Prime Minister Dmitry Medvedev holds a meeting on measures to develop the coal industry in Leninsk-Kuznetsky
Dmitry Medvedev: Good afternoon. I feel it is particularly appropriate to address the development of the coal industry after visiting a mine. I must admit this experience was useful both for me and other government members because it is important to understand what is going on in the decision-making regarding the development of the industry and the fate of people and enterprises. This is not my first visit to Kuzbass, of course, but this was the first time I saw how coal is produced and how a mine operates. This is very important to get a general idea of the issue.
True, two and a half years ago, in February, I went to the Kedrovsky coal pit. Today I visited two mines – Komsomolets, which is one of the oldest, and Listvyazhnaya, where we went underground. All this is very impressive, but today we met not to express our emotions but to discuss the current difficult situation. It wasn’t easy before, either. Let me remind you that in the 1990s there were a lot of disputes over how to develop our domestic coal industry. Experts voiced conflicting views, and many believed the industry had to go, that it was a source of loss and should not be part of the new economy. This view was erroneous. The large-scale reconstruction of the industry over the past ten years has shown that this view was unsubstantiated.
Today, coal is a valuable and promising energy source. This is true not only for Russia but also for the absolute majority of other countries. Global coal consumption is growing at a fast pace despite sinking prices, ongoing crises and other problems. You all know the figures, but I’d like to mention them for those who are not well versed in this subject. The production of coal increased from 232 million tonnes in 1998, practically 15 years ago, to 338 million tonnes in 2011. Labour productivity has also changed dramatically. We have spoken about this today. The achievements for which miners received the title of the Hero of Socialist Labour in Soviet times are now routine, and this is not the limit. As I see it, it is possible to increase it almost five-fold by 2030. The question is how to do this, should we do this at all and what our priorities should be.
Successful private companies are the backbone of the industry, and that’s where bets have been placed. Some of them are enormous, and there are others that are also very big. Most of them are no longer receiving state subsidies. They make the absolute majority of investment from their own funds, but sometimes also take loans.
According to my information – I’m not sure whether this is true or not but there are ministers and other cabinet members among those present and they can have their say – about 90 billion roubles were invested in the coal industry in 2011. However, for all the achievements, the development of the coal industry is being impeded by a number of problems and you know them. I’ll mention them briefly – worn-out fixed assets, the problem of proven reserves and much tougher conditions for developing deposits. Needless to say, miners are using obsolete technology in a number of facilities for understandable reasons. That said, modernisation is underway at many facilities and this is very important and it is good to know that. In addition, probably the main problem you’ll speak about is that the railways cannot fully meet the requirements of the coal industry.
There is one more issue, despite an overall improvement in the situation – the impact of business on the environment. I won't talk about the basic things; however I want to highlight the issue of safety. Improving safety in coal mining is a priority. There are many different approaches, important approaches, but I want to cite one good example of a project to extract methane from the coal bed, being implemented here in the Kemerovo Region by Gazprom. The project was launched during my last visit. Simultaneously with the introduction of modern technologies that improve mining safety, this project is contributing to the implementation of innovative approaches in the field of alternative energy sources.
The pivotal issue is to modernise enterprises and the sector's infrastructure. Coal companies have to be encouraged to innovate and create the right conditions for high-level processing. This area is just as important, if not more important than increasing overall production. Old fields have to be used efficiently but we also have to create new coal production centres, including making use of the opportunities in Eastern Siberia and in the Far East. This will make it possible for us to resolve many economic and social problems.
You know that the government has adopted a long-term programme for the development of the Russian coal industry until 2030. The objective is the sustainable and long-term supply of the country's energy resources, as well as creating reserves to develop the domestic economic and social spheres. We simply have to increase coal production and enrichment by adopting modern technologies, promoting investment and innovation, we have to consolidate our position on the global market, which is no easy task, since in many places, let's be honest, we are not that welcome. We are simply being pushed out of some markets (we mentioned this today), on other markets we have to compete and we can compete. At the same time it's clear that to compete on these international markets we must agree between ourselves within the country, we have to take the necessary governmental decisions and decisions to link together the major producers and transporters.
Improving the logistics of coal supplies is a very important objective, a crucially important objective as far as rail transport is concerned. Yesterday we discussed transitioning to the principles of long-term tariff [rail transport prices] regulation and I’m sure this would have a positive effect on the national economy, including the economy of the coal industry.
We can rush through the adoption of the legal framework to establish the requirements for industrial safety in the coal industry. Draft laws can be developed in accordance with the programme on improving working conditions in the coal industry.
There are clearly some social issues that have not been solved. I discussed this with miners several times today. There is the problem of single-industry towns, there are housing problems, there are problems of healthcare, there is a number of other problems that I want to discuss today, in part because I promised to raise these issues in this circle. In any case people should not be abandoned to their fate. I would like the Ministry of Finance to submit proposals on budget funding for projects on shutting down organisations in the coal industry and on other costs related to the restructuring of certain enterprises. The issue of moving miners’ families out of dilapidated housing is an urgent one, we mentioned this today. A lot of money is being spent on this, including here in the Kemerovo Region, however there still are many problems. Today, miners mentioned the problem of private housing. The sector has a number of other problems too.
Let us continue our work. I propose to work in as concise a manner as possible for two reasons: firstly, it is not early morning, and secondly, we are planning to travel still further, this therefore dictates a certain schedule. Once again I would like to thank everybody who supported our visit to the mine today. I’m sure it was very important for government members, for one because it will enable good decisions on the fate of the coal industry to be made.
Mr Novak, you are one of the people who visited the mine. With this in mind, I hope that you will make the main report. Please go ahead, Minister of Energy.
Alexander Novak: Thank you. Mr Medvedev, meeting participants! Given the fact that the Prime Minister visited two mines today and the company leaders that were there raised most of the issues that I’d like to mention, Mr Medvedev, I will briefly highlight some.
Allow me to call your attention to some of them. Though the circulated presentation papers and slides are detailed enough, I’ll say a few words about the theme, point out the basic problems and layout the coal industries proposed solutions.
Mr Medvedev, you were right when you said that the coal industry is among the country’s essential economic industries. It employs 170,000 people. Considering all the employees’ families, an approximate total of 700,000 people either work in the industry or are supported by it in some way. I would like to talk about the prospects we see with regard to the approved programme. As you know, the long-term programme for the development of the coal industry up to 2030 was adopted in January. As we can see in the slide, the programme envisages coal production reaching 430 million tonnes annually by 2030, and 380 million tonnes by 2020, the interim deadline. As we can also see in the graph, coal production has made steady progress since 1998. As you mentioned, we have increased production from 232 million tonnes to 336 million and will increase it by another 100 million within the next twenty years, as the programme stipulates. By 2026, we will reach the output of the peak year 1990.
I would like to call your attention to this year’s structural changes. As you see, domestic consumption amounted to 323 million tonnes in 1990, with a mere 52 million tonnes exported. Starting in 2000, the year that ushered in steady growth, domestic consumption increased only slightly, while exports grew substantially. In fact, exports are the main driving force in coal mining while we see a regrettable decline in the domestic market. The balance will evidently continue to see a decline in domestic use, with a growth rate at 0.8% a year mainly due to a shift to gas fuel, and state-of-the-art equipment in the steel, energy and other industries.
