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Ukraine
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Coal
Ukraine has the seventh-largest amount of coal resources in the world, but underinvestment, and a lack of progress on deregulation have made the country a net coal importer.
Ukraine has 37.6 billion short tons in proven coal reserves, 17.9 billion short tons of which is anthracite and bituminous coal, and 19.7 billion short tons of which is lignite and sub-bituminous), accounting for about 15 percent of the former Soviet Union's total reserves. Production and consumption of coal in Ukraine have been relatively flat since 1996, after a precipitous falloff in production after gaining independence. In 2004, the country produced 69.3 million short tons of hard and brown coal, while consuming roughly 77.5 million short tons, making Ukraine a net coal importer, despite its sizeable resources.

Most of Ukraine's coal is mined in the Donetsk/Donbas basin in the eastern region of the country. The country's coal industry, which counts slightly less than 200 mines and employs about 500,000 people, is managed by a hierarchy of state organizations and suffers from numerous problems including labor strikes, hazardous working conditions, inefficiency and low productivity. Ukraine has the world's second-highest mining fatality rate, with an average of 317 deaths a year since 1990. Only in China is the fatality rate higher.

According to a recent report by Renaissance Capital, the coal industry’s financial losses increased 70 percent to $530 million in 2006. The sector’s development is hampered by a combination of underinvestment, and slow deregulation, which has resulted in gradually declining production capacity and a loss of global market share (from 3.9 percent of global output in 1990 to 1.3 percent of global output in 2005). As natural gas has become more predominant in the region as a fuel source for electricity, even more coal mines have been closed.

Privatization and Restructuring
Ukraine's government has made restructuring the coal industry a priority, and in December 2002, the Fuel and Energy Ministry announced plans to hand the industry over to 21 open joint-stock companies designed for eventual privatization. In the past, the industry was heavily subsidized by the government, with over half of the mines operating at a loss. After the handoff was completed in March 2003, privatization still proceeded slowly. The World Bank has provided over $300 million to aid in the coal sector's restructuring since 1997. A sizeable portion of the money has gone to aid in the closure of the unprofitable mines, yet the country has been reluctant to close them in regions where there are few other job sources. Where the government has closed the mines, such as in the Torez area, around 300 small illegal mines are still operating. Even with more than $1 billion in annual government subsidies, most state-run mines are not profitable.

Country Analysis Briefs

August 2007
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