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Coal from Russia: is it imported or smuggled from occupied territories?

02 October 20173891
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Significant quantities of coal are imported by power generating companies from the Russian Federation. Meanwhile, the output of coal mines located in the territories controlled by ‘LNR’ and ‘DNR’ terrorist groups is exported specifically to Russia.

The delivery of coal mined in the Donbas territory temporarily uncontrolled by the Ukrainian government through the delimitation line was banned in March of the current year. This was prompted by the placement of companies previously operating within the Ukrainian legal framework under  “external administration” by the occupation “authorities”.

Railway tracks blocked in Stanytsia Luhanska. As early as the beginning of 2017, trains were running on these railway tracks carrying coal mined in the occupied areas of Donetsk and Luhansk regions (ORDLO) uncontrolled by the Ukrainian government to DTEK Luhanska Thermal Power Plant. The movement stopped in March. Photo by author

In early August, “deputy of the People’s Council” of the “Luhansk People’s Republic” (“LNR”), Dmytro Khoroshylov,  said in an interview that coal companies of some areas of Luhansk region (ORLO) were doing alright. According to him, the companies did not reduce staff, with 35 thousand employees working in mines and all being paid their salaries in the same amounts as before the “nationalization.” The interview gently sidestepped the question of whereto the coal produced from mines in the uncontrolled territory was sold.

News reports  like  “Lutuhino district has been conducting negotiations for the delivery of coal to ‘DNR’s’ thermal power stations” emerged from time to time. This, however, can hardly be called a serious market – Donetsk region produces its own coal and, in particular, the coal similar to that produced in Lutuhino district.

And, naturally, from the very start of the “nationalization” (i.e. introduction of the “external administration”) ORDLO’s “authorities” intimated that they intended to sell the coal to Russia.

“We’ve got places where we can sell the coal,”  said  the ‘LNR’ leader Igor Plotnitsky in March.

“Until the end of May, we are planning to fully redirect our coal industry (to target the Russian Federation)”, – “acting Minister of Fuel, Energy and Coal Industry” of the ‘LNR’, Pavlo Malgin, informed in April.

Does Russia need coal from Donbas?

The coal production in Russia has been increasing year on year. In 2015, Russian produced 4 percent more coal than in the previous year. In 2016, the coal production was  projected to increase by 0.8 percent, with later promises made by Russian Energy Minister Oleksandr Novak  that the increase will be  4.4 percent and will reach 390 million tonnes. Despite failing to reach this figure, the production nevertheless increased by 3.2 percent, according to the Russian Energy Ministry, and totalled 385.7 million tonnes. This is a record figure for all the post-Soviet years.

Coal mining schedule during last years in the Russian Federation. Picture from the website of  the Ministry of Energy of the Russian Federation

The RF is one of the world’s biggest coal exporters along with Australia, Indonesia, Columbia, Republic of South Africa, and the United States. As the federal state institution “Central Dispatching Department of Fuel and Energy Complex” was quoted as saying, Russia increased coal exports in 2016 by 9 percent to 165 million tonnes (accoding to  the Federal State Statistics Service, the RF exported 1 million tonnes more coal, i.e. 166.11 million tonnes of coal).

The domestic consumption has, however, fallen by 5%. The reduced domestic coal consumption in the RF is explained by the following factors in the International Energy Outlook 2016, which was  prepared by the U.S. Energy Information Administration:

“Coal-fired generation, which accounted for only 16% of Russia’s total electricity generation in 2012, declines further before 2025 as a result of increasing nuclear power generation and a short-term, temporary reduction in total electricity demand resulting from the effects of international financial sanctions imposed on Russia in 2014. After 2025, coal use in the electricity sector recovers as electricity demand grows and generation from nuclear power plants decreases. Coal use in the industrial sector declines as a result of the 2014 sanctions but recovers to slightly above the pre-sanction levels toward the end of the projection.” (I.e., until 2040 – “RG”).

This year, the RF plans to increase its coal output by 4 percent to 400 million tonnes exceeding the previous-year record. Such outlook  was expressed  by Russian Deputy Energy Minister Anatoly Yanovsky in an interview to TASS in late August.

Thus, the domestic coal consumption in Russia has been declining, while coal output has been on the increase. Consequently, the Russian energy system does not need any coal produced in the Donetsk and Luhansk regions that are not controlled by the Ukrainian government.  So why is the coal from the occupied Donetsk transported through the sections of the state border that are not controlled by the State Border Guard Service of Ukraine to Russia?

