” and some auxiliary enterprises. Given a widespread practice to rely on labor who work on a rotational basis, overall population decline in Vorkuta can hardly serve as a litmus test for upcoming crises in the coal industry. Quite contrary, it seems that the workforce has stabilized at an optimal level which allows the company to supply as much coal as its main customers need, and to pay miners competitive salaries. Vorkuta has experienced significant improvements in at least two areas of life in the 2000s. By 2010, the overall crime rate in the city had fallen to half of its all-time high (reached in 2006), so that crime was near the 1990 level. Perhaps most importantly, the falling population and the gradual abandonment of poor-quality housing meant that both the quality and quantity of housing in the city increased dramatically. Whereas there was only 5.5 square meters per person in the city in 1990, in 2010 this had increased to 29.2 square meters, roughly the level promised by Khrushchev when the mass housing campaign was launched at the end of the 1950s. In order to improve living conditions in Vorkuta, from 2017 to 2022, the city administration has resettled 385 families from remote districts into upgraded apartment blocks in the city center, and it is going to provide new housing by 2025 for another 341 families from Zapolyarny and Komsomolskiy. This resettlement program in Vorkuta is financed by the Komi Republic (Shaposhnikov 2022).

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Transportation problems were also improved because so many residents of distant settlements moved into the city center, closer to shopping, schools, and services. As far as the average monthly salary in the city is concerned, it was 60,400 rubles in 2021, and grew slightly in 2022 to 65,700 rubles being about 50% higher in larger enterprises (Wages in Vorkuta [Zarplaty v Vorkute] 2023). There is a lack of good sociology regarding the situation in Vorkuta. Few public opinion polls are held on a regular basis. One of them monitors inter-ethnic relations in the republic, attitudes toward migrants and migration, and overall evaluation of living conditions in Komi. According to 2022 data, 41% of residents are willing to leave Komi, including 20% of ethnic Komi and 49% of Russians. Meanwhile, 54% are not planning to leave even if they have an opportunity to do so. Among those who are willing to stay, 75% are ethnic Komi and 46% are Russians. Among the main reasons to stay, respondents mentioned the nature, openness of people, intensive cultural life, and proper conditions to get a decent education. Alas, such polls were not conducted in Vorkuta in the 2010s and it is hard to say how general attitudes are changing. As far as economic conditions and level of governance are concerned, these factors were mentioned as the least important by those who do not want to leave the republic. According to official data, the ecological situation in Vorkuta in 2022 has changed for the better. By shifting heating systems in Vorkuta to natural gas, ash-and-slag waste production in the town has decreased by 124,000 tons (94%) (Solovieva 2022). Conclusions Energy and climate change experts may be correct to argue that the coal producers in Russia are living in hard times and should revise their strategy. But after painful reforms of the 1990s and the privatization of the industry, the sector has stabilized and found its niche both in domestic and external markets. As far as Vorkuta is concerned, its coal mines went through three stages before they emerged in their current shape. Having started as a part of the GULAG system deeply integrated into the Soviet era strategy of developing vast natural deposits of resources across the whole country in order

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to provide its main industrial centers, it contributed enormously to the Soviet economy during the war and later enjoyed numerous privileges as a “northern” territory. The principal–agent conflict did not split the Soviet leadership over development of coal in the Pechora coal basin. Those who represented industrial and regional interests (units of the GULAG of the NKVD) also represented what was meant by the national interests at that time. Vested and industrial interests were kept at bay in a strict vertical hierarchy. During the Stalin era, republic party bosses in Komi were weak and they received materials through vertical orders. As loyal subjects, they delivered their output to users designated by the center. After the war and Stalin’s death, as Mancur Olson argued, “either through infirmity or gradual erosion of power, vested interests eventually gain the upper hand” (Olson 1995, 31–40). Confronted with unfulfillable plans and unreliable supplies, producers had to turn to unofficial transactions. Horizontal unofficial networks developed as alternative sources of power and provided a base for vested interest coalitions (Gregory 2004, 264). The case of the Komi Republic and its Vorkuta coal mines do not fit this formula for a number of reasons. Besides its remoteness, the regional economy was rather small to play any significant role even at the level of North-West Russia. As far as horizontal ties are concerned, they also did not change too much for the fact that both production and transportation of coal to consumers was a matter of highly centralized planning. The coal from Vorkuta went primarily to Cherepovets steel plant, and the economic performance of Vorkuta was a function of Cherepovets demand first and foremost. Fast development of oil and gas in the Komi Republic alongside the building of NPPs near St. Petersburg substantially diminished the demand for energy coal in North-West Russia. Post-Soviet wild capitalism significantly changed the whole economic and social landscape of Vorkuta. Non-profitable pits were closed, and about three-quarters of Vorkuta residents fled the town. Since 2003, Vorkutaugol has become a part of supply chains of such metallurgical giants as Severstal and NLMK whose products even under current conditions are in demand both in Russia and abroad. Production of coal has stabilized in the 2010s though at levels that are almost 40%

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lower than initially planned by the government for the coal sector till 2030 with current production of 9.7 million tons instead of 15 million tons. There are some who argue that the most important driver of any economy is the working-age population, and therefore poor demographic performance by Vorkuta since the collapse of the Soviet Union speaks for itself and demonstrates the rapid decline of the town. But with new technology at hand and growing productivity, current levels of coal production can be provided by a smaller labor force. Also, a rotation work scheme fills the gap if extra labor is needed. Thus, few Vorkuta residents alive today are likely to be around to see coal being phased out in their region. Also, Vorkuta is no longer a one-company town. Being enormously rich in highly valuable natural resources and getting the status of a mono town that provides numerous bonuses for investors, it became more attractive than 20 years ago. Therefore, at least partial diversification of its economy is not just a dream. Finally, under current programs for the development of the Arctic, the Vorkuta region is reemerging on the radar of Moscow as a strategically important area for national security. With Finland and Sweden in NATO and a high probability of militarization of the Arctic, the role of the Vorkuta region will rise. Still, the town needs to meet numerous challenges. Its infrastructure is vast but in dire conditions which leads to overspending on its maintenance. More than half of the residents are very critical about their living conditions and more than 40% are ready to leave. There is a lack of railroad and automobile connections with ports on the Kara Sea. The governor of the Komi Republic is willing to transfer the old airport in Vorkuta to the federal center. Another issue of the wish list of Komi authorities is linking the main cities of the republic—Syktyvkar, Ukhta, Pechora, Usinsk, and Narjan Mar—with Vorkuta by highway. Finally, there is huge ecological damage in Vorkuta as a result of 80 years of development of coal mines. Whether Moscow will provide Vorkuta with needed funding is still an open question, and largely depends on the overall economic situation. Without massive state support, Vorkutaugol and its new owners will find it difficult to withstand existing problems.

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Kuzbass If the entire area of Kuzbass is covered with coal mined from the beginning of its industrial development, then a huge mountain 300 m high will turn out. The Egyptian pyramids, recognized as one of the greatest wonders of the world, cannot stand any comparison with it! —former governor of the Kemerovo region (1997–2018), Aman Tuleev15

The Kemerovo region, also known as Kuzbass (Fig. 4.8), in Western Siberia is located 3,500 km from Moscow and is home to 1.8% of the Russian population (2.6 million people). The administrative center of the region is the city of Kemerovo.16 Kuzbass is the largest producer and supplier of coal among the coal mining regions of Russia. In 2022, Kuzbass enterprises managed to extract 222.8 million tons of coal, which accounted for 50.2% of the total coal production in Russia, as well as 57.9% of coking coal.17 Kuzbass is also the largest exporter of Russian coal, accounting for 57.0% of Russian coal exports in 2022, including coking coal.18 The past, present, and future of Kuzbass and the coal industry are inseparable. The Long Path of Big Development In addition to being the largest coal region in Russia, Kuzbass recently celebrated its 300th anniversary.19 The history of Kuzbass coincides with the chronology of the formation of mining in Russia and refers us to the era of the Russian tsar and the first Emperor of All-Russia Peter the Great. That period is famous for many important stages in the country’s life, including the founding of the city of St. Petersburg, the implementation of educational reform, and the development of geology.

15 Dyakov et al. 2005, 3. 16 Korppoo, Sakharov, and Tsvetava 2023, 5. 17 Petrenko 2023, 23. 18 Petrenko 2023, 27. 19 Decree of the President of the Russian Federation No. 499 of August 27, 2018.

Fig. 4.8 Kuzbass coal basin: key characteristics and transport links to the ports of the Far East (Source Created by the authors based on open data)

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In 1700, Peter the Great signed a decree on the exploration of gold, silver, copper, and other ores,20 thereby laying the foundation for geological science. Exploration of ores became the privilege of explorers—this is how the mining profession was born in Russia.21 The exploration for natural resources in Western Siberia provided results more than 20 years later, when the first miners managed to identify coal deposits and reported to St. Petersburg—then the capital of Russia. From that time, the discovery of coal deposits in Kuzbass is counted.22 Until the first half of the twentieth century, the coal industry of Kuzbass gradually developed, and the industrial development of coal deposits in the region continued. However, it was too early to talk about the rapid development of the industry. After the Great Russian Revolution of 1917, the country’s industry was in ruins and Vladimir Lenin even wrote a “Letter to American Workers,” in which he called on them to help create the economic base of a new workers’ state. The economic crisis in Russia was so deep that the country could not restore the ruined economy on its own without equipment and technical assistance from abroad.23 The Dutch communist Sebald Rutgers responded to Lenin’s call by proposing the creation of an Autonomous Industrial Colony and taking control of all coal enterprises of Kuzbass for the purpose of restoration by American workers.24 The idea was crowned with success, labor productivity increased over a few years by more than 20%, and production volume more than doubled.25 The formula turned out to be simple and familiar, and despite the objections of local authorities, all unprofitable mines were closed, and the remaining ones were modernized. After Lenin’s death in 1924, the high performance of the Autonomous Industrial Colony began “casting a shadow” on the achievements of the nationalized enterprises.26 S. Rutgers lost his main ally and even wrote to 20 On the mining of gold, silver, copper and other ores throughout Russia, on the inspection of the mined ores by the voivodes on the spot and on the awarding of private people who have committed such a mine [O priiske zolotyh, serebrenyh, mednyh i inyh rud 1825]. 21 Popov 2021. 22 I. Uskov 2011. 23 Lenin 1965. 24 Morray 1983. 25 Popov 2021. 26 Popov 2021.

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his wife in December 1924, that “continuing this work is like suicide for me.”27 By 1925 a vigorous campaign under the impulse of the central government in Moscow to “increase labor productivity” and “lower the costs of products” was being implemented through the Communist Party in every part of the Soviet Republic. This drive to establish a Scientific Organization of Labor approach became a determining factor in the latter years of the Autonomous Industrial Colony’s (AIC) existence. With the Scientific Organization of Labor, there was a strong tendency to make every Soviet industrial enterprise conform to certain standardized practices of cost accounting and to frown on deviations as evidence of negligence by managers. The foreign technicians who were working under AIC did not believe the Scientific Organization of Labor practices to be superior to their own, so there was resistance to accepting the new rules as progressive and beneficial to Kuzbass coal mining.28 Later, the work of foreign specialists began to be hindered while Rutgers was removing himself from the active direction of the AIC. By the mid of the 30s, the existence of the AIC came to naught, and the Kuzbassugol trust was formed from its assets. In 1936, the trust turned into the Kuzbassugol combine, which took control of all the enterprises of the Kuzbass coal basin. In 1943, in order to improve the management of the coal industry, the Kuzbassugol combine was divided into two independent combines: Kuzbassugol and Kemerovougol. Following the stage of “five-year plans,” this structure of the Kuzbass coal industry persisted until the 1960s.29 The most active period of the Kuzbass coal industry development fell in the years of the Great Patriotic War, when the region became one of the main industrial arsenals of the Soviet army in the eastern regions of the country, inaccessible to the fascists. Already in the first year of the war, mining equipment, workers, and engineers of coal enterprises were sent to Kuzbass from another large coal region—Donbass.30 Together with personnel, the most important research institutes began to move to

27 Trincher and Trincher 1967. 28 Morray 1983, 169. 29 Popov 2021. 30 From the resolution of the Central Committee of the CPSU (b) and the SNK of

the USSR on the creation of the Evacuation Council. June 24, 1941, 1985.

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Siberia. Metallurgical, chemical, and machine-building plants were evacuated to the region. Soviet industry required more energy capacity and thermal power plants were built in the region, fueled by Kuzbass coal. From 1941 to 1945, the production of thermal coal increased by 137%, and coking coal almost doubled. Back in 1940, the share of thermal coal production in Kuzbass was 13.6% of the country’s total, but in 1943, the share of Kuzbass in the all-Union volume of coal mined had more than tripled to 48.5%.31 In 1945, the Pravda newspaper wrote: “The entire defense industry of the country lived on the coal and metal of Kuzbass and the Urals, Kuzbass played a huge role in the Great Patriotic War, and history will not forget its services to the socialist fatherland.”32 As in the case of Vorkuta, the Kuzbass coal records were largely due to the use of forced labor of prisoners, who did not require the creation of special living conditions. In 1939, according to the fuel industry department of the GULAG of the NKVD of the USSR, there were 52,222 prisoners in the coal industry of Kuzbass. In 1940, forced labor began to be applied not only to prisoners, but also to ordinary workers. With the Decree of the Presidium of the Supreme Soviet of the USSR “On the transition to an 8-hour working day, to a seven-day working week and on the prohibition of unauthorized departure of workers and employees from enterprises and institutions,” workers and employees who arbitrarily left state, cooperative or public enterprises and institutions were subjected to imprisonment from 2 to 6 months or were punished with corrective labor for up to 6 months with deductions from earnings of up to 25%.33 Persons subjected to punishment by corrective labor were placed in special colonies, which were created on the territory of coal trusts to service mines.34 The problem of staff shortage was also solved at the expense of women, teenagers, and pensioners. The proportion of women among the prisoners in a number of mines reached 27%.35 Men went to the front, and for the extensive growth of coal mining it was necessary to constantly increase the 31 Popov 2021. 32 Zavarzin 1945. 33 Presidium of the Supreme Soviet of the USSR 1940. 34 Bikmetov 2004, 93. 35 Bikmetov 2004, 96.

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number of workers, despite their lack of experience in the coal industry and low labor productivity. In the postwar years, Kuzbass continued to play an important role in the industrialization of the country. However, the implementation of plans to increase coal production was associated with overcoming the difficulties caused by the consequences of the war and the destruction of the national economy. In addition, the most important task was the social living conditions of the miners. The workers who arrived in Kuzbass after the Great Patriotic War lived in dugouts, outbuildings, sheds, garages, vegetable stores, and even barnyards. Extremely difficult housing and living conditions generated a huge turnover of staff. It had become the main scourge of Kuzbass, it slowed down the development of the region and held back the volume of production. Hundreds of thousands of new workers came to Kuzbass and hundreds of thousands left. In 1947, a third of the workers of the Kuzbassugol plant had work experience of less than one year.36 Government decisions became a powerful lever for further increases in coal production in Kuzbass and for the development of the region, which became a manifestation of deep concern for the miners. In September 1947 by a Government Decree,37 wages and pensions were significantly increased for miners, and remuneration for long service was established. Employees were given the right to receive medical care for themselves and their families, and vouchers to resorts were allocated. With these actions, the government noted the hard work of miners during the war years and raised the profession to the highest level of social prestige. In other words, the life of ordinary miners had become culturally significant and prosperous. By 1948, the coal miners of Kuzbass were already earning more than 10 thousand rubles a month, while the cost of a monthly food basket was 1,130 rubles.38 High earnings allowed miners to purchase houses, cars, household appliances, and expensive furniture. And by 1950, the resettlement of workers from temporary premises to comfortable hostels and separate apartments was completed. The adopted decrees and resolutions of the government created qualitatively new conditions for the work

36 Dyakov, Konovalov, and Parshukov 2007, 56. 37 Council of Ministers of the USSR 1947. 38 Dyakov, Konovalov, and Parshukov 2007, 57.

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of miners, expanded the possibilities for increasing coal production, and fulfilling new production plans. Having the experience of the years gone by, we can say that the reason for the concentration of the economy of the Kemerovo region around the coal industry was precisely the militarization of the Soviet economy during wartime. If it were not for the forced need to move industry inland, the Kemerovo region probably would not have become the largest coal mining region. However, history prepared a different fate for the region, and today Kuzbass is rightfully called the center of coal mining and the forge of qualified personnel for the mining industry in Russia. More Than Just the Energy Source The modern functional and territorial structure of Kuzbass industry was already formed by the mid-1980s. The basis of the region’s economy had become the system of coal and metallurgical production, and the subsequent emergence of the chemical industry, mechanical engineering, energy, as well as the construction industry working for their needs and aimed at ensuring domestic needs and employment of the female population in light and food industries. The products of these industries began to occupy the main place in the gross volume of regional production.39 Coal mining is still the leading economic activity of Kuzbass. At the end of 2021, when coal prices were high, its share in GRP amounted to about 40% (Fig. 4.9).40 However, declining prices in 2020 brought this share down to less than 20%.41 Thus, volatile coal prices have a major impact on the entire Kuzbass economy.42 A more contrasting picture is observed in terms of exports, where coal accounted for 75% (2021) to 80% (2018) of Kuzbass’ foreign exchange earnings. Together with the export of products of the metallurgical industry, coal and metals account for about 95% of the commodity structure of the region’s exports.43 Since the majority of coal in the region is owned by large vertically integrated and successful companies 39 Sherin 2016. 40 Government of the Kemerovo region - Kuzbass 2022. 41 Kemerovo Regional Authority of the Russian Federal Statistics Service 2023b. 42 Korppoo, Sakharov, and Tsvetava 2023. 43 Kemerovo Regional Authority of the Russian Federal Statistics Service 2023a.

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Fig. 4.9 The structure of GRP of Kuzbass, 2021 (Source CBR. Dolya regiona v obshcherossijskih osnovnyh pokazatelyah v 2022 g., % [Share of the region in the all-Russian key indicators in 2022, %] (2023) Otdelenie Banka Rossii po Kemerovskoj oblasti [Branch of the Bank of Russia in the Kemerovo region]. Available at: https://cbr.ru/kemerovo/ekonom_profil/. Accessed: 26 May 2023)

(SUEK, EVRAZ, MMK, Mechel, UGMK), Kuzbass coal has successfully settled into global markets and is almost independent of the fall in its consumption within Russia.44 Coal itself is only the tip of the iceberg. “Every year, coal miners provide up to 40% of taxes to the regional budget. Coal is the main cargo for transportation by rail. Local thermal power plants cannot operate without coal. Coal miners give work to metallurgical enterprises, metallurgists give work to engineering enterprises. The coal miner has no dachas (summer cottages); he is at work from morning to evening. He can only come to the store and buy. He gave work to the trade. He gave work to the village. The coal industry still supports education because specialists need to be trained. We support science because new technologies are

44 Fridman, Rechko, and Loginova 2019.

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needed. If we remove the coal, everything else will fall apart like a house of cards”—claimed Governor of Kuzbass Sergey Tsivilev, 2020.45 The Kuzbass “house of cards” consists of 126 backbone organizations, 41 of which are directly involved in the extraction and processing of coal, while the rest are more or less dependent on them (metallurgy, engineering, freight transportation, chemical industry, heat, and power generation). It is noteworthy that the Siberian Research Institute of Coal Concentration is the only system-forming organization in the list which is responsible for research and development in Kuzbass.46 All coal companies are represented by private capital—the state traditionally did not interfere in the work of coal enterprises and was not interested in them. This is confirmed by the nearly complete absence of state-owned coal companies in Russia and the low fiscal burden on the industry. This situation is easily explained, since against the backdrop of the oil and gas boom, historical profitability in coal production has always been low.47 In total, at the beginning of 2022, 152 coal mining and processing enterprises operated in Kuzbass, including 39 underground mines, 57 open-pit mines, and the remaining 56 are processing plants.48 Such a concentration of coal mining in one region of the country inevitably led to the fact that coal still occupies a dominant role in the fuel and energy balance of Kuzbass and will not likely give up its position in the next decade, even though gasification has been actively carried out in the region since 201849 (Fig. 4.10). The number of employees in the coal industry of Kuzbass is not constant and has been declining in recent years, which generally reflects the current demographic trend for Kuzbass (Fig. 4.11). This does not include metallurgy, energy, transport, and other related industries. Thus, despite a drop in the total population in the region and the declining prospects of the coal industry, almost the entirety of Kuzbass is directly connected with the coal industry—these are miners, workers in related industries, and their families. In addition, this doesn’t consider that many Kuzbass coal companies are actively acquiring licenses to mine 45 N. Uskov 2020. 46 Government of the Kemerovo region - Kuzbass 2020. 47 Fridman, Rechko, and Loginova 2019, 91. 48 Kuzbass Ministry of Coal Industry 2023. 49 Gazprom 2023.

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Coal

Black Oil

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7% 7%

7% 6%

7% 6%

7% 6%

7% 6%

7% 6%

8% 6%

9% 5%

10% 5%

86%

87%

87%

88%

87%

87%

87%

86%

85%

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75% 50% 25% 0% Fig. 4.10 The structure of fuel and energy balance in 2022 (Source Fuel and energy balance of the Kemerovo region—Kuzbass until 2030. Postanovlenie Gubernatora Kemerovskoj oblasti—Kuzbassa ot 11.04.2022 № 30-pg “Ob utverzhdenii celevogo prognoznogo toplivno-energeticheskogo balansa Kemerovskoj oblasti—Kuzbassa do 2030 goda i plana meropriyatij—(“dorozhnoj karty”) po dostizheniyu pokazatelej celevogo prognoznogo toplivno-energeticheskogo balansa Kemerovskoj oblasti—Kuzbassa do 2030 goda” [Resolution of the Governor of the Kemerovo Region—Kuzbass dated April 11, 2022 No. 30-pg “On approval of the target fuel and energy balance of the Kemerovo Region—Kuzbass until 2030])

coal in other regions of Russia and extends far beyond the region, usually in the east of the country. Today, Kuzbass is a powerful industrial region of Russia, which plays an important role in the economy of the state, ensuring, first of all, its energy security. Kuzbass coal is the heart of the region’s economy, the driver of its growth and development, and the base for the energy and metallurgical industries of the whole country. Without the coal industry in the region, it would be impossible to support the lives of millions of the population, build comfortable housing, social and engineering infrastructure, and fight for a decent life for Kuzbass residents. The training of highly qualified mining and engineering personnel and the development of science would also be impossible.

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Number of workers, thsnd people 110.2 107.5

106 101.2 99.3

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2018

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Fig. 4.11 The number of miners in the Kuzbass’ coal industry (Source Federal State Statistics Service in Kemerovo region—Kuzbass (2022). Srednegodovaya chislennost’ zanyatyh v ekonomike po osnovnomu vidu ekonomicheskoj deyatel’nosti [The average annual number of people employed in the economy by the main type of economic activity] (2022) Territorial’nyj organ Federal’noj sluzhby gosudarstvennoj statistiki po Kemerovskoj oblasti—Kuzbassu. Available at: https://kemerovostat.gks.ru/folder/38679. Accessed: 20 May 2023)

No matter how controversial the coal industry is in the context of the current environmental and climate agenda, looking at Kuzbass it makes no sense to say that coal will no longer be used in the near future. Coal energy is still one of the most affordable energy sources for most people on the planet.50 The potential of Kuzbass is inexhaustible, and its resource base allows planning the development of the industry for decades to come. The most promising for coal miners today are the markets of the Asia–Pacific region. However, to increase coal exports, it is necessary to develop railway and port infrastructure, primarily in the east of the country—this is the main challenge for the future of the Kuzbass’ industry and its current economic model. 50 Panov 2021, 16.

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One Way One Railway The underdevelopment of the railway infrastructure in the Far East has been and remains Russia’s Achilles’ heel. The defeat in the Russo-Japanese war more than 100 years ago was largely due to the fact that Russia, which had a huge superiority in manpower and technology, was not able to transfer them to the Pacific in time. Over the next decades, the situation has not changed radically, and only the rapid growth of the economies of the Asia–Pacific region prompted the Russian leadership to seriously consider the development of transport corridors with its eastern neighbors. The gradually growing importance of the eastern direction has led to the development of a comprehensive investment project for the development of railway infrastructure, which Russian Railways began to implement in 2013 and plans to complete by 2025. The complex project is called the Eastern Polygon Modernization Program51 and is mainly associated with the modernization of the BAM (Baikal-Amur Mainline) and Transsib (Trans-Siberian Railway) initiative. Its primary goal is to eliminate constraints to ensure sufficient capacity of railways to transport additional cargo volume of Russian companies east. As part of the modernization of the BAM and Transsib, it is planned to increase the carrying capacity in the eastern direction from 15852 to 210 million tons in 2025. The parallel project titled “Transsib in 7 Days,” in turn, is designed to reduce the time of container transportation in the opposite direction, from the Far East to the western borders of Russia by 2024.53 The Ministry of Transport of the Russian Federation is also considering the possibility of increasing the capacity of the Eastern Polygon to 255 million tons by 2031–2032.54 Although, apparently, the stated dates will be postponed to a later period. We pay so much attention to this program precisely because export and domestic transportation of Kuzbass coal make the greatest contribution

51 The name is not fixed by any official document, however, it is used to designate one of the initiatives of the National Project of the Russian Federation “Modernization of transport infrastructure,” which involves the development of railway infrastructure in order to increase the capacity and carrying capacity in the East direction “West–East”. 52 Federation Council 2023. 53 Government of the Russian Federation 2019. 54 Skorlygina and Zainullin 2022.

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to the loading of railway sections in the eastern direction. Over 70% of the loading of the BAM and Transsib in the eastern direction is accounted for by export shipments of coal to the Asia–Pacific region.55 Moreover, coal is loaded by BAM and Transsib twice—not only when transporting for export, but also by returning empty wagons, the reverse loading of which is impossible without cleaning.56 Moreover, despite the lowest cost of transportation among other cargoes, the modernization program of the BAM and Transsib was coordinated with the targets of the draft “Program for the Development of the Coal Industry of the Russian Federation until 2035” and actually meant a partial victory of the coal lobby of Kuzbass. Why can the victory be considered only partial? The answer lies in the fact that the expansion of the capacity of the Eastern Polygon is only partially funded by the state and is being implemented not only for, but also at the expense of Russian coal miners. They decided not to save money on the project of expanding the Eastern Polygon and estimated the need for investments of about 1.7 trillion rubles, 1 trillion rubles of which were attributed to the responsibility of Russian coal and stevedoring companies.57 There are no public agreements on public–private partnership between Russian coal companies and Russian Railways for the construction of the Eastern Polygon, which means that coal companies will invest their funds through an increase in the tariff for cargo transportation. The tariff for the transportation of coal to the East is today the main subject of bargaining in the relations between the railway and the coal industry. At the end of 2020, the government was ready to consider the possibility of exporting an additional 10 million tons of coal from Kuzbass east in 2021, but only if a positive financial result for Russian Railways is provided. But for this, Russian Railways would have to raise the tariff for the transportation of coal by 2.4 times, which made the transportation of coal to the East unprofitable.58 After several years of battles, federal agencies did not support the idea of an increased tariff to finance the construction of the Eastern Polygon, referring to strategic documents for the development

55 Bulokhova, Grigorieva, and Olintsevich 2021, 21. 56 Bazhenov 2020. 57 Zainullin 2018. 58 Skorlygina 2020.

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of railway infrastructure, which do not involve financing such projects by changing the level of tariffs.59 Was this another victory of the Russian coal industry?—not again. Even before the start of Russia’s so-called special military operation in Ukraine in 2022, there were serious problems with the transportation of growing volumes of coal east. The “bottlenecks” of the railway tracks did not allow them to extract and export as much coal as was demanded in the markets of the Asia–Pacific region. Freight trains on the Transsib and BAM run every 5–8 minutes around the clock. Their capacities are not designed for the development of new fields and the growing volume of transportation. BAM’s “bottlenecks” are often tunnels (Fig. 4.12), but BAM’s problem is not only in them. Despite the importance of the railway, it is not fully electrified. The absence of electric locomotives greatly slows down traffic on the last segment leading to the ports of the Far East. Currently, with the conditions of a sharp aggravation and rupture of logistical relations with the European Union, Russian coal mines have been completely cornered. Taking into account the fact that Kuzbass exports more than half of the extracted coal, the excess needs to be transported and sold somewhere, and they have not yet had time to expand the Eastern Polygon to the promised targets. For 2023, the governor of Kuzbass, Sergey Tsivilev, managed to negotiate with Russian Railways only for the previous quota of 53.1 million tons of coal in the eastern direction.60 2022 was the peak period that tested BAM and Transsib for strength. The geography of cargo transportation and routes has changed, cargo has turned from west to east and the Eastern Polygon has become a point of attraction for all shippers and customers of the logistics market. The main eastern partner, China, has not opened its borders for free. So, in 2023, Russian Railways introduced a temporary regulation on the order of transportation, which61 raised the priority of transit cargo, coking coal, and anthracite for export deliveries. Thermal coal is exported on a residual basis. 59 Korenyako 2023. 60 Sergey Tsivilev and Oleg Belozerov determined the volumes of coal export in the

eastern direction for 2023 [Sergej Civilev i Oleg Belozerov opredelili ob”emy vyvoza uglya v vostochnom napravlenii na 2023 god] 2022. 61 Ministry of Natural Resources and Ecology of Kuzbass 2022.

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Fig. 4.12 The program of modernization of the Eastern Polygon of railways (Source Created by the authors based on open data)

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Transit cargo is mostly containers coming from China through the territory of Russia. One ton of transit cargo brings the Russian Federation $30 in revenue, but at the same time does not allow the Russian Railways to earn revenue from coal exporting which could give $600 a ton instead of $30. Besides, coal is the cheapest domestic cargo in Russia. This is the price of turning to the East and you have to pay not only in rubles, but also in coal.62 It is not surprising that in the new conditions, representatives of mining regions and coal miners themselves note that “a change in the current order will lead to the breakdown of contracts, non-fulfillment of obligations, shutdown of enterprises, job cuts in the regions, reduction of taxes and foreign exchange earnings.”63 Kuzbass coal is once again in a state where it will have to fight for its future. And first of all, we are talking about the most common energy coal, because coking coal is more in demand in the foreign markets of Asia. The only thing the coal lobby has to fight for is to accelerate the pace of expansion of the Eastern Polygon, because it seems useless to fight container shipping in the current geopolitical realities. Removal of transit containers from the Eastern Polygon is now impossible. Discrediting the partnership between Russia and China on the Belt and Road initiative, which is strategic for the PRC, is unacceptable for the current Russian government. The Chinese partners strive to support and develop overland transit, including via the Trans-Siberian Railway, and allocate state subsidies for this. At the same time, the transit of containers via the Trans-Siberian Railway goes primarily to the CIS countries. Thus, the main competitor of Kuzbass coal for the railway is not producers of petroleum products or other goods, but now China is. The ban on transit traffic to China will mean a sharp drop in Russian exports of logistics services and the loss of the status of a reliable transiting partner for Russia.64

62 Renge 2022. 63 Skorlygina 2022. 64 Skorlygina 2022.

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Coal Titans of Kuzbass After the miners’ strikes in the 1980s and early 1990s, which we discussed in previous chapters, an unprecedented decline in production began in Kuzbass. In March 1991 and for several years, Kuzbass was shaken by strikes, rallies, pickets, and the blocking of railways. The turn of the 1990s became a red line, beyond which the country’s coal industry was threatened not just by a crisis, but by an inevitable collapse. Traditionally, researchers do not focus on this particular coal region in books, associating it only with the complete and uncontrolled collapse of the entire coal industry. After all, at the stage of transition to the market, the structure of the economy of the Russian state changed dramatically. The production of metal-intensive industries was sharply curtailed and millions of tons of coal became superfluous.65 However, Kuzbass already had a master (governor) during these years—Mikhail Kislyuk, whom Boris Yeltsin appointed head of the Kemerovo Region administration on August 27, 1991 and dismissed from office on July 1, 1997.66 Mikhail Kislyuk What should we be aware of Mikhail Kislyuk? Prior to his appointment to the governor’s post, he was an ordinary engineer. In 1986, he was appointed deputy Director for Economics of the Chernihiv mine (now part of the Siberian Business Union, SBU), and in 1989 he became a member of the strike movement. Moreover, according to his assurance, it was completely by chance that he was nominated to the strike committee by the miners with whom he worked.67 The struggle for the interests of miners fascinated Kislyuk and in 1990 he decided to go into politics and was elected as a deputy. At first, the goal of his struggle was to achieve at least some kind of dialogue with the authorities—first of all, with the President of the USSR, Mikhail Gorbachev. However, no attempts to establish contact with him were successful, and the demands put forward remained unanswered— Gorbachev did not even come to Kuzbass, thereby finally destroying his authority in the eyes of the working class of the region. Yeltsin subsequently took advantage of this very skillfully, enlisting the support of the 65 Dyakov, Konovalov, and Parshukov 2007, 392. 66 Decree of the President of the Russian Federation No. 665 dated 01.07.1997. 67 Kislyuk and Mozzhukhin 2015.

