Coal Mining Accidents

Economic News

22 Jul 2010
Text size +-
In the early hours of November 18 a methane-gas explosion rocked the Zasyadko coal mines in Donetsk, killing at least 89 miners. The death toll signals the worst coal mining disaster in Ukraine's post-Soviet history and a stunning blow to one of the country's most vital industries.

Ukraine is considered among the world's most hazardous countries for coal miners. On October 29 four miners were killed in Lugansk. In September 2006, 13 miners died in one week in three separate accidents. Since 1991 approximately 4700 miners have perished, an average of 300 every year.

Outdated ventilation equipment is directly to blame for the methane explosion, according to the ministry for emergency situations. Coal beds in the Donetsk region are twice as deep as European deposits, increasing the likelihood of deadly gas leaks. According to Deputy Prime Minister for Energy Andriy Klyuev, "Unfortunately, the deeper the mine, the more problems we encounter."

Prime Minister Viktor Yanukovych, who hails from the Donetsk region, visited survivors in hospital. After consoling grieving families, he vowed to conduct a thorough investigation of the accident and assured that safety conditions would improve in the coal industry.

President Viktor Yushchenko also visited the scene and declared November 20 a national day of mourning. He called upon politicians to "learn proper lessons" from the tragedy, and stressed the need to follow safety regulations.

Yulia Tymoshenko, who is busy hammering out a ruling government deal, offered her condolences to the victims' families and called for the government to take measures to increase safety. "It is necessary to stop finally measuring every million tonne of mined black gold by human lives," stated a representative of the party.

Ukrainian miners are paid by volume rather than by the hour even in mines involved in the grey economy, which produce an additional 5m tonnes of coal every year. As a result, workers overproduce quotas - earning more money but breaking safety regulations in the process.

According to the US Energy Information Agency, Ukraine possesses reserves of 37.6bn tonnes of high-grade anthracite and bituminous coal. This mineral wealth places Ukraine among major global producers of high-grade coal used to fuel a surging steel industry and power a growing manufacturing sector. This year the government ramped up quotas for coal production by one-third to 80m tonnes.

Despite voluminous reserves, the latest tragedy at Zasyadko is a symptom of an industry afflicted by economic transition, local business interests and poor investment. In 2006, Ukraine imported $760m of coal - an increase of 6.5% from the previous year - in order to meet growing demand for steel mills and manufacturers.

In 2004, Minister of Fuel and Energy Serhiy Yermilov was fired in part for proposing to eliminate coal subsidies, which still amount to $1bn every year. Meanwhile, no senior officials have been sacked due to mining-related deaths or failing to implement safety protocols.

For years, Ukrainian politicians and policymakers have wavered between closing dangerous mines and expanding coal production. Earlier this month, Yushchenko stated in a Kyiv weekly, "We should give new meaning to the energy potential of Ukraine, starting with the coal industry."

Government demands to increase coal production serve as a temporary solution to solving the greater problem of Ukraine's energy security concerns, namely the country's addiction to Russian oil and natural gas.

According to Minister of Coal Industry Serhiy Tulub, total coal industry losses last year amounted to $477m. This comes at a time when the ministry estimates that $3.9bn in investments are needed to meet government plans to build seven new coal mines in the coming years.

Although the World Bank has funnelled more than $300m into restructuring the country's coal industry, around 80% of mines are unprofitable. Inefficiency and a dismal safety record have scared away prospects for foreign investors.

Rampant corruption in Ukraine has stalled the privatisation process, which began in 2001. Two years later, it was halted when the mines were reorganised into state companies. This year, the ministry of coal proposed the privatisation of 18 assets totalling $122m, with hundreds of mines to remain in state hands.

Many mines have been closed by the government, only to be bought at cut-rate prices by private companies connected to local business interests. Speaking at a press conference in Lugansk this August, Tymoshenko charged that the bankruptcy of holding company Rovenkyantratsyt was an artificial measure taken to liquidate and sell it for a minimal price to an inside bidder. "This enterprise is being destroyed in order to buy it out for nothing." She added, "As a result of such economic terror, debts before the budget are being accumulated."

Compared to other coal-producing nations the share of the labour force involved in mining industry is high, employing around 500,000 people. The next government would be criticised if steps were taken to close the mines - the main socio-economic anchor of the eastern region. Mines and coal enterprises are tightly controlled by eastern Ukrainian business interests, which are connected to the ruling Party of Regions government, whose base is located in eastern Ukraine.

In the meantime, Yushchenko has sought to push forward a law to regulate coal production in dangerous mines such as Zasyadko as part of an effort to "correct national coal industry policy." In 2005, the president revived the ministry of coal, which then allocated $29.7m for equipment upgrades and safety systems. Despite these gradual steps toward reform, the powerful lobby of the coal and steel industries will ultimately prevent far-reaching reforms that would close dangerous mines.

In 2002, former President Leonid Kuchma vowed to close all unsafe mines after 20 people were killed at Zasyadko. The recent tragedy indicates that the previous and current presidential administrations have done very little to protect Ukrainian workers at one of the country's largest mines. However, now the stage may be set to re-evaluate the government's priorities for the industry.

Ramping up coal production would likely distract the government from implementing conservation and alternative fuel programmes while attempts to reform the coal mining industry are sure to evoke heated attacks from the Party of Regions. As a result, the next government will be forced to choose between two unsavoury options.

Given the scale of this recent tragedy, actions for reform may be heeded by the incoming government and the electorate. While the Bloc of Yulia Tymoshenko and Our Ukraine demand action to reform the industry, the Party of Regions will offer the usual consoling rhetoric to avoid damaging relations with its eastern constituency. The tragedy will prompt multilateral lenders to voice concerns over mine safety, and calls will be echoed to close

Covid-19 Economic Impact Assessments

Stay updated on how some of the world’s most promising markets are being affected by the Covid-19 pandemic, and what actions governments and private businesses are taking to mitigate challenges and ensure their long-term growth story continues.

Register now and also receive a complimentary 2-month licence to the OBG Research Terminal.

Register Here×

Product successfully added to shopping cart

Read Next:

In Ukraine

Inflation Crescendo

Ukraine's inflation continues to spiral out of control, becoming Ukraine's most urgent economic worry.


Emerging markets lead uptake of cryptocurrency despite bear market

Despite global financial headwinds and significant declines in the value of cryptocurrencies this year, emerging markets are adopting the technology at a rapid pace.