The next slide shows our prospects for increasing exports and improving sales. As you see, westward exports, to the Atlantic market, added up to 79 million tonnes in 2011, compared to 32 million tonnes to the Asia-Pacific region. We expect a slight increase of exports to the Atlantic market (a token 6 million tonnes) by 2030, while the Asia-Pacific market will be our main sales partner. We have discussed this with many analysts, including Baker & McKenzie’s, whom I asked to forecast market demand up to 2030 and 2050. The global consumption of coal, which presently accounts for 27% of the overall energy balance, will continue to 2030 and even 2050 despite structural changes. The demand for coal will remain steady though the share of renewables and hydropower will increase and the share of oil and gas will shrink. According to expert forecasts, the current 27% share will remain stable, and China, Japan, South Korea, Taiwan and Vietnam will be the main coal consumers.
As we know, a production increase of 50 million tonnes, which we expect by 2030, will make us fairly competitive in the Asia-Pacific market, considering that demand will almost double by 2020, growing by 550-560 million tonnes, as you can see here.
Dmitry Medvedev: Will it be mainly China or any other nations?
Alexander Novak: Mainly China, Japan, South Korea and Vietnam.
Dmitry Medvedev: Yes, Japan.
Alexander Novak: The situation in the Atlantic market will not be as lucrative by a lot, as you can see, because slate gas extraction is replacing coal in the United States and also in Europe, so the competition is toughening. No doubt, we should work harder for the Asia-Pacific market.
With the next slide, I would like to show the problems that are inhibiting progress in the coal industry. We see that coal consumption has declined since 1988 in the basic sectors of the domestic market, particularly by 33% in the steel industry and by 28% in the energy industry. Municipal economies and agriculture are no exception, either – as I already explained. The share of coal in the Russian energy balance has declined by 2%. The introduction of gas has an impact on the non-beneficial gas/coal price correlation, which hinders development in the coal industry. A turning point in coal consumption will come when the difference between export and domestic gas revenues is insignificant.
Next slide: problems associated with transport. I would like to say that the coal industry is very special, because the share of transportation costs is very high. You see that for energy coal it is more than 50%, for coking coal, more than 30% , including the costs of marketing and loading and unloading at ports. By comparison, in the oil industry, transportation accounts for less than 10% of the cost, in the aluminium industry between 10 and 20% and in metallurgy a little over 20%. So of course the growth of tariffs has a huge impact on the structure, demand and production and marketing opportunities.
Dmitry Medvedev: Our colleagues who are developing their companies say that the situation is critical. Please speak to this later and explain, to all those present what it is about the current situation that makes you think it is critical.
Alexander Novak: With your permission, Mr Medvedev, I would just like to say a few words. You see in this slide that the price of energy coal dropped from $119 to $89, by almost $30, between September, 2011 and May, 2012. Accordingly, the production cost today is about 900 roubles ($30), plus transportation to the market (about $40) and handling at the port (between $10 and $20), which covers the entire $89, so today the situation is indeed very critical. What we would like to suggest… We have met with Transport Minister Maxim Sokolov, his colleagues, the Federal Tariff Service, the Ministry of Economic Development and the coal companies to discuss all the problems of tariff setting. We would like to propose options that would enable Russian Railways to differentiate the transportation tariffs between sectors and within the price list, to instruct the Ministry of Economic Development, the Federal Tariff Service and the Transport Ministry jointly with the Energy Ministry to consider this issue to give some leeway in setting tariffs for coal transportation.
Next slide. I would like to stress that accessibility of infrastructure is an important aspect of marketing the product. The red colour in this slide indicates current transportation bottlenecks, and the blue colour shows potential bottlenecks in the future. This is Turksib, the Baikal-Amur Railway and railways connected to them, including approaches to ports: Komsomolsk-Sortirovochny, Sovetskaya Harbour and ports in Nakhodka and Vladivostok.
An important point: we believe that in designing RZD’s investment programme, the transport development strategy and the state transport development programme, the need for coal transportation must be included. This is not to say that we are advocating billions worth of ineffective investments in construction. We believe that investments should go toward dealing with bottlenecks, including optimisation of costs, optimisation of the use of the fleet of wagons, the use of passenger carriages, speeding up the turnaround in freight and passenger carriage. In short, the whole range of measures that would take into account the need to increase exports.
In the next slide we see that the existence of an accessible port infrastructure is key for the development of the industry. The development of ports is vital for effective coal export. Companies are actively investing against the planned export volumes, and in fact, ensure the expansion of port capacity for the sale of their products. It is important, as I have shown in the previous slide, to coordinate this with the capacity of the railway infrastructure. This slide shows that by 2030, coal handling in ports is expected to increase as follows: in the northern direction by nearly two times, in the southern direction by almost three times and in the eastern direction by more than 2.5 times. The total capacity of ports should reach 140 million tonnes in 2020 and 190 million tonnes in 2030.
Speaking about the internal problems of the coal industry, I would like to mention the significant deterioration of coal deposits’ development conditions. As you see in the top left corner, the average depth of coal mining increased from 380 m to 402 m in the last ten years, that is, we are going deeper and deeper. The percentage of mines that are hazardous in terms of the danger of methane explosions, coal dust and mountain shocks increased from 28% to 51%. And the opening up coefficient in coalfaces has increased from 3.9 cubic metres per tonne to 6.3, in other words, the conditions of extraction are worsening. We also see that many mines and coalfaces today have poor potential for the future: 54% of the capacity of mines and 27% of that of coal faces fall into this category. This indicates a need for major capital investments in the industry, and companies that have a low margin that depends on domestic and world prices use both their own earnings and borrowed money for investment purposes.
In the next slide I show, as you mentioned in your opening remarks, the investments in the basic assets of coal companies since 2002. You see that investment increased significantly in recent years, starting in 2008, and amounted to 93 billion roubles in 2011. One can discern a significant pattern: on the right-hand side of the chart you see the consolidated financial result of the coal companies, and we see that perhaps 90% of the money that remains after taxes is invested in the basic assets of the coal companies, i.e, these are investments that make it possible to start new development and introduce modern technologies. This slide also shows that prices in the domestic market and the transportation costs are a bit different. We see that port services have gone up almost six times in the last ten years, and the cost of export transportation has gone up by 4.3 times, whereas prices for energy coal transportation on the domestic market have increased by just 3.4 times and the FOB price for coking coal and energy coal has increased by between three and 3.5 times. In other words, we see that costs are growing at the same rate as prices, and perhaps in some cases, like in ports and railway tariffs, even faster.
The next slide shows the programme targets for 2015, 2020 and 2030. They are quite ambitious, and envisage progressive modernisation and renewal of production capacities, a practically five-fold growth of labour productivity, a three-fold growth of profitability of assets and an improvement by at least two or three times of the main industrial and environmental safety indicators. Budget spending will increase by about 1.5 times.
How do we go about solving these problems and achieving these targets? First, a balance must be achieved between the development of the power industry, transport and the coal industry, new coal mining centres must be created in fields that have favourable mining and geological conditions and that can support a world level of productivity, labour safety and product quality. These are all targets that are laid out in the programme. Third, modern production facilities will be created on the basis of comprehensive use of coalfield resources, including the extraction of pit methane and the development of coal chemistry. Some existing enterprises are in need of retrofitting, and restructuring of the coal industry must be completed.