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miners and entering into a political struggle with Gorbachev, with whom the Kuzbass people were disappointed.68 The period of Kislyuk’s leadership from 1991 to 1997, without exaggeration, can be called the most difficult in the history of the region. The collapse of the USSR in economic terms hit Kuzbass very hard, since all economic ties with other Union republics where the region supplied its products were destroyed at the same time. Despite this, Kislyuk tried to reform the Kuzbass coal industry so that it would cease to be unprofitable. Under his leadership, unprofitable mines began to close and new ones were built using more modern technologies. He saw the main task for himself as the economic independence of coal enterprises in Kuzbass.69 It was not possible to see a positive effect for the coal industry during his time as governor—the closure of unprofitable industries led to a drop in production volumes (Fig. 4.13), and new mines had not yet reached their design capacity. Subsequently, this became a reason for his criticism. 124.2

120.4 107.3

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1992

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95.4

94.3

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1995

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1997

Fig. 4.13 Total volume of coal production in Kuzbass, Mt (Source Sherin E. A. Economic and geographical foundations of the integrated development of Kuznetsk coal // V.B. Sochava Institute of Geography of the Siberian Branch of the Russian Academy of Sciences. – 2016. – 124 p., P.52)

68 Kislyuk and Mozzhukhin 2015. 69 Kislyuk and Loginov 2014.

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The positive effect for the coal industry was already evident after Aman Tuleyev became the governor of Kuzbass. But the new leader attributed all the merits of the previous governor to himself, since Tuleyev was an irreconcilable critic of Kislyuk from the very beginning of his governorship and represented the opposition both for him and for the federal government headed by Boris Yeltsin. How successful was Mikhail Kislyuk as a leader? It is difficult to answer this question unequivocally, since a campaign (harassment) was launched against him by Aman Tuleyev. In fact, he did not want to play political games, he received the support of miners and was busy with restructuring the coal industry, modernizing agriculture, building roads, supporting higher education and other problems.70 Under him, there were no miners’ strikes in Kuzbass, although there were miners’ strikes in the Donbass throughout the 1990s and, unlike Kuzbass, the local authorities of Donbass did not dare to restructure the coal industry. He accepted his resignation calmly, which he later expressed with regret: “It was irrepressible of me. I can now compare, in a bad sense of the word, with the former President of Ukraine Viktor Yanukovych. So he took it and left, like a fine fellow, he does not cling to power, but what is the result?”.71 The result was a whole era of the rule of Aman Tuleyev, whom Boris Yeltsin appointed head of the administration of the Kemerovo Region in July 1997,72 and in October of the same year he was also elected Governor of the Kemerovo region—Kuzbass. Aman Tuleyev’s tenure as governor lasted right up to 2018 and actually accompanied all the stages of the heydays and waves of crises of the Russian coal industry. Aman Tuleyev The new governor had to address three main tasks: 1. Creating conditions for the growth of the coal industry; 2. Providing Russian industry with coal; 3. Creating decent working conditions for miners.

70 Kislyuk and Loginov 2014. 71 Kislyuk and Mozzhukhin 2015. 72 Decree of the President of the Russian Federation dated 01.07.1997 No. 666.

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In parallel with the solution of these three urgent tasks, the new Administration of the Kemerovo Region embarked on the construction of modern-level coal mining and coal refining enterprises, and on solving social problems. For the first time in the modern history of Russia, the leadership of Kuzbass signed an agreement with the head of the government of the country on the transfer of management functions of coal industry enterprises to the region. The real lever for this was the right of the Kuzbass authorities to own a “golden share” in the Kuzbassrazrezugol (KRU) and Southern Kuzbass concerns. In 1998, Kuzbass managed to stabilize the decline in coal production. and in 1999 to increase production to 109.3 million tons. Since that moment, a new stage of growth and development has begun in the coal industry of the region.73 The beginning of the twenty-first century has become a stage of a powerful revival for the Kuzbass coal industry. In many ways, the rise was explained by increased investment. From 2001 to 2003, 27.1 billion rubles of investments were directed to the construction of new coal enterprises, reconstruction, and technical re-equipment, of which the coal companies’ own funds amounted to 17.5 billion rubles, another 9.5 billion rubles were foreign loans and a small part of 100 million rubles from the federal budget for creating safe working conditions. The new construction accounted for 7.6 billion rubles of investments, thanks to which 5 mines and 7 coal mines were built in Kuzbass with a total annual production of 31.7 million tons of coal. The share of Kuzbass in the volume of all Russian production increased from 44.5% (2000) to 52.1% (2003).74 During the same period, a principled course was taken in Kuzbass to restore domestic and regional engineering for the coal industry. The result of this purposeful work was the creation of the Kuzbass Coal Engineering Center and by 2003 the volume of mining production nearly doubled.75 Things began to improve for the coal miners. Aman Tuleyev’s early achievements should include at least a few more. Firstly, he managed to continue the process of restructuring the coal

73 Dyakov, Konovalov, and Parshukov 2007, 393. 74 Dyakov, Konovalov, and Parshukov 2007, 394. 75 Dyakov, Konovalov, and Parshukov 2007, 394.

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industry and at the same time slow down the releasing of workers, thereby stabilizing the socio-economic situation in the region. Thus, in the first four years of the restructuring of the coal industry, even under Mikhail Kislyuk, the number of employees decreased by 171.4 thousand people, which amounted to 84.3% of the total decrease during the restructuring period 1994–2006. They were dismissed, mainly not for reasons related to the closure of coal mines and auxiliary organizations, but because of uncertainty about the future of their organizations.76 In the second period of restructuring (1998–2002), the number of employees decreased mainly due to the release of employees from liquidated organizations and, since 1999, The number of dismissed employees from liquidated organizations began to decline sharply—from 9.6 thousand people in 1998 to 608 people in 2002. From 2003 to 2005, the actual release of employees from liquidated organizations amounted to only 20 people—they were members of mine closure commissions (Fig. 4.14). Secondly, under Aman Tuleyev, the joint activities of coal miners and railway workers began, which manifested itself primarily in improving the technology of mainline and industrial railway transport and increasing the supply of Kuznetsk coal abroad. It was thanks to this work that the Kuzbass coal companies at the same time began fruitful work on the development of coal terminals of Russian seaports. Also, the approval in 2003 of “Price List 10–01” was an important event and celebration of the coal lobby,77 which fixed tariffs favorable for coal miners for the transportation of goods by the Russian railway. A few words about “Price List 10-01”: the document provides for the division of goods into three classes. Transportation of first-class products cost the least. As a rule, these are raw materials, that is, the cheapest cargo. This category includes products for which transportation costs exceed 15% of the cost price. The most massive cargo in this category was, of course, coal. Why do we call the approval of “Price List 10-01” a triumph of the “coal lobby”? The reason is that the tariffs fixed in “Price List 10-01” made it unprofitable for Russian Railways to deliver coal over a distance of more than 4 thousand kilometers and made coal logistics very cheap.

76 State Institution “Sotsugol” 2006. 77 Federal Energy Commission of the Russian Federation 2003.

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Cumulative reduction in the number of miners, thsnd people Cumulative dismissal of miners due to liquidation of enterprises, thsnd people Number of miners, thsnd people 342.3 310.3 285.7 237.1 196.5

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Moreover, it was at such distances that from a quarter to a third of the total volume of coal was transported (the distance from Kuzbass to the Far East is 5.5 thousand km).78 Thus, it became a key stage for the development of the entire Kuzbass coal industry, when, taking advantage of the difficult situation in Kuzbass in the late 1990s, Aman Tuleyev managed to implement a mechanism for covert subsidization of the coal industry (at the expense of other 78 Lozovaya 2016.

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cargoes), and coal miners themselves were able to successfully compete internationally due to low logistic costs and high product quality. It is noteworthy that although Tuleyev acquired the status of a champion for mining interests, he never worked in the coal industry himself, and his past is connected with the railway of the Kemerovo region, where he worked from 1964 to 1988. After that, in 1990, Tuleyev entered big politics, was elected simultaneously a People’s Deputy of the RSFSR and a Deputy of the Kemerovo Regional Council, and then became chairman of the regional council.79 When in 1989–1991, the USSR was shaken by mining protests, Tuleyev had already become one of the most prominent representatives of mining interests, and he gained national fame after the presidential elections of 1991, in which he took fourth place with 6.8% of the vote. Competition with Boris Yeltsin deprived Tuleyev of his post and did not allow him to become Governor of the Kemerovo Region in 1991, but this did not affect Tuleyev’s personal popularity in Kuzbass. In December 1993, he joined the Federation Council from the Kemerovo region, and in March 1994 he became Chairman of the Legislative Assembly of the Kemerovo region. By the mid-1990s, Tuleyev had not yet lost the aura of a democratic leader of miners and a participant in strikes. He didn’t seem like an old party employee and had the image of a leader of the working class. When the situation in the Kuzbass worsened in the spring of 1997, mass rallies began, and Yeltsin himself offered Tuleyev to head the Kemerovo region. During the 20-year period of his Governorship, major players have formed in Kuzbass—SUEK, Evraz, Kuzbassrazrezugol, Siberian Business Union, and Mechel. They account for about 60% of the coal produced in the region.80 The remaining part is provided by more than 200 small companies. There was almost no large-scale redistribution of property in the region.81 All other changes in the ownership structure of the business were related either to economic reasons or to incidents at the mines. The rest of the region is different in that all transactions here took place according to market conditions, and the administration did not interfere in business affairs in any way.

79 Petlevoy et al. 2018. 80 Tarazanov 2018. 81 Petlevoy et al. 2018.

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Tuleyev built the administrative vertical of the region so that no mayor of the Kemerovo region addressed businesses directly (for example, with a request to allocate money for the repair of roads, parks, and other needs), and all requests went through the regional center—Kemerovo. No one risked going against the administration, Tuleyev satisfied everyone, although he demanded large social expenses. “In crisis situations, he has always been a very skilled lobbyist. They listened to him” said a miner of the Kemerovo region in an interview with the Russian news agency Vedomosti in 2018.82 Tuleyev could solve issues with Russian Railways, with ministries, with overstocking coal, with the opening of ports, with the priority of coal supplies over ore or mineral fertilizers. Kuzbass and Aman Tuleyev have passed a very long life path. From the striking region, blocking railway traffic, knocking helmets, and hunger strikes—to the creative Kuzbass and the modern support of Russia.83 Sergey Tsivilev The previous governor of the Kemerovo region did not specifically prepare a receiver for himself—he was appointed from above. Sergey Tsivilev became the new head of the region in 2018. The choice of the candidate is clear. On the one hand, Sergey Tsivilev was ideally suited for this role on formal grounds—he was born in Kemerovo and has experience in the coal industry. The Kolmar company, in which he was CEO before his appointment, belongs to Gennady Timchenko, a friend of Russian President Vladimir Putin.84 This means that Sergey Tsivilev has not only received recognition of his merits as the head of a coal enterprise at such a high level, but also directly possesses the connections he needs in such a responsible position. The connections of the current governor now play a big role in the development of Kuzbass. Having brought Kolmar to the list of the most successful Russian companies, Sergey Tsivilev handed over management to his wife, Anna Tsivileva, in 2018. This means that the Tsivilev family continues to actively participate in the implementation of joint coal projects on the territory of another region of Russia—Yakutia, and does

82 Petlevoy et al. 2018. 83 Pavlova, Galaguz, and Matyushchenko 2018. 84 Malkova and Terentiev 2012.

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it in the interests of Gennady Timchenko, one of the most influential oligarchs of modern Russia. The merger of economic capital with symbolic capital, extensive connections in the government, and the experience of implementing a large coal project in South Yakutia almost from scratch gave the leadership of Kuzbass certain advantages in solving a number of complex issues related to the coal industry. The scale of the tasks that Sergey Tsivilev is now solving is much larger than before. If during the period of Aman Tuleyev, Kuzbass coal companies got used to the concept of 50% of exports to the West, 50% to the East,85 then Tsivilev faced the inevitable rejection of coal in the EU countries due to the actualization of the global climate agenda. If before Russia’s military intervention in Ukraine in 2022, Russian coal miners still had chances to maintain their positions in the markets of Eastern Europe, where economies are not yet ready to completely abandon coal-fired power plants, then with the EU ban on coal imports from Russia eliminated this option, and the only export opportunity was the redirection of coal to the countries of the Asia–Pacific region.86 Being a native of the coal industry, Tsivilev has met the expectations of representatives of coal mining companies—he zealously defends their interests and fights for the future of the coal industry. The coal industry lies not only in his personal interest, but his responsibility to the millions of people whose fate he was entrusted to manage. One of his achievements as governor is undoubtedly the adoption of the Program for the Development of the Russian Coal Industry for the Period up to 2035, which provides for the expansion of the capacity of the Eastern Polygon to ensure the supply of Russian coal in the eastern direction reaches 195 million tons by 2025, and, what is more important, at the expense of Russian Railways’ own funds.87 However, this is only the first victory in the struggle for the future of coal, since Russian Railways does not seek to follow the adopted strategy at all and is interested in transporting goods that are more profitable for it since the sanctions

85 Trifonova 2019. 86 Novak announced the possibility of redirecting coal exports from Europe to Asia

[Novak zayavil o vozmozhnosti perenapravit’ eksport uglya s Evropy v Aziyu] 2022. 87 Government of the Russian Federation 2020.

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imposed by the EU on Russian imports, not only coal but other goods went to the East. What is the future of Kuzbass and its coal industry, since their destinies are inextricably linked? Can the authorities, while preserving the coal specialization of the region, change the mood of the population, a significant part of which seeks to leave their native land to continue their studies or search for work in the capital cities (Moscow, St. Petersburg) or to the south of Russia? (Fig. 4.15). In April 2023, Tsivilev announced that he was ready to go for a second gubernatorial term,88 which means that he is ready to be responsible for the future struggles of the Kuzbass coal industry in the context of emerging challenges for the region, principally competition for the East, finding a balance with other coal-producing regions for access to logistics infrastructure, solving personnel problems, and the environmental and climate agenda. One part of them is global, and the other part is local. If Russia 18 20

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Fig. 4.15 Coefficient of migration growth (loss) per 10,000 people (Source Bulletin of Kemerovo State University. (Morozova, E., Kochneva, O (2021). Migracionnye nastroeniya molodezhi Kemerovskoj oblasti - Kuzbassa [Migration moods of the youth of the Kemerovo region – Kuzbass], Bulletin of Kemerovo State University. Series: Political, Sociological and Economic Sciences, (3 (21)), 326–338 p. – P. 328. https://doi.org/10.21603/2500-3372-20216-3-326-338) Series: Political, Sociological and Economic Sciences, (3 (21)), 326–338)

88 The head of Kuzbass declared his readiness to go for a second gubernatorial term [Glava Kuzbassa zayavil o gotovnosti pojti na vtoroj gubernatorskij srok] 2018.

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nothing can be done about the policy of countries that have decided to abandon Russian coal because of Russia’s military operation in Ukraine or to achieve global climate goals, then it is possible to cope with internal problems. First and foremost is the organization of coal transportation by rail to foreign markets and other local problems in principle. This will determine if Kuzbass still has chances for a better future. Conclusions Coal logistics is the task of managing a complex system. Finding the optimal mechanism of functioning and a way to resolve the crisis situation is the task not so much of companies as of the Russian government. It seems, as usual, the Russian way is to find a solution through trial and error. Coal is not only about exports, but also about issues of energy security, the interests of power engineers and metallurgists, as well as the social and political stability of large regions of Russia. Therefore, Kuzbass today is a clear example of the development of a survival strategy in the face of sanctions, when there is no need to wait for outside help. On the contrary, all circumstances—sanctions and installations of the entire civilized world on the energy transition play against Russian coal. The consequences of Russia’s military intervention in Ukraine and the subsequent Western sanctions on coal exports and oil freight, as well as the closure of EU ports for sea transportation from Russia have put the coal industry on the brink of survival. There simply is currently not enough capacity for cargo transit, as well as oil exports to the east. Container transportation and oil transportation are becoming a priority, displacing coal transportation. The status of a reliable transit country in the eyes of China, as well as the higher marginality of other goods, has reduced the prospects for exporting coal, creating uncertainty for coal companies. In the future, at least for three years, this situation will continue until the capacity of the Eastern Polygon is significantly expanded, as well as the possibilities of transporting coal through the southern ports of Russia are expanded. This time, coal faces other energy resources not as a source of energy, but as an object of transportation, and it is much more profitable to carry other goods. Thus, coal is losing again, only now not as an energy resource, but as a less profitable cargo. Time will show what will prevail in the economy or the interests of the business or quality of life of Kuzbass population.

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Sakhalin Sakhalin coal deposits present a wealth of possibilities due to their high quality, shallow depth, and proximity to existing port infrastructure. Combined, these attributes provide cost-effective extraction and transport. The History Revealed The history of Sakhalin coal began with Gennady Nevelsky, an outstanding navigator and explorer of the Far East, who proved that Sakhalin is an island. In February 1852, following Nevelsky’s orders, a small dog sled expedition was sent to Sakhalin. Having explored the western coast of the island, the expedition discovered deposits of coal, which was reported back to Nevelsky: “Nature scattered coal so generously in these places. It seems that nature wanted to compensate for the ease of obtaining with the difficulty of its delivery.”—Nikolai Boshnyak, officer of the Russian Imperial Navy, captain of the 2nd rank, and member of the Amur expedition of Admiral G. Nevelsky.89 Just a year later, the first mine was laid and coal mining began on Sakhalin, but for a long time mining was insignificant on the island. By the beginning of the twentieth century, the total production volume was only 47 thousand tons, which satisfied only one-fourth of the Far East’s demand for coal.90 The reason for such indicators was simple— coal mining was backbreaking work that needed more mechanization. “A worker with a sled that weighs a pood [16.38 kg] crawls up a dark and damp corridor—this was the most difficult part of the job. Then, having loaded the sleigh with coal, the worker had to go back. Every convict must go up with the sled at least 13 times a day—it was both hard work and punishment.”—Anton Chekhov.91 The Soviet stage of coal industry development on Sakhalin began only in 1925 after the signing of “The Convention embodying basic rules of the relations between the Union of Soviet Socialist Republics and Japan” which formalized de jure control over Sakhalin by the USSR. 89 Leonov, Belousov, and Pankin 1974, 93. 90 Leonov, Belousov, and Pankin 1974, 94. 91 Chekhov 1895, 52.

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During tense negotiations between the USSR and the Empire of Japan, Soviet diplomats managed to achieve the withdrawal of Japanese troops from Northern Sakhalin and secure the territory for themselves. However, Japan still needed the natural resources available on the island, and the Soviet government was faced with the task of restoring the economy destroyed by the Civil War. Among other things, the convention fixed the main conditions for the provision of coal deposits on the western coast of Sakhalin and oil fields in the northern part of the island to Japanese companies through the concession mechanism: In the interest of promoting economic relations between the two countries and taking into consideration the needs of Japan with regard to natural resources, the Government of the Union of Soviet Socialist Republics is willing to grant to Japanese subjects, companies and associations concession for the exploitation of minerals, forests and other industrial resources in all the territories of the Union of Soviet Socialist Republics—stated in Article IV of the Convention.92

Before finally granting Japanese companies the right to extract natural resources, the Soviets carried out an investigation of coal deposits in the northern part of the island, and on August 17, 1925, the Sakhalin Bureau of Trade Unions became acquainted with the results of the investigation noting that “all coal mines have ceased to exist.”93 The coal industry of the region had to be essentially created anew.94 On December 14, 1925, concession agreements were signed95 for a period of 45 years (two of them for coal mining, and one for oil),96 ,97 and the Japanese firms Sakai Kumiai and Kita Karafuto Kögyö Kabushiki Kaisha (English: the North Sakhalin Mining Company, Ltd., a subsidiary of the Mitsubishi Mining Company) obtained the rights to develop and

92 The Convention embodying basic rules of the relations between the Union of Soviet Socialist Republics and Japan 1925. 93 Leonov, Belousov, and Pankin 1974, 94. 94 Rostechnadzor 2019. 95 On behalf of the Soviet government, the treaty was signed by Felix Dzerzhinsky, who was the chairman of the Supreme Council of the National Economy of the USSR, and from the Japanese side by Admiral Shigetsuru Nakasato. 96 History of the Sakhalin Region [Istoriya Sahalinskoj oblasti] 2015. 97 Shishchenko 2005.

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mine coal at the Duyskoye deposit (the Douai concession mine) and in the area of the Agneevo River. These deposits contained about 15% of all coal reserves explored on Sakhalin by the mid-1920s.98 Before the start of coal mining in Northern Sakhalin, a thorough survey of the deposits and the reconstruction of mining buildings were required. In 1925–1927, the Japanese brought a large amount of mining equipment to the mines, began mechanization, installed two transport conveyors, improved loading operations, and began construction of a power plant and housing. As a consequence of a new enterprise, the rate of coal production at the concession mine in these years was rather low. A serious problem for the Japanese concessionaires was the lack of a port that allowed uninterrupted loading and unloading operations, so the concessionaires spent significant funds on the reconstruction of the port (Fig. 4.16). In parallel with the development of deposits, a geological expedition by the Imperial University headed by Professor S. Shimizu worked on the island. The task of the expedition was to obtain objective information about the geological reserves of Sakhalin. The data collected by Japanese researchers was also passed on to Soviet geologists headed by Professor A.N. Krishtofovich, who in the same period was exploring the coal reserves of Northern Sakhalin.99 In subsequent years, the volume of production began to increase rapidly. Archival data shows that until 1931 the Douai concession mine was ahead of all the mines of Soviet Sakhalin in terms of coal production. Only after 1932 were the coal mining enterprises of the Sakhalinugol Trust able to surpass the Japanese project in terms of total volumes of mineral fuel production.100 If for the Japanese, the northern part of Sakhalin was only a raw material appendage practically nothing of the industrial enterprises remained from the Japanese except for oil wells and semi-abandoned coal mines, then the plans of the Soviet leadership were to accelerate the development of the Pacific coast. The creation of a strong and independent Far East had become an important state and military-political goal of the country, and the resource base available on the island for the extraction of coal, oil,

98 Maryasova 1992. 99 Geological Committee of the Far East 1923. 100 Shalkus 2008.

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Fig. 4.16 Duysky coal mine and quay for transshipment of coal, 1890 (Source National Library of Russia. Photo—Pavlovsky I.I. (Pavlovskij, I. (1890) Dujskij kamennougol’nyj rudnik Sakhalin [Duysky coal mine of Sakhalin], Sakhalin / Duysky coal mine/ Historical photos / Old Sakhalin. Available at: https://old sakhalin.ru/history/photo/2987.html (Accessed: 29 May 2023).)

and natural gas made it possible to form an industrial cluster in the Far East, independent of the supply of energy resources from other regions of the USSR. The concession agreement was a pragmatic move by the USSR, designed to obtain data from Japanese companies on all their geological research and to train unskilled Soviet citizens in mining technologies. Gradually, the Japanese began to be “squeezed out” from Sakhalin, and the rate of oil and coal production began to increase rapidly. In 1932, the miners of Sakhalin mined 160 thousand tons of coal instead of the planned 75 thousand tons. Additionally, in the first years of World War II, production increased to 580 thousand tons of coal per year.101 Such results were not easy, since most of the miners went to war,

101 Leonov, Belousov, and Pankin 1974, 95.

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and up to 40% of the miners at that time were women.102 However, this factor did not reduce the production rate. The idea of the party leadership of the USSR was a success. Sakhalin became a necessary link in the energy security of the country and made it possible to feed fuel and energy resources not only to the population of the Far East, but also to the industry relocated there during wartime. After World War II, the restoration and construction of new mines on the island began, and by 1970, coal production had increased to 5 million tons a year.103 The coal industry began to play an important role in the development of the national economy of the region and developed until the beginning of perestroika, despite the active production of oil and natural gas. With perestroika, the attempt at optimization of the industry came, which affected Sakhalin enterprises including the closure of unpromising mines and the reduction of workers. At the time of the collapse of the USSR, Sakhalin coal was not marketable or, if the reader wishes, subsidized. This is understandable since the industry was formed in a planned system, fueled by state subsidies. The cost of coal mining at Sakhalin mines turned out to be several times higher than at coal enterprises abroad.104 Coal miners began to lose markets, and in socio-economic terms, the coal industry of Sakhalin turned out to be the most technically backward and unprofitable. An acute shortage of funds for development began, as well as a drop in production and the closure of mines.105 In total, 11 mines continued to operate on Sakhalin immediately before the collapse of the Soviet Union.106 Meanwhile, seven of them were in distress and they closed within the following 10 years. The rest remained in operation. The social and economic risks of mine closures were significant, and closures were avoided until the last moment as they tried to keep the mines on balance and maintain their performance. It must be understood that the coal industry not only provided jobs for the local population, 102 Dudarec 1967, 588. 103 Leonov, Belousov, and Pankin 1974, 96. 104 Kovalchuk 2002. 105 Coal. Made in Sakhalin [Ugol’. Made in Sakhalin] 2021. 106 Coal industry [Ugol’naya promyshlennost] n.d.

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but also accounted for a significant part of the total fuel balance of the Sakhalin Region—almost three-quarters.107 In addition, the needs of the region isolated from the unified energy system exceeded production volumes. There was not enough coal on Sakhalin, so up to 1 million tons had to be additionally transported from the mainland.108 The closure of mines promised an energy crisis across the entire island (Fig. 4.17). Restructuring came to the aid of the Sakhalin coal industry. As a result, part of the mines were liquidated, and the remaining enterprises were formed into Sakhalin Coal Corporation, Sakhalinpodzemugol, and Sakhalinugol. Sakhalinugol became responsible for the liquidation of the mines of the former state production association Sakhalinugol (Sakhalinugol), Sakhalin Coal Corporation took over the management of coal mines and auxiliary production on the basis of a long-term lease with the right to

Fig. 4.17 Total volume of coal production in Sakhalin by method, mt (Source Sakhalin Regional State Statistics Committee) (Promyshlennost’ Sahalinskoj oblasti. Sahalinskij oblastnoj komitet gosudarstvennoj statistiki [Industry of the Sakhalin region.] (2001) Sakhalin Regional Committee of State Statistics. p. 314)

107 Leonov, Belousov, and Pankin 1974, 98. 108 Vysokov et al. 2008.

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subsequently buy out the assets of the former Sakhalinugol. Part of the unprofitable mines were separated into a separate structure of Sakhalinpodzemugol, and the remaining enterprises began to exist in the form of private and joint companies with local authorities. There was a complete restructuring of the management system and ownership of the coal industry in Sakhalin. The Sakhalin coal industry has become the most striking example of when the corporatization of enterprises has led to the emergence of real owners. By 2000, all coal mining enterprises on Sakhalin had become private. The production curve started to move up, but most importantly, the industry became profitable. Due to significant competitive advantages such as high-quality coal, proximity to the sea, and the low depth of occurrence, the coal industry of Sakhalin gradually began to climb out of the abyss of the Soviet past and evolved into an attractive private investment. For example, in 2000, Sakhalin Coal Corporation garnered more than 46 million rubles (approx. $1.64 million)109 in third-party investments for technical equipment and the implementation of new coal mining projects.110 It is clear that private investors would not “throw money down the drain.” The fact that coal companies began to attract investment is positive evidence that the restructuring had a positive effect on the coal industry in the region and had begun to yield results, often even supporting other insolvent sectors of Sakhalin’s economy.111 The Case of the East Mining Company One of the most striking examples of successful transformation is the East Mining Company, which is currently developing the Solntsevsky lignite deposit in the Uglegorsk district of the Sakhalin region and provides about 78% (11.3 million tons in 2022) of the total amount of lignite on the island (Fig. 4.18).112

109 At the average annual exchange rate in 2000 according to the Central Bank of the Russian Federation: 28.12 rubles per 1 US dollar. 110 Volkov 2000. 111 Volkov 2000. 112 Eastern Mining Company [Vostochnaya gornorudnaya kompaniya] 2023.

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Fig. 4.18 Sakhalin coal basin and transport infrastructure in the Russian Far East (Source Created by the authors based on open data)

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The prospects of the Solntsevsky deposit were explored back in the 1980s, but for a long time, it was not possible to reveal the potential of its production since coal was mined for the needs of the domestic market. The volumes and revenues could hardly cover the current costs of the company let alone provide the opportunity to invest in its modernization and expansion of production. For example, for 1987–2003 only 4.4 million tons of coal were mined at the deposit in total and subsequent yearly production also was small.113 The situation began to improve only in 2013 with the arrival of new owners of the Solntsevsky coal basin and the Shakhtersk Coal Sea Port located 28 km from it. From the first days, the company focused on the transfer of the Solntsevsky basin to an “export-oriented policy.” Several factors contributed to this decision: 1. The steady growth in the volume of coal processing and mining in Russia forced producers to look for new markets and export products. 2. The largest consumer of coal in Asia—Japan, announced its intention to start building new coal-fired power plants in the light of the accident at the Fukushima nuclear power plant, which inspired optimism among market participants. 3. Since 2011, domestic coal consumption in Sakhalin has decreased by almost 2 million tons per year due to the conversion of YuzhnoSakhalinskaya CHP-1114 plant to natural gas.115 4. Low-cost production (open mining) and transportation allowed coal to compete in the international market. The East Mining Company began to solve problems in a comprehensive manner. For this purpose, in 2011, the owners acquired and in 2013 modernized the Shakhtersk sea port for coal shipments. The technical reequipment of the Solntsevsky deposit, the largest on the island, began. In the same year, a technologically advanced road was built to transport coal to the port, which reduced the impact of large-capacity trucks on the

113 «Vostochnaya gornorudnaya kompaniya» 2019. 114 Cogeneration heat and power plant (combined heat and power, CHP). 115 Andreev 2014.

