Methane is laughing gas for oligarchs
By John Helmer
MOSCOW - In Russia during Soviet days, the coalminer was an elite worker and
labor hero; compared with others, he was handsomely paid, and his work safety
relatively well protected. This is true no longer - not since the coalmines
passed into the hands of the handful of proprietors known in the country as
oligarchs. The owners are effective in keeping mine accidents and their causes
from national notice.
They have also succeeded in suppressing the national mine safety inspectorate.
This is the salutary tale of how the owners of Evraz - Roman Abramovich, Eugene
Shvidler and Alexander
Abramov - succeeded this past month at making coalmine methane a laughing gas;
that is to say, a gas they laugh at with impunity and profit. [1]
Evraz, Russia's largest vertically integrated steel and mining group, has been
ordered by the federal mine safety agency Rostekhnadzor (RTN) and a Kemerovo
court to stop production at the Esaulskaya mine, in the Kemerovo region, until
inspectors have resolved reported methane problems.
The closure was confirmed for Asia Times Online by Evraz spokesman Alexei
Agureyev. He said the mine stopped operating on January 25, and the company
does not know for how long operations will be suspended. He declined to give
details of the mine's monthly production of coking-coal and steam coal,
claiming the company has coal stocks to tide it over the delay.
Three years ago, two other mines in Evraz's coalmining subsidiary,
Yuzhkuzbassugol (YKU), suffered methane explosion accidents. The first, at
YKU's Ulyanovskaya mine in March 2007, killed 110 miners, the worst toll for a
Russian mine disaster on record. Then in May the same year, a methane explosion
at YKU's Yubileinaya mine caused 38 fatalities.
Miners' union sources in Kemerovo said at the time that company production and
wage-related productivity targets for miners were indirectly responsible for
the methane explosions because the management targets encouraged miners to
suppress methane detection systems in the mine shafts. By disabling the
systems, the sources claimed, shutoffs of power when methane levels rose to the
danger level did not occur.
In the latest case, a statement by the mine inspection agency indicates that
there was a methane incident at Esaulskaya on January 20, but it caused no
casualties or damage. The closure and compliance order have followed. Evraz has
been identified in an earlier announcement by RTN as an inspection priority for
this year.
Evraz has reported nothing on the safety shutdown at Esaulskaya. The last Evraz
announcement on mine safety was a month ago, on December 24. That was when
Evraz said "the families of miners killed in a blast at the Yestyuninskaya Mine
of the Vysokogorsky Iron Ore and Processing Plant (VGOK) in Nizhny Tagil on
December 23, will receive 1.9 million roubles [US$63,300] each". The company
statement revealed that of this 300,000 roubles would come from the Sverdlovsk
regional budget and 100,000 roubles from the Nizhny Tagil municipal budget.
In last month's Evraz mine disaster, nine miners were killed. The incident near
the city of Nizhny Tagil, in the Sverdlovsk region, where Evraz operates its
lead Russian steelmill, occurred at a depth of 180 meters. A local police
source said that about four tonnes of ammonium-based explosive had detonated
while being transported in shaft trolleys.
Mikhail Tarasenko, head of the Mining-Metallurgical Trade Union told Asia Times
Online at the time that the accident happened "because of non-observance of
technical regulations, specifically of those relating to transportation of
explosives". But he said it was too soon to say whether there was human error
or fault on the part of the miners or, alternatively, a control system flaw for
which the company and its management may be ultimately responsible. "It is too
early to know the exact reason," Tarasenko said.
He also noted that earlier this year at the same Yestyuninskaya mine, 18 miners
had been overcome by combustion gas, though not fatally. "I cannot say that
Evraz systematically breaks the technical regulations." Tarasenko said. "They
pay close attention to labor protection, and miners wear modern protective
outfits. But this accident needs detailed investigation".
RTN was asked whether its inspection commission had reached a conclusion on the
causes of the iron-ore mine explosion. At a press conference last Tuesday,
Vlkadimir Medvedev, the chief of the Urals region branch of RTN, said the
miners killed were not responsible for the explosion. But he said the agency
inquiry had determined that a short circuit causing a spark from a copper
contact wire detonated the underground explosion. As to the cause of the short
circuit, Medvedev said there had been negligence on the surface.