Finally, it is important to put in place a system of planned decommissioning of ineffective capacities. Such a system practically does not exist today.
Next slide please. This shows the main priorities in the development of the railway infrastructure, mainly the Baikal-Amur Railway, the capacity of the Mezhdurechensk–Abakan–Taishet line to serve the development of the Elegest coalfield in Tuva, in Kyzyl, and the development of railway transport in Kuzbass.
Here I show that one of the main drivers will be the introduction of coal-burning generating capacities. By 2030 we expect about 26 giga-watts of additional capacities, which will also spur the demand for coal.
There is also great potential demand for coal due to the transition to dry production of cement and the building of new capacities, which will increase demand by up to 20 million tonnes.
Coal enrichment is very important. The dynamic of enrichment will be fairly high -- more than 100 million tonnes will be enriched additionally in the longer term and the level of enrichment will be brought to 60% which will greatly improve the quality of coal and coal products, and its added value. Importantly for the transport industry, the amount of ordinary coal carriage will diminish, as it will be more important to carry processed coal, which is less bulky.
Next. As part of the development and renewal of the production potential, basic assets are to be renewed almost 100% by 2030. Along with increased investment, the regional structure of coal production will change. Western Siberia's share will decrease from 58% to 45%, that of Eastern Siberia will increase from 26% to 32% and, like I said, this will be the main driver of demand and competition in the eastern market.
Next slide please. This shows the commissioning/decommissioning of new capacities. Pay attention to the right-hand side: as of 2011 there were 206 mines and strip mines, by 2030 their number will drop to 60 and about 60 new mines will appear. This is involves enormous investment in capital assets and serious development of new fields in new centres of coal extraction – the Republic of Sakha (Yakutia), the Republic of Khakassia, the Russian Far East, Sakhalin and the Trans-Baikal Region. This slide highlights the new coal production centres.
Mr Medvedev, currently the government pays significant attention to the coal industry, and to date we have adopted many directives and decisions which make it possible to adopt regulatory acts regarding requirements for safe mining and coal production development. You can see this on the slide. At the recent meeting in Kemerovo, 38 instructions were issued, 22 have been implemented, seven are being implemented, and some instructions have not been implemented yet. Next slide, please.
To conclude, I’d like to highlight the issues that need to be solved. Instructions on some of them had been issued to federal executive bodies, and these instructions have been implemented. First, in my view, it is necessary to accelerate the adoption of the programme (it’s written in the first section) of the sub-programme Modern Means of Individual Protection and Life Support Systems of Underground Personnel in Coal Mines. An instruction to develop this programme was issued following the Raspadskaya Mine accident; to date this instruction has been elaborated as a subprogramme within the federal targeted programme Science and Technology Base. The cost is 3 billion roubles per year. The cost comes mostly from research, experimental construction, and the development of new modern means of individual protection. The Ministry of Economic Development supports the adoption of this programme. We could adopt it this year. I would like to ask you to instruct the Ministry of Industry and Trade to introduce this subprogramme without waiting for the whole federal targeted programme and the science and technology base to be developed. This is the major cause of the delay.
The next point: the earlier instruction on creating shutdown funds or a mechanism for closing down mines in the future has not been implemented. This process is inevitable, as I have shown on previous slides, but to date there are no resources. The companies currently developing coal fields and producing coal do not possess such funds in fact. There is a proposal that had been approved but has not been implemented: to offer the option to accumulate some reserve funds related to cost value which in the perspective could become a source for future expenses, for forming a reserve for mine shutdown, including relocation of the population and environmental damage caused by the shutdown.
Next, it is necessary to conclude the work of the Ministry of Regional Development on introducing changes in the Urban Development Code regarding the authorisation of the government to approve the contents of construction documentation for building mining enterprises. Currently this is not subject to legal regulation – all federal executive bodies take decisions on their own, in fact. However, this should be governed by law.
Next, approving amendments to the law with respect to adjusting and approving production capacities. There are problems due to the fact that to date the Ministry of Natural Resources and Environment issues licenses through the Federal Agency for Mineral Resources and stipulates the capacity level. The Federal Service for Supervision of Natural Resources inspects this and punishes insufficient capacity, meanwhile the Federal Service for Supervision of Environment, Technology and Nuclear Management agrees this yearly, and these data differ, and so the companies are punished for their failure to fulfil the disconnected decisions made by different federal bodies.
I want to highlight yet another more point – the restructuring of the industry. You said in your opening remarks that this programme is being implemented. Indeed, the federal budget includes allocations for completing the programme for the industry’s restructuring, which has been underway since 1994. But it does not include some funds that we declared when we were drafting the budget; these funds are included in the 2012 budget, in the 2013 budget, in the 2014 budget. There is a shortage of 1.78 billion roubles for 2013, 1.89 billion for 2014 and 1.5 billion for 2015. What is this all about? Primarily this regards the completion of relocation of residents affected by mine shutdowns, and in this regard there is a shortage of some 580 million roubles to complete the relocation of the remaining dwelling houses and residents.
The second point involves the technical work on closing down coal industry organisations. Already 999 mines have been shutdown. A total of 51 sites are left, requiring 13.386 billion roubles. These sites are mostly located in the Perm Territory, the Kuzbass and the Rostov Region. In our view, this programme should be completed. I’d like to show you the slides, which targets need allocations. Primarily these are acid water reclamation plants (acid water is discharged by the mines after shutdown), closing down mines, damping down waste heaps, land site restoration, major repairs, reconstruction and the creation of waste water reclamation plants. Now we are not requesting the whole amount of 13 billion roubles; we think it is necessary to maintain the level of 2012, which is some 1.3 billion roubles, and to extend at least 3.9 billion roubles of the 13 billion for 2013, 2014 and 2015. This will make it possible for us to complete the measures on restructuring the coal industry at this rate. We are asking you for your help. I have spoken to Finance Minister Mr Siluanov, he is also ready to consider it now during the drafting of the budget and to look for such funds.
And the last issue regards closing down mines posting high – mines that do not include state property. As you know, recently there was an accident at a mine in Prokopyevsk. I want to draw your attention to the fact that currently Prokopyevsk has five or six mines (we discussed this with the governor today) that pose the greatest explosion risk and gas hazard, that is, from the technological point of view, and there is vertical working there. These mines actually operate at a loss and are kept afloat through the social obligations of the companies that own them. Here is our proposal: to avoid any future problems from continuing using these mines, and to minimise the rate of accidents and emergencies, these five mines need to be closed and the following programme drafted. I know that the Kemerovo Region and Mr Tuleyev (Kemerovo Region Governor Aman Tuleyev) have been working on this and had some results. If you give us the go-ahead, we could propose a programme which would help resolve this issue. This completes my report. Thank you.
Dmitry Medvedev: Thank you, Mr Novak. Your report was very informative although not as short as you said it would be. As a result, other participants will have even less time for their presentations. Please, make sure you focus on the essential points and only include proposals aimed at improving the legal framework or state agencies that are important for this industry.
So I suggest we listen to the leaders and owners of major companies. Mr Rashevsky, (Vladimir Rashevsky, CEO of the Siberian Coal Energy Company, Suek), please go first, and others will see if they have things to add.