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transport infrastructure of nearby settlements.116 The coal miners of the East Mining Company began to gradually increase coal production and, at the end of 2013, began to develop a new concept for the advancement of their enterprise together with the involved consultants from McKinsey & Co. The new concept of the company was the creation of a high-tech business focused on the export of Russian thermal coal to the Asia–Pacific region markets (Fig. 4.19). As history has shown, the East Mining Company’s ambitious plans seemed unattainable at first. Back in 2012, skeptics argued that it was impossible to extract more than 1 million tons of coal per year from the Solntsevsky deposit,117 but already in 2013, coal miners produced 1.8 million tons of coal and set new records almost every year. Increased productivity and effectiveness was achieved through large investments in new high-performance mining equipment, which had no analogues on Sakhalin before. For the first time since 2016, BelAZ dump

Fig. 4.19 Total volume of coal production in Sakhalin (Source The East Mining Company Official Website)

116 Andreev 2013. 117 Andreev 2014.

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trucks with a carrying capacity of 220 tons and Komatsu and Hitachi excavators with a bucket capacity of 23 cubic meters began to be purchased. Digital technologies began to be introduced to optimize the transport mode management system and reduce logistics costs. The continued development and modernization of the Shakhtersk coal seaport has not only made it the second largest cargo port on Sakhalin, but also made it possible to load large-capacity vessels. This gave the East Mining Company the opportunity to deeply diversify the geography of coal supplies in the region. The company now has long-term coal supply contracts with China, the Republic of Korea, Japan, Vietnam, India, and other coal consumers in the region. Today, demand for coal from Asian countries is stable, as consumers such as Japan and Korea do not have their own coal reserves and are completely dependent on imports. Solntsevsky coal is in good demand in the Asia–Pacific region, not only because of its proximity to the major markets, but also due to its high quality and low sulfur content. This latter is a particularly important factor, since environmental regulations around the world are becoming increasingly stringent daily. The East Mining Company’s main competitors are Indonesian coal mining companies, but the East Mining Company itself does not feel any direct competition. The situation is that Indonesia produces and exports much more coal (hundreds of millions of tons of coal a year) than the East Mining Company and Indonesian producers will not benefit from dumping—it is simply unprofitable and the losses will be greater than a win over competition. Moreover, Sakhalin coal perfectly complements Indonesian coal as it is bought to be mixed with other high-sulfur grades. For example, in Indonesia, coal contains more than 1% sulfur, and coal from the Solntsevsky open-pit mine contains only 0.2%.118 Now the company is looking far into the future and plans to produce more than 20 million tons of coal per year. To this end, the East Mining Company is building a main coal conveyor that will connect the Solntsevsky coal mine and the port of Shakhtersk. It will become not only the longest in Russia, but one of the most technologically advanced and environmentally friendly in the world. This project will allow the East Mining Company to stop transporting coal by trucks, reducing logistics costs by

118 Misevra and Merkulova 2017.

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Fig. 4.20 Calculation of unit costs of coal mining based on financial statements (Source Financial Statements of Solntsevsky Coal Mine)

3–4 US dollars per ton transported and improving the ecology of the region.119 The current situation in the market of fuel and energy resources allowed the East Mining Company to exceed all plans. It is constantly working to reduce the cost of coal mining and transportation, reducing the impact of the price factor on the sustainability of the business. The achieved results allow the company to maintain low sensitivity in case of low coal prices (Fig. 4.20). Under the current conditions, even a sharp decline in prices will only affect the pace of business development, but not the overall stability, since the lower the prices, the less investment is needed in increasing production. The New Era Capital Owners What happens when entrepreneurial talent and years of successful work experience meet? Undoubtedly, such a mixture is doomed to success. 119 Misevra and Merkulova 2017.

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Sakhalin coal grades have always been of high quality, and the proximity of deposits to the sea adds significantly to the production equation. However, despite this, even in the best Soviet years, coal production on the island did not even come close to the current records. That is why the success of the East Mining Company included not only a fortunate combination of circumstances and natural factors, but also a high level of modern management. Today, the owners of the company are experienced and deeply professional people—Alexander Nesis and Oleg Misevra. Their history deserves special attention. Alexander Nesis is a classic example of a serial entrepreneur who knows how to create added value from everything he touches. He started his way in business with the extraction of rare earth metals from uranium waste in Uzbekistan,120 then in 1991 he founded the ICT Group, which over the next 10 years consolidated significant assets in the industrial and financial sectors under its own name. The key achievement of the ICT Group was the creation of the Polymetal mining company in 1998, which soon acquired a worldwide reputation as a powerful holding. Today, Polymetal specializes in the extraction of gold and silver, and it ranks third in the world in terms of silver production. Nesis’ partner, Oleg Misevra, is an experienced and talented person as well. Since 2005, he has headed the SakhalinUgol Management Company. It was then reorganized into the East Mining Company, where Misevra has since been president. Misevra has been in the coal industry for many years. He decided to take up coal mining in Sakhalin after gaining rich professional experience in Kuzbass, which once again emphasizes the important role of Kuzbass as a “forge of personnel” for the Russian mining industry. From 2003 to 2005, he worked as the General Director of Siberian Coal Energy Company (SUEK), and before that he headed the Vostsibugol and Siberian Coal Energy Company Baikal-Ugol coal companies. During his tenure with these coal companies, Misevra developed a knack for identifying prospects and opportunities where others cannot. As a result of having found new owners, the coal mine, which previously could not boast of even 1 million tons of coal per year, became the locomotive for the industrial development of the region.

120 Forbes 2023a.

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The Role of Coal in the Economy of the Region The East Mining Company’s rapid growth in production has directly and indirectly stimulated the development of the entire economy of the region. Of course, the company has become a major taxpayer in the region in the past few years, but in comparison with oil and gas revenues, whose share in 2021 amounted to 54% of budget revenue,121 the contribution of coal companies to the region’s revenues is not so noticeable. Moreover, the East Mining Company is a regular recipient of state subsidies—the company’s business enjoys constant support from the authorities in obtaining loans on special conditions. In addition, the state provides the East Mining Company with significant tax incentives,122 exempting the port of Shakhtersk from income tax, property tax, and customs duties on purchased equipment. What then is the effect of the development of the coal industry on the economy of the region? In an interview, Oleg Misevra said, “At the first stage, we dealt with equipment, now we deal with people.”123 These words are meaningful. In fact, only about 3000 people work at the enterprises of the East Mining Company, and in total there are about 4000–5000 employees in the Sakhalin coal industry.124 This amounts to about 1% of the total population of the region. If we consider families that depend on the income received by employees, then the socio-economic importance of the industry for the region increases several times. It is also important that the salaries that the East Mining Company pays to its employees today are not only higher than the average for Russia, but also higher than the average for the industry. For example, heavy truck drivers receive up to 3000 USD per month, excavator operators up to 3600 USD per month125 compared to the average monthly Russian salary of around 1100 USD.126 This is a significant advantage for these workers. Many workers for coal-producing regions actively seek employment with the

121 Law of the Sakhalin Region dated July 11, 2022 No. 63-ZO. 122 Zakon Sahalinskoj oblasti ot 27.09.2002 №362. 123 Misevra and Merkulova 2017. 124 Misevra 2015. 125 Misevra 2015. 126 Rosstat 2022.

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East Mining Company mostly driven by the significantly higher wages. They move from such coal regions of Russia as Komi or even Kuzbass. Another important factor to consider regarding the importance of the coal industry for the region is the support of households with coal. Although we live in an age of modern technology, on Sakhalin about 7,000 inhabitants (1.5% of population) still use stoves as the main means of heating their homes.127 In order to compensate for the increase in coal prices in the domestic market, local authorities, together with coal mining companies, annually carry out programs covering part of the cost of coal. In 2022, the East Mining Company launched the “Social Coal” program, thanks to which the cost of a ton of coal for households with stove heating became a record low for Sakhalin and amounted to just over 1.5 USD.128 It should not be forgotten that coal is used not only as furnace fuel, but also generally occupies a fairly significant share in the energy balance of the region. Moreover, coal consumption in Sakhalin has even been growing in recent years, which is associated with the commissioning of a new Sakhalinskaya SDPP-2 coal plant129 with a capacity of 120 MW (Fig. 4.21). It is no secret that the purpose of the new coal power plant construction was to replace the old state district power plant, which was put into operation in 1965. The old plant hopelessly exhausted its effectiveness, from which its capacity decreased from 315 to 84 MW. But why did they decide to build Sakhalinskaya SDPP-2 again on coal? The choice of fuel for the new station was due to the need to preserve jobs at local coal mining enterprises, since there are no other large coal consumers in the region.130 Despite the decision to build SDPP-2 based on a social factor, the construction did not ignore the issue of ecology and the latest available technologies were used for the disposal of ash-and-slag waste, a water recycling system and powerful electrostatic precipitators to protect the atmosphere from harmful emissions.

127 Ministry of Social Protection of the Sakhalin Region 2022. 128 Demin 2022. 129 State District Power Station. 130 Kobelev 2016.

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Fig. 4.21 Consumption of energy sources in the fuel balance of the region (Source Sakhalin Oblast Power Industry Development Program for 2022–2026) (Ukaz Gubernatora Sahalinskoj oblasti ot 29.04.2022 N 23 “Ob utverzhdenii Skhemy i Programmy razvitiya elektroenergetiki Sahalinskoj oblasti na 2022 2026 gody” [Decree of the Governor of the Sakhalin Region dated April 29, 2022 N 23 “On Approval of the Scheme and Program for the Development of the Electric Power Industry of the Sakhalin Region for 2022–2026”])

Social infrastructure inevitably has begun to be built around coal enterprises helping to attract workers and residents. Otherwise, no one would move to the region, even taking into account high salaries. More than 30,000 square meters of housing have been built specifically for the accommodation of SDPP-2 workers in the town of Ilyinsky over several years.131 The population growth of the settlement and the need for social services forced the authorities of Sakhalin to construct such facilities as kindergartens, cultural and leisure centers, stadiums, and sporting grounds. No less important was a need to develop engineering infrastructure and a new boiler house was built, as well as the water supply

131 Sukhorebrik 2021.

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and wastewater treatment system was modernized. The village of Ilyinskoye has significantly changed as a result. In fact, it was born anew. The economy of the district has been revived, and all thanks to coal. Today, the East Mining Company is actively implementing initiatives to maintain sustainable development in Sakhalin. Many of the social measures are aimed at the younger generation and the creation of a comfortable life in the region with the construction and maintenance of sports facilities, the purchase of equipment for the maintenance of roads and the road network, the installation of video surveillance systems in parks and squares, the opening of a bakery, reclamation projects on the lands of the Solntsevsky coal basin, water purification programs on the island, and maintenance of educational institutions. In particular, the company closely cooperates with the Sakhalin Mining Technical School, a key specialized educational institution of the region, where joint programs are being implemented to train professional personnel for the coal industry. At the same time, one of the main human resource policies of the company is the priority of employment of the local population.132 The icing on the cake is the latest project of the East Mining Company in the field of renewable energy. Since 2021, the company has taken a course not only to reduce the environmental damage from its activities, but also to reduce its impact on climate change. For these purposes, a series of Green Coal Cluster projects was launched, one of which is the construction of the most powerful wind farm in the Far East. The wind farm will include 16 turbines with a total capacity of 67.2 MW, it will be built to meet the needs of the East Mining Company to provide power to the company’s key production facilities, which include the Solntsevsky coal basin, the coal seaport of Shakhtersk, and the main coal conveyor. The launch of the wind farm is scheduled for 2024, and its implementation will reduce the carbon footprint by 125 thousand tons of CO2 . The East Mining Company also plans to switch mining vehicles to electric operation.133 Sakhalin is now moving toward carbon neutrality as part of the ongoing Sakhalin Experiment.134 It was once unimaginable that a coal 132 Eastern Mining Company: socially responsible business in action [Vostochnaya gornorudnaya kompaniya: social’no otvetstvennyj biznes v dejstvii] 2020. 133 VGK signed an agreement on the construction of a wind farm on Sakhalin [VGK podpisala soglashenie o stroitel’stve vetroparka na Sakhaline] 2021. 134 Federal Law No. 34-FZ of 06.03.2022.

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mining company would become the “locomotive” of a movement toward clean energy on Sakhalin, but the fact remains. Sakhalin today is a vector for the development of the coal industry, demonstrating how it can be and how it should be. Here, thanks to a combination of natural competitive advantages, competent management, support from the authorities and the introduction of new technologies, an industrial cluster is being created before our eyes, giving thousands of families a decent and prosperous life. The Window of Opportunities In the future, the Sakhalin coal mining center may not only become an example of the industry’s success, but also a window of opportunity for other Russian coal mining companies that are losing their attractiveness due to their significant remoteness from promising markets in the Asia– Pacific region. The “bottleneck” for Russian coal miners in Russia now is the ports. If Russia builds a bridge between the mainland of the country and Sakhalin, then the economy of the region will be given a new impetus for development. There will be a need to extend the Baikal-Amur Mainline and the Trans-Siberian Railway to Sakhalin ports, and the coal of the whole country will be able to go to Asian markets. The Sakhalin coal business seems to have done everything in its power and now the ball is in the hands of the state. If the state does not invest in infrastructure, the huge costs will likely prevent private enterprises from doing so. The payback of such projects depends on the overall development of the economy of Sakhalin, and without the coal industry, this development will not happen. In June of 2021, then Special Representative of the President of Russia Anatoly Chubais and representatives of the World Bank visited the Solntsevsky coal basin. After a tour of the facilities, Chubais stated: “Events on Sakhalin will predetermine changes in the Russian economy for the next 10 years,” and “Sakhalin could become a model for future reforms in the country.”135

135 Anatoly Chubais believes that the future of Russia can be born in the Far East [Anatolij Chubajs schitaet, chto na Dalnem Vostoke mozhet roditsya budushchee Rossii] 2021.

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“Wages in Vorkuta [Zarplaty v Vorkute].” 2023. BDEX . https://bdex.ru/res publika-komi/vorkuta/ (June 29, 2023). Yakovenko, A.A., and I.B. Granovich, eds. 1987. Front Runners: Ministry of Geology of the RSFSR [Iduschie Vperedi: Ministerstvo Geologii RSFSR]. Syktyvkar: Komi kn. izd-vo. Zadavin, G.D., and M.I. Smirnov. 2007. “JSC Vorkutaugol: Emergence, Development and the Future [OAO Vorkutaugol – Stanovlenie Razvitie, Perspektiva].” Ugol’ (8 (976)): 22–27. Zainullin, Evgeniy. 2018. “A Bright Future Was Painted for Coal [Uglyu Narisovali Svetloe Budushchee].” Kommersant (181/p): 7. https://www.kommer sant.ru/doc/3725447 (May 20, 2023). Zakon Sahalinskoj Oblasti “O l’gotah Po Nalogu Na Pribyl’’ Organizacij” (Prinyat Sahalinskoj Oblastnoj Dumoj Ot 27.09.2002 №362) [Law of the Sakhalin Oblast ‘On Corporate Income Tax Benefits’ (Adopted by the Sakhalin Oblast Duma Dated September 27, 2002 No.” 2002. Zavarzin, A. 1945. “Salute of the Working Kuzbass [Salyut Trudovogo Kuzbassa].” Pravda (178 (9949), 27 July): 1–4.

CHAPTER 5

Modern Coal Companies of Russia

The coal industry was one of the first to face Western restrictions on supplies. Nevertheless, our coal companies managed to quickly review their export policies, optimize business models, and adapt to new realities. —Deputy Prime Minister of the Russian Federation Alexander Novak (2023)

The Links of One Chain The restructuring process of the Russian coal industry, which began in 1994, was based on the standards of the International Monetary Fund (IMF) and the World Bank (WB) and was carried out in the shortest possible time—about a decade (see Chapter 2) (Popov 2003). The coal industry became the only industry in modern Russia that has successfully undergone the process of restructuring production, technological, corporate and financial and economic systems, from full subsidization to market independence. For comparison, the closure of the unprofitable coal industry in France took almost 50 years from 1956 to 2005, and Poland, which began reforms simultaneously with Russia, has not yet decided on the procedure for the decommissioning of unprofitable mines (Krasnyansky 2015). 20 years after the start of the restructuring, it is safe to say that the initiated processes for structural change of the industry not only stopped

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its collapse, but also gave impetus to recovery and successful development in the long term (Krasnyansky 2015). Today, the Russian coal industry is represented by both extremely inefficient assets and modern, ultra-efficient coal mines according to world coal standards. About 60% of Russian coal is mined in Siberia (Petrenko 2023), where a minority of the Russian population lives and there are few industrial consumers. Some coal is mined above the Arctic Circle altogether. Modern Russian coal companies have mostly inherited assets that formerly operated within the same coal basin. Both quarries and underground mines usually coexist in them. However, the Russian coal market is prone to “oligopolization” with the largest players in the coal market successfully combining such production assets into large holdings— SUEK, UGMK, ELSI, EVRAZ, Kolmar, Mechel, etc. Nevertheless, some efficiently operating coal quarries and mines still remain and are successfully operating. They, as a rule, belong to owners who, in the mid-1990s, managed to adapt to market conditions and not become part of large associations. However, it is becoming more and more difficult for them to survive in the struggle for access to target sales markets every year. Economies of scale also work in the coal industry. In addition, there is a class of coal distributors in the market—intermediaries of mining companies that earn money from the sale of coal. Formally, distributors are legally independent companies, but in fact, the vast majority of such structures are part of holdings. The Russian coal market is formed from these elements. Thus, the Russian coal industry is now a complex structure of numerous holdings, separately existing private enterprises and traders, usually included in large industrial groups. There is only one state-owned coal company in Russia—Arktikugol, which operates on the island of Spitsbergen in Svalbard, Norway and annually produces 120 thousand tons of thermal coal in the northernmost mine in the world (The Ministry of Regional Development announced plans to reduce coal mining in Svalbard three times [V Minvostokrazvitiya zayavili o planah sokratit’ ugledobychu na Shpicbergene v tri raza] 2023).

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Is the Russian Coal Business Effective? Efficiency is a relative concept. Once, this thesis was confirmed by the famous American economist I. Fischer in his Separation Theorem (Fisher 1977). For investors, efficiency can mean one thing—they only care about the return on invested capital, and for managers, another thing—their task, as a rule, is to effectively manage assets and maximize the profits received by the company. For the state, efficiency lies in the maximum amount of taxes received and stable socio-economic development of regions and cities. When discussing Russian coal companies, this is exactly the case. If we answer this question from the perspective of investments, then investors in coal assets in the Russian market are a rather private club. Moreover, against the background of the energy transition, the coal industry is not the most popular sector for investment. Only three coal companies are publicly traded on the Moscow Stock Exchange—mid-sized Kuzbassbased miner Belon (part of MMK metallurgical holding), Raspadskaya (part of EVRAZ metallurgical holding) and Mechel industrial mining and metallurgical holding. A private investor is interested in buying a stake in a particular company only in two cases—if he is confident in the growth of the value of this company in the future or if he will participate in the distribution of its profits in the form of dividends. In the case of Belon, the company does not pay dividends yet and was previously of interest to a private investor only during the consolidation of its assets by MMK metallurgical holding in 2011, when there was an opportunity to make money on the repurchase of MMK free-float (shares in free circulation) above their market valuation. Raspadskaya is a more interesting case. The company produces mainly coking coal and is one of its largest producers not only in Russia, but also in the world. Raspadskaya has a good history of paying dividends and, against the background of high coal prices, could be of great interest for investment if not for two key points. The first of them is the fact that the company is 93% owned by EVRAZ Holding, which is registered in a jurisdiction other than Russia and, due to the current sanctions restrictions, cannot receive dividends from its subsidiary. It means that private investors owning small shares in the company will not receive them either, since the company will keep money earned so far on its balance. The

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second point is associated with a low volume of shares traded in free circulation—about 7% (MOEX 2023), which implies their high volatility and creates additional risks of full repurchase by EVRAZ. Uncertainty here is an important factor that reduces the investment attractiveness of this company. That is why Raspadskaya remains undervalued at this point, and its market capitalization is 1.7–1.8 times the net profits for 2022, or just over $2.5 billion.1 The last one on this short list is Mechel, which consists of several coal and steel enterprises. Until 2021, the company did not arouse much interest among private investors, because for a long time it had experienced financial problems caused by a high debt burden. There was not enough money to modernize production, and all the income went to servicing debt obligations—the money simply did not reach the shareholders, and the company was teetering on the verge of a default. However, the sale of the Elginsky field (Elga) to Albert Avdolyan in 2020 (we will return to this story further) and favorable conditions in the coal market in 2021 allowed Mechel to reduce its net debt by about 40% and give rise to hope for a financial recovery of the company. Taking advantage of the favorable market conditions in 2021–2023, private investors with a high-risk appetite today perceive Mechel as an investment asset, but the bet is rather not on the company itself, but on maintaining high coal prices. It is still unclear whether Mechel will have enough time to modernize production and reduce the debt burden, since the deterioration of production assets remains a key unresolved risk for the company. Besides, after selling its most promising asset, the Elginsky field, the company narrowed its growth factors to price. These three companies are just a “keyhole” in the door that opens the Russian coal industry. With a total production volume of 37.3 million tons of coal of various grades in 2022, their production capacities cover only 8.4% of the total coal production in Russia (Petrenko 2023, 24–25). Out of 171 operating coal enterprises (54 mines and 117 quarries), only 23 enterprises (14 mines and 9 quarries) are part of public joint-stock companies listed in Russia (Ministry of Energy of the Russian Federation 2023). The remaining enterprises are secured with Seven Seals. The next level is domestic direct investments. Here we recall the case of the Vorkutaugol acquisition by the diversified AEON holding 1 According to the average USD to RUR exchange rate for January-April 2023 according to the Bank of Russia.

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of the Russian billionaire R. Trotsenko (see Chapter …), where the coal company was sold for only 1.5 times the company’s net profit for 2021. Another example is the sale by EVRAZ of the Yubileynaya mine (preliminary assessed reserves are 77 million tons of coking coal) to the TopProm coal holding (Kuzbass) for $1 in 2013 (Evraz completed the sale of the Yubileynaya mine [Evraz zavershil sdelku po prodazhe shahty “Yubilejnaya”] 2013). It is difficult to understand the economics of such M&A. As the former governor of Kuzbass, Aman Tuleyev, recalls in his book, sometimes the regional administration had to put pressure on coal mining companies (Tuleyev and Vandenko 2020, 243). This means that the industry cannot do without the participation of the authorities. Coal assets have been transferred and are being transferred from one owner to another as a result of personal agreements of their owners or under the influence of some other external factors. Therefore, the conditions under which transactions are carried out in the Russian coal business can hardly be called market-based. This, as already mentioned, is a private club. Why don’t Russian coal companies enter the stock exchange? After all, the stock market, even in the conditions of an energy transition, can open access to a wide range of potential investors, including institutional and private ones, who are interested in making money on high coal prices. Many coal companies have exemplary credit, and attracting private capital could reduce the dependence of companies on a limited number of sources of financing and make their development more sustainable. In fact, we have already answered this question. The reason is that entering the stock exchange implies strict requirements for financial reporting and corporate governance, which will require coal mining companies to increase the transparency of their business. Apparently, those companies can’t do this yet and don’t want to disclose additional information about their activities, even in exchange for investments. On the other hand, some coal companies still go to the stock exchange, but not in Russian. A unique case is the Tigers Realm Coal company, which since 2016 has been successfully extracting coal in Chukotka (a subject of Russia in the Far East) with small volumes of about 750,000 tons of coal per year by Russian standards (Tigers Realm Coal 2020) and is listed on the stock exchange in Australia. The availability of high-quality coking coal reserves (preliminary assessed reserves are about 631.6 mln tons of coal), its own coal terminal in the Beringovsky port and access to the main consumers of North Asia makes the company promising and allows it to plan its development for years ahead. The choice of an

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Australian jurisdiction for it is related to the prospects that the founders of the company do not see in Russia—it is an opportunity to get a fairer market valuation of the company’s assets after achieving production targets and, possibly, exit the project having recorded a high profit. The Russian stock market does not have such prospects in the view of this organization.

The Task for Managers From the position of the management of coal companies, it is easier to assess the situation in the modern coal industry—the development of coal mining enterprises should be focused on obtaining economic profit, ensuring effective industrial relations with enterprises of related industries (Galiev and Galieva 2021). Profit results from two important parameters—the selling price of products and the costs of its production. If the price is dictated by the market and does not directly depend on the quality of management, then expenses characterize the efficiency of the enterprise. It is the efficiency of cost management that allows management to determine the reserves for their reduction and the possibilities of intensive development of the company. The financial results of enterprises, the production volumes, and the sustainability of the business as a whole depend on the costs (Cachar 2020). Therefore, in order to understand how successful and efficient Russian coal companies are, we need to look at their coal production dynamics, know the approximate geographic location of the main coal basins, and estimate the specific operating costs necessary to extract this coal (Fig. 5.1). The main factor affecting the size of unit costs in coal mining is labor productivity. At coal enterprises, the growth of labor productivity is inextricably linked with the introduction of new mining technologies. Economies of scale are fully at work here: the larger the coal enterprise, the more opportunities it has for modernization of production, pressure on suppliers and contractors, and subsequent reduction of unit costs (Galiev and Galieva 2019). As a result, this effect leads to the action of operational leverage—more coal, more sales, more profit. Behind this simple formula lies the secret of why Russian coal enterprises tend to merge into large holdings—it’s easier for them to survive, fight for the market and reduce unit costs and earn more profit.

Fig. 5.1 Coal Assets in Russia: the volume of production in 2022, effectiveness of modern companies with operating expenses and type of coal produced (Source Created by authors based on open company data)

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The largest example is SUEK, which ranks first in Russia in terms of coal production and is among the largest coal mining companies in the world. From the day of its foundation to the latest records, the success story of the company is connected with the name of its founder, Russian entrepreneur and billionaire Andrey Melnichenko. Having a penchant for math sciences and while studying at the prestigious physics faculty of Moscow State University (MSU), he chose for himself an unusual path for a Soviet person as a financier and even moved from MSU to the Russian Academy of Economics named after G.V. Plekhanov. Young, creative, and full of ideas—Andrey Melnichenko represents the new type of owners and stands out especially against the background of former “red directors.” Before becoming the “coal king” of Russia, the entrepreneur began his ascent to the business Olympus with banking, earning his first capital on currency exchange operations. His approach as a financier appeared as if it was inspired by Theodore Dreiser—Andrei Melnichenko was not stuck in an operational routine, but focused on financial issues—the search for undervalued assets and the diversification of his investments. He did not create a coal company from scratch, but he saw value in enterprises that in the early 2000s appeared to be of no use to anyone. Gradually increasing ownership shares in promising, but distressed enterprises, by 2001 he managed to concentrate scattered coal assets throughout Russia in his hands and create a large industrial holding company—SUEK (Kamneva and Rozhkova 2012). Since the beginning of its operation in 2001, SUEK has optimized the management of enterprises and increased coal production by more than 3 times to 109.8 million tons of coal in 2022 (Petrenko 2023). This volume of production makes SUEK not only the leader of the Russian coal industry, but also one of the largest coal mining companies in the world with the lowest market unit operating costs of coal production (approximately $26.6/ton of coal according to 2021).2 Today, the holding unites coal mining enterprises (17 quarries and 8 mines) from Siberia to the Far East, its own railway and port infrastructure, as well as electric power assets, which makes SUEK no longer a coal, but an energy company with electricity and heat generation of 68.7 TWh and 49.6 million Gcal in 2021, respectively (SUEK 2022). The scale of SUEK’s

2 Calculations based on SUEK operational results (SUEK 2022).

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activities is so large that, in 2007, the company even planned to merge its assets with Gazprom Group, but the deal was not approved by the Federal Antimonopoly Service (Yakubov 2009). In addition to SUEK, the three largest coal companies in Russia also include Kuzbassrazrezugol (a subsidiary of the metallurgical holding UGMK) and the ELSI industrial group formed as a result of the merger of the assets of the Elga Coal and Siberian Anthracite companies, owned by another entrepreneur—Albert Avdolyan. Under the current embargo on the import of Russian coal to Europe (Press-service of the Delegation of the EU to the Russian Federation 2022) since April 2022, Russian companies have faced the need to find new markets and redirect a significant part of exports to the East. The European Commission estimates that the embargo has affected a quarter of Russia’s coal exports with a total value of $4.38 billion per year (Amaro 2022). Europe had been buying energy coal (92.9%) and it took the brunt of the blow (The coal industry in the Russian Federation: the European embargo and new markets [Ugolnaya promyshlennost’ v RF: evropejskoe embargo i novye rynki sbyta] 2022). Coking coal, both now and in the past, thanks to its close connection with metallurgy, has proved more resistant to sudden waves of crises. On the one hand, the current price situation on the global coal market and production costs for large Russian producers have allowed covering additional logistics costs to underutilized ports in the European part of Russia and coal companies continue to make a profit. On the other hand, Russian coal companies found themselves dependent on a factor unrelated to the efficiency of production processes—the capacity of railway and port infrastructure, and this is the “bottleneck” of the modern Russian coal industry that we have already described (Fig. 5.2). Since 2022, the rules of the game have changed, competition for access to transport infrastructure for the export of coal to East Asia has begun to determine business efficiency. Low management and production costs have become the determining, but not decisive factor of efficiency for coal companies. Flexibility, the ability to adapt to rapidly changing conditions, take risks, find new sales channels, and promote their interests in the struggle for logistics infrastructure have become new essential factors. As a result, by the end of 2022, those companies that either turned out to be integrated into the production chains of metallurgy such as Kuzbassrazrezugol (part of UGMK), Raspadskaya (part of EVRAZ), Vostsibugol (part of EN+), Mechel and Vorkutaugol (the main supplier of Severstal),

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FOB Baltic FOB Тaman 593.6

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or had already built partnerships with Asian countries such as SUEK, Kuzbassrazrezugol, Raspadskaya, Russian coal, East Mining, and others were better positioned for adversity. Companies that have their own logistics infrastructure and had secured access to the sea in advance—SUEK and ELSI—found themselves in a unique position. The closer production is to the sea, the less costs and restrictions on logistics, the easier it is to sell coal and increase production volumes—the rule of efficiency of a modern Russian enterprise. This rule will likely play a major role in the future of the Russian coal industry. It explains both the drop in coal production in the Kuzbass (−18.5 million tons) by the end of 2022, and the increase in production in the Kansk-Achinsk (+9.2 million tons) and South Yakutsk (+7.6 million tons) coal basins (Petrenko 2023). Not only coal went to the East, but its production also began to shift. With the loss of the European market, Kuzbass lost its geographic advantage, which allowed coal companies to balance between the best price offered for coal and choose where to sell it—to the East or to the West. Now there is no such choice, and Russian coal companies have lined up for the Asia–Pacific market, in which coal producers from Australia and Indonesia provide strong competition.

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Will modern Russian coal companies be able to survive in the global competition? The question is open, and everything depends on efficiency. Large companies are more efficient, the availability of their own logistics infrastructure is better, proximity to the sea and consumers in the Asia–Pacific region often wins over the quality and caloric content of coal. Equally important are the effectiveness of management and the opportunities to negotiate with the monopoly operator—Russian Railways. It would seem that the complexity of taking into account all factors affecting the efficiency of coal enterprises, the specifics of the industry itself and the geopolitical context makes Russian coal profitable for owners of large enterprises and categorically unattractive for new external players—but this is not the case. The Art of War, the author advises that “in the midst of chaos, there is also opportunity” (Tzu 2008). At the moment when clouds darkened over the coal industry, a new major player appeared on the market—Albert Avdolyan. His company AProperty bought Russia’s largest Elginsky coking coal field (Elga) from Mechel in 2020. Mechel was in a difficult financial situation and was forced to sell its “black pearl” with preliminary assessed reserves of 2.2 billion tons in the South Yakutsk coal basin. The crisis did not prevent Avdolyan from attracting huge funding to his project—the Elginsky field cost him 142 billion rubles (approximately $1.9 billion3 ), not counting subsequent investments in preparation, despite the fact that the businessman’s own fortune was estimated at about 800 million dollars (Trifonova 2020). In 2021, he went further and the Russian media “trumpeted” a deal to buy the Sibantracite coal company from the heirs of the former owner Dmitry Bosov, who committed suicide in May 2020 (Zlobin 2021). Thus, in just 2 years there was the formation of a new largest player in the coking coal market—ELSI holding.

