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12 Mar, 2009 14:53

Coal miners bear brunt of downturn as PM affirms support

Coal mining has been among the worst hit sectors in the Russian economy, as the economic crisis unfolds. Prime Minister Putin went to Russia's coal rich Western Siberia region to meet the miners.

Workers at one of the biggest mines in Russia remember the days when the industry was producing record output of more than 3 million tons a year. Russia has a third of global coal reserves and used to be among the world's top exporters, with a 12% market share. But these days, the sector is desperate for the state support.

The Kuzbass region in Siberia – Russia's heart of coal-mining and black metallurgy – is more than 60% export-based. With the fall in world demand it has been hit hard by the crisis. Production has fallen dramatically, sending salaries down by 40%. The government sees the creation of stable domestic demand as a way to alleviate the situation.

The coal mining industry is heavily dependent on metallurgy, which has also been hit by falling global demand. As a result, coal consumers have delayed payments for supplies. In January, coking coal output fell 16% year-on-year, and according to Uralsib analyst, Nikolay Sosnovsky, thats leading to a bigger problem.

“The problem is non-payment. That's unpredictable. Everybody prefers to keep the money and to use it in case something happens.”

Meeting miners in Russia's coal-mining heart, the city of Novokuznetsk, Prime Minister Putin promised support from state orders, but warned of more job cuts.

“The coal mining industry is in the list of strategic sectors, we will provide state guarantees, but the number of jobless may increase. We will take care of those who lost their jobs and increase unemployment benefits. The way out is to restore domestic demand and increase the number of state orders for the defense sector, shipbuilding and aircraft production – this is the state investment programme.”

But Nikolay Sosnovsky says that a recovery will take time, and doubt that orders from the State could prove effective.

“It's difficult to help coal producers with state orders, as their consumers are across all sectors of the economy. The only possible help is state credit. But it's a kind of precise measure, useless for changing the situation with demand. We should take into account that our coal industry is export-oriented.”

While supply exceeds demand, the prognosis for the sector is grim. Experts say that the sector can only really recover when energy consumption and steel production regain their pre-crisis levels.