Vladimir Rashevsky: Good afternoon, Mr Medvedev, colleagues,
I have a few points to make from the perspective of the industry’s operators. As you said, in the past decades the industry has indeed made a breakthrough in terms of its efficiency and production volumes. The upward trends are especially clear here in Kuzbass. This area has in fact witnessed a coal economic miracle, providing 90% of the 100 million tonnes’ increase in coal production. This is largely due to the well-balanced and wise policies pursued by the regional governor and his administration, who clearly understand what is needed. It would be great if other regions took a page from his book. The federal government agencies have been also focusing on coalmining. As a result, a strategy was developed, the one that Mr Novak has just laid out in brief. It shows that the production growth targets are about 50%. At the same time, we feel that Russia has far greater potential than that. Russia has the world’s second largest coal reserves; the top three also include the United States and China. Still, America mines 1 billion tonnes, and China 4 billion, while Russia only 300 million tonnes.
Russia is facing a number of problems that inhibit the industry’s growth. I am not going to describe them all but will focus on three: markets, investment, and labour relations. Speaking of markets, the development of coalmining is primarily driven by domestic demand in any country that mines coal. In Russia, internal demand has been shrinking for the past two decades, and what’s more, no significant growth is expected for the next two decades either. The energy sector, which is the main consumer of coal, is going to increase demand for a mere 20 million tonnes a year, in addition to the basic 300 million. The number of planned coal-fuelled thermal power plants can be counted on one hand. Demand is going to grow slightly in the cement and metals industries, which is all very well, yet not enough to make a difference.
I would like to point out two issues which the Energy Ministry could start working on, and which could potentially underlie faster growth in domestic coal consumption.
The first one is building a network to link the energy markets of Siberia with European Russia and the Urals. At this stage these two markets are very poorly connected. Whereas natural gas prevails in European Russia and the Urals as fuel for power plants, Siberia is dominated by coal generation. That is why Siberia produces the cheapest electricity in Russia and possibly the world. End consumers are charged an average of 1.5 roubles, which is about five cents. I don’t think electricity could cost five cents anywhere else. In European Russia and the Urals consumers pay nearly twice as much, 2.6 roubles. By building a network I mean projects that were actively developed in the 1980s. The power transmission line Itat-Ekibastuz, which was planned as a “power bridge” connecting Siberia with Europe, is close to here. We used to be the market leaders in this area. Now Russia is lagging behind and being overtaken by China. This project is not very expensive compared with Federal Grid Company’s investment programmes.
Arkady Dvorkovich issued a similar instruction also aimed at merging the two separate energy zones. I think this is one of the priority issues, which the Energy Ministry should consider and give a definite answer if this is economically efficient or not. This could help increase coal consumption by 30-40 million tonnes or more. We won’t have to ship coal by railway – we will deliver power via transmission lines.
The second project I was going to mention was discussed several years ago and then pushed to the backburner – the large-scale plan to supply electricity to China and build coal plants in Russia. Mr Novak showed a slide listing a number of power plants, more than half of them related to the Chinese exports project. This must also be decided. Either yes or no – this issue is at least worth discussing. This is what I planned to say about internal demand.
Export certainly remains a key factor for us. It is true, as we saw here, that Europe will show no growth, and Russia will be lucky to preserve its current 30% share of that market. At the same time, Asia is a fast growing market. Coal sales stand at 700 million tonnes there and are expected to double in the future, but Russia only accounts for a meagre 4%. We sell 30 million tonnes of steam coal and coking coal, but we could easily increase that: We are close to the key markets and key consumers – Japan, South Korea, China and other markets. We are in fact far closer to them than rival suppliers such as Australia, Indonesia and others.
Infrastructure is also an issue here. We must have a clear understanding of whether the relevant infrastructure will be developed in Russia’s Far East. And long-term predictability of railway rates is of principal importance to us, since most investment projects in the coalmining industry are highly sensitive to it. We need to know if the rates are going to be indexed to inflation, or if there will be a leap at some point in time, which is quite a different story. In that case, we will have to abandon this type of investment projects. All players need to understand where they can implement projects.
Investment is another major issue. Coalmining is not a rich industry, frankly speaking. Compared with other fuel and energy industries, it could be four or six times larger, but it earns far less. As this was perfectly illustrated by a slide, coal companies channel all their profits into investment. Companies also have big loans, with their debt to EBITDA ratios at least at 2, and normally at 3-4. According to our estimate, business expansion and modernisation requires twice as much investment as they make. We need incentives to stimulate investment. What specifically am I referring to? A few years ago, government subsidised bank interest for investment loans. The amounts were not large – about 500 million roubles a year. That programme functioned for a few years, and companies actively applied for subsidised loans, but eventually it was wound up. We could discuss this again. This mechanism is widely applied in other sectors and with much success, too. For example, in agriculture, the government subsidises 100% of the Central Bank’s refinance rate, if I am not mistaken.
My second proposal is introducing tax holidays for greenfield coal projects located in hard-to-reach areas, similarly to a policy applied in the oil industry (mineral tax holidays). This might not be vital here is Kuzbass, with its well-developed infrastructure, but it is quite advisable for new fields in the Far East, Yakutia or the Khabarovsk Territory and the Trans-Baikal Territory.
Third, I lobbied for an investment fund yesterday, which had actually been discussed before, Mr Medvedev. Infrastructure construction, power transmission lines, railway stations, rail tracks, and connecting to power supplies – all such projects imply public-private partnership and could stimulate development of new remote deposits. So these are my three proposals aimed at stimulating investment.
The third issue is labour relations. Low productivity is one of the key problems plaguing the coal industry today. It is actually one-third or one-fourth of what our main rivals show. Part of the problem is labour legislation which is obsolete, has its roots in the 1930s, and is in many ways a legacy of socialism. It reads in part: “Constructive opportunities must be found for more flexible relations between the employers and employees with obligatory participation of the trade union.” What does that mean? Underground work: today we have a 30-hour week. And there is a hard and fast rule that an underground shift cannot last more than 6 hours, not an hour more. Take the typical situation in Kuzbass today: new mines are far away from the cities and villages, it takes a 1.5-2 hour bus ride to get to the coal pit, then (Mr Medvedev, you have just seen the coal face) it takes him an hour to get to the coal face, then an hour to get back after the shift, then having a wash and then 1.5-2 hours to get back home. In order to work for 6 hours, he has to stay away from home 12-14 hours, and he has to go to work five times a week. If only a shift could be extended to at least eight hours. In world practice, they have 8-, 10- and 12-hour shifts depending on how taxing this or that job is. I think there is today a consensus between the employers and the unions that these regulations must be changed. Article 94 of the Labour Code must be amended, and we are ready to provide the exact language. A process of approval is going on between agencies, and these amendments could be passed in the autumn.
The second point. Since Soviet times we have had long leaves, the basic 28-day leave and many additional leaves. For example, underground workers are entitled to a 64-65 day leave without any northern hardship pay, and with the northern mark-up it is 88 days, for open-cast miners the leave is 42-52 days. And we cannot ask a person, even after paying him his leave money, to work during this time because his trade is classified as hazardous. What do we propose? We propose to make it a rule that he take a 28-day leave while paying him cash for the remaining part of the leave (up to 66 days) and allow him to work because today he cannot afford to have a holiday in Turkey, for example, he does not earn that much. So he works as an illegal taxi driver or looks for other ways to make money, and yet we have a shortage of coal cutters, they are much sought after, and a shortage of truck drivers. We need more skilled, more disciplined people, especially in hazardous zones. So, if we pay them in cash for part of their leave and add, for example, 40 working days, that would mean a 20% increase in available personnel.