The Case of ELSI: 2 Years and 12 Hours “Avdolyan has good coking coal and excellent anthracite, he has become the owner of the best coal assets in the country. I was very impressed that A-Property ventured into large assets in the depressed phase of the 3 According to the average USD/RUR exchange rate for April 2020 according to the Central Bank of Russia.

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market. Prices are low, environmental pressure is crazy: they are hitting both production, generation, and even transportation. In this situation, investing in coal is a bold decision,” says Maxim Khudalov, Director of the ACRA Corporate Ratings Group (Yadukha 2021) (Fig. 5.3). When you become the owner of Russia’s largest Elgin coal deposit with proven reserves of 2.2 billion tons of coking coal, you may one day come up with the idea to visit it and see what kind of black pearl you have acquired. Deaf taiga, forty-degree frost, and no business aviation will take you there. You arrive in Yakutia,4 in the city of Neryungri—the second largest city in the region with a population of 53 thousand people (Rosstat 2020). The distance from Moscow to Neryungri is 5 thousand kilometers or about 6 hours of flight by plane. Then the path runs by rail for another 12 hours to Ulak station. Twelve hours by train is a long time, especially if these 12 hours last in an ordinary railway carriage, but two years, perhaps, is quite fast. In 2 years, after a series of difficult negotiations, deals, disputes, and agreements, Albert Avdolyan became the owner of a holding company—the largest producer of metallurgical coal in Russia, and his fortune reached $2.2 billion (Forbes 2023). His company ELSI (part of A-Property Holding) is planning to increase production at the Elginsky coal deposits (Elga) alone to 45 million tons per year by 2025 from 14.7 million tons in 2021 (and up to 100 million tons of coal in general for all enterprises of the group), to build its own Pacific Railway from Elginsky field to the port of Elga on the coast of the Sea of Okhotsk in the Khabarovsk Territory (Mingazov 2022a), new port infrastructure, processing facilities, and metallurgical and coke chemical plants. Investments in the construction of the railway alone are estimated at more than 137 billion rubles (approximately $2.2 billion at the exchange rate of the Central Bank of the Russian Federation in November 2022) (Mingazov 2022b).

4 The Republic of Sakha or Yakutia is the largest subject of the Russian Federation by area, a republic within it, as well as the largest administrative-territorial unit in the world. The size of the territory of Yakutia exceeds Argentina is the eighth country in the world by area. The population of the republic is less than one million people, which makes the population density in it one of the lowest in Russia. Yakutia is one of the harshest places in the world in terms of climate: the cold pole of the Northern Hemisphere is located here. Republic of Sakha (Yakutia) (2023) Wikipedia. Available at: https://en.wikipedia. org/wiki/Sakha (Accessed: 14 June 2023).

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Fig. 5.3 The Map of the Southern-Yakut coal basin and Eastward coal transport infrastructure (Source Created by authors based on open data)

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Albert Avdolyan is a native of Krasnodar Krai in Southern Russia. There is little information about him in the press, and he rarely communicates with journalists. Until recently, Mr. Avdolyan’s career was mainly trading activity, as well as import–export operations, asset management, and financial intermediation. In 2011, he started a telecom business— the rapidly growing Yota company (subsequently Yota was acquired by one of the leaders of the Russian “Big Three” cellular communications— Megafon). Later, Avdolyan began to participate in the development of various projects with the state corporation Rostec, that develops high-tech industrial products for civil and military purposes. In 2019, an energy boom began and Avdolyan acquired control of the Yakut Fuel and Energy Company, the largest gas supplier in Yakutia. In 2020, he carried out the already mentioned deal with Mechel. Now his company ELSI has combined the coal mining assets of the Far East and Siberia and broken into the top three Russian coal mining companies in Russia, with consolidated reserves of more than 3 billion tons of the highest quality coal (ELSI 2022). The volume of production of the combined company in 2022 amounted to 43.8 million tons of coal, which is 7.1 million tons more coal than was produced before the merger in 2021 (Petrenko 2023). The appearance of a new company on the Russian market stands out significantly in its structure from the acquisition of coal assets in the 1990s. Then it was the process of privatization of state-owned enterprises and the gradual concentration of ownership in the hands of the former Soviet managers—the previously mentioned “red directors.” They acquired shares in various ways, mainly through buying from the labor collective in order to gain control over assets that they had previously managed for decades (Artemiev and Haney 2002). In the case of A-Property, the purchase of assets was carried out by attracting bank financing, which would have been simply impossible in the 1990s. At that time, there were no banks capable of financing such a purchase, and there would have been difficulties with collateral for such transactions, primarily because the financial system was still in its infancy and many of the necessary tools were missing. The bet was made on efficiency. A-Property acquired Elga from Mechel, which was burdened with high debt. Then, at the expense of new loans A-Property paid off Mechel’s old obligations, which amounted to more than $1 billion at the time of the transaction (Burmistrova and Dzyadko 2021). It is clear that it was only possible to undergo such a scheme with the full confidence in

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his own managerial abilities to bring the company to a completely new level. The second distinctive feature is that the deal took place in the context of a protracted legal dispute between heirs, bankruptcy, or the seizure of assets in connection with claims of creditors or regulatory authorities (Zlobin 2021). Avdolyan was ready to participate in a deal with certain legal risks, relying on experience and knowledge to properly assess such risks and tools to minimize them. In the 1990s, buyers of coal assets did not yet have such experience since the legal regulation system was still being formed, the bankruptcy procedure was not worked out, and the judicial system did not have experience in effectively considering cases of this type, which was accumulated much later. This example paints a portrait of a new investor in the coal industry. A modern investor who comes to the coal industry now has the ability to assess the growth potential of the asset value, calculate both risks and opportunities. Modern risk hedging tools, tax optimization, various banking services, debt instruments, and teams of professional consultants are available to the investor. And it can actually work in a situation where world coal prices are unstable, as demonstrated by the steadily flowing cash to Albert Avdolyan’s holding, and the company itself is showing rapid growth. Currently, Albert Avdolyan’s company controls four coal quarries in Siberia (the Vostochny and Kolyvansky open-mines in the Novosibirsk Region, the Kiyzassky and Verkhneteshsky open-mines in the Kuzbass)— the legacy of Dmitry Bosov’s Sibantracite company, the Elga field in Yakutia and the Ogodzhinsky coal field in the Amur Region. He also owns the Milkan iron ore deposit in the Khabarovsk Territory, the Elga– Ulak railway line with a length of 360 km with a connection to the Baikal-Amur mainline. Additionally, he owns two processing complexes— Elga and Listvyanskaya, the Port Vera Coal Marine Terminal in the south of Primorsky Krai (Far East) with a design transshipment capacity of 20 million tons of coal per year and the Port Elga coal terminal under construction on the northwest coast of the Sea of Okhotsk with a design capacity of transshipment of 30 million tons of coal per year. Twelve hours in a railway carriage seems long indeed and ELSI is building its own airport near the Elga coal field. The scale of activity of the companies of the ELSI coal holding is amazing and brings incredible income to its owner. In 2022, the enterprises of the Avdolyan coal holding earned more than 430 billion rubles in revenue (almost $6.4

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billion at the average exchange rate of the Central Bank of the Russian Federation for 2022), with over 98 billion rubles of net profit (almost $1.5 billion). A new player has appeared on coal’s Olympus and, apparently, this is just the beginning for Albert Avdolyan and perhaps a new beginning for the entire Russian coal industry.

Conclusions With more than 300 years of history and withstanding all the tests of time, the coal industry has evolved into the only industry in modern Russia that has successfully undergone the process of restructuring from full subsidization to the post-Soviet business environment. The transformation process was painful, but not fatal. The initiated processes for structural change of the industry not only stopped its collapse, but also gave impetus to recovery and successful development in the long term. Coal does not need a pipeline, it does not escape into the atmosphere, does not require special storage conditions, and does not lose its properties for months. Possessing significant reserves of coal almost throughout the country, Russian companies are free to mine coal where it is more profitable for them. They annually extract and give the world as much coal as they are willing to buy. A series of challenges and crises taught Russian coal companies how to survive in modern conditions—coal began to be integrated into production chains, producers began to unite into large holdings, build their own logistics infrastructure, and diversify their portfolio of suppliers. The Russian coal industry is now a complex structure of numerous holdings, traders, separately existing private enterprises, and usually included in large industrial groups. In the current system, there is almost no place for state companies. Coal companies have become stronger, larger but still remain in the shadow of public business. The paradox is that: despite the fact that Russian coal companies have been developing for decades, withstood all the shocks and have become profitable, they do not seek to attract investment in their development through entering the stock exchange. There are only a few Russian coal companies publicly traded on the Moscow Stock Exchange (i.e., attracting institutional and private investment). The absolute majority of coal assets have been transferred and are being transferred from one owner to another as a result of personal agreements of

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their owners or under the influence of some other external factors. Therefore, it makes us look for the reasons for such a fear of publicity. Is it the low demand for investments in coal companies, the unfavorable market conditions, or the fear of business transparency? In 2022, with the EU sanctioning coal imports from Russia, a new stage of industry transformation began. Until that moment, coal was mainly mined in Kuzbass, which gave producers the opportunity to balance between the best price offered for coal and choose where to sell it—to the East or to the West. Now there is no such choice, and Russian coal miners have lined up for the highly competitive market of the Asia–Pacific region. Russian coal has found itself in trouble again. As a result, competition for access to domestic Eastward transport infrastructure has begun to determine business efficiency. Kuzbass has lost its geographic advantage, but a “holy place is never empty” as Russians like to say. Companies that have their own logistics infrastructure and have taken care of access to the sea in advance found themselves in an advantageous position. Despite geopolitics, the demand for Russian coal has not yet decreased, and in 2022, companies mined 443.5 million tons of coal, which turned out to be more than in the previous 20 years. Without waiting for help from the state, the market managed to rebuild and now includes not only the wellknown heavy weights of the industry such as SUEK, but also ambitious newcomers such as ELSI.

References Amaro, Silvia. 2022. “EU Proposes Ban on Russian Coal, Working on Oil Sanctions.” CNBC. https://www.cnbc.com/2022/04/05/european-unioncould-ban-russian-coal-imports-sources-say.html (June 28, 2023). Artemiev, Igor, and Michael Haney. 2002. The Privatization of the Russian Coal Industry: Policies and Processes in the Transformation of a Major Industry. Washington, D.C. https://openknowledge.worldbank.org/handle/ 10986/19258. Burmistrova, Svetlana, and Timofey Dzyadko. 2021. “Avdolyan Laid the Elga in the Rosselkhoznadzor and Gazprombank [Avdolyan Zalozhil El’gu v Rossel’hozbanke i Gazprombanke].” RBC. https://www.rbc.ru/business/ 12/01/2021/5ffc10ba9a794775af5adbcf (June 28, 2023). Cachar, O.N. 2020. “Cost in the Coal Industry [Sebestoimost v Ugolnoi Promyshlennosti].” Ekonomika i Socium (1 (68)): 474–77.

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ELSI. 2022. “ELSI Unites Coal Mining Assets of the Far East and Siberia [ELSI Obiedinyaet Ugledobyvayushchie Aktivy Dal’nego Vostoka i Sibiri].” Novosti kompanii. https://elsi-group.ru/media/news/elsi-obedinyaet-ugledo byvayushhie-aktivy-dalnego-vostoka-i-sibiri (June 28, 2023). “Evraz Completed the Sale of the Yubileynaya Mine [Evraz Zavershil Sdelku Po Prodazhe Shahty ‘Yubilejnaya’].” 2013. Mineral.ru. https://www.mineral. ru/News/52169.html (June 28, 2023). Fisher, Irving. 1977. The Theory of Interest: As Determined by Impatience to Spend Income and Opportunity to Invest It. Philadelphia: Porcupine Press. Forbes. 2023. “Albert Avdolyan.” Rating of Russian Billionaires - 2023. https:// www.forbes.ru/profile/237242-avdolyan (June 28, 2023). Galiev, Zh. K., and N. V. Galieva. 2019. “Efficiency of Functioning of the Large Coal-Mining Enterprises [Effektivnost’ Funkcionirovaniya Krupnyh Ugledobyvayushchih Predpriyatij].” Ugol’ (6 (1119)): 59–63. ———. 2021. “Management in Activities of Coal Mining Operations [Menedzhment v Deyatel’nosti Ugledobyvayushchih Predpriyatij].” Ugol’ (2 (1139)): 26–31. Kamneva, Galina, and Mariya Rozhkova. 2012. “Andrei Melnichenko: ‘I Am a Happy Person’ [Andrei Melnichenko: ‘Ya Schastliviy Chelovek’].” Vedomosti. https://www.vedomosti.ru/newspaper/articles/2012/04/28/akc ioner_zanimaetsya_tem_chto_idiotov_na_rabotu_ne_puskaet (June 28, 2023). Krasnyansky, Georgy. 2015. “How Has the Coal Industry of Russia Changed in 20 Years [Kak Izmenilas’ Ugol’naya Promyshlennost’ Rossii Za 20 Let].” Rossiyskaya Gazeta (217 (6788)). https://rg.ru/2015/09/28/promyshle nnost.html. Mingazov, Sergey. 2022a. “Avdolyan’s A-Property Will Build the Pacific Railway and a Port on the Sea of Okhotsk [«A-Properti» Avdolyana Postroit Tihookeanskuyu Zheleznuyu Dorogu i Port Na Ohotomor’e].” Forbes. https://www.forbes.ru/biznes/469125-a-properti-avdolana-postroittihookeanskuu-zeleznuu-dorogu-i-port-na-ohotomor-e (June 28, 2023). ———. 2022b. “Avdolyan Structures Can Build Steel and Coke Production Plants in the East [Struktury Avdolyana Mogut Postroit’ Zavody Po Proizvodstvu Stali i Koksa Na Vostoke].” Forbes. https://www.forbes.ru/ biznes/480757-struktury-avdolana-mogut-postroit-zavody-po-proizvodstvustali-i-koksa-na-ohotomor-e (June 28, 2023). Ministry of Energy of the Russian Federation. 2023. “About the Coal Industry, Key Indicators, Coal Mining [Ob Otrasli, Osnovnye Pokazateli, Dobycha Uglya].” https://minenergo.gov.ru/node/433 (June 28, 2023). MOEX. 2023. “Free-Float Ratio (the Share of Securities in Free Circulation) [Koefficient Free-Float (Dolya Cennyh Bumag v Svobodnom Obrashchenii)].” https://www.moex.com/ru/listing/free-float.aspx (June 28, 2023).

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Novak, Alexander. 2023. “Russian Fuel and Energy Complex 2022: Challenges, Outcomes and Prospects [Rossijskij TEK 2022: Vyzovy, Itogi i Perspektivy ].” Energeticheskaya Politika (2 (180)): 5–11. https://energypolicy.ru/rossij skij-tek-2022-vyzovy-itogi-i-perspektivy/business/2023/12/13/. Petrenko, I. 2023. “Russia’s Coal Industry Performance in 2022 [Itogi Raboty Ugol’noi Promyshlennosti Rossii Za 2022 God].” Ugol’ (3 (1165)): 21–33. Popov, Vladimir. 2003. Regional forum “Social Aspects and Financing of Industrial Restructuring” Restructuring of the Russian Coal Industry: The Implementation of Social Programmes [Osobennosti Realizacii Socialnih Programm Pri Restrukturizacii Ugolnoi Otrasli Rossii]. Geneva: International Labour Organization, UNECE. https://unece.org/fileadmin/DAM/ ie/wp8/documents/cover_Popov.pdf. Press-service of the Delegation of the EU to the Russian Federation. 2022. “The EU Has Adopted the Fifth Package of Sanctions against Russia in Connection with Military Aggression against Ukraine [ES Prinyal Pyatiy Paket Sankciy Protiv Rossii].” https://www.eeas.europa.eu/node/411774_en?s=177 (June 28, 2023). Rosstat. 2020. “All-Russian Population Census 2020 [Vserossijskaya Perepis’ Naseleniya 2020 Goda].” https://rosstat.gov.ru/vpn_popul (June 28, 2023). SUEK. 2022. “Data Bank.” Annual Report. https://www.suek.ru/files/Suek_d atabank_ru_2021.xlsx (June 28, 2023). Sun Tzu. 2008. The Art of War. New York: Penguin Classics. “The Coal Industry in the Russian Federation: The European Embargo and New Markets [Ugolnaya Promyshlennost’ v RF: Evropejskoe Embargo i Novye Rynki Sbyta].” 2022. Expert. https://expert.ru/2022/11/25/ugolnayapromyshlennost-v-rf-yevropeyskoye-embargo-i-novyye-rynki-sbyta/ (June 28, 2023). “The Ministry of Regional Development Announced Plans to Reduce Coal Mining in Svalbard Three Times [V Minvostokrazvitiya Zayavili o Planah Sokratit’ Ugledobychu Na Shpicbergene v Tri Raza ].” 2023. TASS Ekonomika. https://tass.ru/ekonomika/17717071 (June 28, 2023). Tigers Realm Coal. 2020. “Investor Presentation 2020.”: 36. https://tig.com. ru/en/assets/files/production-figures/35-efv056.pdf (June 28, 2023). Trifonova, Polina. 2020. “The New Owner of the Elginsky Coal Deposit Will Increase Production Nine Times [Novyj Vladelec Elginskogo Ugolnogo Mestorozhdeniya Uvelichit Dobychu v Devyat Raz].” Vedomosti. https:// www.vedomosti.ru/business/articles/2020/06/08/832131-novii-vladeletselginskogo-ugolnogo-mestorozhdeniya-uvelichit-dobichu-v-9-raz (June 28, 2023). Tuleyev, Aman, and Andrey Vandenko. 2020. Aman Tuleyev. From My Words It Is Written Correctly [Aman Tuleyev. S Moih Slov Zapisano Verno]. Moscow: AST.

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Yadukha, Victor. 2021. “Albert Avdolyan Becomes a Coal Supergiant [Albert Avdolyan Stanovitsya Ugol’nym Supergigantom].” Ko.ru. https://ko.ru/art icles/albert-avdolyan-stanovitsya-ugolnym-supergigantom/ (June 28, 2023). Yakubov, I. 2009. “Who Gives the Country Coal? [Kto Daet Strane Uglya?].” Pryamye investicii (11 (91)): 50–53. Zlobin, Andrey. 2021. “Bosov’s Heirs Have Agreed to Sell One of the Largest Coal Holdings in Russia [Nasledniki Bosova Dogovorilis o Prodazhe Odnogo Iz Krupnejshih Ugol’nyh Holdingov Rossii].” Forbes. https://www.for bes.ru/newsroom/milliardery/420701-nasledniki-bosova-dogovorilis-o-pro dazhe-odnogo-iz-krupneyshih-ugolnyh (June 28, 2023).

CHAPTER 6

Interconnections Between International Coal and Natural Gas Markets

Coal plays an essential role in the global economy today. Yet, in the face of global climate change the call for coal displacement becomes increasingly explicit. This call is based on the amount of emissions that can be avoided if coal, the “dirtiest” of all fuels currently in use, is replaced with alternatives. In this chapter, we will focus on one of the alternatives for coal— namely natural gas—and discuss the question of coal-to-gas competition. Natural gas provides the easiest solution for such sectors as electricity generation, space heating, and some industrial uses. According to the International Energy Agency (IEA), since 2010, natural gas has already helped to limit global emissions through replacing coal in a number of sectors (alongside the deployment of renewables and nuclear energy, as well as improvement in energy efficiency) (IEA 2019, 3). The main advantage of natural gas compared to other coal alternatives is the possibility of the use of existing infrastructure as opposed to the need to first provide the infrastructure and only then launch the switching process toward renewables or nuclear. The importance of market conditions for fuel switching is much higher for natural gas. Other fuels, on the contrary, depend much more on regulation, government incentives, and long-term planning. What this means for coal suppliers is that the challenge coming from natural gas as an alternative fuel is immediate and

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must be addressed immediately, while the challenge coming from other fuels can be more routinely incorporated in long-term strategic planning. In this context, it becomes essential to look at the coal-to-gas switching perspectives in Russia’s target external markets for coal—both in the West (Europe) and in the East (China). The initiatives for coal-to-gas switching have been promoted with particular focus on the electricity generation sector in Europe and with the focus on the heating and industrial sector in China. This chapter discusses the mechanisms which allow coal-to-gas switching, places Russia and the two target markets into the context of international coal market dynamics over the past 30 years, and discusses the status and perspectives of coal-to-gas competition in European and Chinese energy markets.

General Introduction to International Coal Market Coal is one of the most important elements of the global energy system, and is the second largest source of energy in the world after oil. Its special role is determined by the significant share of input that it provides for the electricity sector—over one-third of global electricity is produced at coalfired power plants, according to the IEA making it the leading source for electricity worldwide. With the increasing role of electricity in our daily lives, the role of coal also grows, and it is expected to remain a primary energy source and an important element of “fostering economic growth and alleviating energy poverty” (IEA 2012, 3). Electricity market dynamics in various regions are determined by coal prices. Importantly, coal is also the largest source for steel and cement production (Fernández Alvarez 2022, 395–96). While there is a widespread notion that coal is particularly affected by the global climate change agenda the trends actually vary across the globe and the IEA states, “this fuel is at risk to a potential climate policy backlash and rising concerns over emissions” (IEA 2012, 3). In Europe and the United States, coal use trends are declining as a result of the demand picture for electricity, climate, and environmental policies, lower gas prices and direct coal phaseout policies in some countries. In Asia, on the contrary, coal demand is on the rise. Coal trade is less international in nature compared to other fossil fuels. Although the share of international trade in total consumption has

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been increasing steadily over the past decades, it remains predominantly a domestic fossil fuel with over 80% of coal consumed in the same country where it was mined. For comparison, the share of fuel consumed domestically constitutes two-thirds for natural gas and less than half for oil, indicating much higher degrees of internationalization of trade for those fuels.1 Despite a lower percentage of international trade versus total consumption figures, seaborne coal trade represents the second largest bulk traded commodity globally by mass after iron ore (Fernández Alvarez 2022, 395–96). Let us look at how this market has developed over the past decades. This will demonstrate the complexity of the picture of Russia’s gradual entry to international coal markets. Volumetric Characteristics of the International Coal Market Coal has been a staple of the global energy system since the Industrial Revolution, even though its role shifted to the background by the second half of the twentieth century with the age of oil. However, it can be said that coal made a comeback by the end of the twentieth century as the market for this traditional fuel received a push in the 1970s. The central element of that push resulted in a series of crises in the 70s. The first one is associated with OPEC member states gaining full control over their reserves and imposing an oil embargo against the Western supporters of Israel in the Yom Kippur war. The second followed Iranian supply loss after the Islamic Revolution. As a result of oil supply disruptions and a dramatic increase in prices, alternative sources of energy—primarily natural gas, nuclear, but also coal—received strong attention. During the 1970s, there were expectations of a “massive revival of coal use and widespread conversion to synthetic fuels” (Barnes 1990, 32). Those forecasts never fully materialized,2 but global coal consumption demonstrated strong growth throughout the two decades preceding the 1990s. Indeed, 1 The reason behind this is lower energy density of coal compared especially to oil, which means that the cost of transportation per unit of energy is higher in the case of coal. 2 Philip Barnes wrote in Oxford Institute of Energy Studies report back in 1990: “As a response to the price rises of the 1970s, a flurry of projects was planned in a number of developing countries in the 1970s and 1980s. However, few have seen any real progress

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global coal production during the period between 1973 and 1992 grew by 57%, from 2.2 to 3.5 billion tons (IEA 1995). The largest additions in production took place in China (with an impressive nearly three-fold increase in the production volumes), other Asian countries, and OECD North America (Fig. 6.1). At the same time, exports were also growing, albeit the geography of increases is somewhat different. The top additions came from Australia (under “OECD Pacific” category in Fig. 6.2), Colombia (under “South and Central America” category), and South Africa. In fact, the international trade in coal has been growing faster than production. While in 1973 only 8% of produced coal was eventually traded internationally, by the beginning of 1990s, this figure increased to 11% (IEA 1995, 38). Overall volume of coal exports increased by 120% during this period, from 183 to 403 million tons. 1600 1400

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and much of the impetus appears to have been lost in the face of lower oil prices and a growing preference for gas” (Barnes 1990, 34).

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In both Figs. 6.1 and 6.2 it can be observed that the FSU/CEE (former Soviet Union and Central and Eastern Europe) has demonstrated a decline over the period of 1973–1992—second largest in terms of production and first largest in terms of exports. In both cases, it is OECD Europe that was the other region demonstrating similar trends. The underlying reasons were likely similar. Despite the fact that these two groups of countries were divided by the Iron Curtain, it was the beginning of the “Age of natural gas,” and natural gas deliveries from the Council for Mutual Economic Assistance (COMECON) were the central element of the European post-1973 policy of “double diversification” (ECS 2007). Firstly, there was geographical diversification away from dependence on Middle Eastern supplies, where OPEC states gained control over their resources and started to use oil supplies as a tool in ensuring their security goals; Secondly, fuel diversification away from oil, which came to dominate the European energy mix by the mid-1970s. Natural gas from the Soviet Union was seen as a natural solution to both of these issues. In the Soviet Union, natural gas consumption developed simultaneously and along the route of large export pipelines predominantly in

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the European part of the country. This can be interpreted as the first instance of coal-to-gas competition, where natural gas from the Soviet Union played the role of a “Bridge” between the two sides. The Soviet coal industry came into crisis by the mid-1980s and its development was moved by a set of forces which are discussed in Chapter 2 in detail. In the 1990s, the increase in coal demand was very low by historical standards (Fig. 6.3). The reasons for the slow-down in the 1990s were mostly on the supply side. First, the collapse of the USSR led to the crisis of the post-soviet coal industry, where loss of ties between the former Soviet republics only aggravated the situation which had formed a decade earlier. Secondly, European coal policies were generally unfavorable for coal growth: France, Germany, Poland, and Spain have programs to reduce heavily subsidized coal production. Thirdly, China, then a regional-scale hydrocarbon exporter, had been rationalizing its hard-coal production by closing small uncompetitive mines and reducing coal consumption in some urban industrial, household, and commercial markets (OIES 2003, 71). Finally, low coal prices provided limited incentives to increase coal production by major producing and exporting countries. While the 1990s was rather relaxed for coal market development, the turn of the century marked a new page in coal market evolution. During the first decade of the twenty-first century, coal markets changed dramatically—the largest increase in demand was higher than the previous decades combined. Mostly this increase came from China, who “needed to power its rapidly growing industrial economy and build its infrastructure” (Fernández Alvarez and Arnold 2020). The changes in demand patterns that took place after 2000 also meant that not all of the demand could be satisfied with the domestic means. Market internationalization thus took off. In the early 1990s, the coal business was mostly local in nature. It was not traded on commodity exchanges, and futures markets were not well developed. Moreover, transaction prices were not transparent (IEA 1995, 37). This was not particularly special in the context of other hydrocarbons markets as it had only been several years since oil futures contracts began to be traded in 1986 (Konoplyanik 2010), while it was still many years before any such developments toward competitive markets would take place in natural gas trade (ECS 2007).

Fig. 6.3 Change in global coal consumption by decade, 1900–2010s. Data from (Fernández Alvarez and Arnold 2020)

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The picture in international coal trade by the end of the 1990s can be illustrated by the following analysis of the IEA in 1998: “Currently, the proportion of coal traded internationally is small in proportion to world coal production. In the case of hard coal, the proportion of coal traded internationally is about 13%. The proportion is higher for coking coal than for steam coal. Despite the low percentage of internationallytraded coal, a number of countries are likely to increase their level of coal exports” (IEA 1998, 149). Two figures (Figs. 6.4 and 6.5) allow us to compare the structure of international coal trade in 1990 and in 2018. While in 1990, the volume of internationally traded coal was around 390 million tons, with thermal coal constituting slightly over 50% of that volume, almost three decades later the size of the market reached 1.4 billion tons, with over threequarters of that volume being thermal coal deliveries. The thermal coal market grew more than five-fold during this period, while coking coal grew 1.8 times. The most widely spread means of transportation of internationally traded coal is seaborne. However, as in the case of LNG, before being loaded on the ship, the product must be transported to the port by another means—for natural gas this would be a pipeline, but for coal, railway is most common.

Fig. 6.4 International coal trade in 1990 (Barnes 1990, 34)

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Fig. 6.5 International coal trade in 2018, million tons (Fernández Alvarez 2022, 396)

Fig. 6.6 Largest coal exporters in 2002, 2014, and 2021, Exajoules (BP 2022)

Major Coal Exporters: Assessing the Competitors The largest exporters of coal include Indonesia, Australia (supplying the Pacific basin), Russia, South Africa (supplying both Pacific and Atlantic basins), along with Colombia and the USA (Atlantic basin). The composition and evolution of the top 6 coal exporters is shown in Fig. 6.6. Here are some general takeaways from this figure.

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Australia is the largest exporter taking this leading position consistently throughout the past two decades. Indonesia, also a consistent leader, is in second, and moved to the same “weight category” by 2010 and remained close to Australia up until 2021. A recent publication by the International Energy Agency even states that Indonesia did overtake Australia as the largest coal exporter as of 2022 (IEA 2022, 3), but we are referring to the most recent (at the time of writing) comprehensive dataset which only includes figures for 2021 (BP 2022). Russia currently is the world’s third largest coal exporter, but back in 2002 it was in the 5th position. Due to wider availability of coal reserves across the world, the question in most cases was the competition within each country between indigenous production and coal imports (IEA 1998, 149). In order for Russia to later become one of the leading exporters of coal, the necessary condition was competitiveness against indigenous sources of coal. Here is how the Russian prospects of coal exports were assessed in 1998: “The future of coal production [and exports] in Eastern Europe depends heavily on the successful implementation of current restructuring plans […]. The Outlook for these restructuring plans is not favourable, and production destined for export is likely, at best, to stabilize at current levels for the foreseeable future” (IEA 1998, 151). Probably the most relevant comparison references for Russia are the #4 and #5 in the current top exporters list: the swing supplier (United States) and the arbitrageur (South Africa). The United States is consistently characterized as the coal swing supplier, “The fact that the USA is likely to remain the coal ‘swing producer’ means that potential disruptions could be made up relatively quickly without any long-lasting effect on prices” (OIES 2003). “South Africa is well situated to meet the growing demand for coal imports into both Europe and Asia. Since the Europe-Atlantic market for coal has a large number of competing suppliers and the Asia–Pacific market a much narrower range of suppliers, South Africa can choose to supply the market offering the highest price, South African arbitrage means that the world coal market tends to act as a single market rather than several regional ones” (IEA 1998, 152). When it comes to metallurgical coal, the largest suppliers include Australia, the USA, Mongolia, Canada, and Russia (Fernández Alvarez 2022, 397). Thus, we can conclude that Russia faces strong competition as a coal supplier. Australia and Indonesia both have well-established partnerships

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in the Asia–Pacific region and enjoy relative proximity and opportunity to use more flexible seaborne delivery routes. Furthermore, the United States and South Africa, both lagging behind Russia in terms of volumes, nevertheless have competitive business schemes and capabilities to respond to market conditions in the Atlantic (the US) or both the Atlantic and Pacific basins (South Africa). Major Coal Importers: Assessing Actual and Potential Target Markets While exports are dominated by five or six countries, imports are more widely distributed since most countries in the world import at least some coal for power generation or industrial uses. Yet, there is one clear global leader in coal imports and use—China. China in 2003 was the world’s second largest coal exporter behind Australia (Fig. 6.6), but it shifted to a net import position by 2009. In 2010, China was already in the third position (in our classification of countries + macro-regions) and the second if we only look at countries (Fig. 6.7). In 2011, China became the world’s largest importer of coal and surpassed Japan. “This shift, together with the perspective that Chinese imports could continue such strong growth for some years, was paramount to explaining the dynamics of coal over the last decade, including the oversupply and lower prices of the 2012–2016 period” (Fernández Alvarez 2022, 398). Other significant coal importers include India, Japan, South Korea, and Europe.3 We have also accentuated the “Other Asia” group in the figure above to stress the importance of smaller Asian countries in overall coal demand. All large coal importers can be broadly split in two groups: the “stable” group comprising Europe, Japan, and South Korea, and the “growing” group comprising China, India, and Other APR. Perspectives for coal-to-gas competition, as well as suppliers’ marketing strategies, would differ between these two groups. While the first group represents a stable energy system, the second group, besides the task of decarbonization, has to also consider growing economic needs. Coal-related emissions management would be more complex for the second group of countries.

