Coal price shouldn`t be pegged to shipment costs from Rotterdam – expert

Thursday, June 16, 2016 - 13:33 (EEST) Section: Latest news

Former director of the Makiyivvuhilla coal association Stanislav Tolchyn says the price of coal, which some media says Ukraine intends to ship from Rotterdam (the Netherlands), should not be pegged to transportation costs.
”I was very surprised to hear about the ”Rotterdam+” scheme from the minister. I do not really understand what is `Rotterdam+` or `Rotterdam-`… I think the price of coal should not be tied to the faraway Rotterdam, including or excluding transportation [costs], but it should be a fair price of coal,” Tolchyn said.
Earlier, some media reported that the Ukrainian government was planning to supply coal from Rotterdam in the Netherlands. At this, the Ukrainian budget may lose UAH 10 billion from coal transportation costs alone if the scheme is used, according to experts.
Commenting on these reports, Tolchyn notes it is important to establish a fair price of coal.
”I agree the coal industry has been and remains unprofitable and, therefore, the state can decide whether to introduce a fair price of coal or to subsidize [its production],” Tolchyn said.
According to Tolchyn, he had put forth his proposals regarding the reforming of the coal industry before a cabinet meeting during which his candidacy for the deputy minister position should have been considered.
He said his appointment was unanimously supported by the government but was rejected by Ukrainian Energy Minister Ihor Nasalyk.
When asked by journalists about the reasons, Tolchyn reckoned the minister might not have shared Tolchyn`s view on the coal industry reform. Tolchyn said he had proposed that the so-called watchdogs should be eliminated.
”I told the minister that in my view the presence of the so-called `watchdog` agency was detrimental to coal enterprises,” Tolchyn noted, adding that he did not also support coal shipment overpricing schemes used by Ukraine when buying coal.
”Of course, if I assumed a position of Deputy Minister of Energy and Coal Industry, I would eliminate all those schemes,” Tolchyn said.
As UNIAN reported earlier, there has been much controversy around the Ukrainian coal industry, namely as to the expediency of providing subsidies for outdated, inefficient and loss-making state-owned coal extraction companies. In most cases, management of those companies and government officials were illegally benefiting from assistance the state provided.
For example, coal was sold through a chain of intermediaries, thus causing higher losses to coal enterprises. Earlier, these schemes had been used by entities close to Ukrainian former president Viktor Yanukovych. With the production costs of one tonne of coal standing at UAH 400, its final price could grow as high as UAH 1,000 after going through a chain of intermediary companies. Thus, UAH 600 from each tonne of coal sold would find their way into the pockets of Yanukovych`s allies. In addition, there were cases when coal was extracted from small illegal coalmines, but was sold as coal extracted by state-owned enterprises, which also allowed reaping profit.
In 2014, it was planned to allocate UAH 12 billion in subsidies for state-run coal companies but due to hostilities in eastern Ukraine only UAH 9 billion was actually provided. The amount of subsidies in the previous year reached UAH 15 billion.
On May 26, Ukrainian Energy Minister Ihor Nasalyk stated that his ministry intended to liquidate 11 state-owned mines, while another 15 mines would be put up for sale. But seven promising mines would remain in state ownership, according to the minister.
On June 3, Nasalyk said while reporting in parliament that it was necessary to reintroduce state subsidies for state-run coal enterprises to cover high production costs.