The third point is that we have very conservative legislation concerning women’s labour. For instance, a woman cannot drive a dump truck that carries more than 2.5 tonnes. When you travel abroad you see a 300 tonne Caterpillar the size of a house being driven by a girl. She pulls down the window and waves her hand. This is normal, so they do not … We ask them, how many women workers do you have? They say, 30% drive these huge trucks, excavators and so on.
That must be changed. A government resolution has a list of jobs from which women are banned. That would enable women to earn more and eliminate the current labour shortage.
That is about all I have to say about labour legislation. I could discuss many other issues, but it would take too much time, so we are ready to submit our proposals to be included in the minutes. We believe that our developmental potential is greater than current forecasts. And we are ready to contribute to the effort if the government helps.
Dmitry Medvedev: Thank you, Mr Rashevsky. Mikhail Fedyayev. We visited you today. You haven’t spoken yet.
Mikhail Fedyayev (President of the Siberian Business Alliance holding company): Mr Medvedev, esteemed colleagues, good evening. Thank you for giving me the floor. Of course I subscribe to everything that has been said before me. These problems have been piling up for some time and they were not addressed, including in terms of labour legislation, but that was in the distant past, while we are living in a different time.
I would just like to tell you briefly about my company. This year we will produce about 25 million tonnes (the original target was 28 million, but adjustments are being made in connection with the crisis), of which 70% goes for export. For fifteen years we have been trying to break into the markets in Turkey, Italy, Morocco, we took coal to Israel and even to America, not to speak of all the European countries. Today we simply… We are unable to compete in that market because a lot of American coal has come there. Yes, one may argue that they now have gas… But we too have a lot of gas, but domestic consumption of coal, as has been mentioned here, is falling. But they have cut railway tariffs by 40-50% for the coal companies that export coal. Five or six years ago we thought that we had only to buy the wagons to export all our coal. Unfortunately, today we have 26,000 wagons, but the turnover of wagons has dropped practically by half. It takes us 29 days to reach the Riga port, the wagon moves at the speed of 7.5 km an hour, a little faster than a pedestrian. It no longer matters who has how many wagons: they simply do not roll on the railway. Every day we have 2,500-3,000 abandoned wagons that are idle.
What to do to change the situation? I don’t know. I understand that railways have their problems. But today to plan an increase in coal production, as mentioned by Alexander Novak… We should be aware that we will not be able to carry our coal from here. The ports are within 4,500 km from us, you know it very well. So the problem of how to make railway transport more efficient must be addressed.
And tariffs, of course. The mine we are at is good and modern, but today it operates at a loss. We are powerless to do anything because the prices in the external market do not cover the costs: more than 50% is eaten up by rail tariffs, plus the port charges, which means 55-60% of the price is transportation costs.
I would like to raise another question. We produce 25 million tonnes of coal, but we have been trying without success for five years to obtain documents in Murmansk for the construction of a port, we have been working on it together with Razrezugol and the Unified Energy Company and still no decision has been taken. As I see it, they should be summoning us and asking us why we are not building. We are taking out the loans, we are developing this region. But there is just no chance. And yet, Mr Medvedev, we spend $300 million a year to get our coal to the ports on the Baltic, to pay the Ukrainian and Belorusian railways. We have no other destination. So we say: “We are ready to spend this money to develop the infrastructure in Russia,” but we are unable to do anything wherever we go. We are such a vast country, we have so many seas, but we cannot approach their shores because they turn out to belong to somebody else. Wherever we come, they ask such prices that building a port is no longer an option. I think the government should have a programme under which they just call you in and say: ”You are producing coal? You are working in the Western direction? Then be kind enough to build. How much land do you need? Buy it, build and provide the infrastructure, this is your assignment.” I think this would be fair and understandable to all because all the coalmen present here have big problems with documentation for the construction of ports. As for all the rest, I think the decisions will anyway be taken at some general meetings that, as you have mentioned today, we will be summoned to in order to discuss these problems with the ministry and with the government. I think we will eventually find some common solutions. Thank you.
Dmitry Medvedev: Thank you. The floor is open. Only, try to be brief.
Ivan Mokhnachuk (Chairman of the Russian Independent Coal Industry Workers’ Union): Because I represent the trade unions let me start with something different. The problems facing miners and why we cannot work efficiently enough. I think there is some gap between the regulatory documents passed by the government and the various ministries concerning coalmen. Take, for instance, our heavy trucks, BelAZ, Komatsu and all the other trucks that weigh 230 tonnes. For some reason, they are registered with Gostekhnadzor. Gostekhnadzor is under the Ministry of Agriculture and Gostekhnadzor demands that our BelAZ drivers have a tractor driver’s license, which has nothing to do with giant trucks. This leads to stoppages and so on. I think before passing such resolutions they should at least be agreed with the coal community so that they would understand what it is all about. Or take another example. The government issued Resolution 957 authorising the development of the procedure for the issue of a license for demolition work and the building of demolition depots.
The resolution has been issued, but there is no document regulating the interaction between the Ministry of Trade, the Interior Ministry, Rostekhnadzor, Rosoboronzakaz and so on. Today it is impossible to build a dump for explosives for mountain demolition work. Another example. Gennady Onishchenko issues an order to first-aid posts underground. Miners have never built such posts underground. Today we have the mining prosecutor’s office and it is its business to enforce the law. They come and say: why doesn’t your coal pit have an underground first-aid post? What standards should it meet? Who should work there? It’s unclear. This leads to stoppages and other complications.
Dmitry Medvedev: Whose decision was that?
Ivan Mokhnachuk: This is a decision of the Sanitary and Epidemiological Supervision Service (Sanepidemnadzor) agreed with the Ministry of Healthcare. Or take another example. They are forcing us to build toilets underground, it never happened before. The lack of a toilet is a violation of hygienic rules and cause for the mining prosecutor’s office to stop mining work. This could get us to absurd lengths. Another example: the Ministry of Healthcare issues regulations concerning work overalls, special equipment and so on that are completely way out. You were in a coal mine today, say, in the shaft mine , and the person who meets you down there is issued work clothes once every six months, but those who work underground are issued theirs once every 15 months. We are trying to sort out why nobody is asking any questions. They have smart guys there who pass these regulatory documents, and we find ourselves on the short end of things.
I think the prime minister’s instruction on the creation of an employers’ association in the coal industry has not been fulfilled. I think the line must be drawn and the association should be created. And the second thing. The association must put itself on the map and all the documents on technology should be agreed with this coal community. I understand that interests may differ, but the owners and managers of coal companies must understand what they are supposed to do, how to work out the mechanisms, the algorithms for the solution of these problems. As things stand today, we do our thing, others do their thing and as result misunderstandings and conflicts arise, and this is another brake on our activities. And a lot has been said here about labour relations. Unfortunately, nobody has expressed any views on the presidential executive order, according to which real wages in the industry should grow by 50%. The owners are keeping quiet and nobody speaks about it. To date, the average salary in the coal sector calculated within a six-month period is 34,328 roubles. Workers earn 29,260 roubles, while the average wage across Russia is 24,755 roubles. This is where the motivation for work, for personnel and for all the rest is buried. Very few young people wish to receive an average salary of 29,260 roubles (they can get a maximum of 50,000-60,000 by grinding coal from the working face of an underground mine). Currently 24% of our personnel are working pensioners who get preferential pensions. If they leave, nearly half of the mines will cease operation, because they are the backbone of our workforce. We must think about this too.
