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. Last Updated: 07/27/2016

State: Coal Subsidies to End by 2003

Russia officially promised the World Bank on Wednesday that it would honor its previous obligations and eliminate all subsidies to the coal industry by 2003.

"The [Russian] government expressly stated that ... the coal subsidies in their present form will be eliminated in 2003," said the press release circulated by the World Bank.

Last week Deputy Prime Minister Viktor Khristenko sent a letter to the bank promising that the government would stop subsidizing the coal sector, and asked for an extension of the deadline of its SECAL II, or second adjustment loan for the coal sector, until the end of the year.

While no official comment was available from the Energy Ministry, in private its officials said that the sole purpose of the letter was to secure the remaining $150 million of the $800 million SECAL II, which was agreed to in 1997 but put on hold after the 1998 crisis.

The state asked for the extension because it was unable to meet the conditions of the loan on time, officials said.

One high-ranking official, who asked not to be identified, called the move a "political decision," and that the main purpose of Khristenko's letter was "to continue the lending program."

The official also accused the World Bank of attempting to undermine Gazprom's expansion into Europe by forcing Russians to consume less coal and more gas, leaving the gas giant with less volume to export.

In an interview with the business daily Kommersant published on Wednesday, Gazprom chief Rem Vyakhirev laughed at the idea floated by the European Union to double Russia's gas deliveries within the next 10 to 20 years, saying that to do that Russian power companies would have to learn to generate more of their power with coal in lieu of gas.

Subsidies to the coal sector are forecasted at 8 billion rubles for 2001, virtually unchanged from 7.97 billion rubles last year. In dollar terms, subsidies are expected to fall 6 percent to $267 million this year at the government's target average rate of 30 rubles to the dollar.

Energy Ministry officials said the decision to cancel subsidies is not a sign of a bonanza in the coal sector, even though coal output surged 6.3 percent over the last two years from a low of 232.2 million tons hit in 1998, which is about 45 percent below the historic high of 425.4 million tons in 1988.

They said the recent rebound is due mostly to improvements on the managerial side and use of imported Western equipment, while the industry's fundamentals remain rotten, as evidenced by the absence of new mines being opened.

According to ministry estimates, some 28 billion to 30 billion rubles ought to be spent to prevent soil erosion and other ecological problems at mines that have been already closed.

Last year, the government funneled 132 million rubles for capital expenditures into the coal industry.

This week the government agreed to bail out Chelyabinskugol, which requires 404 million rubles in financing, 363 million rubles of which will be provided by the regional and federal authorities, according to media reports.

However, the Energy Ministry said Wednesday that the proposal had not been finalized.

Separately, Prime Minister Mikhail Kasyanov this week agreed to give away the state's golden share in Kuzbassrazresugol and Yuzhny Kuzbass, relinquishing the last opportunity to influence key decisions in these two coal companies, which are already in private hands.

Energy Ministry officials objected to Kasyanov's move, but could do little to stop it.