- Print This Post Print This Post

By John Helmer in Moscow

Prime Minister Vladimir Putin met yesterday at Novokuznetsk city, in the Kemerovo region, with families of miners who were killed at the May 8 explosions that destroyed the Raspadskaya coking-coal mine, one of Russia’s largest. In remarks published on the prime ministry website, Putin hinted that he holds Raspadskaya’s management and owners, which include the Evraz steel group and Roman Abramovich, responsible for inadequate safety measures at the mine; and also for a scheme of miner bonuses which encouraged safety violations leading to the two fatal methane detonations.

Fires continue inside the mine shafts, and the bodies of 23 miners remain unrecovered. A total of 90 men, including miners and rescuers, were killed. The state investigating commission has yet to rule on the causes of the incident.

Ahead of Putin’s visit, families of those miners whose bodies have not been recovered complained that they are being paid, neither the regular wages of the miners, as if they are still working, nor the compensation promised by the government and the company for their deaths. The casualty compensation scheme announced provides for Rb1 million (($32,258) from the federal budget, Rb100,000 from the regional budget ($3226), and Rb1 million from the company.

Putin said “this tragedy showed that the safety measures, the equipment and the solutions used to ensure safety fell short of their target…if production grows, the area of a coal mine should be expanded, and then more has to be done to ensure safety at new facilities. Certainly, it’s the experts that can assess whether this ninefold increase in funding has been adequate. It’s necessary to make another review of what the money was spent on and how effectively it was used.”

Putin was reported on Interfax as saying that repairs and revival of the mine will cost at least Rb10 billion ($323 million). “This is a big burden on stockholders and owners. They’ll have to pay this from their own pockets,” Putin was reported as saying. The government website version changes Putin’s meaning, quoting him as telling the miners: “in our estimate, the effectiveness of the industry is now high enough to allow the shareholders and owners of these companies to increase investments in safety. But I repeat, I promise that we’ll consider this issue. We’ll support the owners, relieving their burden even though it will result in lower budget revenues. We’ll consider this issue.”

Putin also told the miners that he has required Raspadskaya’s owners to halt the management practice of basing miner wages on output and productivity bonuses that encourage the suppression of methane detection systems which, when operational, halt equipment and work shifts as methane levels approach danger levels. “I insist that the wages should be revised,” Putin said, “and that the permanent component of these wages should be increased to 70%. On the whole, the employers have accepted this. I met with them and discussed this with many of them. I also met with trade unions separately… I was promised that the work on the industrial agreement would be completed no later than July 5 of this year. There is not much time left.” Just 50% of miner compensation before the blast at Raspadskaya was in the form of fixed wages.

Deputy Prime Minister Victor Zubkov announced after Putin’s meeting that a decree has been drafted for President Dmitry Medvedev to sign tightening safety standards in the coalmines. But the miners and their union representatives have said that it is not the standards as such that are at fault. They charge it is company policy on bonuses that encourages danger, and corruption that blocks proper safety inspections and implementation of the law. Until the text of the decree is released, it is not known whether the Kremlin has toughened civil and criminal liability for mine owners.

On June 10, Raspadskaya issued a release in response to what it claimed was “incorrect information in the mass media”. “Total investments in all enterprises of the Company since 2005 amounted to RUB 23.6 bn [$847 million], including RUB 5.2 bn [$172 million] in FY 2009. Investments in Raspadskaya mine for the same period totaled RUB 12.8 bn from the total amount of the production investments. It includes purchases of aerogas control equipment, equipment for the degassing of coal seams, construction and equipment of ventilation shafts and degassing holes, an automated system of control of technological processes and systems of underground radio communication. It should be noted that investments in purchases of new equipment and construction of new facilities at Raspadskaya mine always provide for technical development directed to the improvement of production safety. Thus, in fact all the investments are directed to the provision of enhanced safety and efficiency of production and the improvement of working conditions.”

The statements by Putin and Zubkov imply, for the first time in public, that the government is focusing, not on what Raspadskaya says it spent on safety equipment, but on the company’s liability for the way the mines have been operated.

Moscow-based Renaissance Capital responded this morning, leading a chorus of investment banks in assessing the prime minister’s stance as bad for Raspadskaya’s, and also Evraz’s share price. “The news is neutral-to-negative for Raspadskaya, in our view,” Boris Krasnojenov, Renaissance Capital steel analyst reported to clients.

“We expect some weakness in Raspadskaya’s share price on this news, but we think the downside potential is limited…. we did not identify any encouraging news in media reports of Putin’s trip to Raspadskaya. The recovery capex estimate quoted by the prime minister exceeds the government’s initial estimate of $200mn by 65%. However, we have received anecdotal evidence from industry experts that more than $500mn of capex may be needed to bring the Raspadskaya mine to full capacity.”

Mine sources and the Kemerovo regional government are now estimating that resumption of production at Raspadskaya will not occur before March of next year.

Marat Gabitov, steel analyst for UniCredit Securities in Moscow, disputes what Putin meant, saying: “We see Putin’s comments as reiterating his positive stance towards Raspadskaya and its key shareholders, which in our view minimizes the risk of state-backed financial claims against the company and even raises the potential for the state sharing some reconstruction capex. We note that the capex estimate of RUB 10bn (USD 325mn) is 50% above the RUB 6bn (USD 194mn) that Raspadskaya management reportedly provided to Putin, and for now we believe the lower figure is more reliable.”

The prime minister’s order to raise the wage proportion of miners’ pay is “only slightly negative for Raspadskaya and Belon”, Gabitov reports today, ” as we believe miners normally receive their full bonus, while the companies may find other efficient methods of motivating miners, in our view.”

According to Gabitov, falling steel prices and lower steel production at Russia’s mills can be expected in the autumn quarter. The downturn will force down coking coal prices “since there no longer seems to be a shortage of coking coal on the domestic market.”

The Finam brokerage reports that the biggest financial risk for Raspadskaya and Evraz has been that of government sanctions. “We are positive on the outcome of the meeting with the Prime Minister,” the brokerage says today, because “the readiness of the state to render aid to the company substantially lowers the political risks involved in the possible sanctions against the company.”

This is a reference to the action taken by Putin and his deputies against potash miner Uralkali, after the subsidence of one of its mines in October 2006 caused a halt to production, closure of the mine, and loss of reserves. There were no injuries to miners in that incident. But in the four years that have followed, Uralkali has been obliged to pay heavy financial penalties, and the chief shareholder forced into the sale of his control shareholding.

Photo caption: The figure in the background is Kemerovo governor, Aman Tuleyev. Noone has done more to protect the owners of the Kemerovo region steelmills and coal mines from having to comply with labour and environmental safety standards.

Leave a Reply