Russia is a huge country both in area and in population with a historically severe winter climate and an extensive installation of heavy industry. This generates both domestic and industrial demand for energy. The country also has huge energy resources in oil, gas and coal reserves. This has led to the evolution of a large ‘fuel and energy complex’ which in its own right forms a substantial component of the country’s Gross Domestic Product and provides heat and power to downstream sectors.
The economy was administered as a planned economy integrated into the Soviet Union under the management of the state economic planning agency Gosplan. The absence of a market mechanism with its price and profit signals meant that domestic and industrial consumers were not aware of full resource costs. Energy appeared to be low cost or free, and so its consumption and waste in inefficiency grew with only physical production and delivery as the constraint. Even after 18 years of an erratically developing market economy, it is only recently that energy pricing policy has begun to move to a market mechanism which is currently seeing prices rise to reflect true cost and also to ration global demand.
Ironically it has been the coal industry which has been privatised first before the gas and power sectors. The coal price has thus risen to eliminate the substantial government subsidies historically paid to the industry which at one time were the second single largest expenditure in the government’s annual budget. Coal companies have been formed which have invested in modern world equipment and have supplied the power generation market profitably to the extent that Russian coal companies can and are launched successfully on world stock exchanges. In the meantime the gas sector has remained dominated by the state-owned Gazprom and gas prices have been held at much lower levels domestically than in the international markets which Gazprom supplies. Only part of this difference is explained by differences in pipeline delivery costs to a sometimes physically closer Russian population.
So the coal industry has had to compete with lower-than-market gas prices in supplying its main market of electric power generation which itself has maintained lower than market prices. It is a tribute to the management of the Russian coal industry that success has nevertheless been achieved under this twin constraint. Modern high efficiency equipment has been installed at many mines, some of which now operate close to world best levels of productivity. However, much of the Russian coal industry remains in need of modernisation. Employment is still high and wages low. Safety, which was improving, suffered a major setback with two major underground explosions and fatalities in 2007. The ecology is recognised as a necessary policy parameter but progress is slow and Russia is an observer of rather than a participant in the global drive to clean coal technology. Nevertheless management of the Russian coal industry is extremely capable, the work force has enormous mining experience, capital investment is committed and the industry is on a positive development path.
Prospects for coal and clean coal technologies in Russia
Geoff Crocker, Alex Kovalchuk
CCC/138, ISBN 978-92-9029-457-3, October 2008
£255 non-member countries
£85 member countries
£42.50 educational price
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