Kremlin Support for Russian Coal Industry Seen as Important to Address Long-Term Economic and Political Pressures

The Kremlin sees more than just an economic need to leverage its coal assets to generate revenue and growth, but rather views the success of the industry as important to political forces in the country and preserving the status quo.  Russia is aware that industry workers can wield substantial influence and, as millions of Russian families depend on mining coal for their economic survival, the success of the industry is seen as a potential long-term source of pressure on the Russian political establishment.  That said, global trends are not favorable to some of Moscow’s plans. 

Some of these plans were unveiled on February 27, 2020, when the Kremlin delivered a presentation, titled “Program for the Development of the Coal Industry until 2035,” that was given by the Ministry of Energy.  This strategy first aims to fulfill domestic needs, but also outlines a plan to boost exports and revenue.  The presentation outlined two scenarios: one conservative that forecasted Russian coal exports increasing by almost 20 percent over the next 15 years; and one optimistic that envisions exports increasing by almost 80 percent.  Indeed, Moscow’s ambitions are fueled, in part, by its success over the past decade, driven by investment in infrastructure and state subsidies, which have pushed Russia to becoming the third largest producer of coal in the world, increasing total production over the decade by more than 30%.

To preserve this momentum, Moscow is pursuing additional capacity by investing in new infrastructure to get coal to market, including railway and port projects, such as the development of the second tunnel on the Baikal Amur Mainline railway.  Russia is also seeking to stimulate investment and attract foreign capital for development of the Russian Arctic area, where vast coal reserves are located. 

European coal markets, however, are gradually losing their appetite for coal, leaving local coal industries with diminishing demand and more sensitive to competing, subsidized products from Russia.  Most recently, Poland’s domestic producers are seeking to ban the import of coal from Russia, arguing that these imports are a threat to their job security.  Russian coal producers are looking increasingly toward markets elsewhere, such as China, India, South Korea, Japan and Thailand.

There are two barriers, however, to Russia’s intended expansion.  First, Indonesia and Australia, the world’s two biggest coal producers, are already present in this market, and, secondly, coal is part of the recently signed U.S.-China Interim Trade Agreement, in which Beijing agreed to increase – by more than double – its energy purchases from the United States, including coal.

These circumstances are likely to stimulate creative means to ensuring Russia’s coal products find a home in foreign markets.  This could occur through subsidies, tax incentives, politicized diplomatic arrangements that could mix in other of Russia’s strengths, such as nuclear, oil, gas, space and weapons sales.  It could also lead to tension with foreign coal mining industries, as it has in Poland, as cheaper, non-market Russian exports are pushed on foreign markets.

On March 3, state-owned Russian Railways (RZD) cut rates by 25% for Russian coal exporters transiting material via rail to the country’s northwestern ports, or through overland routes to China.  The discount is intended to boost the export of Russia’s coal, amid the commodity’s 13% year-on-year decline in February that was attributed to poor seaborne prices and “sluggish” European demand.  Coal accounts for nearly 44% of RZD’s freight turnover.