3 In this figure we follow the BP regional split; Europe includes both EU and non-EU countries (the latter category among others including Turkey and Ukraine).

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Fig. 6.7 Largest coal importers in 2002, 2010, and 2021, Exajoules (BP 2022)

International Coal Trade Flows Traditionally, international coal trade has taken place in two main geographical markets: Atlantic basin and Pacific basin. The main focal point of the Atlantic basin was Europe, who took supplies from the USA, South Africa, and (to a lesser extent) Colombia. Japan, South Korea and Taiwan were the main destinations for the Pacific market, largely supplied by Australia and Indonesia (Fernández Alvarez 2022, 397–98). The market dynamics in the two basins were markedly different. As of 2021, there is a clear disparity between the size of these two basins (Fig. 6.8). 77% of internationally traded coal is delivered to countries within the Pacific basin, while only 18% is delivered to destinations in the Atlantic basin. Also, it is worth mentioning that growing markets are all predominantly located in the Pacific. This leads to the conclusion that orientation toward the Pacific basin for coal trade would be a wiser solution for coal suppliers who have access to both destinations. The bet should be made in the eastern direction, where there is room for market growth. The dominance of China in the global coal market is the most distinctive characteristic compared with other fossil fuels. Leadership in imports

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Fig. 6.8 International coal trade flows in 2021, Exajoules (BP 2022)

is only the tip of this iceberg. Below the surface, there is overall production and consumption, making the Chinese domestic market three times larger than the global international coal trade in which China is the largest importer. This has major implications for trade and price setting across the world (Fernández Alvarez 2022, 395–96). Coal Pricing Prices for coal, just like for any other commodity, determine the revenues that can be earned in the coal market. As of the early 1990s, the prices for coal were determined through long-term agreements, under which coal was delivered to power plants and large industrial users often from dedicated production capacity (Barnes 1990, 35). Gradually the situation started to change, and the standards of international markets shifted toward price setting on a competitive basis determined by buyers and sellers. “Domestic coal industry performance became increasingly assessed against the standards of the international market, prices set by buyers and sellers in the international market affected domestic energy production and consumption decisions” by the turn of the century (OIES 2003).

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Spot prices for coal are formed on a regional basis. Because the majority of coal deliveries take place by sea, the pricing point is usually a port. Price at the exporting port is at “free on board” (FOB)4 basis and includes the costs of production and for domestic transportation from production site to port. Main ports with FOB coal prices include, among others, Richards Bay (South Africa), Bolivar (Colombia), and Newcastle (Australia). Price at the importing port is on a “cost, insurance, and freight” (CIF) basis and besides production and transportation to the exporting port, includes international transportation and insurance. Main CIF coal prices include ARA (Amsterdam/Rotterdam/Antwerp) in Europe and Japan. Coal prices are less volatile than oil and gas prices. The reason is that coal mining and inland transportation make up a higher share of full costs than for oil and gas. It is these costs (also referred to as variable costs) that limit the fall of coal prices in the situation of oversupply where the coal prices find a floor when they reach a variable cost level of 90% of producers (Fernández Alvarez 2022, 400). Storage issues are of critical importance for pricing in energy markets. Coal is a commodity which is easy to store, and this is another factor that limits coal price volatility. Nevertheless, coal prices show correlation to oil and natural gas prices. While the issue of oil and gas price correlation is widely addressed in the literature, the co-movement of coal price can be explained by the impact of the oil price on costs along the coal value chain, as well as interconnections between the markets for different fuels through competition in sectors of transformation and/or final consumption.

4 “FOB” is one of the Incoterms, or international commercial terms, which define the allocation of costs between buyer and seller. Among other terms, the following are important in the context of this work:

FOB (Free on Board)—used for pricing good at the exporting port and refers to the price of good once it is located on the ship; CIF (cost, insurance, freight)—used for pricing of good and includes the cost of the good itself, its transportation and insurance cost. CIF refers to the price at the receiving port; CFR (cost and freight)—coal received at the importing port, not including the insurance; GAR (gross as received)—specification of calorific value: high calorific value; NAR (net as received)—specification of calorific value/low calorific value. The difference between GAR and NAR depends on moisture and hydrogen content; typically, Nar is around 5% lower than GAR.

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Interconnections Between Coal and Natural Gas Markets from the Standpoint of Interfuel Competition Coal Versus Natural Gas: A Case for Interfuel Competition? The concept of interfuel competition reflects that energy demand can be met by different energy sources which are then referred to as substitutes. In the situation of excessive supply, various fuels start to compete for markets, thus engaging in the process of interfuel competition. Besides the economic factors, such considerations as logistics, infrastructure availability, and carbon footprint have an impact on the outcome of such interfuel competition. The basic precondition for interfuel competition is the presence of the potential competing fuels in the same sectors of consumption. Looking at key sectors of coal and natural gas use, we see that there is a significant overlap (Fig. 6.9). Natural gas is going “head-to-head” with coal in electricity generation and industrial sectors, as the authors of the IEA report on coal-to-gas switching potential put it (IEA 2019, 29). They also note that the competitive landscape varies substantially by sector, and there are alternatives for coal beyond gas including onshore and offshore wind and solar PV in combination with utility-scale storage, and their costs are falling. How do coal and gas compete in the electricity generation sector? Primarily through the use of spare gas-fired electricity generating capacity, but also through switching coal-fired plants to natural gas. According to the US Energy Information Administration (EIA), “two different methods are used to switch coal-fired plants to natural gas. The first method is to retire the coal-fired plant and replace it with a new natural gas-fired combined-cycle (NGCC) plant. The second method is to convert the boiler of a coal-fired steam plant to burn other types of fuel, such as natural gas” (EIA 2020). The second approach allows coal-burning capabilities to be maintained, and the plant is able to burn whichever fuel is most economically efficient. The outcome of coal-to-gas competition is actual coal-to-gas “switching.” This outcome is sought by authorities in many countries as part of an effort to limit GHG emissions. These efforts can play a role in the competitive advantage of natural gas in its competition with coal.

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Fig. 6.9 Selected flows of coal and gas in the global energy balance, 2017 (IEA 2019, 29)

Let us have a look at the disposition of these two fuels in two of Russia’s target markets for coal exports: the EU and China. European Union Since 1980, the combined share of coal and natural gas in the EU energy mix has been quite stable. However, the roles of the two fuels have swapped: “gas use has grown from 11% of the European Union energy mix in 1980 to around 25% today, while there has been a corresponding decline in coal, with its share halving to 15%” (IEA 2019, 61). Switching to natural gas has a long history in Europe. Throughout the 1960s and 1970s, coal lost its positions to natural gas in the residential heating sector as well as notable shifts away from coal to gas in industry and in power. Historically, the switch from coal to natural gas was underpinned by: 1. Environmental concerns and respective regulations, such as the 1956 Clean Air Act of Great Britain which was a response to consistent problems with London air quality. One of the most vivid instances of which was the London Fog of 1952. These regulations led to a decline in coal consumption.

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2. On the supply side, the discoveries of large-scale natural gas reserves in North-West Europe “provided the catalyst for the expanded use of gas in the 1960s and 1970s, which largely replaced coal as well as gasoil” (IEA 2019, 61). 3. Demand-side developments, such as the increase in household gas use following the reunification of Germany in 1990. The process of coal-to-gas switching across various sectors was accompanied by replacement of domestic coal by imported fuel. “Production in the high-cost European areas such as France, West Germany, Spain and the UK has become increasingly difficult to maintain against competition from lower-cost imported coal. Subsidies given to European and other producers on security and social grounds are substantial. The IEA estimated, for example, that the total subsidy for Belgian coal in 1987, was $96 per tonne. This is a burden that governments and the EEC are becoming much less willing to accept, particularly with the ready and widespread availability of cheaper supplies and the changed economic climate” (Barnes 1990, 34). In the 1990s, there was increasing pressure to reduce subsidies to the coal industry. This meant that European coal production was set to continue its decline. The IEA analyzed in 1998: “Falling indigenous production will inevitably provide scope for a slight growth in imports of cheap coal into Western Europe, but competition from low-cost gas, particularly in power generation, is expected to limit the increase in coal imports into Western Europe” (IEA 1998, 152). Eventually, this projection has materialized, with Russia being the beneficiary of both increased European reliance on natural gas and declining levels of domestic coal production. The gas story is well known, but we will stress here that, by the mid-2000s, the European Union became the dominant export direction for Russian coal. However, since 2010, the shares of both coal and gas in the European energy mix have fallen as a result of strong support for renewables and efficiency, and coal-to-gas switching has not been the major factor in the past decade (IEA 2019, 26). Under 2022 market and geopolitical conditions, including exceptionally high natural gas prices, it seems even less likely that coal-to-gas competition will return as a factor in the European energy market development, even though gas could provide an easy option for emissions savings.

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Mechanics of an International Coal-to-Gas Competition: The Case of Shale Revolution

One of the brightest cases of interfuel competition between coal and natural gas and its impact on the European market was brought about by the “Shale Revolution” in the United States. The events of 2011–2012 can be described as a “chain reaction.” The elements of this chain consist of: 1. Increase in shale gas production led to a drop in US natural gas prices. As a result of formidable progress in extraction technology, including horizontal drilling and hydraulic fracturing, which made it possible to access shale deposits and extract the fuel trapped in the pores of the formation, plenty of natural gas became available for the domestic US natural gas market. Natural gas prices in the US market reacted to increasing supply by a sharp decline. At that time, LNG exports from the United States were not yet possible. According to the Natural Gas Act of 1938, “no person shall export any natural gas from the United States to a foreign country […] without first having secured an order of the Commission authorizing it to do so.” The Office of Regulation, Analysis, and Engagement—Division of Natural Gas Regulation within the Department of Energy (DOE) is responsible for granting such authorizations. The first such authorization was granted in 2012 to Cheniere’s Sabine Pass project, which eventually was the first to export LNG from the United States in 2016. Until the exports took off, all excess gas needed to find utilization in the domestic US or North American natural gas market, placing strong downward pressure on gas prices. The period of initial production increase as a result of the shale revolution (2011–2012) is highlighted in the graph below (Fig. 6.10).

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2. Low gas prices in the United States led to a competitive advantage of natural gas over coal in the US electricity sector. “Low gas prices have squeezed US coal demand more than any other factor” (Fernández Alvarez and Arnold 2020). In 2009, the share of coal in the US power mix was 44%, with gas at 23%. By 2020, coal’s share had fallen to the historic low of 19%, while gas now accounts for around 40% of power generation. 2021 saw a small rebound of coal’s share to 22% (Fig. 6.11). 50%

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3. As a result, excess US coal became available in the international market. While US coal production remained at a high level following its historic peak in 2007 (Energy Information Administration 2022a), falling domestic demand led to an increase in exports in 2010–2012 (Fig. 6.12). 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0 2005

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4. At the same time, in the global LNG market the prices were increasing following the earthquake, tsunami, and eventually the accident in Japan’s Fukushima nuclear power plant, which led to a shutdown of nuclear power plants and increased LNG demand in East Asia. As a result, LNG prices increased in Asia (Fig. 6.13 also contains TTF price—the most liquid trading hub in the EU).

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5. Coal became more cost-effective in European power generation compared to natural gas. Europe depends on imports of both coal and natural gas, while the carbon pricing scheme did not provide sufficient incentive to choose the fuel which emits less per unit of energy. 6. European power utilities responded by using less gas and more coal for about two years until gas prices came back down (Fernández Alvarez and Arnold 2020). Eventually, with the launch of US LNG exports, the shale revolution’s effect on gas prices was spread further into international markets, leading to a decline in international LNG prices, and the competitive advantage for coal was smoothed. Overall, “In 2009, coal’s share in the EU power mix was 31% compared with 16% for gas. In 2019, coal was down to 15%, and gas was up to 22%” (Fernández Alvarez and Arnold 2020).

China China represents another interesting case for coal-to-gas competition, albeit a very different one from Europe. In the 1990s, China was responsible for nearly 10% of global steam coal exports (IEA 1998, 149), and the expectation was that it would develop further as one of the leading global coal exporters. That expectation did not fully materialize, and while China does export coal currently, its demand has evolved much more substantially. In 2003, China was the second largest exporter of coal after Australia, but by 2009 it transformed into a net-importer. Only two years later China overtook Japan as the largest global importer of coal. “Currently, China represents 45% of global coal production and 49% of global consumption, in both cases taking the leading position in the world. Seaborne coal trade in coastal China (both domestic and international) is larger than the seaborne coal trade outside China” (Fernández Alvarez 2022, 398). The arbitrage between domestic and international supply in coastal China is pivotal to setting prices across the world.

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Coal was, and still remains the most important energy source, providing some 70% of China’s energy needs. China has demonstrated an expansive growth of its coal consumption between 2008 and 2013, and the suppliers which have reacted to this bubble included Indonesia. Russia during this period did not “ride” the wave of Asian demand while it continued with the same trend of increased exports y-o-y, which means that it was not as susceptible to swings in China’s demand as some other suppliers. It could also demonstrate a more balanced geographical basket. Let us return to Chinese coal market development. There are two misperceptions about the coal market of this country. The first misperception is about the growth potential. As a matter of fact, China’s coal consumption stopped increasing in 2013 as a result of efforts in fuel diversification and efficiency improvement. Thus, contrary to other Asia– Pacific Region (APR) countries, China should not be seen as a definite growth point. Rather, if an external coal supplier wants to increase their presence in this market, they should be able to compete against existing market players as opposed to taking a new niche. The second misperception is related to coal-to-gas competition in the power generation sector. “Gas is not the main challenger to coal for electricity generation in China” (IEA 2019, 12). As indicated in the figure below (Fig. 6.14), coal still provides a more competitive source of electricity based on the levelised cost of generation. Unlike in the United States and Europe, China’s most recent focus has been on the residential and industrial sectors as part of a strong policy push toward improving air quality (IEA 2019, 4). At the current level of gas prices, especially in the 2022 market conditions when gas prices were at their record highs, new onshore wind and solar photovoltaic (PV) provided a cheaper route toward building up additional power generation capacity than new gas-fired power plants.

Fig. 6.14 Difference in levelised cost of electricity from natural gas (CCGT) versus coal plants (supercritical) in China, 2013–2017 (IEA 2019, 26)

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Fig. 6.15 Rural and urban coal and urban gas use in China (IEA 2019, 76)

China’s Environmental Regulation Affecting Coal and Natural Gas Consumption Patterns

2013: Air Pollution Action Plan “kick-started a period of progressively more stringent restrictions on coal use in certain areas, tied to measurable targets for air quality improvements.” 2014: Strategic Action Plan for Energy Development. 2017: Clean Winter Heating action plan: almost 2 billion square meters of floor area within the “2 + 26” cities (Beijing, Tianjin, plus 26 cities in the provinces surrounding Beijing—Hebei, Henan, Shanxi, and Shandong—is intended to be heated using natural gas (Clean Winter Heating Plan in Northern China (2017–2021) 2017). 2018: Blue Sky action plan (Three-Year Action Plan for Winning the Blue Sky War 2018).

Is a coal-to-gas switching process taking place in China? The short answer is yes. As can be seen from the figure above (Fig. 6.15), urban areas have clearly seen such switching as a result of environmental regulations of the past decade. At the same time, the level of rural coal use remained at a high level and still provides room for further expansion of natural gas use. These developments mean stabilization, rather than decline, in coal use in China.

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When it comes to the electricity sector—which in other regions is the central arena of coal-to-gas competition—it does not really provide the possibility for switching between these two fuels. Limiting factors for China’s coal-to-gas switching in the electricity generation sector include the following: 1. The nature of the coal power generation segment in China is very different from that of Europe. The majority of coal-fired power plants are new and with high standards on emissions. This effectively rules out the switching options that involve coal-fired plant retirements or re-fitting. 2. Limited spare capacity in gas-fired electricity generation. Gas-fired capacity in China amounts only to 10% of coal-fired capacity, and only a small part of that gas-fired capacity is available for coal-to-gas switching. Any such measures will be too insignificant to affect the scale of the coal-fired electricity generation segment.

General Comparative Remarks The figure above from the IEA’s 2019 report on the role of natural gas in energy transition, and with significant focus on coal-to-gas switching, demonstrates how the shares of both fuels evolved between 1990 and 2018 in China, India, the EU, and the USA. The effective case of coalto-gas switching would be demonstrated by a synchronous decline of the share of coal and increase of the share of gas. Such movement can be seen in the United States, throughout the entire period under revision, and China but only between 2010 and 2018. The EU, while on this path of coal-to-gas switching from 1999 to 2010, reversed the trend post2010 and both shares of coal and natural gas have declined over the last decade. India, although not our subject in this book, has demonstrated the reverse trend—firstly increasing both shares of coal and natural gas from 1990 to 2010, and then shifting toward coal and away from natural gas from 2010 to 2018 (Fig. 6.16).

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Fig. 6.16 Change in shares of coal and gas in primary energy in selected countries and regions between 1990 and 2018 (IEA 2019, 25)

Here we have an interesting outcome in relation to the two cases we have reviewed in this chapter: • In the EU, where the basic conditions for coal-to-gas switching are favorable for natural gas with the presence of significant spare gas-fired electricity generation capacity, the market conditions led to the prevalence of coal. In the current geopolitical situation, it seems that the policy preferences will not be favorable for natural gas in the foreseeable future. Consequently, coal-to-gas competition might not present a significant challenge for coal suppliers in the short-to-medium term. • In China, the leading factor supporting the process of coal-to-gas switching was policy rather than market, and this resulted in the increase in the share of natural gas with the simultaneous decrease of the share of coal. Importantly, a decline in the absolute volume of coal consumption was not recorded, and the decline in coal’s share is the result of increase in the use of other energy sources.

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Conclusions In this chapter we have discussed the mechanisms which allow coal-to-gas switching, placed Russia and the two target markets into the context of international coal market dynamics over the past 30 years, and discussed the status and perspectives of coal-to-gas competition in European and Chinese energy markets. The factors that allow coal-to-gas competition altogether include: • factors specific to the electricity generation sector such as the presence of spare gas-fired power generation capacity, age and condition of coal-fired power generation capacity • factors specific to the residential heating and industrial sectors • market conditions (the prices of coal, natural gas, and CO2 emissions) • policy and regulatory support for coal-to-gas switching as opposed to coal replacement with other alternatives. As a result of looking at combination of these factors in respective target markets we have found that: In the EU, where the basic conditions for coal-to-gas switching are favorable for natural gas because of the presence of significant spare gas-fired electricity generation capacity, the market conditions led to a prevalence of coal. In the current geopolitical situation, it seems that the policy preferences will not be favorable for natural gas in the foreseeable future. Therefore, coal-to-gas competition might not present a significant challenge for coal suppliers in the short-to-medium term. In China, the leading factor supporting the process of coal-to-gas switching was policy rather than market, and this resulted in the increase in the share of natural gas with the simultaneous decrease of the share of coal. Importantly, the decline in the absolute volume of coal consumption was not recorded, and the decline in coal’s share is the result of increases in the use of other energy sources. Coal-to-gas competition has a potential to affect the level of coal demand in China as a result of measures in the rural residential sector, but given the significance of the residential sector in the structure of coal consumption, this would have a minor impact on the overall size of the market. On the one hand, these developments could be interpreted as positive from the standpoint of a coal supplier: while coal-to-gas switching

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is a real option, the combination of factors does not allow for a massive loss of coal demand. However, both of the target markets that we have discussed in this chapter do not offer any substantial new niche for an ambitious coal supplier either. Russia, besides the obvious challenge of a shrinking traditional niche in the European direction, faces strong competition in the Asia–Pacific Region (APR): Australia and Indonesia both have well-established partnerships in the APR and enjoy relative proximity and opportunity to use more flexible seaborne delivery routes. Furthermore, the USA and South Africa, both lagging behind Russia in terms of volumes, nevertheless have competitive business schemes and capabilities to respond to market conditions in the Atlantic or both Atlantic and Pacific basins.

References Barnes, Philip. 1990. The OIES Review of Long Term Energy Supplies. Oxford: OIES. BP. 2022. Statistical Review of World Energy. London: BP. “Clean Winter Heating Plan in Northern China (2017–2021).” 2017. https:// www.iea.org/policies/7906-clean-winter-heating-plan-in-northern-china2017-2021. ECS. 2007. Putting A Price on Energy: International Pricing Mechanisms for Oil and Gas. R. Dickel, G. Gönül, T. Gould, M. Kanai, A. Konoplyanik [et al.]. Brussels: Energy Charter Secretariat. EIA. 2020. “More Than 100 Coal-Fired Plants Have Been Replaced or Converted to Natural Gas since 2011 [in the US].” Today in Energy. https:// www.eia.gov/todayinenergy/detail.php?id=44636. Energy Information Administration. 2022a. “Coal Imports and Exports.” Coal Explained. https://www.eia.gov/energyexplained/coal/imports-andexports.php. ———. 2022b. “United States Net Electricity Generation.” Electricity Data Browser. https://www.eia.gov/electricity/data/browser/. Fernández Alvarez, Carlos. 2022. “The Trading and Price Discovery for Coal.” In The Palgrave Handbook of the International Political Economy of Energy, eds. Manfred Hafner and Giacomo Luciani. Palgrave Macmillan, 395–406. Fernández Alvarez, Carlos, and Fabian Arnold. 2020. “What the Past Decade Can Tell Us about the Future of Coal.” IEA Commentary. https://prod.iea.org/commentaries/what-the-past-decade-can-tell-usabout-the-future-of-coal. IEA. 1995. World Energy Outlook 1995. Paris: OECD/IEA. ———. 1998. World Energy Outlook 1998. Paris: OECD/IEA.

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———. 2012. Medium-Term Coal Market Report 2012. Paris: OECD/IEA. ———. 2019. The Role of Gas in Today’s Energy Transitions. Paris: OECD/IEA. ———. 2022. An Energy Sector Roadmap to Net Zero Emissions in Indonesia. Paris: OECD/IEA. Konoplyanik, Andrey. 2010. Who Sets International Oil Price? A View From Russia. Dundee, UK. OIES. 2003. Exploration of Future Risks on the Global Market for Oil, Coal and Uranium. Oxford: OIES. “Three-Year Action Plan for Winning the Blue Sky War.” 2018. https:// www.climatepolicydatabase.org/policies/three-year-action-plan-winning-bluesky-war.

CHAPTER 7

Russian Coal Sector in the Age of Climate Change

History of Russia’s Ecologic Policy As Robert English demonstrated in his Russia and the Idea of the Wes t,1 the orientation toward global concerns and “universal human” values emerged in the Soviet Union in the 1970s. One of the first Soviet environmentalists was Grigory Khozin. His book In Defense of the Planet 2 was the first open full-scale research about Soviet policy. In another book, Khozin and his co-authors identified ecology as a “universal human problem” and faulted Soviet subordination of environmental concerns to military-industrial goals as a “temporary” expedient that must be corrected.3 Peter Kapitsa, a physicist of world renown who spent the pre-war years at Cambridge University, continually stressed the “global nature” of economic, social, and ecological problems and ridiculed those who saw separate “socialist” and “capitalist” approaches to them and argued that they could be solved only by the combined efforts of all humanity.4

1 English 2000, 127–33. 2 Khozin 1974. 3 Khozin, Vasiliev, and Pisarev 1978. 4 English 2000, 131.

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As recently published Soviet archival records show,5 environmental concerns have been on the agenda of the Kremlin since the early 1920s, and in the 1970s–1980s went beyond pure intellectual debates when the Soviet Union joined a series of international environmental agreements.6 Thus, long before Perestroika and the collapse of the Soviet Union, a class-based worldview on ecology emerged in Moscow both in theory and in practice. It is also important to mention Mikhail Budyko, an outstanding Russian scientist who dedicated his life to developing Earth sciences, a member of the Russian Academy of Sciences, recipient of the International Meteorological Organization Prize (IMO golden medal and diploma) for the contribution to the development of climatology. From 1955–1974, as part of his research, Budyko assessed land and ocean energy balance components, which was widely recognized in Russia and beyond, laying the foundations of a new area in meteorology—physical climatology (theory of climate).7 Until 2014, post-Soviet Russia was positive in its ecological policy and supported several key initiatives such as protection of the Baltic Sea under the Baltic Marine Environment Commission (HELCOM), three legally binding agreements under the auspices of the Arctic Council on issues of critical importance: search and rescue (2011), oil pollution preparedness and response (2013), and scientific cooperation (2017). All of those treaties have entered into force and are serving their intended purposes. Also, after uneasy negotiations with the EU, Russia has literally saved the Kyoto Protocol which came into force after Russia’s ratification of it. This was a requirement set by the EU in order to support Russia’s accession to the WTO.8 Over time, the Kremlin became more cautious and concerned with new initiatives advanced by the West in the area of climate change. The EU climate policy is viewed by the Kremlin as a foreign policy instrument being used for unfair competition in energy markets. Moreover, the crises over Ukraine basically ruined all advantages Russia has gained from its membership in the WTO.

5 Ponomareva 1999. 6 Honneland and Jorgensen 2003, 7. 7 World Meteorological Organization n.d. 8 Aalto 2008, 40, 78; Tompson 2004.

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In May 2019, the Russian President signed an executive order approving the Energy Security Doctrine of the Russian Federation and cancelled the previous Doctrine of November 29, 2012.9 The Doctrine expands and develops the provisions of the National Security Strategy of the Russian Federation, the Economic Security Strategy of the Russian Federation through 2030, the Scientific and Technological Development Strategy of the Russian Federation, the Basic Principles of Russia’s State Policy on Industrial Safety through 2025 and beyond, and other strategic planning documents in the field of national security. The Doctrine is a strategic planning document in the field of ensuring the national security of the Russian Federation. It identifies in article 9 “the intensification of international efforts to implement climate policy and accelerate the transition to a green economy” as a foreign policy challenge to energy security. As far as the external dimension is concerned, the four main sources of insecurity emanate from: a reduction of the traditional sales markets, the implemented measures to damage the Russian FEC and, consequently, the Russian economy, discrimination toward Russian companies operating in the energy sector, and illegal selection of exported resources from third states.10 In article 10, it states that the Russian Federation supports international efforts aimed at combating climate change and is ready to cooperate in this area with all states. It further adds that “the Russian Federation takes part in resolving issues of international climate policy to the extent that this policy meets its national interests related to improving the quality of life of citizens, protecting the environment and rational use of natural resources. At the same time, Russia considers it unacceptable to consider issues of climate change and environmental protection from a biased point of view, infringe on the interests of energy producing states and deliberately ignore such aspects of sustainable development as ensuring universal access to energy and developing clean hydrocarbon energy technologies.”11 Thus, Russia’s energy strategy implies the priority of fighting

9 Russia’s Energy Security Doctrine approved 2019. 10 Kravchenko 2019. 11 Executive Order by the President of the Russian Federation “On approving the Energy Security Doctrine of the Russian Federation” [Ukaz Presidenta Rosiiskoy Federatsii “Ob utverzhdenii Doktriny energeticheskoy bezopasnosti Rossiiskoy Federatsii”] 2019.

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energy poverty, which in turn, provides for exportation of various types of energy resources including coal. In 2019, Alexander Novak, then the Minister of Energy of the Russian Federation admitted that the COVID-19 pandemic would radically change the energy sector, as it will work as an incentive for making renewables a larger share of the overall energy mix.12 Experts believed that Russia has about seven to ten years to adapt to the sector’s structural change and to complete its transition but, as energy policies are closely monitored by the government, changes have so far lagged behind in favor of the well-being of strategic national companies.13 Hence, domestically, tighter environmental regulations would primarily translate into additional financial and bureaucratic burdens on them14 which would in turn undermine the energy security of Russia. In line with this, Russia has only participated to Kyoto’s first-round and has signed and ratified the Paris Agreement with a baseline emission level so high that it would literally require no efforts nor major investments in complying with it.15 However, the Post Paris Agreement international landscape heavily affects the energy security and economy of the Russian Federation. Any external progress in renewable energy, efficiency, and energy intensity is viewed as a risk to the internal energy security as they translate into a reduced consumer base for Russia and, in turn, disable the current way of energy export-based development and would lead to the country’s GDP growth to fall by half a percentage point. It is therefore evident that the picture is bigger than Russia’s stance on its own climate policy, and that the country will have to consider other actors’ choices, as it will be inevitably affected by them.16

12 Novikau 2020. 13 Makarov, Mitrova, and Kulagin 2019. 14 Novikau 2020. 15 Cordell 2020. 16 Hafner and Tagliapietra 2020.

