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ReportNo. 13187-RU RussianFederation Restructuringthe Coal Industry: Putting People First Public Disclosure Authorized (In Two Volumes) Volume II: Annexes December12, 1994 Infrastructure, Energy& EnvironmentDivision Country Department III Europeand Central Asia 4 ,,,,,,,,. .- ,. Public Disclosure Authorized r NLS.'t.s',""s ''' Public Disclosure Authorized 7,''S'' 7~~~OF ,~~~~~~~~~~~~.L -_ I I S Public Disclosure Authorized CURRENCY EQUIVALENTS Currency Unit = Ruble (Rb) Rubles per US Dollar Foreign Exchange Auction/Interbank Market Rate Average for Period December 1991 170 December 1992 420 December 1993 1,190 July 1994 1,998 BORROWER'S FISCAL YEAR January 1 - December 31 WEIGHTS AND MEASURES METRICSYSTEM US SYSTEM 1 meter (m) = 3.2808 feet 1 kilometer (Ian) = 0.6214 mile 1 square meter (m2) = 1.196 square yards 1 metric ton (tonne) = 1.102 short tons 1 kilocalorie (kcal) 0.252 British thermal units 1 tonne of coal-equivalent (tce) = 6.88 million kcal 1 kilogram (kg) = 2.20462 pounds (lb) ACRONYMS AND ABBREVIATIONS GDP Gross Domestic Product Oblast Region - a Soviet (now Russian)territorial administrativeunit: other administrative units includerepublics, okrugs and krais NOx Nitrogen oxides SOx Sulfur oxides ugol coal (in Russian) USAID United States Agency for InternationalDevelopment RUSSIAN FEDERATION RESTRUCTURING THE COAL INDUSTRY: PUTTING PEOPLEFIRST VOLUME II: ANNEXES Annex A: Supply Annex 1: Coal Resources, Production, and Employment Annex B: Supply Annex 2: Coal Market Prospects by Region and Basin Annex C: Supply Annex 3: International Experience of Coal Industry Restructuring Annex D: Coal Transport in Russia Annex E: Social Protection in Coal Mining Areas Annex F: Environmental Issues in the Russian Coal Sector Annex G: Costs, Subsidies, and Employment in Coal Mining Annex H: Comments and Observations of Ministries, Agencies, and Other Interested Russian Organizations on the IBRD Report "Restructuring the Coal Industry of the Russian Federation" I Annex A SUPPLYANNEX 1: COAL RESOURCES,PRODUCTION, AND EMPLOYMENT Supply Annex 1 Russian Federation Coal Resources,Production and Employment Contents Structure of Report Physical Geography of the Coal Industry - resources - quality - location - summary Recent Trends in Coal Output {output by major basin surface versus underground mining output by coal type Coal Production Costs - overview/comparators - regional cost curves Coal Preparationand Transport Costs - coal preparation - transport costs - delivered costs Coal Industry Employment - employment by Mining Association - direct and ancillary employment - employment and productivity Map April 8, 1994 aupplyl .vn2 - page 1 - - page 2 - Structure of the Report Restructuring the Coal Industry 1. Supply Annex 1 is an annex of a joint report by the World Bank and the Government of Russia on Restructuring the Coal Industry in the Russian Federation: - the Main Report was first issued on November 12, 1993 - the Main Report is being updated and revised and will be re-issued 2. The Main Report will be supported by the following annexes: - Coal Markets [to be updated] - Coal Resources, Production and Employment [Supply Annex 1: this annex] - Coal Market Prospects by Region and Basin ISupply Annex 2: under preparation] - International Experience of Coal Restructuring [Supply Annex 3: under preparation] - Coal Transport - Social Protection - Subsidies and Finance [summary of recent consultant studies: to be prepared] - Environmental Issues 3. This annex on Coal Resources, Production and Employment draws on material that is presented in more detail in other annexes, particularly those covering Coal Markets, Coal Transport, and Coal Market Prospects by Region and Basin - page 3 - Physical Geographyof the Coal Industry Coal Resources 1. See Table 1 Russia Coal Resources (facing page) 2. Russia has 300-400 billion tonnes of physically recoverable coal resources, ie, more than 1,000 years of output at current production rates 3. Only a small part of these resources is economically recoverable, ie, could be produced and delivered to consumers at a full cost recovery price that the consumers would be willing to pay 4. Three factors determine whether individual coal deposits will be economically recoverable: coal production cost (see Coal Production Costs later in this Annex) coal quality distance from market - page 4 - Table 1: Russia: Coal Resources (billion tonnes) BASIN Hard Coal Coking Anthracite Brown TOTAL (Thermal) Coal Coal Pechora/North 8.8 3.6 12.4 Moscow (Tula) 4.4 4.4 Donbass/South 9.3 0.3 7.0 1686 Urals 0.5 0.3 1.7 2.5 Kuzbass 76.8 38.2 96.5 211.5 Kansk-Achinsk 7&.0 78.0 East Siberia 11.0 2.0 13.0 Far East 5.3 10.4 15.7 North East 7.1 4.9 12.0 TOTAL 118.8 47.3 7.0 193.0 366.1 Source: Preparedby World Bank based on date provided by IEECIRosugol - page 5 - Physical Geography of the Coal Industry Coal Quality 