Biznes Alert (Poland): Polish coal will be the basis, and we, Russians can only play a supporting role

Interview with the head of the subsidiary company “Kuzbass fuel company” in Poland, Ivan Gatinha.

Biznes Alert: even If close to the Russian leadership, REGNUM news Agency writes about the coal crisis, then everything is really bad. Only in March in the Kuzbass coal extraction by the open method decreased from 21.3 to 18.6 million tons. It is not only pandemic coronavirus, but that Europe is moving away from coal.

Ivan Getting: so, we also reduce production because of falling demand. The main mining region in Russia is Western Siberia: Kuzbass, Krasnoyarsk Krai, Khakassia. They are approximately at the same distance from ports on the East and West of the country. So far in these areas, we have maintained the balance, but in 2019 in the West there was a decrease in both volume and prices. In this regard, we are trying to increase exports to the East, but here the key role is played by logistics, limited capacity of the Railways. The train needs to overcome 6 thousand kilometers. Western Siberia can not sell all the raw materials that it produces, in the East, while in Asia there is no such fall in demand for coal in Europe. However, prices are decreased too.

2020 will bring losses? When can we expect the normalization of the situation in 2021 (this is the optimistic version) or only in 2022?

— How will the situation in the coal market, now is difficult to predict. This year probably will be bad for producers. What will happen later depends to a large extent on the capabilities of the companies that stock their strength, the size of the financial cushion. Our company is present on all the markets where they sell Russian steam coal, and I can confidently say that now there is no such what is possible to achieve positive financial results. It remains to minimize losses.

Some mining companies are closed, some completely suspend investment. We are engaged in manufacturing and mining, if we will stop investing, we will feel the effects of this step in the next two to three years. Without new investment it will be impossible to increase production.

— Meanwhile, according to the state concept of development of the energy sector, Russia was planning to 2024 to increase the volume of coal production up to 448 — 530 million tons, and by 2035 — to 485 — 668 million tons, and at the same time to double the exports. Will it be possible to do this?

— The current situation will force Russia, apparently, to push back these plans for two, three, and possibly four years. Return to the previous volume of production — the process is not as long, the main problem is transport infrastructure. If the railway will increase the capacity on the East, the coal industry can take advantage of it. Now our presence in Asian markets is small, but we see in the East, the potential for development. If infrastructure allowed, all produced in Russia, the coal could be supplied to Asian markets.

— So, will be increasing exports to the East not in the West?

— So. We see no other areas where you can increase exports. In Europe the demand for coal is reduced.

— Your company sells in Poland on average 2.5 million tons of coal per year. How will the situation this year? It has had an impact not only pandemic coronavirus, but warm winter. In the warehouses of Polish mines is now more than seven tons of raw materials.

— It is difficult to make specific predictions, since neither we nor even our customers from the energy industry, I don’t know what will be the demand. “Kuzbasskaya Toplivnaya company” is present on the Polish market for over ten years. In the last seven we have here a subsidiary of “CTC Poland”. During this period we observed a fluctuation: there were both the deficiency and excess coal on the market. It happened that we sold a year 3.5 million tons of raw materials, and there are about 0.9 million tons. This year, we anticipate that we will sell the 1.5-1.7 million tons.

In the future, I believe based in Poland will be Polish coal, and foreign (including Russian) will not occupy the market dominant position, its role will be minor. Data show that in the first quarter of this year, exports of coal from Russia to Poland decreased in comparison with the same period last year to 53%. The volume of deliveries of our company decreased by 66%, while sales fell by about 30%. We do not see sense now to supply raw materials and stock, so the imported amount of coal that can sell. The most expensive cost transportation, it accounts for 72-80% in the final price for the customer. We do not spend money on the transportation of coal, which will not be able to sell.

— In Kuzbas it is possible to achieve a low cost of production?

Is all nature. In Kuzbass the unique location of the fields, in addition, there is a long-established infrastructure. The cost of coal production in Western Siberia is one of the lowest in the world. We extract coal by opencast methods, and this distinguishes our situation from the Polish. In Kuzbass there are no such deep mines as you. To keep them would be unprofitable due to high cost of delivery of raw materials to distant markets. As I said, the most expensive cost transportation.

In the EU, including Poland, have repeatedly raised the topic of subsidies to the Russian coal: its extraction, transportation, under the mediation of the state company Russian Railways. I myself wrote about it. You can give your comment?

— I have not encountered a situation where the Federal or local authorities in Russia to subsidize coal mining, and do not know of any coal company in which the Russian state owned shares. The industry has long been fully privatized. We, of course, are the Russian state Railways, but the fact that the entire railway infrastructure in Russia belongs to the state. RZD — joint stock company, it is obliged to publish their financial data. In addition, if the company subsidized the transportation of coal, she would have suffered huge losses. Coal — not the most profitable product to transport. In Poland the situation looks the same. It is bulky cargo, the carriage of which brings in a small income.

Subsidies on coal transportation in Russia, I heard. Of course, there are certain catalytic tools, but they are associated with the market. For example, now that it decided to send its goods to the far East, ought to introduce a system of access to railway infrastructure based on the principle of “the more we sell to the West, the more you will be able to drive in the opposite direction”.

For two and a half years we with Michal Potocki (Michał Potocki) wrote about the import of anthracite from the occupied Donbass. It is the raw material from the Russian documents were, in particular, in Poland, and the proceeds went to war. A few years ago the Minister of internal Affairs Mariusz Blashak (Mariusz Błaszczak) promised to introduce an embargo on Russian coal, saying that buying it, we are funding Putin’s war. Your company takes into account such a prospect?

— The policy is not included in the scope of our interests, so it’s hard for me to comment on political statements. Our focus is on market, demand, offer. Russian coal will be present in Poland under the condition that it will be a place, but now it is for us and for other suppliers. The geographical position allows your country to diversify sources of supply, we could bring him in by land and by sea. The thesis, which States that Poland is threatened by the dependence on Russian coal, not unfounded. The leading role played by the economy. Now many energy companies, it would be advantageous to coal by sea, since the index of freight costs dropped to record lows. In 2019, the situation was quite different, then it is more profitable to supply coal by rail.

In any other state in the coal market does not present as many companies as in Poland, so it cannot subjugate one company or even one country-supplier. The embargo, in turn, will only lead to higher prices for coal.