To which destination is the Donbas coal exported?

Journalists of various news outlets used to take a lot of efforts to conduct an investigation proving a seemingly obvious thing – that the coal from ORDLO is exported to Russia. Now, quite recently, the Russian Energy Ministry has readily acknowledged this fact.

“(Coal from Donbas) is delivered to Russia. It is consumed by the Novocherkassk Station… And the main volumes of sized coal are exported via Russia to third countries,” the Russian Deputy Energy Minister Anatoly Yanovsky was quoted as saying by the Reuters news agency.

The officer refers to the Novocherkassk Hydroelectric Power Station, which is owned by Gazprom-controlled power generation company OGK-2 and which consumes nearly 3 million tonnes of coal annually.

This power station earlier received coal from Obukhivska Mine Administration (Rostov region, the Russian Federation) that is owned by DTEK, a company controlled by the Ukrainian billionaire Rinat Akhmetov. Now, the station uses the coal delivered from coal associations “nationalized” by ‘LNR’ – quite likely from DTEK Rovenkyantratsyt and DTEK Sverdlovantratsyt. Instead, the energy generating coal from Obukhivska Mine Administration is delivered to Ukraine – substituting for the one from Rovenkyantratsyt and Sverdlovantratsyt coal mining companies.

This is how the Luhanska Thermal Power Plant looks like from the bank of the Siverskyi Donetsk River that is not controlled by the Ukrainian government. Things have changed since then, however, as most of the power transmission lines have been damaged and electricity is no longer supplied to ORDLO

“DTEK delivers to Ukraine anthracite from Obukhivska Mine Administration (the RF, Rostov region) that is owned by the company. This coal is delivered to the Luhansk Thermal Power Plant (located in Shchastia), which is the only source of energy in the region, and there is no possibility to receive coal by railway, other than from the territory of the Russian Federation,” the press service of DTEK Energo responded when asked by the RG news outlet about the coal delivery from Russia to their power plants.

Russian Deputy Energy Minister Yanovsky’s admittance of the fact that the coal illegally exported from the occupied territory is sold for export is also of interest. The Deputy Energy Minister did not specify the destination of coal sales. These schemes were, however, earlier mentioned by Dmytro Sakharuk, acting CEO of DTEK Energo.

“What we see is around 50 thousand tonnes of anthracite per month, with attempts being made to deliver it to Turkey… additionally, 30 thousand tonnes are going to be shipped on a vessel to Spain,” Dmytro Sakharuk said at a press conference in June.

According to him, DTEK planned to produce 8 million tonnes of commercial anthracite in the Donbas territory not controlled by the Kyiv government, of which the company has managed to export 1 million tonnes. The occupation “authorities” plan to deliver 2 million tonnes more anthracite to Starobeshivska thermal power plant (located in the occupied territory of Donetsk region).

“It makes a surplus of nearly 5 million tonnes – being a net surplus in their possession, which has to be realized somewhere,” Sakharuk observed.

He added: potential customers have been notified that the coal illegally exported from the territory of Ukraine is likely to be delivered to them.

“Working on prevention of the illegal sale in Ukraine and other countries of the coal of DTEK’s assets located in ORDLO, the company identified all requisite distinguishing features of the coal. DTEK sent such data to all potential coal customers who will be able to carry out an analysis and prevent the purchases of the illegal resource owned by DTEK,” DTEK Energo’s press service explained to the RG news outlet.

How much coal from Donbas is exported to the Russian Federation?

How much Ukrainian coal from the uncontrolled territories has been exported to the RF can be calculated by comparing the data of the State Statistics Service of Ukraine with the statistics of the Federal Customs Service (FCS) of Russia.

The table, entitled “Exports and Imports of Certain Types of Goods by Countries Worldwide in 2016”, from the website of the State Statistics Service illustrates that no anthracite has been exported from Ukraine  to the RF. At the same time, the database of the customs statistics of external trade  on the website of the FCS contains information that, during the last year, 980.1 thousand tonnes of anthracite worth USD 38.55 million have been exported from the territory of Ukraine to Russia. The differences, although not so significant, exist in respect of the supplies of bituminous coal (gas coal) to Russia. The State Statistics Service of Ukraine gives a figure of 81.8 thousand tonnes, although, accodring to the Russian customs statistics, 83.8 thousand tonnes have been imported.