Moreover, the miner’s average pension is 8,000 roubles, 8,688 in the first quarter of 2012, which accounts for a 25.6% replacement of earnings lost. According to the law, the additional payment should amount to 7,705 roubles. To date the additional payment amounts to 1,914 roubles across Russia, and to 2,316 in the Kuznetsk Basin. They get this additional payment instead of the promised 7,000. Given the additional payment for nuclear armaments, for representative offices of the Ministry of Defence, for the Federal Agency for Atomic Energy in the amount of 17,762 roubles, and for pilots in the amount of 10,244 roubles, the additional payment that miners receive is absurd, considering their pensions. This again has to do with incentives for young people to become miners. It is necessary to pay attention to these issues too.
Now as for vacation time and all the rest. Maybe I am lucky because I happen to be the chairman of the Russian Independent Coal Employees' Union [Rosugleprof], in addition to being Vice-President of the International Federation of Chemical, Energy, Mine and General Workers' Unions [ICEM]. I travel across the globe and see other countries. The monthly wage of an Australian miner is $12,000, or $8,000 in take-home pay. The average wage of a Russian coal industry worker is 34,328 roubles, of a Russian miner – 29,000 roubles, which is less than $1,000! Speaking of an 8-hour working day in a forefield…Currently our miners have a six-hour shift at the working face of an underground mine. It takes some time to get there and back. They think this is the problem of the worker, or this is the problem of the employer who should take him there and back home with the minimum costs and as soon as possible, saving him time. Given the $1,000 salary, it is naïve or counterproductive to say that it is necessary to make a miner work more.
As for female labour. The WLO (World Labour Organisation) clearly regulates this. Russia has ratified WLO documents.
As for vacation time. We have not invented them, miners really have gained them, and this is not an isolated gain. There are some points for discussion. We have a simple proposal for employers – let us rebrand these things. If you reduce vacation time, if you increase labour productivity and working hours, you should increase wages, and not at the account of work hours. If you take away the existing overtime from the average wage, then the wages will be even lower. Labour productivity consists not only of wages and work, it also includes equipment and technology. Mr Rashevsky is sitting here, he will confirm that when the Kotinskaya Mine was built and they introduced new equipment and technology there, the labour productivity rose to the global level, meanwhile the same personnel were working there in the same conditions. So the growth of labour productivity relies not only on labour relations, but primarily on modernisation, on new equipment and technology, on building new enterprises. You cannot significantly raise labour productivity at old and obsolete enterprises, and we are ready to discuss issues of labour relations here. But I want to underscore again that these issues should be examined in their integrity, and [you should] not simply promote sweatshop practices, or increase working hours, or reduce vacation time, and so on. Thank you.
Dmitry Medvedev: Thank you. Regarding sweatshop practices – I realise that employees very often make statements in unison with their employers. But today, when I descended to the working face of an underground mine, the miners told me: “We want to work for eight hours.” I’m quoting their words, just as a little comment. I believe that the situation in other mines may be different and we might hear the opposite opinion. However those workers said it straightforward: “We didn’t want to work when obsolete equipment was used that was in operation since early Soviet times. Now the equipment is completely different, we want to work for eight hours.” That is just to maintain experimental integrity. So, colleagues…
Ivan Mochnachuk: I’d like to say a few words about safety…
Dmitry Medvedev: Yes, I am not arguing with you. I’m just telling you again: I’m not taking any decisions, I’m just citing the opinion that I heard today. Your view is clear, as are other opinions. I’ll issue a directive on this issue by all means.
For our colleagues representing the leadership of coal enterprises and other enterprises, please speak briefly: I have 15 minutes, each of you can speak for two minutes. It's time we heard from Russian Railways. Please, Mr Morozov (addressing Vadim Morozov, First Deputy President of Russian Railways, RZhD).
Vadim Morozov: Thank you! Mr Medvedev, and participants. Unwittingly, the theme of yesterday’s principled talk and meeting is continuing in today’s meeting here.
Dmitry Medvedev: If I had known that it would continue in this way, I would have asked Mr Yakunin to stay as well.
Vadim Morozov: Yes, it is always difficult to substitute for Mr Yakunin. I’ll do my best. The fact that Mr Novak highlighted some sensitive issues today means that the problem does exist. In 1996-1997, Russia extracted 96 million tonnes with great effort. This period saw an addition of 100 million tonnes of coal. And a 3-billion subsidy to the Ministry of Railways salvaged the situation in time. Of course, it was difficult to imagine 10 or 15 years ago that this would be insufficient. Of course, today we have managed to solve the main problems – the rolling stock is waiting to be dispatched to the Kuznetsk Basin. Yesterday Mr Yakunin cited the figure of 120 trains… Up to 300 trains of low-sided cars, and the total is up to 400. Today, excessive rolling stocks are operating inefficiently, I must admit. And by the way, Mr Medvedev, the issue of unification of light running, the cost of it, is not an RZhD whim. The main objective is transporter optimisation (RZhD gains nothing from this), increasing the efficiency of using rolling stocks. We consulted with everybody and I think this is a good thing.
So today we have clear forecasts that were spelled out in strategic documents. Yet after January 24, when we looked into our bilateral relations with major stock companies, we saw that we had to transport an additional 80 million tonnes before 2020. To be honest, we understood that you were signing documents with the understanding that the haulage was very difficult: the payback period was enormous – up to 30 years. Based on this, we are currently adjusting our programmes. And the programmes should be adjusted keeping in mind that our haulage will increase by 2020 (it will double on the Baikal-Amur Mainline, and will increase four times over on the Komsomolsk-Vanino section), and we realise that even a 7% indexation is insufficient to create an income starting in 2013.
I want to respond to Mr Novak on one point: we will repeatedly calculate our internal reserves. This year we increased our 30 billion investment, but how did we do that? We have complied with all our decisions taken by the board of directors and increase revenues by 0.5%. And we have full control over expenses, now they are lower by 0.3% despite an increased haulage. We are planning 24 billion for 2013. The only thing, Mr Novak, that is necessary to understand: if we include in the forecast 0.9% diesel oil growth and its price grows by 12%-14%, we cannot resolve these problems. I think the main decisions have been taken or will be emphasised once again after yesterday’s meeting – I mean the long-term forecast and indexation of transportation tariffs. July 2 – this is Vladivostok, Mr Medvedev, you confirmed your instruction again yesterday, today we are talking about the same thing. Of course, this is a long-term forecast.
Of course, I thank Mr Rashevsky who talked about an “investment component” today, but he imagines it differently. He said: “… It's clear that in conditions of uniting, and in conditions of developing, it is necessary to attract investment more boldly when such heavy infrastructure projects require it.” Of course, it is desirable that his proposal, as well as our own, gain support. What do we risk? We see it: 39 million roubles until 2015, if the current situation does not change.