1. See Table 2 - Representative Coal Quality for Different Coal Basins (facing page) 2. Customer requirements: - hard coal can be used by a wide range of customers - coking coal is produced (mainly in Kuzbass and Pechora basins) for the steel industry - anthracite (from Donbass only) has special combustion characteristics - brown coal (from Moscow basin and most basins east of the Urals) is typically used in large power plants 3. Calorific value: - is important for transport costs - can be improved by washing 4. Ash content: - is important for competition with gas (environment) - again, can be improved by washing 5. Sulfur content: - is important for competition with gas - but washing usually yields only small reduction in sulfur content - page 6 - Table 2: Regresentative Coal Quality for Different Coal Basins REGION COAL CALORIFIC ASH SULFUR TYPE CONTENT CONTENT CONTENT (kcal/kg) % % Pechora/North Coking 5700-6000 16-18 0.5-0.7 Hard coal 4000-5500 25-30 1.5-3.0 Moscow Brown 2300-2700 30-40 3.0-4.5 Donbass Anthracite 5500-6000 20-30 2.0-3.5 Urals Hard coal 4000-5000 25-35 3.5-5.5 Brown 2700-3000 35-40 0.5-1.0 Kuzbass Coking 5500-6500 10-20 0.3-0.7 Hard 5000-6000 10-20 0.3-0.7 Kansk-Achinsk Hard coal 5000-5500 15-25 0.4-0.6 Brown 3400-3700 15-20 0.4-0.6 Eastern Brown 3000-4000 15-25 0.5-1.5 Siberia Far East Hard 4500-5500 15-35 0.3-0.5 Brown 3000-4000 20-40 0.3-0.5 North East Coking 5500 15-20 0.3 Hard 4600-5500 15-20 0.2-0.4 Brown 3700-4000 15-17 0.2 Source: Prepared by World Bank based on data from Energaticheskoe Toplivo SSSR (Moscow: Energoatomizdat, 1991) - page 7 - Physical Geographyof the Coal Industry Location 1. See MM (last page of Annex) showing: locations of the main coal basins in Russia boundariesof economic regions (used for analysis of coal markets) 2. See Table 3 Key Coal Transport Distances (facing page), eg: the Center (Moscow) market can be supplied by: - Moscow (Tula) basin: 200 km - Donbass: 1,200 km - Pechorabasin: 2,200 km - Kuzbass: 3,500 km to be exported, coal must be transported: - Pechora to St Petersburg 2,400 km - Kuzbass to St Petersburg 4,500 km - Far East to Japan 3,000 km 3. See Coal Preparationand Transport Costs (later in this Annex) - page 8 - Table 3: Key Coal TransDort Distances PRODUCING REGIONS DISTANCE BASIN SUPPLIED (km) Pechora North 2,000 Center 2,200 Northwest 2,400 Moscow Center 200 Donbass North Caucasus 300 Volga 400 Center 1,200 Urals Urals 200 Kuzbass West Siberia 300 Urals 1,900 Center 3,500 Northwest 4,500 Kansk-Achinsk East Siberia 900 West Siberia 400 East Siberia East Siberia 400 Far East/North Far East 500 East exports of coking 3,000 coal to Japan - page 9 - Physical Geography of the Coal Industry Summary 1. Coal must compete with other fuels, ie, the delivered cost of energy to the consumer must be lower than the delivered cost of other fuels 2. The main elements of the cost structure for delivered coal are: - production cost at minemouth - plus coal preparation cost (and coal losses), where relevant - 111I stockpiling and transport cost, ie, mainly rail freight 3. Production cost at minemouth: - capital cost recovery - in the past, investment was grant-financed - in future, coal prices will have to cover costs of financing investment, ,e: - interest and principal repayment on loans - profits (dividends and retained earnings) - Rius2operating costs (labor & other) note: cost structures (capital, labor, other) for underground mines can be very different from that of surface mines 4. Coal preparation cost: * capital cost recovery (same situation as for mining costs) - plu operating costs (labor & other) note: coal preparation losses (ie, fewer tons come out of the preparation plant) are a major part of the costs of coal preparation-- however, some of these costs may be recovered in the form of lower rail freight costs 5. Transport and storage cost: - stockpiling costs (usually at the mine) - D1it loading and unloading charges for rail freight - plus distance-related charges for rail freight - plus additional trucking costs for distribution to smaller consumers - page 10 - The remainder of this Annex looks at coal supply cost structures in Russia: coal production costs with an emphasis on labor productivity and employment coal preparation costs however, very little information is available: more analysis is needed coal transport costs which now are the main cost element affecting competition between different coal basins - page 11 - Recent Trends in Coal Output Output by Major Basin 1. See Figure 1 Coal Production by Basin, 1980 - 1993 (facing page) 2. Coal output peaked in the late 1980s and has been declining since then 3. In most basins, demand for coal has been contracting more rapidly than coal output: the only regions where coal shortages have been reported on a recurring basis are the Far East and the North East in several other regions, coal surpluses have occurred despite the fall in output 4.