Data of the State Statistics Service and the FCS Regarding Anthracite Trade by the RF and Ukraine

According to the State Statistics Service, no anthracite coal was exported to the RF during the first half of the current year, while the FCS of Russia reports the import of 703 thousand tonnes from Ukraine. (Data on other types of coal virtually coincides).

Thus, at least 1,683 million tonnes of the Ukrainian anthracite were illegally exported to Russia during 2016 and the first half of 2017. There is no doubt that this was the coal mined in the Donbas territory not controlled by the Ukrainian government. The figure may actually be much higher – it is not known how much coal has not been included in the official statistics of the RF.

THESE FIGURES ARE INDICATIVE OF THE RISE IN “EXPORT” OF ANTHRACITE FROM ORDLO TO RUSSIA. IF THE PACE OF DELIVERIES FOR THE FIRST HALF OF 2017 PERSISTS, ‘LNR’ AND ‘DNR’ WILL SHIP TO RUSSIA ALMOST A HALF MORE ANTHRACITE THAN DURING THE PREVIOUS YEAR – NEARLY 1.4 MILLION TONNES OF ANTHRACITE.

This is obviously associated with the fact that, in 2016, anthracite was illegally supplied to the RF from “nationalized” state-owned mines only (e.g., from State-Owned Enterprise Antratsyt). Meanwhile, the coal from companies under the Ukrainian jurisdiction was lawfully shipped to the territory controlled by the Ukrainian government. In 2017, the chain of illegal deliveries to the RF included output from companies placed under “external administration” by militants in March – such as DTEK Rovenkyantratsyt and DTEK Sverdlovantratsyt.

Coal mining companies were forced out of ownership of children’s camps along with the other assets. In particular, Zarnitsa (DTEK Rovenkyantratsyt) operated as a military camp this summer

By comparing the data provided by the FCS of the RF regarding imports and exports of coal, we see that: in 2016, Rostov region was the biggest importer of smuggled anthracite from Donbas, with its companies having cleared nearly 562.4 thousand tonnes of this fuel through customs. Furthermore, Rostov region itself has become a champion in anthracite sales to Ukraine. The FCS reports that last year Rostov region exported 432.1 thousand tonnes of anthracite to Ukraine.

In 2017, Nizhny Novgorod region took the lead in importing illegal coal from Donbas to the RF (344.9 thousand tonnes) – it pushed Rostov region into the second place (318.6 thousand tonnes). Rostov region, however, remains a leader in supplies of the largest quantity of anthracite to Ukraine – 276.9 thousand tonnes.

Is it possible to prove that the coal originates from occupied territories?

How can the origin of the coal be proved? First, this is what DTEK told about: laboratory testing of coal properties.

“It is not difficult for an expert to determine the coal origin. The coal has certain properties - content of ash, nitrogen, etc. An expert can even distinguish between coal from different areas of the Donetsk basin – between coal deposits in Antratsit and those in Rovenky or coal from Shakhtarsk. All anthracite originates from Donetsk, but, e.g., coal from each region has a different ash melting point. The properties are similar but vary,” says Ihor Volchyn, Deputy Scientific Director of the Institute of Coal Energy Technologies of the National Academy of Sciences.

However, the coal from Donbas (including the eastern Donbas located in Rostov region, the RF) has no parallel with the coal from any other parts of the former USSR, the expert says. The testing procedure is easy to perform, but it is costly.

However, as of the end of August, as the RG news outlet was informed by DTEK Energo, there were still no official test-proven cases of coal deliveries from DTEK’s assets that were seized by militants in Donbas region. Furthermore, no official claims have been brought against anyone in this connection.

The second way to prove the coal origin is to trace delivery routes and chains of companies involved in smuggling the coal from ORDLO. No such information has been found in public sources. The Federal Customs Service of the RF publishes summarized statistics only without specifying what exactly companies cleared the Donbas coal through customs. Likewise, there is no publicly available information on the companies importing anthracite into Ukraine.