Evraz is Russia's most heavily indebted steelmaker, and one of the most heavily
indebted of the oligarch-owned companies. Total debt at the end of 2008 was
reported in company documents at US$10 billion. Most of the debt was incurred
by a program of premium-priced acquisitions of steel and other assets in the US
during 2007 and 2008. When the crash came in the autumn of that year,
Abramovich and Abramov applied to the Kremlin for several bailouts to protect
their non-Russian assets from being forfeited to the foreign banks and to
support their Russian mills and mines in paying taxes and other obligations. By
last June 30, the last date for which Evraz has released an audited report, its
debts were down to $8.5 billion.
There is no reference in the consolidated financial reports to mine accidents
or their impact on Evraz revenue, profit, and dividends. The breakout of
division financial results lumps coal-mining with iron-ore mining, and the
group's non-Russian mines (Ukraine and South Africa) with the Russian mines.
The six-month financial report for this mining division, covering the period to
June 30, 2009, shows that there were earnings (Ebitda) of $94 million on sales
revenues in the period of $594 million. Write-off of mine equipment was worth
$7 million in the period.
It isn't known whether the survivors of Evraz miners who have lost their lives
in the past three years have taken the company to court. In its last financial
report, Evraz is reassuring to shareholders on its exposure. "The Group has
been and continues to be the subject of legal proceedings, none of which has
had, individually or in aggregate, a significant effect on the Group's
operations or financial position."
No Moscow-based investment bank or brokerage has investigated and reported the
benefits that accrue to the company from mine safety violations, net of the
costs of death payments, cleanup, equipment writeoffs, and production losses.
Instead, these houses have minimized the impact of mine accidents in relation
to recommendations to their clients to buy Evraz shares.
A report by UBS analyst Maxim Moshkov suggests that Esaulskaya accounts for
less than 15% of YKU's aggregate output. At peak in 2008, Evraz produced 14
million tonnes of raw coal, including 9.1 million tonnes of coking coal. Of
this total, YKU produced 13 million tonnes and 8.4 million tonnes,
respectively. In 2009, the Evraz group of mines report output of just over 10
million tonnes of coking coal, and 4 million tonnes of steam coal. Total proved
and probable coal resources of the YKU coal company, Evraz says, amount to 1.6
billion tonnes, including 1 billion tonnes of hard coking coal.
In his most recent published commentary on Evraz's operating performance,
issued in September, group chief executive Alexander Frolov, said: "Evraz's
business model proved its viability and resistance against the global
downturn."
The coalminers union in Kemerovo thinks differently. Anatoly Anikin, deputy
chairman of the Russian Independent Coal Miners' Union (Rosugleprof), analyzes
the methane safety problem in the Evraz mines this way: "Certainly if people
die, if accidents happen, then Evraz is culpable.
"The more important question is, why is the situation like that in the coal
mining sector in general? There are several points here. The first point is
that the controlling organs, including Rostekhnadzor, have a hapless policy. If
you look at their rights, you can see that they can do almost nothing to the
owner of the mine.
"Rostekhnadzor can only carry out an inspection once a year with a preliminary
notice. If they discover violations and stop the mine, then the owner can
challenge their decision in court and make Rostekhnadzor compensate for his
losses. So they have to think twice. The Soviet controlling organs were removed
completely - not a shadow of the former power and capacities [is left].
"The second point is the deterioration of professionalism. Last month, I met
with Evraz representatives, and they had to admit they lack professional
workers; the people they need just don't exist. You can see that young people
who even study at specialized colleges and institutions later go to work in
some other sphere, leaving the mining sector without any hope for the future.
In the Soviet times mining was prestigious: the miners were well paid, taken
good care of, protected by the government. All this is gone.
"The third point is the deterioration of the resource base. Nothing has been
done for 20 years, and the safety margin is at zero. As to the Evraz holding,
they are gradually re-equipping the mines with quite modern mining systems and
machinery. But still, the staff problem is vital. Personnel have to be trained
to work with foreign equipment. Why do you think methane is exploding? Because
ventilation is a serious science. If you excavate faster than the air is
cleaned, you'll get accidents."
Note
1. Methane is the principal component of natural gas, and the stuff that
generates energy when natural gas is burned. Colorless and odorless, methane is
released when coal is excavated. Because underground mine shafts concentrate
the gas, and because concentrations of 5% to 15% methane are explosive, failure
to detect methane accurately and to stop operations that give off igniting
sparks is the most common cause of coalmine accidents.
John Helmer has been a Moscow-based correspondent since 1989,
specializing in the coverage of Russian business.
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