Ukraine to supply its anthracite through Russia

Ukraine’s Cabinet of Ministers decided on Aug. 12 to provide supplies of anthracite coal, mined in the occupied territory of Donbas, to Ukrainian thermal power plants through Russian territory, the Ukrainian News agency reported, citing Volodymyr Demchyshyn, Ukraine’s energy minister. He mentioned three possible routes though Russia. The direct routes of coal shipment, through the occupied territory into Ukraine, were destroyed during the military actions of 2014 and 2015.

Currently, only the coal mines of DTEK (DTEKUA) are officially mining anthracite coal on occupied Donbas. This type of coal is not produced in Ukraine outside the occupied territory, but seven out of 14 thermal power plants in Ukraine are designed to burn this type of coal, including four outside of Donbas.

Alexander Paraschiy: The decision implies the Cabinet has decided to maximize the supply of Ukrainian anthracite, as compared to alternatives, which are imports of anthracite from Russia or South Africa. Such a decision should be beneficial for DTEK, whose coal mines have accumulated 2.3 mmt of anthracite coal in occupied Donbas, as of the beginning of July 2015.

If the deliveries are successful, DTEK’s mines could supply 3.5 – 4.5 mmt of anthracite coal from the occupied territories by the end of 2015, we estimate. This would allow anthracite-burning power plants to get smoothly through the heating season, when their electricity supply is critical for Ukraine’s power system. Deliveries of Ukrainian coal in this amount will reduce the need for coal imports and save U.S. dollars for the Ukrainian economy in the amount of about USD 300 mln by the end of 2015.

The core uncertainty currently is whether the Russian government will allow Ukraine to use its territory for such coal shipments. Last winter, for instance, Russian authorities blocked supplies of already contracted Russian coal to Ukraine.