It is more difficult with tariffs. In my view, Mr Fedyayev has a one-sided approach. He says: tariffs are less expensive over there… First, where are they less expensive? Let’s look into transportation rates from 2004 (that was an RZhD reform period): our tariffs have risen by 2.4 times, while in the coal sector – precisely by 4.6 times. You see? We have backed up everything for dozens of years. And with regard to preferences, it was 100 billion roubles for coal haulage during the same period! And if we look today into the haulage component of power-generating coal, it is 4.6% lower compared with 2003, although the coal price redoubled following hard currency prices, and we continue in roubles. And here a very complicated scheme arises, of course, and what should we do? I have my own suggestions, and I would express them if I were not repeating other speakers… Yesterday Mr Yakunin voiced one and you mostly supported it, and I thank you again, Mr Medvedev. But what should be done? Synchronise the issue of new licenses for the development of new coal fields. It is no use to instil hope now by issuing documents if you do not see those perspectives. And, of course, that would put the planning process in order, both for the Ministry of Economic Development and for us.
Second, the policy on the possible reduction of length of haulage. I would not dare to pronounce this phrase if it were not included in the strategy for coal industry development. But it is there. In my view, power plants and electricity exports is a brilliant idea. But something has to be done. For our part, we propose the following. We currently spend a lot of time seeking to persuade, for example, the Chinese Railways (which have been developing successfully), that in Zabaikalsk they operate not only through ports, they should take a rolling stock, replace bogeys, and transport within China – the same way as they actively accepted oil transports in their time. It is impossible to convince them today! And Zabaikalsk has been developing well. Currently this direction, Zabaikalsk railways, is promising and we will continue this work.
I want to ask you to possibly raise this issue in Russian-Chinese relations. I wish for both sides to sign long-term agreements specifying guaranteed haulage, haulage directions and the responsibility of the parties involved for the haulage volume. Yes, this is very important, but I repeat – such agreements work well where the haulage is more profitable, for instance where they transport oil or gas. It is more difficult here, but we are preparing such documents and will continue to do this.
The question of transport accessibility for the coal industry, taking into account all the links in the transportation chain. Railways are not a united whole… The idea has been in the air for some time, we are not the first to make this proposal, but still, perhaps some corridor could be established for private wagons? Some limit could be set. If you look at our price list today, it would cost around 1,000 roubles, whereas today it costs 1,300-1,400. This affects the coal transportation economies. It is becoming impossible to solve the problem using borrowed wagons at the expense of the economic interests of Russian Railways. There is, for example, the stevedore problem: what is the cost of cargo handling in the docks? This should be taken into account, and I understand that Maxim Sokolov is attentively listening.
We have not discussed this topic in a hands-on manner, but perhaps we should take a closer look together with our partners along the entire transportation chain to see what else could be done logistically, so that everybody should understand that if things remain as they are we will not be able to carry such amounts. For our own part, I stress, and I would like to report to you, Mr Medvedev, that one in every four tonnes of cargo that we carry is coal – nothing could be more important today. We will of course do our best to perform this work well.
Dmitry Medvedev: Thank you. I have a question for you, Mr Morozov. When we discussed tariffs with our colleagues, it was suggested that some discounts or additional differentiation be introduced in certain fields. Are you for or against this?
Vladimir Morozov: Differentiation already exists. But look at what is going to happen. For example, the so-called exclusive tariff codes amount to some 2 billion a year…
Dmitry Medvedev: No, I mean within the actual shipments, coal transportation.
Vladimir Morozov: For coal transportation…
Dmitry Medvedev: Is there differentiation now?
Vladimir Morozov: Yes, of course. There is differentiation and there are exclusive codes, and they will remain, only they will be in the form of tariffs. They will now be regulated through tariffs, they will not be exclusive codes, but tariffs will still take into account the specific characteristics of transportation.
Dmitry Medvedev: I still don’t understand whether they exist or not.
Answer: They exist, of course.
Dmitry Medvedev: If they are going to be regulated, it means they do not exist yet. Then say so, they do not exist today, but we think it would be sensible to have them.
Vladimir Morozov: Ports in the Far East, Murmansk… That’s about 2 billion today…
Dmitry Medvedev: So, there are two areas?
Vladimir Morozov: Yes, these are two distinct areas. It is impossible to preserve them in this form any longer, with the Common Economic Space and so on. Something needs to be done about it. Then Russian Railways will not receive this sum as a plus, it will be in the tariffs in line with the price list. Naturally, when the Federal Tariff Service will be doing this, it will take these two aspects into account.
Dmitry Medvedev: Maxim Sokolov, please.
Maxim Sokolov: Regarding tariff setting and discounts. Mikhail Fedyayev said that in the US, a 50% discount is applied on the carriage of coal, but in fact, here, first-class tariffs, compared with second- and third-class cargo, also receive a discount of about 50%. In addition, every kilometre after the first 3,500 kilometres gets a 67% discount, if coal is transported over such distances. By the way, speaking about the time of coal delivery, official data from the Russian Railways automated system (which is hard to cheat) show that the average delivery time from Kuzbass to the Baltics (4,500 km) is 12.5 days. As for the Far East (5,800 km), the actual time of delivery is 19 days, while the regulation time is 18 days. There the norm is exceeded, though there is no confirmation of this being the case in the Baltics. Perhaps there are some isolated trains (we do have some abandoned trains, as has been mentioned), but on the whole this is not the case.
I would like to comment on the remark made by Alexander Novak concerning the powers of Russian Railways to set tariffs or discounts on them. Russian Railways will obtain such powers in accordance with the Common Economic Space rules as of January 1, 2013.
Dmitry Medvedev: Perhaps we should do it earlier? Or are we not ready for this?
Maxim Sokolov: These are actually the powers of the Federal Tariff Service and I think…
Dmitry Medvedev: I want to know your position.
Maxim Sokolov: My position is that it is a need that is truly felt, and if we are technically ready, then I am for it.
Dmitry Medvedev: Thank you. I think I saw a raised hand here. Colleagues, I would like you to refrain from making comments. We have done a lot of talking today. Let your other colleagues have their say.
Gennady Kozovoi: I am the head of the Raspadskaya Coal Company. I agree with the speakers who have raised issues here.
I would like to turn to another aspect. The situation on the market today is difficult. During the last crisis four years ago, we providers of coking coal were fined for cutting prices and selling coal (Route 4) at production cost. We had three court hearings with the Federal Anti-Monopoly Service, but what is there to do now? Now once again the market is such that we have to sell coal in order to feed 8,500 people. And we face the same question. In accordance with the prescriptions issued by the FAS… The economic and technological validation of the price must be prescribed for the whole company. But today, this is a question of simply weathering the crises. Instructions of some kind need to be issued, or something must be done about it.
Dmitry Medvedev: What do you propose? Tell me in so many words, what should be done, in your opinion?
Gennady Kozovoi: Dump the whole thing. Why should we?... They demand that the price be the same in all markets, but this is impossible in Europe, in Asia and within the country. This is absurd.
Dmitry Medvedev: How should it be done?
Gennady Kozovoi: Prescriptions and court orders.
Dmitry Medvedev: For the FAS?
Gennady Kozovoi: Yes, Artemyev knows the issue well, his deputy is here.
Pavel Subbotin (Deputy Head of the Federal Anti-Monopoly Service): This is not quite so. We demand that every consumer be able to understand what the price will be and why. This is what it is all about.
Dmitry Medvedev: Colleagues, in this meeting I give the floor. All the others are participants. Let the speaker finish and then I’ll let you speak.
Gennady Kozovoi: We are still in litigation over the previous crisis four years ago. I would not like it to continue.
