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Ukraine designates 45 coal mines for sale in privatization push

  |   Sept. 11, 2013 at 12:04 AM
KIEV, Ukraine, Sept. 11 (UPI) -- Ukraine has designated 45 coal mines for privatization under a law adopted last year meant to modernize the country's chronically unprofitable coal sector.

The list, published in a decree issued Friday by the Ukraine State Property Fund, includes mines held by the state-owned enterprises Makeevugol, Ordzhonikidzeugol, Luganskugol, Pervomayskugol, Donbassantratsit, Lvivvugillia and Volynugol, the business daily Kommersant-Ukraine reported.

The move comes after the Ukrainian government in April 2012 passed a law to allow the privatization of the coal sector, opening up profitable state-owned facilities up to private investors through licenses and leases or outright sales in an effort to save millions of dollars and boost production.

Kiev's current energy strategy, published last year, calls for an increase in coal production of up to 115 million tons, to be achieved through the modernization of the mines with the help of private capital.

Seventy percent of Ukraine's coal mines are state-owned, with 80 percent of them unprofitable and requiring subsidies of up $160 million per year to keep them running.

In all, the Ukrainian state mining sector lost $1 billion over the first seven months of 2013, up 34.2 percent from year-earlier figures, the newspaper said.

Energy analysts warned finding investors for the mines won't be easy at a time when domestic coal demand is weak and production is falling. Ukraine's coal extraction totals dropped 4.3 percent, or 1.27 million metric tons, in the January-April 2013 period, compared with the same time frame from last year, official figures indicated.

Another complicating factor is the 2012 privatization law requires any buyers to abide by guarantees of social protections for miners.

Victor Turmanov, a Ukrainian member of Parliament and Coal Industry Workers Union chief, said in a statement the solicitation of bids for mining assets will be accompanied by the creation of working groups to bring together trade unions.

"In 2012, we adopted the law governing the privatization of coal mines, which clearly stipulated that in the event of a sale the buyer should ensure continued, stable growth in wages for miners and maintaining benefits," he said.

Nevertheless, Ukrainian President Viktor Yanukovych said last month during Miner Day celebrations in Donetsk that the privatization process, which was originally set to completed in 2015, has been accelerated and now will be finished in late 2014, Interfax-Ukraine reported.

"Everything has to be done under the full control of labor collectives and the trade unions," he said. "I'd like to emphasize that no coal mine can be closed unjustifiably.

"The closure of non-profit-making mines will be simultaneous with the provision of miners with new jobs and retaining of the existing level of social protection."

But in order to find willing buyers for the facilities, their operating costs need to be brought down, analyst Denis Sakwa of the Ukrainian investment bank Dragon Capital told Kommersant.

For example, at the state-owned Lisichanskuglya mine, which was put up for sale last month, "the cost of production of coal is [$85] per ton, while at similar private mines it in the range of [$50-$60] per ton," he said.

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