The passengers were heading to the Elga coal deposit, where they would work to realize the grandiose dream of an investor who’d bought the site a few months before: To turn the far-flung quarry into one of the world’s biggest coal mines and, out of the permanently frozen earth, to build a new town from scratch. It may seem perilous to pour billions into coal as many countries begin to turn away from the polluting fossil fuel — never mind taking on a project that helped plunge the previous owner so deep into debt, Forbes magazine once nicknamed him Russia’s “poorest oligarch.”
But the vision of Elga as a new coal behemoth epitomizes Moscow’s contrarian view of the global energy transition underway. Far from backing away from coal, Moscow is doubling down: Last summer, the Russian government approved an energy strategy that could see its coal output increase by up to 50% by 2035. And despite its forbidding terrain, Elga is geographically lucky in one respect. The Kuzbass, Russia’s traditional coal-mining heartland in western Siberia, faces a European market that is rapidly ditching coal on climate concerns. Elga is in Russia’s Far East, close to ports that face Asia, where coal use is expected to continue to grow for some time — particularly for the high-quality coking coal, used in the metals industry, that Elga produces. That, at least, is the bet on Elga. Soon, its operators could enlist tens of thousands of men and women to work in one of Siberia’s most isolated corners, shock troops in a mighty battle against nature.
A mine’s troubled past
Over a 38-year career, Vladimir Khripkov has helped build some of Russia’s most challenging mines. He has dug new mines from scratch and managed a project in frigid Magadan, a region first mined in the 1930s by prisoners of the gulag camps. His speech is peppered with grisly stories from the past.
Nevertheless, his new post as Elga’s quarry director seemed a step beyond. Several people advised him not to take the job. “I can still turn around,” Khripkov said while en route to Elga for the first time. “I’ll take a look at what’s there, and I may decide not to stay.”
With an estimated 2.2 billion metric tons of coal, Elga could be one of the biggest mines in the world. But the harsh climate, unforgiving terrain and sheer isolation of the area have conspired against its large-scale development so far. Winter temperatures can slip below minus 60 degrees Celsius. Snow cover holds for eight to nine months of the year.
Attempting to turn it into a large-scale mine helped bring Elga’s previous owner to the brink of bankruptcy. Mechel, a mining firm controlled by Igor Zyuzin, bought the license to develop Elga in 2007, spending $2.3 billion to acquire it as part of a regional coal complex. It invested a further $1 billion developing Elga. Founded in 2003, Mechel spent its early years aggressively buying up metals plants and the coking coal mines that could supply them. By the time the 2008 financial crisis hit, Mechel had taken on $5 billion in debt. Global coal prices began to slump in 2011. By 2013, Mechel’s debt level had almost doubled. In 2020, Zyuzin decided to sell. Enter Elga’s unlikely new owner, Albert Avdolyan, who made his money in telecommunications. His investment firm, A-Property, bought Elga for $1.9 billion.
Avdolyan, an early investor in mobile broadband in Russia, co-founded the Yota startup in 2007. Five years later, the firm struck a profitable deal for its sale to Megafon, the country’s second-biggest mobile phone operator. Since then, Avdolyan, 50, has targeted companies in crisis — including an indebted fertilizer producer and a natural-gas company in the Yakutia region whose previous owner was arrested on embezzlement charges, which he denies. A-Property plans to invest a further $1.7 billion on Elga’s development and sees it as part of a far eastern industrial cluster, together with the gas producer, another coal mine and a coal-loading port on the Sea of Japan.
The scale of Avdolyan’s vision is huge: Elga’s new managers have been tasked with lifting output from 4 million tons of coal in 2019 to a staggering 45 million tons by 2023. That goal is overly ambitious, said Maxim Khudalov, an analyst and former director at the ACRA ratings agency. “There are so many restricting factors … that will get in the way of Elga’s plans,” he said. From the need to expand the railroad connecting Elga to the world to the limits on what federal railways are able to transport and ports able to load, Khudalov said, many factors were beyond A-Property’s control. He predicted that around half the company’s coal production goal is a realistic forecast.
Although it described its plans as ambitious, the company says it is completely on track. Its output last year was record-breaking for Elga, a spokeswoman said. It produced 230% more coal in the first three months of this year than the same time last year, another record.
Khripkov, Elga’s new mining director, said he’d left retirement to take on this new job. Perhaps if his hobby of cultivating 40 types of roses had kept his attention, he’d have stayed away. As he was driven to the Siberian town of Tynda, where he would meet and board the train to Elga for the first time, he wasn’t sure when he’d be returning home.
Russia goes big on coal
Though grand, Elga’s ambitions are in line with Russia’s declared strategy to ramp up output and exports of coal. The eight years preceding the coronavirus pandemic saw its coal output grow by 30%, or about 100 million tons. Last summer, the Russian government approved an energy strategy that would see coal output rise from 441 million tons per year in 2019 to between 485 million tons and 668 million tons by 2035. Private and state firms are working to expand coal ports and rail transport capacity. Last year, Russia saw the launch of its biggest underground coal mine, Inaglinskiy. “There hasn’t been a construction project like this since Soviet times,” its backers said. As the world’s largest exporter of energy resources, Russia’s stance on the global energy transition matters.
Despite its plans to increase its coal output, Russia isn’t in denial about a global shift away from the fossil fuel, analyst Khudalov said. Instead, it’s trying to maximize extraction while it still can. “Now we understand that we have a lot of coal that, very soon, no one is going to need,” he said. “If we don’t sell it in the next 10-20 years, there won’t be any point in mining it.”
Russia’s government is confident that coal use in Asia will continue to grow for some time. “Growth prospects are primarily related to the growing market of the Asia-Pacific region,” Deputy Prime Minister Alexander Novak said in a coal report last year. Moreover, the coking coal that Elga produces is used primarily in the production of steel. It has no ready replacement, and so demand remains strong. According to the International Energy Agency, “substitution of steel production from iron ore at scale without coal is not expected in the near term.”
Since last year, China has also placed an effective ban on coal imports from Australia — Russia’s main competitor in coking coal. Diplomatic relations between the two soured after Australia called for an inquiry into the origins of the coronavirus, prompting trade reprisals from Beijing.
“Now they’re working with our coal,” the A-Property spokeswoman noted. The company recently announced a joint venture with a Chinese shipping firm to facilitate imports of Elga coal to China. Cited in the same statement, China’s ambassador to Moscow congratulated the two companies, describing the deal as a new model of energy cooperation between Russia and China.