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Key Trends Related to the Decisions of the UN COP26 Climate Change Conference in Glasgow The prospects for the development of the Russian coal industry, as well as the coal industry as a whole in the world, largely depend on measures to combat climate change. Such measures are most intensively discussed and agreed upon at the annual UNFCCC Conference of the Parties (COP), and the last such conferences in Glasgow (COP26, UK, 2021) and Sharm el-Sheikh (COP27, Egypt, 2022) have paid considerable attention to the issue of abandoning coal-fired energy, which in turn is one of the most significant sectors of coal consumption. The 26th United Nations Climate Change Conference, held in Glasgow in 2021, has significant meaning in the context of the prospects of coal industry development. It was the first time in the history of climate negotiations that a position on the gradual reduction of coal energy was agreed upon.17 At the conference, much attention was paid to the wording: “phase-out” of coal or “phase-down” of coal use. Despite the fact that the milder formulation “phase-down” prevailed, the decisions taken at COP26 identified the main directions of increasing pressure on the coal sector as a source of CO2 emissions. Firstly, such pressure is expressed in reducing the use of coal in power generation. Secondly, the reduction of subsidies for fossil fuels may also have an impact on the prospects for the development of the coal industry, as it directly affects production of this fuel. Thirdly, measures to achieve net zero emissions will have an indirect impact on the prospects of the coal industry, which is also included in the final text of COP26. Last but not least, an important area of pressure on the coal industry is the redirection of financial resources from providing poor countries with any available energy (which most often turns out to be coal) in favor of the development of clean energy. Let’s look at these directions in more detail. Reducing the Use of Coal in the Electric Power Industry As part of keeping climate change at the level of 1.5 °C, the parties called on each other to strengthen the work on abandoning coal-fired power

17 Global Coal to Clean Power Transition Statement 2021.

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and mobilizing the necessary financial resources for this.18 It is argued that in order to fulfill the obligation to preserve climate change at the level of 1.5 °C, it is necessary to stop the construction of new coal-fired power plants right now and decommission existing plants in developed economies by 2030 and globally by 2040. At least 23 countries have made new commitments to phase-out coal power, including 5 countries from the top 20 coal producers in the world: South Korea (5th place); Indonesia (7th place); Vietnam (9th place); Poland (13th place); Ukraine (19th place). China, Japan, and South Korea have announced the termination of international financing of the industry, which means that all significant state international financing of coal-based energy has actually been discontinued. India, Indonesia, the Philippines, and South Africa have announced cooperation with Climate Investment Funds to accelerate the abandonment of coal power.19 As experience shows, the rejection of coal-fired power could be implemented in practice, as evidenced by the example of the UK. Over 30 years, the UK economy has grown by 78%, and emissions have decreased by 44%. This shows that “green” economic growth is real. In 2012, 40% of the UK’s electricity came from coal-fired power, and today this figure is less than 2%. The UK will completely abandon coal-fired power by 2024 and stop selling new petrol and diesel cars by 2030.20 Coal-fired power today produces about a third of global emissions, and its total capacity is 2,100 GW. Phasing it out will require the closure of 100 GW per year over the next 20 years, or about one coal-fired power plant per day until 2040. The average service life of a coal-fired power plant is 40 years. 60% of the world’s coal-fired power plants are less than 20 years old and new investments in the industry are concentrated in developing countries, mainly in Asia. Closing these plants and replacing them with low-carbon energy is a fundamental goal to preserve the climate and prevent developing countries from lagging behind in the field of clean energy and related industries.21 It follows from the COP26 documents that developed countries should abandon coal-fired power in a short time and all states should

18 Sharma 2021. 19 End of Coal in Sight at COP26 2021. 20 UNFCCC 2021. 21 UNFCCC 2021, 2.

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commit not to open new coal-fired power plants and not provide them with financing.22 These measures can at least seriously slow down the growth rate of demand for coal, and when implementing the most ambitious plans, even reduce this segment of demand for coal to a minimum. Refusal of Subsidies to the Fossil Fuel Sector The reduction of subsidies for fossil fuels may also have an impact on the prospects for the development of the coal industry, as it directly affects the sector of extraction of this fuel. 34 countries and 5 state financial institutions announced the termination of international support for fossil fuels from 2022. With the reduction of subsidies, uncompetitive industries will have to close, which means a slight reduction in the supply of coal. Moving to Net Zero Measures to achieve net zero emissions will have an indirect impact on the prospects of the coal industry, which is also included in the final text of COP26. Since the coal sector produces a quarter of all global greenhouse gas emissions, its share is the largest in terms of the impact on climate change, and measures to reduce emissions will affect the coal industry in the first place. 153 countries have prepared new emission reduction targets by 2030. Within the framework of the Glasgow Financial Alliance for Net Zero (GFANZ), a coalition of leading financial institutions seeking to accelerate the decarbonization of the economy23 and established in April 2021, it is planned to mobilize private capital to transform the economy to achieve zero emissions goals. Overcoming Energy Poverty in the Context of Climate Change Issues At COP26, the parties stated that very little attention is still being paid to low-income countries, in which half of the world’s population lives. By 2050, these countries will generate about 75% of global greenhouse

22 UNFCCC 2021, 5. 23 Glasgow Financial Alliance for Net Zero (GFANZ). About Us 2021.

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gas emissions. These countries do not have their own financial resources and technologies to prevent climate change or reduce its consequences. The issue of economic and social development of poor countries here is in conflict with the objectives of the international climate agenda. International institutions are trying to solve these problems by creating comprehensive support programs. Therefore, The Rockefeller Foundation and partners are investing $10 billion to create a Global Energy Alliance for People and Planet. The program is aimed at creating tens of millions of “green” jobs and preventing 4 billion tons of emissions.24 At the beginning of 2021, Climate Investment Funds (CIF) announced the creation of the Accelerating Coal Transition (ACT) investment program. In June 2021, the G7 announced $2 billion in ACT support. The program offers a certain set of tools to support countries abandoning coal, ready to reconsider decisions on the construction of new coal-fired power plants, as well as accelerate the decommissioning of existing coalfired power plants. The program should stimulate new types of economic activities based on cleaner energy sources, cooperation with energy supply companies of the public and private sector is envisaged to identify ways for efficient energy transfer.25 An agreement was reached on the provision of public and private financing in the amount of $20 billion to help developing countries, in order to promote clean energy and move away from coal power. In particular: $8.5 billion—South Africa Just Energy Transition Partnership; $2 billion—Climate Investment Funds Accelerating Coal Transition and Renewable Energy Integrations programs; a new $10 billion Global Energy Alliance for People and Planet energy fund; The Asian Development Bank Energy Transition Mechanism will help Indonesia and the Philippines accelerate early withdrawal from operation of coal-fired power and transition to clean energy.26 The Asian Development Bank is developing a mechanism to close existing coal-fired power plants at an accelerated pace and replace them with cleaner energy. A similar partnership was signed between South Africa and a number of Western countries.

24 Global Energy Alliance for People and Planet (GEAPP). 2021. 25 Coal-to-clean Transition: Accelerating Coal Transition 2021. 26 Glasgow Climate Pact 2021.

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The Impact of COP26 Decisions on the Prospects of the Coal Industry The task of COP26 was to achieve the irreversibility of abandoning coal in the shortest possible time. And although not all proposals were adopted in final resolutions, nevertheless, the decisions of the Glasgow summit are a serious challenge for Russia and other countries that traditionally supply coal to the inter-impact market. The main areas of pressure on the coal industry are concentrated in the electricity generation sector, as well as in the segment of production of this type of fuel. The most significant risk for Russia as a supplier of coal to the international market is a potential decrease in demand for coal as a result of a decrease in its use in the electric power industry. During the COP26, not only types of pressure on the coal industry were discussed, but also methods of compensation for people directly employed in this industry. Thus, in addition to the termination of direct state support to the international fossil fuel sector by the end of 2022, with the exception of limited and clearly defined circumstances that correspond to a temperature increase of 1.5 °C and the goals of the Paris Agreements,27 priorities such as: • support for local communities and regions, especially vulnerable to the economic and social consequences of the energy transition from hydrocarbon production • creating a system of economic and industrial support for workers, entrepreneurs, communities, and countries, in order to create sustainable and competitive economies that contribute to resourceefficient economic growth, promote income growth and create decent jobs, reduce poverty and inequality • creation of permanent jobs for people in their areas of residence, as well as support for retraining and training of workers, with appropriate ways of social protection for groups of people who are economically disadvantaged in the local labor market such as those living below the poverty line, marginalized groups, women, and informally employed workers. They discussed the provision of support to states in the development of employment policies that support the creation of jobs in other sectors 27 Statement on International Public Support for the Clean Energy Transition 2021.

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of the economy and stimulate economic diversification in favor of “clean” industries in regions dependent on hydrocarbon production. Ensuring the creation of jobs within the existing and future supply chains, ensuring employment in different countries were discussed.28 It should be noted that Russia cannot count on any of the above measures of financial and technical support provided by international institutions as a recipient.

A Tangle of Contradictions at the UN Climate Change Conference COP27 in Sharm el-Sheikh By the beginning of COP27, held in the Egyptian resort city of Sharm elSheikh from November 6–20, 2022, three closely interrelated key trends had formed, which largely predetermined the course and outcome of the climate conference. These trends include insufficiently active revision of climate commitments by participating countries, the aggravation of the issue of historical justice in relation to the countries of the Global North and the Global South, and tense geopolitical context. Insufficiently Active Revision of Climate Commitments by Participating Countries One year after COP26, only 29 of the 194 participating countries have revised their national climate commitments.29 While this figure is strikingly low by itself, these commitments were either new obligations of small economies, or minor changes in the obligations of large ones. In such a situation, the hopes for increasing the ambitiousness of the agreements on global decarbonization adopted in Glasgow turned out to be almost impossible, which lowered the expectations of all involved from the results of the conference on this issue. Perhaps that is why Egypt, as the chair country, decided to focus the agenda on translating the decisions and discussions of the 26th conference into a practical plan and working

28 Supporting the Conditions for a Just Transition Internationally 2021. 29 COP27 in Sharm el-Sheikh to Focus on Delivering on the Promises of Paris 2022.

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out the urgent problems, symbolically giving the first of two definitions to COP27—“implementation.”30 The Aggravation of the Issue of Historical Justice in Relation to the Countries of the Global North and the Global South The issue of historical justice in the field of climate change has become more acute, that is, the disproportionality of the ratio of historical carbon footprint/negative consequences/contribution to decarbonization for the countries of the so-called Global North and Global South. This reflects the theses repeatedly expressed by Russian representatives about the balance between economic development, the fight against poverty and the introduction of restrictions on greenhouse gas emissions. The discussion of this problem, namely the creation of the “loss and damage” compensation fund, was included in the official agenda of the event almost at the last moment before its start.31 The criticality of this issue for COP27 is indicated, for example, by the statement of Ralph Regenvanu, the Minister for Climate Change of Vanuatu: “We don’t have time, we don’t have money, and we have run out of patience. At this meeting, we must create a mechanism for compensating losses and damages. The creation of such a fund will determine the success or failure of these negotiations.”32 In addition, the catastrophic consequences of the recent floods in Pakistan also reminded participants of the need to develop financial instruments that can offset the devastating climate impacts on developing countries. Tense Geopolitical Context Tense geopolitical context, the difficult situation in the global economy, and other major events that took place throughout 2022 and around the same time as COP27—also had a significant impact on the course of discussions and the mood of the conference participants. Geopolitical

30 Egypt’s COP27 Presidency sets out vision for UN Climate Change Conference and urges world to act now 2022. 31 COP27 kicks off with loss and damage financing formally on the agenda 2022. 32 COP27: “There is no time, no money, no patience left” [COP27: “Ne ostalos no

vremeni, ni deneg, ni terpeniya”] 2022.

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tensions, mainly the armed conflict in Ukraine, have increased the importance of the problems of energy and physical security of countries and entire regions. There have been concerns that the financial resources of developed countries allocated to climate initiatives in developing countries are being redirected to military needs.33 In addition, the disruption of supply chains of goods and services and, as a result, the food crisis, inflation, including record energy prices, and the general economic downturn have largely led some countries to suspend (or even cancel) climate initiatives and increase the use of fossil fuels, in particular coal.34 At the same time, a certain part of the media and public attention to COP27 was also dominated by the G20 summit in Bali and preparations for the World Cup in Qatar, which started on November 15 and 20, respectively. For example, Indonesia announced the launch of the partnership program for the transition to sustainable energy (Just Energy Transition Partnership, JETP) with a planned funding volume of $20 billion, choosing Bali instead of Egypt for the statement. It is worth noting that the key condition for financing the public and private sectors of Indonesia through JETP is the early decommissioning of local coal-fired power plants.35 Overall Assessment of COP27’s Progress Compared to COP26 Two weeks of COP27 began and passed in the atmosphere of interweaving and even confrontation of the three aspects listed above. The two main results of the climate conference in Egypt were the launch of the mitigation work program and the creation of a compensation fund for “losses and damage.” These meet realistic expectations and fit into the space of opportunities formed by the context. In addition to the announced launch of JETP by Indonesia, mentioned earlier, South Africa presented a developed investment plan within the framework of the JETP initiative agreements in Egypt, the start of which was announced at COP26. The plan is based on the principle of equity, aimed at providing support to all groups, including workers and local communities, whose lives will be directly affected by the transition from the coal industry to greener energy sources. According to this plan,

33 Davydova 2022. 34 Chizhevsky and Bakhtina 2022. 35 Thompson and Chow 2022.

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the country will need $98 billion to implement projects in the first five (out of 20) years of the national energy transition program.36 The International Partners Group (IPG) is currently in the process of raising funds in the amount of $8.5 billion to launch the first stage of the program. IPG financing will follow the investment plan of South Africa and will be directed to projects on decommissioning of coal-fired power plants, development of renewable energy sources, stimulation of alternative employment in coal mining regions, etc. In addition, Vietnam’s participation in JETP was also discussed, but no results were announced in Sharm el-Sheikh.37 Among the initiatives under discussion that have not been implemented, India’s attempt to change the agreement on the gradual reduction of the use of coal to a gradual reduction in the use of all types of fossil fuels can be singled out. Such a step, having received support from some participants, was met with resistance from oil and gas producing countries and the European Commission. If the reasons for the disagreement of the former are quite obvious, then the position of the EC was due to a possible slowdown in the process of leaving coal. The Deputy Chairman of the European Commission commented that no agreements “should distract our attention and our efforts from reducing the use of coal.”38 However, the final version of the COP27 document (Sharm elSheikh Implementation Plan) still underwent some changes in wording compared to the pact signed in Glasgow. The changes affected the measures necessary to promote accelerated and successful decarbonization of energy, namely, the term “low-carbon [energy sources]” was mentioned on a par with renewable.39 What exactly is meant by this term is not entirely clear, but, apparently, we are talking about nuclear power and/or natural gas. COP27 has taken an important step in addressing the problems of developing countries caused by climate change, at least on the financial side. However, the participants failed to make any progress on the revision of national climate commitments and/or the abandonment of the use of fossil fuels, including coal. As Antonio Guterres noted, “We need

36 Joint Statement: South Africa Just Energy Transition Investment Plan 2022. 37 COP26 President meeting with Vietnamese Minister Ha 2022. 38 Hodgson 2022. 39 Sharm el-Sheikh Implementation Plan 2022.

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to drastically reduce emissions now—and this is a problem that was not addressed at this COP. A compensation fund for losses and damage is necessary, but this is not a solution if the climate crisis sweeps a small island state off the map or turns an entire African country into a desert.”40 Alok Sharma also expressed his dissatisfaction with the results of the conference: “Reaching the peak of emissions by 2025, as science tells us, is not in this agreement. The clear fulfillment of obligations to phaseout coal is not in this agreement. There is no specific commitment to gradually abandon all types of fossil fuels in this agreement, and the part concerning energy was softened in the last minutes.”41 However, on the other hand, despite the lack of progress, it can be concluded that the long-term climate agenda has remained relevant despite the current crises. A similar thesis was mentioned by the President of the European Commission, Ursula von der Leyen: “The COP27 Conference confirmed that the world will not back down from the Paris Agreement […]. However, science clearly says that much more is needed to preserve the planet’s suitability for life. It is equally clear that the EU played a key role in Sharm el-Sheikh and will not abandon its domestic and international actions to combat climate change.”42 And if the question of the time frame for reducing the use or complete abandonment of oil and gas remains open, then it seems that this discussion regarding coal is closed.

The Climate Agenda in the Russian Context The commitments of a number of countries to gradually reduce or completely abandon coal, achieved at COP26 and COP27, will certainly affect the global coal market, of which Russia is a major player. According to the Federal Customs Service, by the end of 2021, Russia exported coal with a total volume of 223.3 million tons.43 About 15% of exports went to countries that plan to abandon coal by 2030, another 10% to countries 40 Guterres 2022. 41 Controversial COP27 results: compensation fund and lack of progress on emissions

[Spornie itogi COP27: fond kompensaciy i otsutsuvie podvizhek po vybrosam] 2022. 42 The EC explained the compromise at the COP27 summit with the desire to preserve the Paris Agreement [V EK ob’yasnili kompromiss na sammite COP27 zhelaniem sokhranit Parozhskoye soglasheniye] 2022. 43 Petrenko 2022.

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with a deadline for the withdrawal of coal by 2040, and another 12% by 2050. As a result, if the obligations are fulfilled by 2050 Russia may lose more than a third of the current volumes of coal exports (Fig. 7.1). It should also be kept in mind that some of the countries that have not announced the abandonment of coal power still plan to reduce its consumption to one degree or another. For example, Japan plans to reduce the share of coal in the total energy mix by 6% by 2030, as well as significantly increase the energy efficiency of operating coal-fired power plants.44 This will also create an additional factor of influence on the decline in demand for Russian coal. Nevertheless, the opposite trend in the short-medium term will be the growth of demand in countries such as China, India, and other Asia– Pacific countries, whose economies rely heavily on coal-fired energy. In addition, the coal exported by Russia does not fully go to the needs of electricity generation, which is the main focus of anti-coal initiatives.45 Part of it is intended for the needs of heavy industry, in particular, steel and coke, where economically viable alternatives to coal do not yet exist.

Fig. 7.1 Geography of Russian coal exports split into groups according to coal phase-out approach

44 Hirata and Ito 2020. 45 Phasing out coal 2021.

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For example, in South Korea, only about 68% of the total amount of coal consumed is used for electricity generation,46 and in the Netherlands—about 71%.47 This is also likely to support Russian exports for the foreseeable future. As for the other major exporters, Russian coal companies should not hope for a weakening of competition. The largest exporters, such as Indonesia, which announced JETP, or Australia, which installs more renewable capacities per capita every year than any other country,48 are actively engaged in implementing energy efficiency programs and installing new renewable energy capacities. This will allow them to reduce domestic coal consumption and potentially bring raw materials unclaimed on the domestic market to the world without increasing additional production capacities, which will increase the risks for Russian exports. At the same time, in Russia, the domestic market, according to Sergey Mochalnikov, director of the Department of Coal and Peat Industry of the Ministry of Energy, “shows potential for growth,”49 and the achievement of the goal of increasing energy efficiency by 40% is expected with more than a 20-year delay—in 2043 instead of 2020.50 The Coal Club and its Position on COP26 Decisions Russia found itself in a type of “coal club,” which has its own approaches to the climate agenda in general and decisions on coal in particular. Major coal market participants on both the supply and demand side, such as Australia, India, China, Russia, and the US, have not signed a waiver on coal in Glasgow. They had different motivations for this. Washington’s position is explained by the Biden administration’s unwillingness to commit to coal in Glasgow, so as not to antagonize politicians in American states that depend on coal. However, the organizers of the conference do not consider this a failure: Alok Sharma noted

46 South Korea Energy Information 2022. 47 Turkiye Energy Information 2022. 48 Reiter 2019. 49 Sergey Mochalnikov: “The domestic coal market today not only remains stable, but

also shows potential for growth” 2022. 50 Russia’s Climate Agenda: Responding to International Challenges [Klimaticheskaya povestka Rossii: reagiruya na mezhdunarodnie vyzovy] 2021.

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that the peak of coal consumption in the United States occurred in 2007 and since then the reduction has been 58%. In the United States, the probability of switching from coal is high, due to the pro-climate policy of President Joe Biden and the availability of alternatives in the form of natural gas and renewable energy, which are “both cheaper and easier to finance.”51 Thus, the United States is not a typical representative of the “coal club.” India and China, on the contrary, are the locomotives of this unofficial club, and during COP26 they insisted on changing the phrase “phaseout” (gradual rejection) to “phase-down” (gradual reduction) in the final document. The main arguments of these countries (and first of all India, which became a kind of speaker from developing countries) were as follows: • The “refusal” will hit the energy sector of those countries that are heavily dependent on coal power. • Developing countries should not be required to abandon coal-fired energy, as they must first develop their economies and fight poverty. • It is necessary to take into account the lack of developing countries’ access to clean energy technologies: solar, wind, or nuclear energy. Accordingly, if poor, developing countries do not have access to clean energy, then they should be able to use coal-fired energy, while gradually reducing its use.52 After long discussions between representatives of China, India, the USA and the EU, the wording was changed to “gradual reduction” (phase-down) of coal. It becomes obvious that such members of the “coal club” as China, India, and Indonesia will be the last states to abandon coal. This statement is also true for Russia. This is facilitated by large coal reserves within the country and high demand for electricity. At the same time, it is worth noting that there are very few examples of a truly successful transition in the world, when, in parallel with a decrease in the use of coal, there is a commensurate increase in electricity generation from low-carbon sources. 51 Russell 2021. 52 Siddiqui 2021.

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Russia’s Position at the Glasgow Conference Russia approached the Glasgow conference “prepared” in a sense. A few weeks before the conference, President Putin set a deadline for achieving carbon neutrality by 2060. Russia insists on recognizing nuclear and hydropower as “green,” and also demands to take into account carbon uptake by Russia’s forests when calculating its CO2 emissions—that is, in fact, it recognizes the agenda and tries to influence interpretations. However, the key problem is that there is a lack of “intrinsic motivation” to take measures to curb climate change. All actions are taken under external pressure, and Russia’s approach to the Glasgow conference demonstrates an attempt to influence the direction and strength of this pressure. The big question is what will happen to Russian initiatives (and in particular, with initiatives regarding the coal industry) if such external pressure disappears. The official position of Russia is well illustrated by the speech of Foreign Minister Sergey Lavrov at the international forum of the country’s largest business association—the Russian Union of Industrialists and Entrepreneurs. Lavrov said that the developed Western countries that entered the post-industrial regime at COP26 in Glasgow obviously tried to oblige the rest to abandon environmental pollution, and hence development.53 Bobo Lo, researcher at the French Institute of International Relations (IFRI) so commented on the position of Russia: “Hydrocarbons are a huge competitive advantage of Russia and it seems incredible to me that it [Russia] will voluntarily get rid of them.”54 It is important to note that it is not really just about coal. The West does not have such a competitive advantage as traditional hydrocarbons (with the exception of the USA, Canada, and Norway), so it is easier for them to talk about energy transition toward non-fossil energy sources. The Russian government has stated that the potential of Russian forests in carbon uptake is much higher than previously assumed. This claim has been questioned by climate experts. Experts also expressed concern that the situation with forest fires in Siberia, which have been intensifying

53 Lavrov: The West in Glasgow tried to oblige others to abandon emissions, and hence development [Lavrov: Zapad v Glazgo popytalsya obyazat drugikh otkazatsya ot vybrosov, a znachit ot razvitiya] 2021. 54 McLaughlin 2021.

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in recent years, will only worsen due to climate change and inefficient farming methods. Russia has not joined the countries that have pledged to reduce methane emissions by 30% by 2030 and abandon coal in the next decade. On the contrary, Russia plans to increase coal production in the next 10 years. Russia also considers natural gas as a key transitional energy resource (crucial transition fuel). In addition, the Russian delegation constantly referred to nuclear energy as the energy of the future: about 10% of the 360 Russian representatives at COP26 represented the nuclear energy industry. Their number was twice the number of representatives of the renewable energy or fossil fuel industries. According to Greenpeace Russia, Moscow’s decarbonization strategy is generally moving in the right direction, although it remains unclear how Russia is going to achieve the recently announced goal of carbon neutrality. Russia has no compelling reason as such, and an activist of the Fridays for Future organization described Russia’s position in this way: “[The Russian government] is making climate reforms because it is afraid of the European carbon tax. They are concerned about money, not the future [of the climate].”55 As for the achievements of Russia in the field of climate announced during COP26, only forests that ensure CO2 absorption, as well as associated petroleum gas utilization projects launched under President Medvedev, are actually “working” at the moment. All other measures belong to the category of plans and long-term prospects that require significant amounts of funding including the development of technologies for carbon capture, utilization, and sequestration (CCUS), the use of hydrogen as an energy carrier, the introduction of energy-efficient technologies, and the creation of fuel cells and energy storage.56 In general, it should be concluded that the global energy transition toward non-fossil energy sources is considered by Russia as beneficial for developed countries that do not have serious hydrocarbon reserves. For Russia itself, the energy transition means only a window of economic opportunities: to continue earning until the middle of the twenty-first century on the export of hydrocarbons, and to enhance export of works and services in the field of nuclear energy. This explains Russia’s nonparticipation in climate initiatives that bring the complete abandonment

55 What Did Russia Achieve at COP26? 2021. 56 Ministry of Energy of the Russian Federation 2021.

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of coal closer, as well as the efforts made to move the timing of the abandonment of oil and gas as far as possible. Georgetown University Professor Thane Gustafson believes that climate change may be in Russia’s favor as part of its actively developing agricultural industry, increased shipping in the Arctic region, as well as growing demand in the international arena for its nuclear energy and LNG technologies. And at the same time, a global shift away from oil, coal and, finally, gas could lead to a 30% reduction in Russia’s total exports by 2050.57 Russia’s Position at the Sharm el-Sheikh Conference Russia’s position, as expressed above, is that, until recently, it could not ignore the climate agenda, because the main trading partners (the EU, and especially Germany) actively promoted it. Climate also remained one of the few common topics in communication with the United States after 2014. In general, the position can be summarized as follows: a. Greenhouse gas emissions in the Russian Federation are more than compensated by the absorbing capacity of Russian forests. b. Coal-based power generation in the Russian Federation is less significant than in some EU countries (for example, in Poland). c. The Russian energy sector, in general, is cleaner than the European one. Taking into account these circumstances, as well as the presence of powerful regional (Kuzbass) and business lobbyists, Russia, following China, India, and Indonesia, has chosen a defensive strategy regarding coal phase-out, trying to push back the deadlines for achieving carbon neutrality as much as possible. At the same time, the position of a number of Russian export-oriented companies dependent on foreign markets, including financial ones, was, on the contrary, proactive and aimed toward at least a “formal” exit from coal assets in order to provide appropriate reporting (Severstal). After 2022, the external factors that forced the Russian leadership to consider the position of the EU, the USA, and the UK on climate 57 McLaughlin 2021.

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issues practically disappeared, since the markets of these countries were closed to most of the Russian exports, including metals and coal. Environmental issues have ceased to be a bargaining chip in conversations with the collective West. Under these conditions, Russia’s internal motivation to combat climate change is an important topic for further research. However, even in such conditions, the Russian position is not a blind defense. Lavrov’s words58 define the main nerve of the struggle between the narratives of Russia and the West: problems of development and overcoming poverty vs climate plots. The formation of the “coal club” and its activity in Sharm el-Sheikh allow Russia to avoid being completely isolated. COP27 essentially showed that there was no significant progress over the year. On the contrary, even more countries began to share Russia’s arguments.

Conclusions Despite the pressure on the coal industry, which became explicit throughout the latest UNFCCC Conferences of Parties (COP26 and COP27), the investment level in coal supply globally remains on the rise. Russia’s energy strategy implies the priority of fighting energy poverty, which in turn, provides for the export of various types of energy resources, including coal. Russia’s strategy regarding coal phase-out is expressed, first of all, in an effort to push back the terms of carbon neutrality as much as possible. Several justifications are brought forward. First of all, Russia’s position is that greenhouse gas emissions are offset by the absorbing capacity of Russian forests, the energy sector as a whole is much cleaner in terms of GHG emissions than many European countries, and the share of coalbased power generation in the energy balance is lower than in some EU countries. This position has been in place for years, and Russia has consistently defended it. The issue of combating poverty in developing countries, especially energy poverty, and overcoming the lag in economic development also consistently comes up in the public rhetoric of Russia’s official representatives. Climate and energy transition in this context is 58 Lavrov: The West in Glasgow tried to oblige others to abandon emissions, and hence development [Lavrov: Zapad v Glazgo popytalsya obyazat drugikh otkazatsya ot vybrosov, a znachit ot razvitiya] 2021.

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perceived by Russia as an agenda imposed by developed countries (“the West”) which do not have their own hydrocarbon reserves and/or have their own alternative energy technologies. However, it would be completely wrong to state that ecological policy in Russia is only the reaction (or a push back) on the developments in the West. On the contrary, long before Perestroika and the collapse of the Soviet Union, a class-based worldview on ecology had formed in Moscow both in theory and in practice. Up until 2014, Russia was constructive in its ecological policy and supported several key international initiatives, such as the Kyoto Protocol. However, as time went on, the Kremlin became more cautious and concerned with new initiatives advanced by the West in the area of climate change. The current international landscape heavily affects the energy security and economy of the Russian Federation. Any external progress in renewable energy, efficiency, and energy intensity is viewed as a risk to internal energy security as they translate into a reduced consumer base for Russia and, in turn, disable the current way of fossil fuel export-based development and would lead to the country’s GDP growth rate to fall. Four main sources of insecurity include the reduction of the traditional export markets, measures targeted specifically to damage the Russian fuel and energy complex, and consequently, the Russian economy, discrimination toward Russian companies operating in the energy sector, and preference toward resources coming from alternative suppliers despite the stated “free and fair competition” value as basic for international markets for energy sources. However, even in such conditions, the Russian position is not a blind defense. The main nerve of the struggle between the narratives of Russia and the West are problems of development and overcoming poverty through access to fuels, including fossil fuels and coal, versus climate change mitigation through fossil fuels phase-out.

References Aalto, Pami, ed. 2008. The EU-Russian Energy Dialogue. Europe’s Future Energy Security. London: Routledge. Chizhevsky, A., and O. Bakhtina. 2022. “The COP27 Climate Summit Started in Egypt [V Egipte Startoval Klimatichenkiy Sammit COP27].” Neftegaz.ru (November 7). https://neftegaz.ru/news/politics/757724-v-egi pte-startoval-klimaticheskiy-sammit-cop27/.

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World Meteorological Organization. “Mikhail Ivanovich Budyko.” International Meteorological Organization Prize. https://public.wmo.int/en/about-us/ awards/international-meteorological-organization-imo-prize/mikhail-ivanov ich-budyko (October 10, 2022).