The RG news outlet filed a request for such information with the Interregional Customs Office of the State Fiscal Service of Ukraine. The customs office, however, responded with reference to the Customs Code that it could not provide such information:

Response of the Interregional Customs Office of the State Fiscal Service to RG’s Request 

“Information regarding the state customs procedures, which is received by the bodies of revenues and duties, may be used by them for customs purposes only and may not be disclosed without the permission of the entity, person or body that provided the information; in particular, such information may not be disclosed to third parties. (…) Information on enterprises, citizens, goods or vehicles designated for commercial use that are moved by them through the customs border of Ukraine, which information is collected, used and prepared by the bodies of revenues and duties, shall be entered into information databases and used subject to the restrictions or limitations applicable to restricted information,” the document says.

At the same time, acting head of the Interregional Customs Office, Mykola Verhun, specifies in his response that “information related to export and import operations carried out by specific foreign economic entities may only be furnished to pre-trial investigation authorities in connection with criminal proceedings carried out by them.”

An attempt to inquire with the Security Service of Ukraine as to the situation with the monitoring of the coal imported from Russia has been to no avail.

Response of the Security Service to RG’s Information Request 

“A competent unit of the Service is implementing a series of measures aimed at the protection of national interests in the energy sector within the framework of the respective criminal proceedings instituted by investigation officers of security agencies, including measures aimed at combating the financing of activities of the so-called ‘DNR/LNR’ by selling the coal from the territory temporarily uncontrolled by the Ukrainian government. At the same time, Article 222 of the Criminal Procedure Code of Ukraine provides that information obtained from pre-trial investigations pertaining to issues stated in the request may be provided with the permission of an investigation officer or a public prosecutor and to the extent considered possible by them,” the letter signed by the Ukrainian Security Service (SBU) spokesperson Olena Hitlianska says.

Obviously, the “investigator or public prosecutor” have not found it possible to tell about the progress of inspecting the state-owned enterprise Tsentrenergo, in respect of which the media expressed a suspicion that it imported the smuggled coal of Donbas origin from the RF under the guise of a South-African coal.

The Ministry of Energy and Coal Industry, in turn, assured that it applied to competent authorities, seeking to tighten such control:

“The Ministry of Energy and Coal Industry applied to the State Fiscal Service of Ukraine (Letter No. 01/17-4331 of May 12, 2017) and to the Energy Customs Office of the State Fiscal Service of Ukraine (Letter No. 01/1-4677 of May 23, 2017 ) regarding the necessity to tighten control during the customs clearance of goods classified in commodity codes 2701 11 00 00 (anthracite), 2701 19 00 00 (other coal) under the Ukrainian Classification of Foreign Trade Goods (UCFTG) under the regimes of import from and transit through the Russian Federation,” Deputy Head of Electric Energy Complex Department, Kyrylo Novykov, wrote in his reply to the request of the RG news outlet.

Journalists in the capacity of the Security Service of Ukraine

The possibility of the deliveries of smuggled coal of the Donbas origin from the territory of the RF to Ukraine has already been investigated by journalists. Specifically, LIGA.net news outlet has published a comprehensive investigation by Yevhen Holovatiuk, entitled Economy of the Occupied Donbas: Players, Schemes, Scopes.

The data stated there is generally consistent with the summary data on “Ukrainian” (and actually – smuggled) anthracite deliveries to Russia, as such data has been found in the database of the FCS of the RF.

Quantities of Coal Exported to the RF in 2015 to 2017. Infographics by LIGA.net

Relying on insider information of the Federal Customs Service, Russian Railways and Ukrzaliznytsia (Ukrainian Railways), the author names companies involved in “laundering” the Donbas coal. After the coal is removed from ORDLO, as LIGA.net news outlet writes, the next step is its export through Russian ports.

“In order to legalize deliveries of illegally exported products, Russian companies engaged the state-owned company RZD Logistics. This company is specified in the FCS’s documents as a coal exporter. In actual fact, RZD Logistics only offers the services of coal transportation to ports or railway stations. The fuel is then registered in the names of third parties and sold to ultimate buyers,” the article reports.

According to the information received by LIGA.net, approximately 800 thousand tonnes of anthracite exported from the occupied Donbas has been delivered to Turkey, Italy, Estonia and Georgia. The chain of coal deliveries from the occupied areas to Russia mostly points to two interconnected offshore companies. These are the UK-based Coal Trade Antrahcit LLP (London) and Grecol Limited (Hong Kong). According to the news outlet, they are linked to Oleksandr Melnychuk who is (or was) a “Deputy Energy Minister of LNR”.

