By Vladislav Vorotnikov

During the first two months of 2024, roughly one-half (45.9%) of Russia’s coal mines were loss-making, nearly doubling since 2022, the Russian state statistical service Rosstat estimated.

In the last two years, the financial performance of the Russian coal industry has starkly deteriorated. During January and February, commercially successful coal mines generated only Rub20.3 billion ($223 million) more than the unprofitable mines lost, Rosstat reported. This figure, commonly used in the Russian coal industry to measure the industry’s financial health, plummeted by a factor of 5 times compared with 2023 and by a factor of 10.5 times compared with 2022.

The downward trend in the Russian coal industry can be largely attributed to Western sanctions. As reported by Russian newspaper Vedomosti, several sources within Russian coal companies, speaking on the condition of anonymity, revealed that to maintain exports following the European coal imports ban, Russian miners have had to offer additional volumes to Asian customers at a significant discount.

However, the pivot to Asia has not entirely paid off for the Russian coal industry. In April 2024, export prices for Russian coal dropped to the lowest level since 2021 in the background of the weak demand in key foreign markets. In addition, logistics issues keep weighing heavily on Russian coal exports.

One of the major challenges hindering the profitability of Russian coal mines is their heavy reliance on foreign technologies. A source in the industry explained that the mines are in urgent need of updating their equipment, but the high debt burden, estimated to be close to Rub1 trillion ($11 billion), and the key interest rate set at 16% by the Russian Central Bank, are making this task particularly difficult. This example illustrates the complex financial challenges faced by the industry.

Kirill Rodionov, an independent Russian energy industry analyst, said that, among other things, the Russian coal industry suffers fromcurrency exchange fluctuation and an unprecedented labor shortage in the Russian economy. He estimated that during the past two years, Russian coal mines saw a 42% hike in labor costs as the country grapples with some of the worst workforce shortages in its history.

Russia lacks around 5 million workers, the Economy Institute under the Russian Academy of Science said in a study published in December 2023. The analysts have not explained the reason for the shortage, but it is usually attributed to a mix of factors involving weak demographics and massive emigration in the last two years.

The Russian economy has almost completely exhausted the available labor resources and is left “without free hands,” Elvira Nabiullina, head of the Russian Central Bank, said during a State Duma meeting in November 2023.

The existing problems are believed to bear higher security risks. Speaking following the Pioneer mine accident in Amur Oblast on March 18, 2024, which claimed the lives of 13 miners, Ruben Badalov, chairman of the Russian Labor Union of Coal Miners, noted that companies have to hire staff with little experience in mining operations, though “people from the street” are still not allowed, as miners still need to pass certain training, which is mandatory by the Russian law.

Sergey Grishunin, managing partner of the Russian think tank NRA, forecasted that the Russian coal industry’s financial performance would keep going south. By the end of 2024, he added, profitable mines will be earning less money than unprofitable will be losing. State subsidies of the railway tariffs for coal transportation are one of the few options the government could resort to to prevent that from happening. However, this would put additional pressure on the already strained Russian budget.