Russia blocks Ukraine coal transit through its territory, Energy Ministry says

The Russian Federation did not allow the transit of coal mined in the separatist-controlled Luhansk region of Ukraine through Russian territory to Ukrainian power plants, according to Deputy Energy Minister of Ukraine Yuriy Ziukov, as reported by the Interfax-Ukrayina news agency on Nov. 3.

The Energy Ministry was aiming to ship coal from separatist-controlled Luhansk territory through Russia’s Rostov Oblast and back into Ukraine, according to Ziukov. The mines being considered by the ministry were DTEK’s Rovenkianthracite and Sverdlovanthracite, as well as some state coal producers.

Alexander Paraschiy: With the halt in the “gas war” with Russia, the Ukrainian energy sector faces another risk – stoppage of four power stations in central Ukraine that burn anthracite coal. As of Oct. 1, these four power plants had coal stockpiles of 208 kt (vs. 1,180 kt a year before), which was enough for one week of normal operations, with the replenishment of stockpiles difficult.

About 97% of anthracite coal mined in Ukraine in 2013 is from locations currently controlled by pro-Russian terrorists, and these locations are, in fact, separated from Ukraine due to damaged railway infrastructure. The shipment of this coal through the neighboring Rostov Oblast of Russia could have been a good solution.

Now that Russia is blocking this route, the only hope for DTEK to deliver its coal from its easternmost mines to its power plants located in Ukraine is to use risky routes through war-torn locations. The task is complicated by the constant risk of attacks and by the need to use secondary railway lines and non-optimal routes with low trans-shipment capacity.

Another alternative is to export anthracitic coal, but it’s a much more expensive solution (local coal is priced at UAH 850/t, while imported coal is priced at UAH 1,100-1,200/t). On top of that, it’s more time-consuming and inefficient for the state budget, which spends billions of hryvnias to support the coal sector of Donbas. It’s clearly inefficient for the biggest producer and consumer of anthracitic coal, DTEK (DTEKUA), which has to spend its liquidity on supporting its mines, working from stockpiles.

Nevertheless, we expect the Ukrainian railway operator, as well as top anthracite coal producer DTEK (DTEKUA), will be able to find a solution in the next month or two to ship the coal produced in the easternmost locations to central Ukraine.