Coal Exported from ORDLO in 2016. Infographics by LIGA.net

The author highlights that these offshore companies are not specified in the list of legal entities and individuals to which the National Security and Defense Council of Ukraine applied sanctions for trading with militants in Donbas. The sanctions list has not included several more companies simultaneously trading with ORDLO and Ukrainian companies. This, in particular, refers to Termolant, a company exporting anthracite from occupied territories, while at the same time delivering it to Dniprostal, a metallurgical plant owned by Viktor Pinchuk. (“LIGA. news outlet has no evidence proving that Pinchuk’s plant purchased exactly the anthracite that had been previously exported from the occupied territories to Russia,” the article elaborates.)

It is more than obvious that special services are in a better position to collect and analyze such information than investigative journalists. However, if the reports by LIGA.net, Ukrayinska Pravda  and Business Censor news outlets are to be believed, the schemes of smuggled coal deliveries from the occupied territory to the RF and from there – to Ukraine have been in place since 2015.

How can the purchase of stolen coal be avoided?

Thus, the exportation of coal from ORDLO to Russia is a fact. It is also a fact that scarce anthracite is imported from the RF to the Ukrainian thermal power plants. It has to be reminded that, during 2016 and the first half of 2017, at least 1.683 million tonnes of anthracite were illegally exported from Donbas. As the Ministry of Energy and Coal Industry informed the RG news outlet, electric power generating companies imported 840.3 thousand tonnes of the power generating coal from the RF (257.1 thousand tonnes in 2016 and 583.2 thousand tonnes during the first half of 2017) for the same period of time. It is probable that illegal coal from the occupied Donbas is imported into Ukraine.

On the other hand, nothing obstructs the Russians from “deflecting attention”, i.e. sending the “clean” coal produced in Russia to Ukraine, while directing the “toxic” Donbas coal to the domestic market or for export.

IN ANY CASE, THE SMUGGLED COAL BECOMES PART OF THE RUSSIAN ENERGY MARKET. THUS, UKRAINE PURCHASES FROM THE AGGRESSOR STATE A PART OF THE SURPLUS EMERGING, IN PARTICULAR, AS A RESULT OF AGGRESSION AGAINST UKRAINE.

How can Ukraine be sure without fully giving up on coal imported from the RF (despite adverse economic consequences) that Ukrainian companies do not indirectly finance ‘LNR’ and ‘DNR’ terrorist groups? That they do not pay Russian suppliers for the coal mined in the occupied territory of Donbas?

At the same time, when purchasing the coal from other sources, competent authorities – both financial control and law enforcement authorities – must guarantee that beneficial owners of companies-coal suppliers are not residents of the RF. If working in unison (including laboratory testing of the coal), they would watch over the origin of all the coal imported into Ukraine. This could become a real test for commitment to principles and patriotism.

In our investigation, we have relied on public information only (as opposed to the investigations conducted, e.g., by Yevhen Holovatiuk who refers to insider information). To put it otherwise, the information specified is a publicly available convincing justification for taking measures to restrict coal imports from Russia.

As we have been informed by DTEK Energo, they are working on cutting down Ukraine’s dependence on imported anthracite. Specifically, the company plans “before the start of an autumn-to-winter period of 2017, to convert two units of Prydniprovska thermal power plant from anthracite to gas coal produced in Ukraine.” The Ministry of Energy and Coal Industry clarified that power generating unit No. 7 of the Prydniprovska thermal power plant will switch to the use of gas coal until November 1, while power generating unit No. 8 – until December 1, 2017.

Additionally, a pilot project to switch power generating units from anthracite to gas coal is being implemented at the state-owned PJSC Tsentrenergo, according to the information provided by the Ministry to the RG news outlet. In particular, the project has been running at Zmiivska thermal power plant (power generating units No. 2 and No. 5) in Kharkiv region since 2016. This year, power generating unit No. 4 of the Trypilska thermal power plant of the aforenamed Tsentrenergo in Kyiv region is planned to be converted to a gas coal-fired unit.

Oleksandr Belokobylskyi, RG news outlet


The text has been prepared as part of the USAID’s Transparent Energy Project. The points of view expressed are those of the author and do not necessarily coincide with official positions of the United States Agency for International Development and DiXi Group Think Tank. Republication of the investigation without quoting the disclaimer is strictly prohibited

 


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