Coal Sector Restructuring

What is coal sector restructuring?

Coal sector restructuring, an integral part of energy sector reform, has been a focus of Bank assistance throughout the 1990s and has or is being undertaken, or prepared, in both the major and other coal-producing countries including Russia, Ukraine, Poland, Romania, India, China, and Mongolia. The scope of coal sector restructuring takes a number of different forms depending largely on the state of reform in a particular country and on the country's commitment to broader policy, regulatory, and institutional changes that are important for a competitive financially, socially, and environmentally responsible industry to survive and grow.

What is the process?

Initial assessment: At the root of Bank assistance to coal sector restructuring is an initial assessment of the internal and external demands (markets) for coal in a particular country and how this balances with the country's viable supply capabilities. In the majority of cases, particularly in the transition economies, supply potential far exceeds demand, short- and long-term, and considerations of down-sizing the industry, in both capacity and employment terms, are critical. Through industry (mine-by-mine) cost curve analysis, a program of mine closures can be identified and programs developed to discontinue higher cost operations with appropriate physical and environmentally acceptable mine closure programs, allied to a socially responsible program to displace/retrain or provide financial support (severance) to excess members of the work force.

Mine closure programs: Pilot mine closure programs are important tools to establish government understanding and acceptance of the importance of fundamental coal sector reform and restructuring. It is equally important in relation to the profitable core of coal mines that these be structured in a manner that permits them to operated on a financially self-sustainable basis which necessitates commitments to remove subsidy programs and to avoid cross-subsidization.

Policy and regulatory frameworks: The policy and regulatory frameworks under which the coal industry operates are often neither well developed nor internationally competitive in transition economies and where appropriate, the Bank can and does assist governments to address these issues, providing for a clearer definition of a role for the coal industry, a role for government as the sector administrator and regulator, a role for existing public sector companies and a role for the private sector.

Building competitiveness: The introduction of competition in the industry is seen as a pre-cursor to an efficient industry. An internationally competitive regulatory/fiscal regime is also important to the future health of the industry as are well developed environmental rules and regulations, and arrangements for effective environmental monitoring and control.

How is it done? 

Much of the Bank's initial coal sector restructuring is undertaken through structural or sector adjustment lending although it is accepted that following such programs, there may exist a further role for the Bank in supporting restructured coal mines in introducing more advanced mining/processing technology to further enhance productivity and reduce unit costs, and in developing the country's public mining institutions to be better able to administer the sector and to cooperate with existing and potential private sector interests. In addition, the Bank may continue to support commercialization of state mining companies, support disinvestment of government holdings, and partial or full privatization. Work on Coal Sector Restructuring is always undertaken in the context of energy sector reform.

Related publications:

Financial Surety: Guidance Notes for the Implementation of Financial Surety for Mine Closure by Meredith Sassoon, July 2009, Extractive Industries for Development Series #7