Sanctions plus taxes: Russian coal industry revenues crumble to dust

The market players themselves are waiting for a reduction in production, shrinkage of exports and losses. And behind the Russian coal giants are tens of thousands of ordinary Russians.

Yekaterina Maksimova

Export - to a minimum

Rates for anthracite, thermal and coking coal from 2023 may increase by 380 rubles per ton. Thus, next year the treasury can additionally count on 30 billion rubles. The decision to “flood” the deficit federal budget with coal coincided with a difficult period in the history of the coal industry.

Kirill Rodionov, an expert at the Institute for the Development of Technologies in the Fuel and Energy Complex , believes that in 2023, even without an increase in the mineral extraction tax and export duties, the mining industry would have faced a drop in production due to the EU embargo. Europe, we recall, refused to export coal from Russia back in August 2022.

"When assessing potential losses, one should also take into account the UK, which announced its intention to stop importing Russian energy carriers back in the spring, and Norway, which traditionally adopts EU sanctions," says Kirill Rodionov. In 2021, these countries accounted for 25% of lignite and hard thermal coal exports (47.2 Mt out of 191.4 Mt) and 11% of coking coal exports (3.4 Mt out of 31.8 Mt). This is FTS data.

The share of exports lost in Europe may increase even more. Russian coal miners will lose almost a quarter of their exports if Japan, Taiwan and South Korea follow the path of the EU (that is, they refuse Russian coal).

"In 2021, these three countries imported slightly more lignite and thermal coal from Russia (47.8 million tons) than the EU as a whole (47.2 million tons). Thus, half of Russian exports of lignite and hard coal may immediately be at risk. thermal coal", - Rodionov specified to Novye Izvestiya.

Alexander Titov , senior expert at the Institute of Energy and Finance , also believes that the increase in the severance tax will be a serious blow to Russian exporters.

"The industry will feel pretty bad next year. Prices on the world market will most likely decline. Not very much, but our companies are now forced to give big discounts to get into new markets, pay commissions to intermediaries. All this leads to that even now the export netback is rather insignificant, especially for thermal coal," Titov warns (quoted by Infotek).

2023: Shall miners take off their helmets?

Kirill Rodionov predicts that in 2023 the risks that were laid down in the current year will only worsen. And coal miners in the short term will be forced to cut production.

“These risks will fully manifest themselves in 2023, when the embargo will be in effect throughout the year (and not four and a half months, as in 2022). Considering that last year exports accounted for 57% of brown and hard thermal coal, as well as 31% of coking coal production, the EU embargo and the partial loss of the Asian market will inevitably lead to a reduction in production", - such is the forecast of an expert from the Institute for the Development of Fuel and Energy Technologies.

According to him, for brown and hard thermal coal, the drop in production in 2023 may be at least 20% compared to the level of 2021, and for coking coal - at least 15%.

Behind these percentages to reduce coal production are giant enterprises. Mechel alone is an employer for more than 50,000 people.

According to Kirill Rodionov, the Kuznetsk coal basin, which accounted for 55% in 2021, will suffer the greatest losses. And among the major centers of coal mining, Kuzbass is the most remote from export ports in the Far East.

"Companies operating in the region may stand to lose from the recent cancellation of the Non-Discriminatory Access Rules (NRA) for the Eastern Range, which guaranteed access to the infrastructure of the Baikal-Amur and Trans-Siberian railways. After the abolition of the IPA, Russian Railways will independently determine which The difference in the profitability of transporting various cargoes can play a decisive role here: in 2021, the income rate of Russian Railways for the export of coal was 195 kopecks per 10 ton-kilometers, while for the export of ferrous metals - 687 kopecks / 10 t- km, and for the export of oil and oil products - 805 kopecks / 10 t-km," Kirill Rodionov explained.

Coal prices: pessimistic outlook

Against the background of the stabilization of export-import flows, which will inevitably occur after the departure of Russian coal miners from the European market, prices on the global coal market in 2023 will definitely not please domestic exporters. And Alexander Titov is sure that at the beginning of 2023, when prices fall, Russian coal miners will start generating losses.

Kirill Rodionov notes that in the second half of 2023, the losses of coal miners were still partially smoothed out due to rising prices. For example, the average price of coal at the largest African hub Richards Bay in August 2022 was more than double the level of a year ago ($290 per tonne against $138 per tonne).

"The rise in prices is largely due to the logistical restructuring in the European market, which is under the influence of the EU embargo. According to the Trade Map portal, which aggregates data from national statistical agencies, in 2021 Russia accounted for 70% of lignite and thermal coal imports to the EU, the UK and Norway, while the remaining 30% - mainly to Colombia, the USA, South Africa and Australia. Along with Indonesia, the world's largest exporter of thermal coal, these countries will replace supplies from Russia. At the same time, next year, against the background of stabilization of export -import flows, there will be a decrease in prices - up to $150 per ton per year on average," Rodionov believes.

Cabinet has a lot to think about

Experts agree that the coal miners experiment raises many questions.

"In general, the increase in the severance tax and export tax for the coal industry is not very timely. Apparently, the Ministry of Finance, with the help of this measure, is going to patch up the holes that have been formed in the budget in recent months: for example, in July 2022, non-oil and gas budget revenues (that is, revenues outside the framework of special taxes and duties for the oil and gas industry) decreased by 29% year-on-year (to RUB 990 billion). However, an increase in the fiscal burden will not help the coal industry get out of the crisis," Kirill Rodionov is sure.

Alexander Titov draws attention to the fact that the increase in the mineral extraction tax by 380 rubles per ton is not a very significant figure, but it would have been so if the situation had developed favorably. “And if you already have a negative margin, then the new tax burden will be sensitive. Plus, there is also information about the introduction of an export duty,” Titov said.

In his opinion, the Ministry of Finance of the Russian Federation, which has decided to increase the tax burden on coal miners, should at least differentiate the producers of coking and thermal coal. "So far, coking coal producers are doing better: their netback is still higher than that of the energy one due to the lighter transport arm and smaller volumes of deliveries," Titov summed up.

In 2021, coal production in Russia, according to the Ministry of Energy, amounted to 439 million tons. Preliminary data for 2022 is not yet available. As did not come from the Russian government and the forecast for the level of production in 2023.

Recall that the federal budget in 2023 will be in deficit - 3 trillion rubles. Revenues are planned to be about 26 trillion rubles, expenditures - 29 trillion rubles.