energy market

Coalminers to the rescue

30.05.2014 | By Dmytro Ryasniy

Confrontation in the east of the country reached the peak, paralyzing the regions economy. Thus, the tedious game is already reflecting on wallets of local miners and factory workers, for whom the only protection against poverty is resistance to separatists


The first signs of the beginning of the industrial crisis appeared last week, when the Group DF announced the shutdown of production at its Concern Stirol PJSC (in Donetsk oblast) and Severodonetsk Association Azot PJSC (in Luhansk oblast). The official reason for the plants frozen production is the desire to preempt technological accidents. Firtash companies lay a special emphasis on this, thus stressing that the group accepts economic losses for the welfare of its workers. But that is not quite true. Since April 1 the limit gas prices for industrial consumers in Ukraine have increased by almost 30% (up to UAH 4,000 per 1,000 cubic m), which is why the main products of Group DFs chemical plants are not fertilizers but losses. Until recently, Firtashs companies have been managing to avoid negative profitability only due to sizeable amounts of blue fuel accumulated in underground storage facilities of Ukraine. But those reserves are shrinking with every passing day. Now they are close to 3 bn cubic meters, which is enough for only a few months of operation of the GDFs chemical wing.

Another proof of this is the statement of Firtash managers on the intention to pay salaries to all employees, even during the downtime at the plants. It is not clear for how long the gas tycoon is willing to pay wages for no work done, because the monthly price tag says more than UAH 50 mn (salary fund at the Stirol and the Severodonetsk Azot plants). But help came from an unexpected party: separatists decided to save Firtash money, because their excessive activity last week, on May 15, the management of the National Bank of Ukraine in Donetsk oblast has suspended its operation, making it impossible to pay salaries.


So far, the factory workers have not felt the economic blockade only due to the decision of the central government, which renewed operation of the NBU in the oblast on the very next day (May 16). According to the Donetsk oblast governor Serhiy Taruta, it was enough to sieve the ranks of separatists friends quite dramatically.

Even assuming that that is the officials wishful thinking, there is no doubt that the radical plans to break all links with Kyiv virtually guarantee a prolonged economic paralysis in Donbas, which means the growing number of people dissatisfied with their actions. This process can be considered a reference point in Ukraines fight for preservation of the outlines of its eastern border.

The fact that the Donbas is full of the so-called one-plant towns plays into Kyivs hands. Under such circumstances, for arrangement of financial apocalypse, for example, in Horlivka or Severodonetsk, it would be enough for separatists to block owners settlement of accounts with the employees at Stirol or Azot. In total, these enterprises employ 12,000 people. This number is more than enough to restore order in their towns. But more importantly, the biggest army in the Donbas the miners are already willing to join the chemists. There are all conditions for it. Thus, according to government figures, the annual volume of coal extraction in the mines of Donetsk and Luhansk oblasts exceeds 60 mn tons, while domestic consumption is close to 40 mn tons.

That is, in case of separation of these regions from Ukraine local miners will either have to find new markets or reduce production volumes. The latter choice will inevitably lead to closure of many mines and unemployment, but separatists will not be able to abandon it, mainly because they will not be able to run a cost-effective export of surplus of the black gold.

It can be easily proven with the example of state-owned mines, which (unlike the miners integrated into business groups) have no guaranteed sales. So, today the prime cost of one ton of coal products at the state-owned enterprises is UAH 1,300, while their sale price is UAH 500. Currently, the difference between these two figures is covered at the cost of the national budget of Ukraine. Last year there was even a registered historical record on compensation to miners the country has spent over UAH15 bn. But in case of further escalation of tension, the lions share of this amount the supporters of the Donetsk and Luhansk peoples republics will have to find on their own, or cut production volumes of coal by a third part, and in the same proportion reduce the number of miners.

Aware of the consequences of such decision, supporters of the DPR are trying to be proactive by appealing to the largest taxpayer in the region Rinat Akhmetov asking him to allocate funds to on the spot. But the Donetsk oligarch did not agree to such proposal, fearing the collapse of his business. Under the pressure from Ukraine and the EU foreign customers of the SCM Group may simply refuse to cooperate with it, leaving the corporation alone with its products. Attempts to intimidate enterprises with nationalization only give impetus to the growth of the number of local industrialists dissatisfied with the ruin.

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