1. “Coal Sector Policy Support Programme” This project is funded by the European Union Implemented by Human Dynamics Consortium EU-funded Project: Coal Sector Policy Support Programme EC-Contract – 2008/141-542 September 2008 – June 2011 Beneficiary: Ministry of Coal Industry of Ukraine

2. “Coal Sector Policy Support Programme” This project is funded by the European Union Implemented by Human Dynamics Consortium Page 2 Implementation of the EU-funded project by a consortium led by Hulla & Co, Human Dynamics KG, Vienna, Austria, in cooperation with: MWH, Belgium/UK, Upper Silesian Regional Development Agency (GARR), Poland, Kopex, Poland, and Royal Haskoning, The Netherlands.

3. “Coal Sector Policy Support Programme” This project is funded by the European Union Implemented by Human Dynamics Consortium Page 3 Assist the Ukrainian government in developing and implementing its coal sector reform policy. Advance the development and restructuring of the coal- mining industry in a socially-responsible and cost- effective manner, Improve mine safety standards Help to eliminate ecological damage. Project’s objectives

4. “Coal Sector Policy Support Programme” This project is funded by the European Union Implemented by Human Dynamics Consortium Page 4 Component A Institutional strengthening Component B Evaluation of mines Component C Social policy Component D Occupational health and safety Component E Environmental issues Analysis Recommendations Master Plan

5. “Coal Sector Policy Support Programme” This project is funded by the European Union Implemented by Human Dynamics Consortium Page 5 Coal Sector Analysis Determination of Coal Demand Determination of „coal supply lines“ Macroeconomic development Energy mix Steel sector development Implementation of energy efficiency measures Development of renewable energy sector Domestic competitiveness of coal International competitiveness Reference scenario Setting on coal development; Setting on natural gas development; Steel sectors develops well; Renewable rules; Energy efficiency measures bring effects Conservative: 86 Mt in 2020 – currently state owned: 50 Mt 21.7 billion UAH investment Realistic (most likely): 94 – 96 Mt in 2020 – currently state owned: 61 Mt 33.5 billion UAH investment Optimistic (most coal “friendly”): 102 Mt in 2020 – currently state owned: 56 Mt 21.5 billon UAH investment

6. “Coal Sector Policy Support Programme” This project is funded by the European Union Implemented by Human Dynamics Consortium Page 6 Available resources Commercial reserves: 37,6 bn ton

7. “Coal Sector Policy Support Programme” This project is funded by the European Union Implemented by Human Dynamics Consortium

8. “Coal Sector Policy Support Programme” This project is funded by the European Union Implemented by Human Dynamics Consortium Page 8 Analysis of the coal sector Strong points: big deposits of all types of coal well qualified workers well qualified technical managers proximity to the European markets big deposits of anthracite well spread transport infrastructure

9. “Coal Sector Policy Support Programme” This project is funded by the European Union Implemented by Human Dynamics Consortium Page 9 Analysis of the coal sector (cont.) Weak points: often high sulfur content in coal high gas concentration in mines difficult geology weak business management in mines worn out and outdated equipment poor safety records of mines poor quality of coal processing

10. “Coal Sector Policy Support Programme” This project is funded by the European Union Implemented by Human Dynamics Consortium Page 10 Analysis of the coal sector (cont.) Opportunities: expansion of exports to China, Turkey, India and EU (esp low S coal) potential for the development of the new mines underground gasification utilization of methane potential for development of large power station based on lignite possible export of coal-based energy to SE and Central Europe recycling of waste (reprocessing of tailings) utilization of underground water Retail marketing of anthracite in 10 and 20 kg packets production and sale of briquettes made of coal and biomass

11. “Coal Sector Policy Support Programme” This project is funded by the European Union Implemented by Human Dynamics Consortium Page 11 Analysis of the coal sector (cont.) Threats: new anti CO2 regulations import of coal from countries like Russia, Kazakhstan, South Africa, Brazil or Australia possible shortage of suitable equipment for refurbishment of mines possible collapse of elements of infrastructure (mainly railways) possible shortage of qualified miners outdated research in mining and geology low capacity in ports lack of stability in business regulations

12. “Coal Sector Policy Support Programme” This project is funded by the European Union Implemented by Human Dynamics Consortium Page 12 Key elements of Presidential reform Liberalise the coal market, sale and pricing mechanisms Remove restrictions on import of mining equipment Privatise all viable enterprises of the sector and close the non-profitable coal mines Re-channel subsidies from subsidizing the production cost into investment in work safety

13. “Coal Sector Policy Support Programme” This project is funded by the European Union Implemented by Human Dynamics Consortium Page 13 Key recommendations Promote Ukraine as investment destination Full privatisation of mines Incorporate of all existing state mines Legalise or close all illegal mines Free market coal prices Wherever suitable implement vertical integration before privatisation Removal of restrictions for import and export of coal

14. “Coal Sector Policy Support Programme” This project is funded by the European Union Implemented by Human Dynamics Consortium Key recommendations (cont.) Stop subsidies to non-profitable mines Promote investment in the news mines Speed up closure of the mines Comprehensive reform of the pension system Coordinate social assistance on the local level Discuss art 22 of the Constitution Review the vocational education system Develop safe work culture

15. “Coal Sector Policy Support Programme” This project is funded by the European Union Implemented by Human Dynamics Consortium Key recommendations (cont.) Speak with all stakeholders NOW

16. “Coal Sector Policy Support Programme” This project is funded by the European Union Implemented by Human Dynamics Consortium Privatisation Transparent, open, fair and non-discriminatory Full and unrestricted access to ALL information related to the privatised mines Pilot privatisation Assess possibility of donor financing Transfer of ownership of auxiliary functions to the local authorities (district heating, water supply etc) Stock exchange sales?

17. “Coal Sector Policy Support Programme” This project is funded by the European Union Implemented by Human Dynamics Consortium Page 17 Examples of successful investors (cont.) SADOVAYA (SGR – Warsaw Stock Exchange) reserves: 48,1 mln ton of steam coal current production 1,2 mln ton / year current capitalisation: EUR 115 mln

18. “Coal Sector Policy Support Programme” This project is funded by the European Union Implemented by Human Dynamics Consortium Pilot Privatisation Would flush out most of the problems Would speed up and simplify the other privatisations Should attract foreign investors 6 – 10 mines from all groups Approx cost EUR 2,5 – 3 mln Should take about 24 months

19. “Coal Sector Policy Support Programme” This project is funded by the European Union Implemented by Human Dynamics Consortium Closure of mines In 15-24 months not in 15-24 years Sell all sellable assets of the closed mines in the privatisation process Ask for international advise (esp. from Germany and Poland) Ask for donors assistance

20. “Coal Sector Policy Support Programme” This project is funded by the European Union Implemented by Human Dynamics Consortium Social assistance Community capacity building Involve all local stakeholders Pay special attention to wives of laid-off miners Prepare measures prior to restructuring Secure a long term funding for the mitigation measures Adapt social mitigation to the local conditions Secure a broad – based political and institutional support

21. “Coal Sector Policy Support Programme” This project is funded by the European Union Implemented by Human Dynamics Consortium Safe work culture Safe work culture – the key for the improvement of the work safety standards Understanding of the financial value of the safe work practice International safety standards

22. “Coal Sector Policy Support Programme” This project is funded by the European Union Implemented by Human Dynamics Consortium Think twice before you allow for any private investment into any enterprise to be privatised