And my final point. When there is a crisis, I think some duties should be introduced on coal import, even up to 10%, even though we are in the WTO. Today 2 million tonnes of coking coal is imported into the country from the US. This is a request.
Dmitry Medvedev: I see. Thank you. Now you can make a brief comment.
Pavel Subbotin: That which exists in a court of law cannot be retracted, so this dispute can only be resolved in court. The position of the commission that made the decision is clear. As for our proposals, you know what they are: we believe that trade practice must be understandable for everyone, it should of course take into account the external price, the costs that may have to be incurred and all the rest. We have formulated all this and have submitted our proposals. I think it has met with a positive reaction from those present.
Dmitry Medvedev: What are these proposals?
Pavel Subbotin: The proposal is that companies should set long-term marketing goals.
Dmitry Medvedev: Do the companies understand this? All right, since you have raised this issue…
Gennady Kozovoi: The price of coking coal dropped by 20% within a month. What is to be done?
Dmitry Medvedev: All right, I’ll issue instructions to the Federal Tariff Service and other agencies to revisit this issue. Anyone else? Frankly, I have no time, but I can allow one more speaker.
Ivan Mokhnachuk: It’s about safety…
Dmitry Medvedev: No-no. With all due respect: come to the government and make your case. You have made your contribution, and only the Prime Minister here has the right to speak out of turn. Everyone else has just one opportunity. You please.
Igor Zyuzin (CEO of the open joint stock company Mechel): Thank you. I would like to offer a clarification to the question Mr Kozovoi raised. You remember the developments in 2008, when our company was punished by the FAS because our export prices were lower than the domestic prices? This year we were on the receiving end of the opposite decision, this time from the Federal Tax Service, to the effect that our domestic prices are lower than the export prices, in fact we are being forced to export at lower prices than we could collect. And we already have a 30 million ruling, for the 2009-2010 period, during the crisis and when everyone was trying to rescue the economy.
The issue is far more serious and profound. We told Arkady Dvorkovich and he asked us not to raise the issue at this meeting and to prepare a memorandum for him, but I am sorry I could not resist the temptation because it is really a sore issue.
Dmitry Medvedev: It is too late to apologise now.
Igor Zyuzin: It’s about tax legislation. Our Federal Tax Service interprets the concept of “market price” in an arbitrary way and believes that the price should be the same for the domestic and foreign markets and invokes Article 40 of the Tax Code. This must apply to the coal price. But it is the same situation now with iron ore concentrate, with the Korshunovsky Ore Dressing Plant. They think that the coal price in Russia should be the same as in Australia, and nobody takes into account the transportation costs. Whatever you do, you will always be held culpable by the FAS and the Federal Tax Service.
Dmitry Medvedev: Yes, the FAS and the FTS have a soft spot for you.
Igor Zyuzin: Yes, I’ve noticed that.
Dmitry Medvedev: Thank you.
Igor Zyuzin: Thank you.
Dmitry Medvedev: We should look into it then. Prepare a memorandum. Arkady Dvorkovich will also look into the situation. Let me give the floor to the Federal Tariff Service, and then we will wrap up. Go ahead.
Tamara Stebunova (deputy head of the Federal Tariff Service): Thank you. We discussed the tariffs issue yesterday and we said that, of course, tariffs are a very sensitive topic, especially for such huge cargo as coal. I would like to say that when tariff policy is discussed for the next year, major coal companies always take part in these discussions and the tariff policy is formed with their participation. Maxim Sokolov spoke about the differentiation that we have.
It is true that until 2008, tariffs were indexed at different rates for different types of cargo. As a result, at the time when the current price list was introduced, the difference between coal tariffs and tariffs for so-called costly third-class cargo was about 1.7 times, while today that difference is three-fold. Beginning from 2008, tariffs have been adjusted equally, mainly because all the potential has been exhausted. Clearly, under-indexing of one type of cargo must be compensated for by a different type. We are certainly ready to consider further differentiation, but that is only possible if the Industry Ministry and the Ministry of Economic Development take a certain stand.
As regards additional measures to implement a more flexible tariff policy, we are currently considering the option of expanding the powers of Russian Railways to implement this flexible tariff policy within the framework of the Federal Tariff Service decision on tariffs for carriage of coal in leased wagons. As regards giving Russian Railways still broader powers, that will be possible as of January 1. But this can be implemented in two stages. The first stage can be implemented before the end of this year, and it concerns greater flexibility of tariffs for wagons leased externally.
Dmitry Medvedev: Good. I would like the FTS to deal with this matter in the light of the discussion that was just held. I took note of your remarks regarding the position of the Industry Ministry and the Economic Development Ministry. I would like to see them formulate their positions. The representatives of both these ministries are present, and both are able to do so. Please include this in the instructions.
Well, colleagues, we have to move on, in the literal and figurative sense, I mean in time and in space. So I would like to say that a whole range of instructions have yet to be carried through to the end. At the same time, I think that our discussion today is able to generate a new set of instructions, because problems are multiplying and the market situation is changing. Our colleagues are signalling these changes and the government is obliged to react.
I agree with the proposals that were made here, strategic proposals that were formulated here. We need to take a closer look at certain ideas, for example, the idea of fields that are difficult to access. I am not sure how relevant this idea is. It has to dovetail with our overall plans for the development of the industry, with the Russian Railways plans, but anyway, the option of introducing the same tax holidays as for the tax on the extraction of oil in the case of minerals may be discussed.
I have already commented on some of the other issues raised here. Ivan Mokhnachuk described what I thought was a somewhat odd situation concerning the registration of technology with the Agriculture Ministry. I don’t know what the idea behind this is, and I would like the government bodies concerned to study the situation and make their proposals. If this is a hindrance, let us change the situation, this is definitely within our power, it is a bureaucratic, not a substantive decision.
Regarding underground medical centres. This is also a strange story, I did not summon the Healthcare Minister to this meeting, but perhaps it would have been useful to hear her comments considering what I have heard today. Incidentally, several miners approached me today asking to relax the health requirements formulated by the medical commission. They sound fine, and of course we should all take care of our health. But at the same time in their opinion (and they have a point), some requirements are totally absurd, as when a person who has not been to a dentist is banned from going down. This is odd even though it has been prompted by the most humane motives.
Regarding the association of employers in the coal industry: yes, this is a must. True, as it says in a classic, before uniting, it is necessary to completely and decisively disassociate. If you have passed that stage then go ahead and merge. The government will back you.
Regarding additions to pensions. Miners raised the issue several times and I have promised to look into the situation. I am asking the Labour Ministry and other structures, the Ministry of Economic Development and the Finance Ministry, to look into the situation and this problem in the broader context.
A number of instructions have been included in the draft resolution of this meeting. I am not going to list them now, but naturally, I will sign them.
One more observation. The theme of tariffs was discussed here from various angles. I want it to be treated with due account of what the heads of the coal companies have said today, with due account of what the government agencies said, including, of course, Russian Railways. This is a two-way street. Each side must cover its part. There are no easy options, either for Russian Railways or for the coal companies, but we managed to survive more difficult times (let's be honest with one another), the years when everything was grinding to a halt and the situation was extremely difficult.
I will also issue some minor instructions, and in fact I have given them to the government today, including on road building. Thank you. I will now have a word with Aman Tuleyev on the situation in the Kemerovo Region. Until next time.