CHAPTER 8

Conclusion

After three centuries, coal still remains an essential element of Russia’s energy system. Coal became an increasingly important factor in the social and economic stability of the country. The industry which was in deep crisis by the end of the Soviet era not only withstood the collapse of the USSR, but transformed into an effective business, with Russian coal becoming competitive in international markets against alternative supply sources, and—importantly—other fuels such as natural gas. However, there remain two large questions in that respect: How did that transition from “plan” to “market” happen and what lessons can be learned here? Also, what will coal phase-out initiatives across various regions of the world mean for the future of the Russian coal industry? The Russian coal sector has been studied to quite a significant extent. Existing literature covers such topics as the Russian coal industry during the final years of the Soviet era, the post-Soviet transformation of the Russian coal sector and its transition from planned to market basis, the state strategy for the development of the coal sector, Russia’s “Pivot to the East,” Russian coal in the context of contemporary international coal markets, and the challenges of climate change. Thus, existing literature on the topic is not insignificant in terms of both specific questions it addresses and depth of research. Nevertheless, there is a clear gap in literature when it comes to bringing together two topics which are not usually

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discussed together—climate change mitigation efforts, and coal industry development dynamics. We undertook the challenge of analyzing the coal industry of Russia in both its historical context and the modern context of climate change mitigation strategies. We based our analysis on a variety of primary and secondary sources, including energy strategy, energy security, numerous decisions by the government regarding the coal sector and mining company statistics as well as interviews with key stakeholders in coaloriented Russian energy sectors. Here are our main findings. Coal played a major role in the USSR’s industrialization and electrification. The Soviet leaders were keen to accelerate industrialization in order to create a wealthier state. They sought to set up production plans and emulate industrial revolutions believing that it was a way to catch up with the West. Given that the main emphasis in that purpose was put on heavy industries, coal played a principal role in the economic progress of the Soviet Union. For a long time, coal dominated the energy sector of the USSR and the future of the coal industry was promising. Coal industry development in the first half of the twentieth century was strongly tied with the system of forced labor and GULAG. The GULAG system deeply integrated into the Soviet era strategy of developing vast natural deposits of resources across the whole country in order to provide its main industrial centers. Two coal regions—Komi and Kuzbass—were part of this system and contributed enormously to the Soviet economy during World War II. Both Komi and Kuzbass (two of the three regional cases studied in this book) became centers of coal mining not by choice, but by necessity. Both regions are by no means in the best place in terms of geographical location for industrial development and logistics, and that still echoes in challenges these regions are facing today. The choice was determined by the needs of the military economy in energy security. In the second half of the twentieth century, the new social strata— coal miners—was forming. By the end of the Stalin era, the share of the GULAGs in the Soviet economy substantially declined. The Soviet leadership eventually came to a conclusion about the inefficiency of forced labor. Thus, from the end of 1940s there were consistent steps to improve social infrastructure, healthcare, increase wages and provide early retirement plans to

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attract workers to coal towns. Throughout a couple of decades, a new social group formed in the coal regions. The miners became a community. They lived, as a rule, in mining settlements or single-industry towns, such as Vorkuta, Donetsk, or Kuzbass. Close professional relations gradually turned into neighborly ones, and between the miners, the signs of communality were most visible. As a result of the specific closeness of community and social organization around the coal industry, the crisis of the industry led to a broad strike movement at the end of the 1980s and early 1990s. Today, Komi and Kuzbass still have very high reliance of their regional economies on the coal industry in terms of employment and demand for other sectors, and the community among coal miners persists. Despite the increase in reliance on alternative fuels in the second half of the twentieth century, especially in Central Russia, the volume of coal production and consumption in the USSR was consistently increasing to achieve the record figure in 1988. By the 1980s, rapid development of the oil and gas industry had gradually ousted coal from some of its traditional markets as well as from the household sector, thus contributing to the decline in the consumption of that energy source in the European part of the USSR. Nevertheless, coal remained one of the most important resources used in the power sector and steel industry. In view of this, the coal industry was supported by the strengths of the central administrative power of the Soviet State as one of the pivotal sectors of the economy. The irrepressible desire for industrialization, not backed up by the modernization of production assets, eventually led to quantitative records of coal production in 1988, when the Soviet Union became the world’s third largest producer of coal. But success was solely in numbers. The end of the 1980s also marked the crisis of the industry and massive miners strikes became a reality. Underestimating the role and importance of miners for the social and economic stability of the country is the main mistake and the main lesson that the coal industry has learned throughout the entire Soviet period of its development. The Soviet economy—as well as its coal industry—was on the way to the protracted crisis. The situation, which was provoked by ineffective national economic policy, resulted in the bankruptcy of the state’s financial institutions and led to the non-payment of wages primarily in heavy industries. The union-wide strikes started by the Soviet miners in 1989

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brought the whole coal industry to a halt. In 1991, another series of miners’ strikes broke out. To a certain extent, these strikes contributed to the collapse of the Soviet economy and the final disintegration of the country as strikes tended to coincide with most separatist aspirations of the regional nomenklatura. The social aspects of a variety of industries affected by the climate change mitigation agenda must be taken into account, thus we stress the utmost importance of the Just Transition approach: the history of the Russian coal sector demonstrates what happens if these aspects are ignored. The top-down reforms of the 1990s were the decisive factor in the evolution of the coal industry toward its modern standing and condition. The general necessity of reforms stemmed not only from the general logic of liberalization and moving away from the command economy, but also because of political reasons. Growing protest movements by coal miners took the dangerous form of blocking rail traffic, work stoppages in underground facilities, and even “marches” to Moscow. Thus, the process of restructuring had to include the social dimension. The subsequent process of reorganization of the Russian coal industry included the following elements: privatization, inefficient mines closures, refusal from cross-subsidies, and dealing with social consequences through such measures as allocating free coal for personal consumption, providing housing, relocation, and severance payments to industry workers. Although it was the Russian state that covered the lion’s share of the costs associated with the coal industry restructuring in the 1990s, a significant role was played by the World Bank. Initially, coal miners appeared to be the most organized cohort of labor with strong leaders and clear demands. However, the process soon became uncontrollable, and the state approached the World Bank with a proper request for support, which was delivered. The most important elements of support were technical advice and co-financing of the program. From 1995 on, the government to some extent became the World Bank’s hostage and had to follow its strict recommendations. It was the World Bank that insisted on institutional reforms and made the government eliminate Rosugol as the primary agency of reforms because it often misused funds and caused problems with the restructuring. The main beneficiaries of World Bank’s support of coal reforms in Russia were liberal reformers in Moscow. Though the World Bank declared its intention to make the Russian coal sector market-based and even competitive,

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it seems that its primary goal was to help Yeltsin and his team to keep power and avoid a comeback by the Communists. Restructuring brought mixed results, but the overall purposes have been achieved, thus the reform can be considered a success. By 1998, the decade-long coal crisis was over, and by the early 2000s, a profitable and competitive industry had emerged in the new economic environment, as well as a viable core of private enterprises. The industry has become completely private, market-oriented, competitive, and socially sustainable. The working conditions of miners have improved, labor productivity has increased many times over, and the coal industry has become profitable. The growth in production was accompanied by a reduction in the labor force—modernization made it possible to increase labor productivity. Today, the owners of modern coal companies are among the richest people in Russia. The industry is resilient to external pressures, and the reason for such resilience lies not only in the margins of Russian coal. Flexibility to changing conditions and production efficiency are the key factors that allow the modern coal industry to function, and these features would not have formed if not for the reforms undertaken in the 1990s. The implementation of the restructuring of the coal industry in Russia would be unthinkable without the participation and active support of the regional authorities. In terms of the territorial scale of structural transformations, the coal industry in Russia had no analogues in the world—the restructuring covered 25 constituent entities of the Russian Federation, where unprofitable production facilities were closed. Responsibility for the socioeconomic consequences of these transformations fell primarily on the shoulders of local authorities—the heads of administrations of mining cities and towns. A special role in the structural transformations in the coal industry was assigned to the Kemerovo region (Kuzbass), but today the region finds itself in a challenging situation. Kemerovo took the leading place in terms of the scale of the reforms being carried out. Currently, the largest coal-producing region of Russia has found itself in a difficult situation. Kemerovo region is an example of the development of a survival strategy in the face of sanctions. There are many coal enterprises in Kuzbass, some of which are integrated into other production chains, and some depend on coal supplies for export. All circumstances—sanctions and installations of the entire civilized world

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on the energy transition—play against Kuzbass coal and create serious challenges to the regional economy overall. Post-Soviet wild capitalism significantly changed the whole economic and social landscape of Komi. While coal production is substantially lower than planned at the beginning of 2000s, it is stable, and there are positive perspectives for an improved investment climate. Coal production in Vorkuta stabilized in the 2010s, though at levels that are almost 40% lower than initially planned by the government. Today, being rich in natural resources, Vorkuta receives the status of a single-industry town that provides numerous bonuses for investors, and the Komi Republic became more attractive than 20 years ago. Under current programs for development of the Arctic, the Komi region is reemerging on the radar of Moscow as a strategically important area for national security and development of infrastructure projects of the Northern Sea Route. With geographic diversification of export from Russia and high probability of militarization of the Arctic, the role of the Vorkuta region will rise. Still, the town needs to meet numerous challenges—aging infrastructure and lack of transport routes. Without massive state support (which is still an open question), Vorkutaugol and its new owners will find it difficult to withstand existing problems. The third case, Sakhalin, is strikingly different from the previous two since it has a combination of advantages—access to reserves, proximity to markets, availability of transport routes, and managerial experience. Sakhalin today has everything: large coal reserves, the proximity of the region to the Asia–Pacific region, the port infrastructure, capital investments, experienced managers from Kuzbass, the most modern technologies for production and transportation. Sakhalin is a unique region that proves that Russian coal can have a future, and not just on a regional scale. In the future, the Sakhalin coal mining center may not only become an example of the industry’s success, but also a window of opportunity for other Russian coal mining companies that are losing their attractiveness due to their significant remoteness from promising markets in the Asia–Pacific region. One of the most important results of restructuring in Russia’s coal industry was entry to international coal markets. The beginning of coal exports to new markets in the mid-1980s demonstrated that coal could find markets outside the USSR, and other

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countries were ready to pay a higher price for it than inside the country. This became one of the directions where the new bourgeoisie would take the coal industry after the inefficiencies inherent to the Soviet coal industry organization were overcome. Since 2000, Russia’s coal export volumes have been consistently increasing and overtook the volume of domestic consumption in 2014. While coal is inferior to oil and gas in terms of budget revenues, the figures are not insignificant. The coal industry as a whole, and the Russian coal industry in particular, faces a serious challenge which became explicit throughout the latest UNFCCC Conferences of the Parties (COP26 and COP27) in the form of the coal phase-out manifesto. The current international landscape heavily affects the energy security and economy of the Russian Federation. Any external progress in renewable energy, efficiency, and energy intensity is viewed as a risk to internal energy security as they translate into a reduced consumer base for Russia and, in turn, disable the current way of fossil export-based development and lead to the country’s GDP growth rate to fall by half of a percentage point. Four main sources of insecurity include: reduction of the traditional export markets, measures targeted specifically to damage the Russian fuel and energy complex and, consequently, the Russian economy, discrimination toward Russian companies operating in the energy sector, and preference toward resources coming from alternative suppliers. However, even in such conditions, the Russian position is not a blind defense. The main nerve of the struggle between the narratives of Russia and the West are problems of development and overcoming poverty through access to energy, including fossil fuels and coal, versus climate change mitigation through fossil fuel phase-outs. While the combination of market and policy factors does not allow for a massive loss of coal demand in target markets for Russian coal, the much-needed new niche to compensate for the shortfall in European-bound exports is not readily available in the Asia–Pacific. One of the alternatives for coal is natural gas, and in the context of coal phase-out, natural gas plays an important role. It provides the easiest solution for such sectors as electricity generation, space heating, and some industrial uses. There are certain coal-to-gas switching perspectives in Russia’s target external markets for coal—both in the West (Europe) and in the East (China). The initiatives for coal-to-gas switching have been promoted with particular focus on the electricity generation sector in Europe and with the focus on the heating and industrial sector in China.

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On the one hand, while coal-to-gas switching in these markets is a real option, a combination of factors does not allow for massive loss of coal demand. But while the European market is temporarily closed to Russian coal, the Chinese market does not offer any substantial new niche for an ambitious coal supplier either. Russia faces strong competition in the Asia– Pacific Region (APR): Australia and Indonesia both have well-established partnerships in the APR and enjoy relative proximity and opportunity to use more flexible seaborne delivery routes. Furthermore, the USA and South Africa, both lagging behind Russia in terms of volumes, nevertheless have competitive business schemes and capabilities to respond to market conditions in both the Atlantic and Pacific basins. The consequences of Russia’s military intervention in Ukraine (EU sanctions on coal supplies from Russia, closure of EU ports for sea transportation from Russia) have created some additional bottlenecks for the Russian coal industry in terms of access to alternative markets and logistics inside the country. Cargo transit capacity limitations already existed before the sanctions, and since then have been further aggravated as a result of reorientation of trade flows of various products from West to East. Container transportation and oil transportation are a priority, displacing coal. The status of a reliable transit country for China, as well as the higher marginality of other goods, have reduced the prospects for exporting coal, creating uncertainty for coal companies particularly in Kuzbass. This situation will not change until the capacity of the Eastern Polygon is significantly expanded, as well as the possibilities of transporting coal through the southern ports of Russia are utilized. Coal must compete with other energy resources, but this time not as a source of energy, but as an object of transportation, and it is losing in that competition. This is a challenge primarily for Kuzbass, while the third case we have studied in this book— Sakhalin—provides a strikingly different example. Proximity to the APR coal demand as well as easy access to sea is a great advantage for the Sakhalin coal producers. The infrastructure difficulties faced by Russian coal today cannot be resolved quickly without government support. Dirigisme is a policy that is based on the belief that the government should be in charge of allocating resources to ensure the best outcomes for the country. This doctrine puts the state above other actors and assigns it to play a strong directive role contrary to a regulatory interventionist role over a market economy. Dirigiste policies often include

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indicative planning, state-directed investment, and the use of market instruments (taxes and subsidies) to incentivize market entities to fulfill state economic objectives. The decline of the Russian coal industry is not predetermined, despite all the geopolitical, economic, and climate challenges. Coal production in Russia continues to grow, and the infrastructure for its export is developing. Challenges and crises have taught Russian coal companies how to survive in modern times. Over the past years, Russian coal companies have united into large holdings, gained a margin of safety, diversified supply chains, and built their own logistics infrastructure. The coal industry surprisingly turned out to be ready for sanctions. Contrary to forecasts and analysts, 2022 was a record year in terms of coal production since the collapse of the USSR. However, certain bottlenecks remain. The Dirigiste approach might once again lead development of the coal sector. If the state does not invest in infrastructure, the huge costs will likely prevent private enterprises from doing so even in the most dynamic coal production region of Sakhalin. The second area is state support to mono towns. The reason comes from risks of energy transition. The energy transition and decarbonization problems have a largely socio-economic dimension for the coal industry. The history of miner strikes teaches us that the social factors must not be overlooked, and the government de facto takes those risks into account when dealing with energy transition. Now, the ball is in the hands of the state again and, despite the continued demand for coal, the prospects for the development of the coal industry are in the hands of Moscow. Three regions, three different destinies, but one hope. How do these findings fit in with the research map of the field? In our book, we analyzed contemporary Russian coal industry developments in historical and political contexts, including those of energy transition. The book sheds light on the political economy of the Russian coal business and explains the phenomenon of dirigisme in Russian energy politics even in one of the most market-oriented and competitive sectors of the Russian economy. We present the key tenets of contemporary dialogue between Russia (and other major coal mining states) and those who advocate for a speedy energy transition to phase-out coal. Finally, we address the question of the coal industry as a sacrifice for the sake of rapprochement with the West and conclude that this hope is not realistic given the historical background not just of the industry, but of the Russian state itself. The positive achievement and contribution of this book, therefore, is filling the

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gap between two large research inquiries—climate change mitigation and energy transition on the one hand, and the existing large coal industry of a given country on the other. We regard this experience with the transformation of the coal sector as one of the most important social, economic, and political cases of building a market economy in Russia. Being cut from any external support since 2014, this transformation provides a lot of food for thought about how it operated in reality, not in stereotypic form, and what we can expect in countries that will not be supported in the so-called Just Transition from coal.

Annex 1: Glossary

Term

Definition/relevance to coal industry development

Chapter

Accounts Chamber of the Russian Federation

The parliamentary body Chapter 3 responsible for controlling the implementation of the Federal Budget of the Russian Federation. The Accounts Chamber is a standing supreme authority of external public audit. The tasks of the Accounts Chamber include organization and monitoring of the proper and effective use of federal budget funds as well as auditing the feasibility and efficiency of achieving strategic goals of social and economic development of the Russian Federation In relation to the coal industry, the Chamber evaluated the financial situation of the coal industry in the aftermath of the 1990s restructuring (continued)

© The Editor(s) (if applicable) and The Author(s), under exclusive license to Springer Nature Singapore Pte Ltd. 2023 N. Lomagin et al., Russian Coal in the Era of Climate Change, https://doi.org/10.1007/978-981-99-5370-7

273

274

ANNEX 1: GLOSSARY

(continued) Term

Definition/relevance to coal industry development

Chapter

ACRA Corporate Ratings Group

The biggest Russian authorized credit rating agency. ACRA operates in compliance with the latest regulatory requirements and best global practices AEON holding was created by Russian billionaire Roman Trotsenko. It unites three dozen enterprises, including shipyards, river shipping companies, a development company, 16 regional airports, and Russia’s largest production of nitrogen fertilizers. The holding also has its own deposits of gold, silver, and molybdenum Company of Albert Avdolyan which bought the Elga field in Yakutia The only state-owned coal company in Russia which operates on the island of Spitsbergen in Svalbard, Norway and annually produces 120 thousand tons of thermal coal per year in the northernmost mine in the world A labor colony founded in Kuzbass in the early 1920s by the Dutch communist Sebald Rutgers with the purpose of restoration of the coal industry in the region. The Colony took control of all coal enterprises in the region and used the labor of American workers. The Colony existed until mid-1930s, with Kuzbassugol formed on its assets afterwards Full name is Siberian Coal Energy Company Baikal-Ugol

Chapter 5

AEON Investment Holding

A-Property

Arktikugol

Autonomous Industrial Colony (AIC)

Baikal-Ugol

Chapter 4 (Komi)

Chapter 5

Chapter 5

Chapter 4 (Kuzbass)

Chapter 4 (Sakhalin) (continued)

ANNEX 1: GLOSSARY

275

(continued) Term

Definition/relevance to coal industry development

Belon

Mid-sized Kuzbass-based miner Chapter 5 Belon (part of MMK metallurgical holding) publicly traded on the Moscow Stock Exchange Executive body of the Chapter 2 Communist Party of the USSR. After Stalin’s death in 1953, its members came together twice a year to participate in the Plenum or to vote on a particular issue. For example, the Central Committee approved the USSR’s 1983 Long-Term Energy Programme. Unlike the CPSU Central Committee, the Apparatus of the CPSU Central Committee worked daily and was engaged in solving specific practical problems. The Apparatus of the Central Committee played a key role in the development of the Soviet coal industry particularly during the last decade of the USSR existence Coal mining holding based in Chapter 3 Chelyabinsk Region, Russia. It was mining coal across the region from 1942. Despite sound geological conditions, full mechanization of coal extraction processes, high quality of coal, and guaranteed demand by local coal-fired power stations, Chelyabinskugol was in a critical financial situation by 1999 and was on the brink of bankruptcy. This is an example of difficulties in the reform process of the Russian coal industry. In 2006, the assets of Chelyabinskugol were transferred to Chelyabinsk Coal Company and a new chapter of regional coal industry development began

Central Committee of the Communist party of the Soviet Union

Chelyabinskugol

Chapter

(continued)

276

ANNEX 1: GLOSSARY

(continued) Term Coal mine closures

Definition/relevance to coal industry development

One of the central measures of the process of coal industry restructuring. Unprofitable mines had to be identified and closed within 18 months COP UNFCCC Conference of the Parties annually discusses the measures to combat climate change. The last such conferences were in Glasgow (COP26, UK, 2021) and Sharm el-Sheikh (COP27, Egypt, 2022) and paid considerable attention to the issue of abandoning coal-fired energy, which in turn is one of the most significant sectors of coal consumption Council of Labor and Defense Issued a special decree “On building Ukhta-Pechora Trust” under the Joint State Political Directorate (OGPU) in 1932. The Trust was to undertake works aimed at discovery and exploitation of deposits of minerals of industrial significance, including coal Council of Ministers of the The main executive and RSFSR administrative body of the Russian Soviet Federative Socialist Republic. In 1992, it became the Council of Ministers of the Russian Federation to later be transformed into the Government of the Russian Federation. One of the important documents relating to the coal industry transfer from Soviet to Russian is the 1991 Decree on the Order of Transfer of Industries and Organisations of Union-Level Subordination under RSFSR Jurisdiction (No. 37)

Chapter Chapter 3

Chapter 7

Chapter 4 (Komi)

Chapter 2

(continued)

ANNEX 1: GLOSSARY

277

(continued) Term

Definition/relevance to coal industry development

Council of Ministers of the USSR

The main executive and Chapter 2 administrative agency of the USSR. Its key documents relating to the Soviet coal industry include: • 1962 Decree on Material and Technical Supplies (Gossnab) • 1987 Decree on the General Scheme for Managing the Coal Industry (No. 1250) • 1990 Resolution on the Organisational Structure of Management of the Coal Industry of the USSR (No. 108) Donetsk coal basin. Coal reserves in this region were discovered in 1721 and started to be developed in the nineteenth century. In the years preceding the 1917 Revolution, Donbass provided over 80% of coal in the Russian empire. Throughout the twentieth century, this basin supplied coal for the fuel and energy complexes of Ukraine and Russia. Production increased significantly in the 1980s as the region was connected by railways with large industrial centers The Duyskoye coal deposit was Chapter 4 (Sakhalin) discovered in 1952. It is located on the banks of the Tatar Strait and 12 km south of the city of Aleksandrovsk in Northern Sakhalin

Donbass

Duyskoye deposit

Chapter

(continued)

278

ANNEX 1: GLOSSARY

(continued) Term

Definition/relevance to coal industry development

Chapter

GOELRO plan

The first Soviet plan of electric industry development was put together by the State Commission for Electrification of Russia. The plan covered the period of 1920–1935 and framed the first stage of the Soviet coal industry development The State Bank of the USSR was created in 1921. Besides the recovery of money turnover, the bank had a responsibility to assist the development of the Soviet industry. One of the main pillars of its involvement with the coal industry was the system of centralized clearing for deliveries State Planning Committee. State agency in the USSR responsible for the overall planning of economic activity. It is Gosplan which studied the reports about coal deposits of the Pechora basin in the 1930s and oversaw the start of the Soviet coal industry development in Komi Region The State Committee for Material and Technical Supply of the USSR. Gossnab was engaged in the distribution of coal products among the enterprises of the USSR. Together with the Ministry of Coal Industry, up until 1990, it was an essential element of the two-tier system of the Soviet coal industry. In 1990, its functions of supplying and marketing coal were entrusted to the Ministry of Coal Industry of the USSR

Chapter 2

Gosbank

Gosplan

Gossnab

Chapter 2

Chapter 4 (Komi)

Chapter 2

(continued)

ANNEX 1: GLOSSARY

279

(continued) Term

Definition/relevance to coal industry development

Great October Socialist Revolution (1917)

Also referred to as the October Chapter 4 (Kuzbass) Revolution, the Great Russian Revolution. Socialist revolution that took place in Russia in October 1917, as a result of which the Provisional Government was overthrown and Bolsheviks acceded to power. The following nationalization reshaped the basic foundations of any industrial activity: Private capital was no longer responsible for production, but the state. Instead of the market, after the Revolution, it was the Plan that dictated the production dynamics The Main Directorate of Camps Chapter 4 and Places of Incarceration, state agency in charge of the network of labor camps in the USSR. From the late 1920s and early 1930s the labor of prisoners in the USSR were considered as an economic resource, and all large-scale construction in the Soviet Union, including the exploration of coal reserves in the Pechora basin and Kemerovo, was carried out by the system of GULAG camps

GULAG

Chapter

(continued)

280

ANNEX 1: GLOSSARY

(continued) Term

Definition/relevance to coal industry development

Chapter

East Mining Company (EMCO)

The leading producer of energy grades of coal mined in Sakhalin. It is one of the largest Russian exporters of brown coal to the Asia–Pacific countries. It has reserves of more than 300 million tons of coal approved by the state balance in Sakhalin. EMCO is currently developing the Solntsevsky lignite deposit in the Uglegorsk district of Sakhalin Region and provides about 80% of the total amount of lignite on the island The railway network in Russia which unites the Baikal-Amur Mainline and the Trans-Siberian Railway. It often refers to the global project of comprehensive modernization of BAM and the Transsib Comprehensive investment project for the development of railway infrastructure in the Eastern part of Russia (primarily BAM and Transsib) which Russian Railways began to implement in 2013 and plans to complete by 2025. It will increase the capacity of the railway network from 75 to 130 million tons Until December 2, 1982, it was the Department of Planning and Financial Bodies dealt with all issues of the Soviet economy. Supervised the Ministry of Finance of the USSR, the State Bank of the USSR (Gosbank), the Construction Bank of the USSR (Stroybank), and other state banks

Chapter 4 (Sakhalin)

Eastern Polygon

Eastern Polygon Modernization Program

Economic Department of the Central Committee of the CPSU

Chapter 4 (Kuzbass)

Chapter 4 (Kuzbass)

Chapter 2

(continued)

ANNEX 1: GLOSSARY

281

(continued) Term

Definition/relevance to coal industry development

Chapter

Elga

Or Elginsky field. Sold by Mechel to Albert Avdolyan in 2020. Its sale and favorable conditions in the coal market in 2021 allowed Mechel to reduce the amount of net debt by about 40% and gave rise to hope for the financial recovery of the company The Elga Coal Complex in the Republic of Sakha (Yakutia). Industrial group formed as a result of the merger of the assets of the companies Elga Coal and Siberian Anthracite, owned by Albert Avdolyan. One of the largest coal companies in Russia En+ Group plc is a green energy and metals company. It has a controlling stake in Rusal, one of the world’s largest aluminum producers outside of China. EN+ was founded by Russian oligarch Oleg Deripaska EVRAZ is a global steel and mining company and the leading producer of infrastructure steel products with low-cost production along the value chain. The Group operates in different locations: Russia, the USA, Canada, Kazakhstan, and the Czech Republic

Chapter 5

ELSI

EN+

EVRAZ

Chapter 5

Chapter 5

Chapter 5

(continued)

282

ANNEX 1: GLOSSARY

(continued) Term

Definition/relevance to coal industry development

Chapter

Five-year plans

(FYP, also known as pyatiletka) Plans for the development of the national economy in the USSR which were developed by the state planning committee Gosplan for a five-year period. FYPs included target parameters for all aspects of national economic development, including production levels in the coal industry Free float refers to the shares of a company that can be publicly traded and are not restricted The Great Patriotic War is a term used in Russia and some other former republics of the Soviet Union to describe the conflict fought during the period from June 22, 1941 to May 9, 1945 along the many fronts of the Eastern Front of World War II, primarily between the Soviet Union and Nazi Germany The company founded by Alexander Nesis and his partners in the early 1990s, for years was one of the largest privately owned investment and industrial companies in Russia. It invested in, developed, and managed assets in a wide range of industries, including the banking and financial industry, metals and mining, precious metal production, heavy engineering, logistics, construction, and development Coal development and mining company which was formed in 1943 as a result of splitting the Kuzbassugol combine

Chapter 4 (Kuzbass)

Free-float

Great Patriotic War (1941–1945)

ICT Group

Kemerovougol

Chapter 5

Chapter 4 (Kuzbass)

Chapter 4 (Sakhalin)

Chapter 4 (Kuzbass)

(continued)

ANNEX 1: GLOSSARY

283

(continued) Term

Definition/relevance to coal industry development

Kita Karafuto Kögyö The Japanese company (a Kabushiki Kaisha (Eng.: North subsidiary of the modern Sakhalin Mining Company) Mitsubishi Mining Company) which, according to the Soviet-Japanese convention concluded on January 20, 1925 in Beijing, received the rights to develop and mine coal at the Duyskoye deposit (the Douai concession mine) under a 45-year concession agreement Kolmar The large holding company uniting industrial enterprises for the mining and processing of coking coal located in the territory of the Neryungri District of the Sakha Republic (Yakutia) Komi The region in northwestern Russia, where the Pechora coal basin is located Kuzbass Kuznetsk coal basin, the leading basin in Russia in terms of the volumes of coal production Kuzbass Coal Engineering The center was established to Center address topical issues of the coal industry in the form of a consortium of educational and research centers, with the assistance and support of supervisory authorities. In its activities, the center relied on the scientific potential of the Kuzbass State Technical University Kuzbassrazrezugol (KRU) A subsidiary of the metallurgical holding UGMK, one of the largest coal companies in Russia

Chapter Chapter 4 (Sakhalin)

Chapter 5

Chapter 4 (Komi)

Chapter 4 (Kuzbass)

Chapter 4 (Kuzbass)

Chapter 5

(continued)

284

ANNEX 1: GLOSSARY

(continued) Term

Definition/relevance to coal industry development

Chapter

Kuzbassugol

Kuzbassugol trust was formed with assets of Autonomous Industrial Colony (see AIC) in 1936, and later transformed into Kuzbassugol combine. It took control of all the enterprises of the Kuzbass coal basin. In 1943, in order to improve the management of the coal industry, the Kuzbassugol combine was divided into two independent combines: Kuzbassugol and Kemerovougol East Coal Company (Kompaniya Vostochny Ugol), a coal trading company founded in 2012 Document defining the principal directions for the Soviet energy system development. Throughout the process of this document’s preparation, the systemic approach was applied. The document reflects ideas characteristic for the new phase of the USSR’s energy infrastructure development such as to curb wasteful consumption of intensively used oil and natural gas through increasing the energy efficiency of the country’s energy sector Consists of several coal and steel enterprises. One of the three Russian coal companies publicly traded on the Moscow Stock Exchange The Ministry of Defense plays a significant role in financing the program of Arctic industrial development which in turn supports the development of mono towns

Chapter 4 (Kuzbass)

KVU

Long-Term Energy Programme of the USSR (1983)

Mechel

Ministry of Defense of the Russian Federation

Chapter 5

Chapter 2

Chapter 5

Chapter 4 (Komi)

(continued)

ANNEX 1: GLOSSARY

285

(continued) Term

Definition/relevance to coal industry development

Chapter

Ministry of the Coal Industry of the USSR

State administrative body of the USSR responsible for the coal industry. Importantly, it was only one of the two pillars of the industry’s functioning: all state, scientific, and other production associations were directly subordinate to this Ministry, while control over the sale of products until 1990 was carried out by Gossnab. The Ministry was assigned with the responsibility for the implementation of the provisions of the 1983 Energy Programme in the coal industry. In 1991, on the basis of this Ministry, the Russian State Corporation of Coal Industry (Rosugol) was created The iron and steel company located in the city of Magnitogorsk, Russia. One of the largest steel companies in the world This term describes the situation when GHG emissions are cut to a maximum, while all remaining emissions are compensated through capturing and sequestration/utilization mechanisms People’s Commissariat of Internal Affairs, a forerunner of the KGB (Committee of State Security of the USSR). NKVD was assigned to provide a labor force for the coal mining industry, particularly during WWII

Chapter 2

MMK

Net Zero

NKVD

Chapter 5

Chapter 7

Chapter 4

(continued)

286

ANNEX 1: GLOSSARY

(continued) Term

Definition/relevance to coal industry development

Chapter

NLMK

The vertically integrated iron and steel company. It carries out the production of flat steel, including hot-rolled, long steel, heavy plates, pig-iron, cold-rolled, galvanized cold-rolled sheet, pre-painted steel, transformer steel, electrical steel, and a range of long products and metal ware. It operates in Russia, North America, European Union, the Middle East, Turkey, Asia, and Oceania The ruling class of the Soviet Union. It was formed by appointing candidates approved by party bodies to key posts at various levels of the state system Absence of payments in the coal industry characteristic for the reform period of the 1990s: (1) for delivered coal; (2) non-payments of wages (wage arrears) The shortest seaborne route between the European part of Russia and the Far East, passing through the waters of the Arctic Ocean. The route is Russia’s national transportation core in the Arctic which could potentially allow it to transport coal from the Pechora basin traditionally bound westward toward alternative Asian markets One Belt–One Road initiative, replaced by Belt and Road Initiative (BRI). Led by China with the idea of strengthening logistical ties between East and West overland (as opposed to seaborne) connections

Chapter 4 (Komi)

Nomenklatura

Non-payments

Northern Sea Route

OBOR

Chapter 2

Chapter 3

Chapter 4 (Komi)

Chapter 4 (Kuzbass)

(continued)

ANNEX 1: GLOSSARY

287

(continued) Term

Definition/relevance to coal industry development

Chapter

Operational expenditure (OpEX)

Operational expenditure (operational costs, operating costs) is related to spending associated with business operations. These costs occur regularly, on a permanent basis Joint State Political Directorate, in charge of handling practical matters related to the process of “colonisation” of resource-rich regions. “Ukhta-Pechora Trust” under its control was to undertake works aimed at discovery and exploitation of deposits of minerals, building rail and gravel roads, shipment infrastructure, etc., in Komi Region. Ukhta-Pechora camp was the main pillar of these activities Coal basin in the northwestern part of Russia, cradle of the Soviet coal industry Political movement within the CPSU targeted at restructuring of political and economic systems of the USSR Governing body of the CPSU between its Central Committee plenums The top-10 global gold producer and top-5 global silver producer with assets in Russia and Kazakhstan. Polymetal has a portfolio of ten gold and silver mines and an impressive pipeline of future growth projects

Chapter 5

OGPU

Pechora basin

Perestroika

Politburo of the Central Committee of the CPSU Polymetal

Chapter 4 (Komi)

Chapter 4 (Komi)

Chapter 2

Chapter 2

Chapter 4 (Sakhalin)

(continued)

288

ANNEX 1: GLOSSARY

(continued) Term

Definition/relevance to coal industry development

Chapter

Price List 10–01

The document was approved in 2003 and set tariffs for railway transportation of various classes of goods. The document essentially fixed tariffs favorable for coal companies for the transportation of goods by the Russian railway. The approval of the document is often called a triumph of the coal lobby The region in the Russian Far East, which borders China to the west, Khabarovsk Krai to the north, and North Korea to the extreme southwest The state program of Russia, which defines the goal, objectives, and measures of state policy in the coal industry for the period up to 2035 The process of ownership transformation from state to private. Ownership transformation in the Russian coal sector was formally launched by Presidential Decree No. 1702 (December 30, 1992). Private ownership of Russian coal assets was below 10% in 1995 and reached nearly 100% by 2005. The expectation was that privatization would provide macroeconomic stability and sustainable growth for the industry Part of EVRAZ metallurgical holding, publicly traded on the Moscow Stock Exchange, and integrated into the production chains of metallurgy

Chapter 4 (Kuzbass)

Primorsky Krai

Program for the Development of the Russian Coal Industry for the Period up to 2035

Privatization

Raspadskaya

Chapter 5

Chapter 4 (Kuzbass)

Chapter 3

Chapter 5

(continued)

ANNEX 1: GLOSSARY

289

(continued) Term

Definition/relevance to coal industry development

Reformugol

The Coal Industry Chapter 3 Restructuring Fund, which among other things took some important functions of distributing subsidies from Rosugol The process of reorganization of Chapter 3 the Russian coal industry with the aim of reforming the non-market sector generating negative profits. The restructuring included the following elements: • Privatization • Inefficient mines closures • Refusal of cross-subsidies • Dealing with social consequences through such measures as allocating free coal for personal consumption; providing housing; relocation; severance payments As a result of restructuring, productivity of the coal industry significantly increased Created as a successor to the Chapter 3 Ministry of Coal Industry of the USSR, Rosugol retained many of its functions, and in fact, was a republican state-owned coal producer. Rosugol operated as a national coal monopoly, and its functions included allocating subsidies to mines and running some preparatory works for privatization

Restructuring

Rosugol

Chapter

(continued)

290

ANNEX 1: GLOSSARY

(continued) Term

Definition/relevance to coal industry development

Chapter

Russian Railways

Vertically integrated state company in Russia, the owner of railway infrastructure and the largest railway transport operator in Russia. It was formed in 2003 to replace the Ministry of Railways. The railway system is an essential element of coal logistics The Japanese company, which, according to the Soviet-Japanese Convention concluded on January 20, 1925 in Beijing, received a concession for the development and production of coal at a deposit in the Agnevo River area On Sakhalin, the trade union movement began in 1925, when Soviet power was finally established on the island. In 1926, the first congress of trade unions of the region was held in the city of Aleksandrovsk, where the Sakhalin Bureau of Trade Unions was elected. The main tasks of the organization were economic and cultural development One of the companies which received coal assets in Sakhalin as a result of restructuring. Sakhalin Coal Corporation took over the management of coal mines and auxiliary production on the basis of a long-term lease with the right to subsequently buy out the assets of the former Sakhalinugol An ongoing program targeted at Sakhalin island achieving carbon neutrality One of the companies which received coal assets in Sakhalin as a result of restructuring

Chapter 4 (Kuzbass)

Sakai Kumiai

Sakhalin Bureau of Trade Unions

Sakhalin Coal Corporation

Sakhalin Experiment

Sakhalinpodzemugol

Chapter 4 (Sakhalin)

Chapter 4 (Sakhalin)

Chapter 4 (Sakhalin)

Chapter 4 (Sakhalin)

Chapter 4 (Sakhalin)

(continued)

ANNEX 1: GLOSSARY

291

(continued) Term

Definition/relevance to coal industry development

Sakhalinugol

This name corresponds to a Chapter 4 (Sakhalin) number of organizations engaged in the Sakhalin coal industry development throughout the twentieth and twenty-first centuries: • Sakhalinugol Trust was formed in 1931 in order to manage the coal industry of Northern Sakhalin • Sakhalinugol Coal-Mining Combine overtook coal industry management functions in 1945, after the USSR had re-adjoined South Sakhalin • In 1975, the combine was transformed into Sakhalinugol State Production Association • Sakhalinugol (OAO) is the name of the company formed after the coal industry restructuring. Part of the mines went under the control of Sakhalin Coal Corporation and Sakhalinpodzemugol • Sakhalinugol Management Company was created in 2004 and includes four coal mining companies and two service companies Shakhtersk Coal Sea Port is a Chapter 4 (Sakhalin) key logistics and stevedoring asset of the Eastern Mining Company and one of the largest sea terminals in the Far East

Shakhtersk Coal Sea Port

Chapter

(continued)

292

ANNEX 1: GLOSSARY

(continued) Term

Definition/relevance to coal industry development

Chapter

Scientific Organization of Labor

The process of rational organization of labor based on scientific approaches. The main provisions of the method were formulated by Frederick Winslow Taylor in 1911. In the USSR, the postulates of this approach were set by Vladimir Lenin The Separation Theorem formulated by Irving Fischer holds that the decisions of investment of a firm and the preferences of its owners or shareholders are two separate objectives. This theorem states that the shareholders of a firm have different investment ideas that are separate from the firm’s managers The seventh of the Plans for the development of the national economy in the USSR (which were typically developed for five years, see FYP, five-year plans). This one was developed for a seven-year period. According to this plan presented by N. Khrushev, the share of coal in the energy balance of the USSR was to be reduced from 60 to 43% due to the predominant development of oil and gas production and processing Russian (ex. Soviet) vertically integrated steel and mining company that owns the Cherepovets Metallurgical Plant, Russia’s second largest steel plant. Owns assets in Russia Officers of law enforcement agencies

Chapter 4 (Kuzbass)

Separation Theorem

Seven-Year plan (1959–1965)

Severstal

Siloviki

Chapter 5

Chapter 2

Chapter 4 (Komi)

Chapter 1 (continued)

ANNEX 1: GLOSSARY

293

(continued) Term Solntsevsky coal deposit

Definition/relevance to coal industry development

The open-pit coal mine operated by East Mining Company (EMCO) in the Sakhalin region of Russia Sozugol The federal institution for coordination of local development programs to handle coal industry restructuring Stakhanovism The campaign of the mid-1930s aimed at increasing labor productivity based on a combination of incentives and patriotic appeals. Campaign named after Alexei Stakhanov, a coal miner, who on August 30, 1935, cut 102 tons of coal in less than 6 hours versus an output norm of 7 tons, carried with it a risk of worker resentment. Ordinary people interpreted this movement as a plot to extract more work for the same wage State Enterprise Law (1987) The law was adopted in the USSR in 1987 and was a significant milestone in the move toward capitalism. The law gave the heads of enterprises broad rights to change and regulate the wages of workers. The law and subsequent resolutions raised the question of stopping the operation of unprofitable enterprises, which included many enterprises in the coal industry State Committee of the USSR See: Gossnab Council of Ministers for material and technical supply

Chapter Chapter 4 (Sakhalin)

Chapter 4 (Komi)

Chapter 2

Chapter 2

(continued)

294

ANNEX 1: GLOSSARY

(continued) Term

Definition/relevance to coal industry development

State Statistics Committee of the USSR

State agency responsible for the Chapter 2 collection of statistical data. Among other data, the USSR State Statistics Committee recorded coal supplies to external markets Collective organized act of Chapter 3 stopping professional duties in order to force company management/political leadership to agree to workers’ demands. This is a widespread means of solving labor disputes. The strike movement of coal miners in the USSR and Russia had a large impact on both the development of the coal industry as well as the political development of Russia The Construction Bank of the Chapter 2 USSR, state bank with the purpose of providing financing for capital expenditure in such industries as construction, industrial, and energy/ electrification sector

Strike

Stroybank

Chapter

(continued)

ANNEX 1: GLOSSARY

295

(continued) Term

Definition/relevance to coal industry development

Subsidies

Direct or indirect payments Chapter 3 from the government to companies or individuals/ households, usually targeted at stabilizing the economy (providing businesses with the possibility to maintain competitiveness, allowing residents to access essential goods). The Soviet and early Russian coal industry was “addicted” to subsidies. In 1994, the Russian government allocated $2.8 billion in direct subsidies to the sector through Rosugol, or more than 1% of the country’s GDP. A large part of the subsidies has been used to cover operational losses of regional coal companies and mine investments, thus hindering competition and financial discipline in the coal sector Siberian Coal and Energy Chapter 5 Company (Sibirskaya Ugolnaya Energeticheskaya Kompaniya). The largest coal company in Russia and one of the leading coal and energy companies in the world, one of the five largest coal suppliers to the global coal market. The company was founded in 2001

SUEK

Chapter

(continued)

296

ANNEX 1: GLOSSARY

(continued) Term

Definition/relevance to coal industry development

Chapter

Supreme Council of the National Economy

The Supreme Council for National Economy was founded by decree on December 15, 1917, by the Council of People’s Commissars and the All-Russian Central Executive Committee. Its job was to organize and manage the entire national economy and finances of Russia and later the Soviet Union. In 1920, it set up a Northern industry-scientific expedition to undertake a geological study of the Pechora River basin The highest agency of legislative power in the USSR. Initially the soviet was considered to be the collective head of the country, but in 1989 this role shifted toward the Chairman of its Presidium, and in 1990—to the President of the USSR. These positions were consequently taken by M. Gorbachev in his quest for the highest power in the USSR while dissolving the Communist Party. Violent divisions began to break out within the party, which escalated into civil unrest. Mass strikes of the labor movement began, the main driving force of which was the coal miners Since 2016, it has been producing coal in Chukotka. Listed on the stock Exchange in Australia The coal mining enterprise, founded in 1942 on the basis of coal trusts of the Moscow region coal basin. Liquidated in 2003

Chapter 4 (Komi)

Supreme Soviet of the USSR

Tigers Realm Coal company

Tulaugol

Chapter 2

Chapter 5

Chapter 3

(continued)

ANNEX 1: GLOSSARY

297

(continued) Term

Definition/relevance to coal industry development

Chapter

Uglegorsk district

One of the seventeen administrative districts of Sakhalin. It is located in the west-central part of the Island Ural Mining and Metallurgical Company, also referred to as UMMC (Uralskaya GornoMetallurgicheskaya Kompaniya). Russia’s first and world’s ninth largest copper producer, also owns coal company Kuzbassrazrezugol Labor camp within the structure of Gulag, the main pillar of OGPU activities in “colonisation” of the Pechora coal basin area Trust that was established under the Joint State Political Directorate (OGPU) in 1932. The Trust was to undertake works aimed at discovery and exploitation of deposits of minerals of industrial significance, including coal United Shipbuilding Corporation—the largest shipbuilding company in Russia. The corporation includes around 40 shipbuilding companies and organizations, main shipbuilding and ship repair yards, and leading design bureaus. Currently, USC has consolidated most of the domestic shipbuilding industry A large coal port located on the coast of the Ussuri Bay, in the area of Cape Otkryty, the village of Podyapolskoye, Shkotovsky district, Primorsky Krai Integrated into the production chains of metallurgy—the main supplier of Severstal

Chapter 4 (Sakhalin)

UGMK

Ukhta-Pechora camp

Ukhta-Pechora Trust

United Shipbuilding Corporation

Vera (port)

Vorkutaugol

Chapter 5

Chapter 4 (Komi)

Chapter 4 (Komi)

Chapter 4 (Komi)

Chapter 5

Chapter 4 (Komi), Chapter 5 (continued)

298

ANNEX 1: GLOSSARY

(continued) Term

Definition/relevance to coal industry development

Chapter

Vostsibugol

Part of EN+, integrated into the production chains of metallurgy Overdue payments of wages resulting from poor financial performance of the coal industry. Wage arrears clearance was one of the main measures to soften strike movement International financial institution which sees its mission to provide financing, policy advice, and technical assistance to governments of developing countries. The World Bank has engaged in the process of coal sector restructuring in Russia through adjustment loans amounting to more than $1 billion, and technical assistance under the 1995 program “Main directions for restructuring the Russian coal industry.” It was under direct influence of the WB that coal industry management functions were transferred from state corporation Rosugol to the Ministry of Fuel and Energy of the Russian Federation in 1997 Yota is a company established in 2007, one of the world’s largest 4G Internet operators. The active subscriber base of Yota has more than 700 thousand customers who use unlimited mobile 4G Internet Yubileynaya coal mine is an underground mine near the city of Novokuznetsk, in the Siberian region of Kuzbass

Chapter 5

Wage arrears

World Bank

Yota company

Yubileynaya mine

Chapter 3

Chapter 3

Chapter 5

Chapter 5

(continued)

ANNEX 1: GLOSSARY

299

(continued) Term

Definition/relevance to coal industry development

Chapter

Yuzhno-Sakhalinskaya CHP-1

Yuzhno-Sakhalinskaya CHPP-1 Chapter 4 (Sakhalin) is the largest coal-fired power plant in the Sakhalin Region, providing electricity to 60% of the population of the region (almost the entire south of Sakhalin) and the regional center—the city of Yuzhno-Sakhalinsk, where almost a third of the population of the region lives

Annex 2: Personalities

Name

Positions held

Chapter

Andropov, Yury V.

General Secretary of the CPSU Central Committee (1982–1984) Minister of Trade and Material Resources of the RSFSR (1991–1992), USSR Minister of Material Resources (1991), Gossnab of USSR (1988–1991), Apparatus of the CPSU Central Committee (1978–1988) Russian entrepreneur and billionaire. In 2022, A-Property, a company of Avdolyan, created the third largest coal company in Russia named ELSI by combining Elgaugol and Sibanthracite Minister of Petroleum and Mineral Resources of Saudi Arabia (1962–1986) Bandar bin Sultan Al Saud (born March 2, 1949) served as Saudi Arabia’s ambassador to the United States from 1983 to 2005. He is a member of the House of Saud

Chapter 2

Anisimov, Stanislav V.

Avdolyan, Albert A.

Sheikh Ahmed Zaki Yamani

Prince Bandar

Chapter 2

Chapter 5

Chapter 2

Chapter 2

(continued)

© The Editor(s) (if applicable) and The Author(s), under exclusive license to Springer Nature Singapore Pte Ltd. 2023 N. Lomagin et al., Russian Coal in the Era of Climate Change, https://doi.org/10.1007/978-981-99-5370-7

301

302

ANNEX 2: PERSONALITIES

(continued) Name

Positions held

Chapter

Bardin, Ivan P.

A prominent Soviet metallurgist. He was also an Academician of the USSR Academy of Sciences (1932), vice-president of USSR AS (1942–1960) Head of NKVD. The NKVD was assigned to provide labor force for the coal mining industry, particularly during WWII to the Pechora basin and Kemerovo Director of the CIA (1981–1987) Professor, geologist. Initial conclusion about coal basin near Vorkuta River (1920) The discoverer of the high-quality coal basin near Vorkuta River (1926) The First Vice-Prime Minister (1994–1996), headed the 1995 miners’ strike settlement King of Saudi Arabia (1982–2005) The Acting Prime Minister of Russia from June 15, 1992 to December 14, 1992. Initiated liberal reforms General Secretary of the Communist Party of the Soviet Union (1985–1991) and additionally a head of state beginning in 1988, as Chairman of the Presidium of the Supreme Soviet from 1988 to 1989, Chairman of the Supreme Soviet from 1989 to 1990 and the only President of the Soviet Union from 1990 to 1991 A leading Soviet physicist and Nobel laureate, whose research focused on low-temperature physics

Chapter 4 (Komi)

Beria, Lavrenriy P.

Casey, W. J. Chernov, Alexander A.

Chernov, Georgy A.

Chubais, Anatoly B.

King Fahd Gaidar, Yegor T.

Gorbachev, Mikhail S.

Kapitsa, Petr L.

Chapter 4 (Komi)

Chapter 2 Chapter 4 (Komi)

Chapter 4 (Komi)

Chapter 4 (Komi)

Chapter 2 Chapter 3

Chapter 2, Chapter 3

Chapter 7

(continued)

ANNEX 2: PERSONALITIES

303

(continued) Name

Positions held

Chapter

Kislyuk, Mikhail B

One of the leaders of the labor movement of miners in Kuzbass in 1989–1991, head of the Kemerovo Region Administration from August 27, 1991 to July 1, 1997. Under his leadership, the restructuring of the coal industry began One of the first Soviet environmentalists, author of the book In Defense of the Planet Nikita Khrushchev (1894–1971) led the Soviet Union during the height of the Cold War, serving as premier from 1958 to 1964. Under him, the active development of oil and natural gas began, which led to a drop in the share of coal in the country’s fuel balance Acting First Deputy Chairman of the Council of the Russian Soviet Federated Socialist Republic from April 19, 1991 to 15 November Chairman of the Supreme Soviet of the USSR between March 15, 1990 and September 4, 1991 Chairman of Rosugol (1993–1997) On August 31, 2017, the Russian government included Vorkuta into the so-called support (opornaya) zone of Russia’s Arctic. Then Russian Prime Minister Dmitri Medvedev clarified this term as zones of economic growth Russian entrepreneur and billionaire, founder of SUEK Chairman of the Board of Directors of EMCO (since 2013)

Chapter 4 (Kuzbass)

Khozin, Grigory S.

Khrushev, Nikita S

Lobov, Oleg I.

Lukyanov, Anatoly I.

Malyshev, Yury N. Medvedev, Dmitry A.

Melnichenko, Andrey I. Misevra, Oleg A.

Chapter 7

Chapter 2

Chapter 2

Chapter 2

Chapter 3 Chapter 4 (Komi)

Chapter 5 Chapter 4 (Sakhalin)

(continued)

304

ANNEX 2: PERSONALITIES

(continued) Name

Positions held

Chapter

Mordashov, Alexei A.

Russian entrepreneur and billionaire. He is the main shareholder and chairman of Severstal Founder of the ICT Group which then created the Polymetal mining company Prime Minister of the USSR (January 14–August 28, 1991) Head of the Economic Department of the CPSU Central Committee (1982–1985); Chairman of the USSR Council of Ministers (1985–1991) Chairman of the Council of Ministers of the Russian SFSR (June–August 1991), acting Soviet Premier (August 28–December 1991) First Deputy Minister (1981–1985), Minister (1985–1991), Ministry of the Coal Industry of the USSR A Soviet and Russian miner. He became a celebrity in 1935 as part of what became known as the Stakhanovite movement—a campaign intended to increase worker productivity and demonstrate the superiority of the socialist economic system He led the Soviet Union from 1924 until his death in 1953. He held power as General Secretary of the Communist Party of the Soviet Union (1922–1952) and Chairman of the Council of Ministers of the Soviet Union (1941–1953) Chairman of the Council of Ministers of the USSR (1980–1985)

Chapter 4 (Komi)

Nesis, Alexander N.

Pavlov, Valentin S. Ryzhkov, Nikolay I.

Silaev, Ivan S.

Shchadov, Mikhail I.

Stakhanov, Alexei G.

Stalin, Joseph V.

Tikhonov, Nikolay A.

Chapter 4 (Sakhalin)

Chapter 2 Chapters 2 and 3

Chapter 2

Chapter 2

Chapter 4 (Komi)

Chapter 4 (Komi)

Chapter 2

(continued)

ANNEX 2: PERSONALITIES

305

(continued) Name

Positions held

Chapter

Trotsenko, Roman V.

Russian billionaire. He is the owner of Aeon Corporation, a Russian investment and management company Governor of the Kemerovo Region (since 2018). General Director of the Kolmar Coal Company (2014–2018). The primary person today in defending the interests of Russian coal miners among public people Russian statesman. He served as governor of Kemerovo Oblast from 1997 to 2018 and became the chairman of the Council of People’s Deputies of Kemerovo Oblast in April 2018 US Defense Secretary (1981–1987) Deputy (1927–1934), Narkom (minister) of interior affairs (1934–1936). In charge of development of strategic resources through the use of GULAG camp labor First Secretary of the Moscow City Committee of the CPSU (1985–1987), President of the Russian Federation (1991–1999)

Chapter 4 (Komi)

Tsivilyov, Sergey Y.

Tuleyev, Aman G.

Weinberger, C. W. Yagoda, Genrih G.

Yeltsin, Boris N.

Chapter 4 (Kuzbass)

Chapters 3 and 5

Chapter 2 Chapter 4 (Komi)

Chapters 2 and 3

Index

A Accelerating Coal Transition (ACT) investment program, 242 Accounts Chamber of the Russian Federation, 273 ACRA Corporate Ratings Group, 198, 274 AEON Investment Holding, 122, 123, 274 Andropov, Yuri V., 48, 301 Anisimov, Stanislav V., 47–50, 301 A-Property, 197, 200, 274, 301 Arktikugol, 188, 274 Asia Pacific Region (APR), 15, 16, 217, 228, 233, 270 Autonomous Industrial Colony (AIC), 131, 132, 274, 284 Avdolyan, Albert A., 190, 195, 197, 198, 200–202, 274, 281, 301 B Baikal-Amur Mainline (BAM), 140–142, 173, 201, 280 Baikal-Ugol, 168, 274

Baltic Marine Environment Protection Commission (HELCOM), 236 Bardin, Ivan P., 100, 114, 302 Belon, 189, 275 Belt and Road initiative (BRI), 144, 286 Beria, Lavrenriy P., 96 C Casey, W.J., 39, 302 Central Committee of the Communist party of the Soviet Union, 275 Central Intelligence Agency of the USA (CIA), 33, 39 Chelyabinskugol, 76, 77, 275 Chernov, Alexander A., 92, 302 Chernov, Georgy A., 92, 302 Chubais, Anatoly B., 70, 116, 173, 302 Climate Investment Funds (CIF), 240, 242 Coal mine closures, 79, 276 Committee of State Security of the USSR (KGB), 285

© The Editor(s) (if applicable) and The Author(s), under exclusive license to Springer Nature Singapore Pte Ltd. 2023 N. Lomagin et al., Russian Coal in the Era of Climate Change, https://doi.org/10.1007/978-981-99-5370-7

307

308

INDEX

Commonwealth of Independent States (CIS), 144 Communist Party of the Soviet Union (CPSU), 31, 41–44, 46–49, 275, 287, 301, 304, 305 Conference of the Parties (COP) of the United Nations Framework Convention on Climate Change, 239, 276 Construction Bank of the USSR (Stroybank), 47, 280, 294 COP26 – the 26th UNFCCC Conference of the Parties which took place in Glasgow, UK, in 2021, 4, 239–241, 243, 244, 246, 248, 251–253, 255, 276 COP27 – the 27th UNFCCC Conference of the Parties which took place in Sharm el-Sheikh, Egypt, in 2022, 239, 244–248, 255, 276 Council for Mutual Economic Assistance (COMECON), 211 Council of Labor and Defense, 93, 276 Council of Ministers of the RSFSR, 51, 276 Council of Ministers of the USSR, 34, 43, 47, 277, 304

Eastern Polygon Modernization Program, 140, 280 East Mining Company (EMCO), 162, 164–170, 172, 280, 293 Economic Department of the Central Committee of the CPSU, 280 Elga, 190, 195, 197, 198, 200, 201, 281 EN+, 195, 281, 298 Energy Research Institute of the Russian Academy of Sciences (ERIRAS), 17 European Commission (EC), 90, 195, 247, 248 European Economic Commission (EEC), 223 European Union (EU), 142, 222, 223, 286 European University at Saint Petersburg (EUSP), 4, 21 EVRAZ, 136, 151, 188–191, 195, 281, 288

D Donbass, 97–99, 102, 277 Duyskoye deposit, 158, 277, 283

G Gaidar, Yegor T., 61, 62, 302 Gorbachev, Mikhail S., 7, 41–43, 48–51, 64, 105, 145, 146, 296 Great October Socialist Revolution (1917), 279 Great Patriotic War (1941–1945), 282

E East Coal Company (Kompaniya Vostochny Ugol), (KVU), 108, 284 Eastern Polygon, 140–142, 144, 153, 155, 270, 280

F Five-year plan (FYP), 34, 48, 95, 132, 282, 292 Former Soviet Union (FSU), 211 Free-float, 189, 282

I ICT Group, 168, 282, 304

INDEX

Inter-Agency Commission for Socio-Economic Problems of Coal-Producing Regions (IAC), 67, 68, 72 International Bank of Reconstruction and Development (IBRD), 71 International Energy Agency (IEA), 17, 18, 207, 208, 210, 212, 214, 216, 223, 227, 228, 230, 231 International Meteorological Organization (IMO), 236 International Monetary Fund (IMF), 71, 187 International Partners Group (IPG), 247 J Joint State Political Directorate (OGPU), 94, 276, 287, 297 Joint-stock company (JSC), 63 Just Energy Transition Partnership (JETP), 242, 246, 247, 250 K Kapitsa, Peter L., 235, 302 Kemerovougol, 132, 282, 284 Khozin, Grigory S., 235, 303 Khrushev, Nikita S., 292, 303 King Fahd, 39, 302 Kislyuk, Mikhail B., 145–147, 149, 303 Kita Karafuto Kögyö Kabushiki Kaisha (Eng.: North Sakhalin Mining Company), 157, 283 Kolmar, 152, 188, 283 Komi, 5, 90, 92, 98, 100, 103 Kuzbass, 2, 5, 13, 44, 45, 59, 64, 65, 70–72, 74, 78, 80, 89, 98, 100, 101, 113, 129, 131–142, 144–155, 168, 170, 191, 196, 201, 203, 254, 264, 265, 267,

309

268, 270, 274, 283, 284, 298, 303 Kuzbass Coal Engineering Center, 148, 283 Kuzbassrazrezugol (KRU), 148, 151, 195, 196, 283 Kuzbassugol, 132, 134, 274, 282, 284

L Liquefied natural gas (LNG), 214, 224, 226, 254 Lobov, Oleg I., 50, 303 Long-Term Energy Programme of the USSR (1983), 36, 275, 284 Lukyanov, Anatoly I., 50, 303

M Main Directorate of Camps and Places of Incarceration (GULAG), 93, 95, 96, 98, 99, 101, 126, 127, 133, 264, 279 Malyshev, Yury N., 67, 73, 303 Mechel, 136, 151, 188–190, 195, 197, 200, 281, 284 Medvedev, Dmitry A, 113, 253, 303 Melnichenko, Andrey I., 194, 303 Ministry of Defense of the Russian Federation, 284 Ministry of Energy (of the Russian Federation, if not stated otherwise), MOE, 18, 81 Ministry of the Coal Industry of the USSR, 285, 304 Misevra, Oleg A., 168, 169, 303 MMK, 136, 189, 275, 285 Mordashov, Alexei A., 109, 111, 112, 116, 118–120, 123, 304

310

INDEX

N Natural gas-fired combined-cycle power plant (NGCC), 221 Nesis, Alexander N., 168, 282, 304 Net as Received (NAR) (an Incoterm, or international commercial term), 220 Northern Sea Route (NSR), 122 Novolipetsky Metallurgical Plant/ Novo-Lipetsk steel works (NLMK), 90, 110, 115, 127, 286

O One Belt–One Road Initiative (OBOR), 286 Organisation of Economic Cooperation and Development (OECD), 211 Organisation of Petroleum Exporting Countries (OPEC), 209, 211

P Pavlov, Valentin S., 50, 51, 304 Pechora basin, 64, 90, 94, 100, 278, 279, 286, 287, 302 People’s Commissariat of Internal Affairs, a forerunner of the KGB (NKVD), 95–97, 127, 133, 285, 302 People’s Republic of China (PRC), 144 Perestroika, 8, 41, 160, 236, 256, 287 Politburo of the Central Committee of the CPSU, 34, 287 Polymetal, 168, 287, 304 Price List 10-01, 149, 288 Primorsky Krai, 201, 288, 297 Prince Bandar, 39, 301

Privatization, 5, 9, 10, 12, 45, 49, 50, 62, 63, 65–68, 73, 78–80, 84, 107–109, 116, 126, 200, 266, 288, 289 Program for the Development of the Russian Coal Industry for the Period up to 2035, 153, 288 R Raspadskaya, 189, 190, 195, 196, 288 Reformugol, 72, 289 Rosugol, 9, 63, 67–70, 72–75, 83, 107, 266, 285, 289, 295, 298, 303 Russian Railways, 140–142, 144, 149, 152, 153, 197, 280, 290 Ryzhkov, Nikolay I., 48, 50, 62, 304 S Sakai Kumiai, 157, 290 Sakhalin Bureau of Trade Unions, 157, 290 Sakhalin Coal Corporation, 161, 162, 290, 291 Sakhalin Experiment, 172, 290 Sakhalinpodzemugol, 161, 162, 290, 291 Sakhalinugol, 158, 161, 162, 290, 291 Scientific Organization of Labor, 132, 292 Separation Theorem, 189, 292 Seven-Year plan (1959–1965), 292 Severstal, 90, 109–111, 116–120, 123, 125, 127, 254, 292, 297, 304 Shakhtersk Coal Sea Port, 164, 291 Shchadov, Mikhail I., 36, 37, 304 Sheikh Ahmed Zaki Yamani, 39, 301 Siberian Coal and Energy Company (Sibirskaya Ugolnaya

INDEX

Energeticheskaya Kompaniya), (SUEK), 136, 151, 168, 188, 194–196, 203, 295, 303 Silaev, Ivan S., 50, 51, 304 Solntsevsky coal deposit, 293 Soviet plan of electric industry development put together by the State Commission for Electrification of Russia (GOELRO), 28, 278 Sozugol, 74, 75, 293 Stakhanov, Alexei G., 3, 293, 304 Stakhanovism, 293 Stalin, Joseph V., 30, 93, 95, 96, 98, 264, 275, 304 State Bank of the USSR (Gosbank), 47, 278, 280 State Committee for Material and Technical Supply of the USSR (Gossnab), 43, 47, 49–51, 278, 285, 301 State Committee of the USSR Council of Ministers for material and technical supply, 47, 293 State Enterprise Law (1987), 42, 52, 293 State Institution for restructuring and liquidation of uneconomical coal mines (GURCh), 74 State Planning Committee of the USSR (Gosplan), 94, 278, 282 State Statistics Committee of the USSR, 294 Supreme Council of the National Economy, 296 Supreme Soviet of the USSR, 43, 49, 133, 296, 303

T The Elga Coal Complex in the Republic of Sakha (Yakutia),

311

(ELSI), 188, 195, 196, 198, 200, 201, 203, 281 The French Institute of International Relations (IFRI), 252 The Research Centre on Energy Politics and Energy Transition in Eurasia (the European University at Saint Petersburg), (ENERPO RC), 1 Tigers Realm Coal company, 191, 296 Tikhonov, Nikolay A., 34, 304 Transsib (Trans-Siberian Railway), 140 Trotsenko, Roman V., 111, 119, 121–124, 191, 274, 305 Tsivilyov, Sergey Y., 305 Tulaugol, 296 Tuleyev, Aman G., 71, 78, 147–153, 191, 305 U Uglegorsk district, 162, 280, 297 Ukhta-Pechora camp, 94, 287, 297 Ukhta-Pechora Trust, 287, 297 United Nations Framework Convention on Climate Change (UNFCCC), 239 United Shipbuilding Corporation (USC), 122, 297 Ural Mining and Metallurgical Company, also referred to as UGMK (Uralskaya Gorno-Metallurgicheskaya Kompaniya), (UMMC), 297 Ural Mining and Metallurgical Company, also referred to as UMMC (Uralskaya Gorno-Metallurgicheskaya Kompaniya), (UGMK), 136, 188, 195, 283, 297 US Energy Information Administration (EIA), 221, 226

312

INDEX

V Vera (port), 297 Vorkutaugol, 90, 98, 101, 104, 108–111, 113, 116–122, 124, 125, 127, 128, 190, 195, 268, 297 Vostsibugol, 168, 195, 298 W Weinberger, C.W., 39, 305 World Bank (WB), 7, 9, 10, 21, 64–66, 68, 69, 71–74, 82–84, 108, 124, 173, 187, 266, 298

World Trade Organization (WTO), 4, 236 WW2, WWII–the Second World War (1939–1945), 5, 89, 285, 302

Y Yagoda, Genrih G., 93, 305 Yota company, 200, 298 Yubileynaya mine, 191, 298 Yuzhno-Sakhalinskaya CHP-1, 164, 299