EDB: The coal sector augments production in all the Bank’s member states

Moscow, 7 September 2017. Eurasian Development Bank’s (EDB) Strategic and Industrial Research Department has disseminated a review titled Coal Industry in EDB Countries. The main findings by the Bank’s experts are as follows.

Coal production is one of the key industries in four EDB member states: Kazakhstan, Russia, the Kyrgyz Republic, and Tajikistan. In 2016, the output of all types of coal in these countries stood at 103, 385, 1.8 and 1.4 million tonnes respectively. In the first six months of 2017, the situation in the sector developed positively for all these countries suggesting high investment attractiveness of the region’s coal industry in the medium term. The longer-term prospects are significantly less certain, although coal remains a strategically important source of energy, which will be difficult to substitute completely for a rather long period of time, especially in countries that don’t have their own considerable reserves of energy carriers, such as the Kyrgyz Republic and Tajikistan struggling proactively for energy security.

• In 2016 and the past part of 2017, the global coal market underwent substantial changes: the fall in coal prices that continued for several years before gave way to growth and prices of many coal grades almost doubled by the end of the year. In particular, coal prices in Northwest European ports surged from US $47 per tonne as at the end of 2015 to US $87 by the end of 2016 and in the Russian port of Vostochny from US $53 to US $88 over the same period (both benchmarks are relevant for coal producers in the EDB countries). Despite the subsequent decline, prices remain significantly higher than at the beginning of 2016. Most experts upgraded their outlooks for coal prices, although they don’t expect their further growth. Forecasts suggest the prices will stabilise or reduce compared to the current levels, depending on the coal grade.
• After a lengthy decline, Kazakhstan’s coal sector began to grow, having improved output by 17.4% (to 52.6 million tonnes) in the first six months of 2017, compared year-on-year. The sector’s profitability looks more favourable relative to other industries. Until 2030, considering limited export enhancement prospects, domestic coal-fired heat and power plants are expected to remain the main source of demand for energy coal. Given the planned decommissioning of generating facilities, the demand for energy coal should at least remain the same. However, since the country’s deposits produce mainly coals with relatively high ash content, the future of the sector will depend on the advancement of high-tech coal businesses and the finding of new growth points.
• In Russia, the coal sector maintains positive production growth rates that shaped in 2014-2015. In the first half of the year, coal output grew by 7.3% (to 198.4 million tonnes) year-on-year. This year, the sector’s profitability improved again due to increased world prices. This wide-scale improvement affected most coal producers. In particular, the profitability of metallurgical coal production attained unprecedented highs. At present, the sector is very attractive in terms of lending and investment because of its high profitability and the gradual reduction in the debt burden. In the meantime, the longer-term prospects for it are less certain as coal loses significance as a source of energy in the majority of the world’s biggest economies that expand the use of other hydrocarbons (oil and natural gas) and renewables (wind and sun). The next several years are probably the last time interval when new large-scale developments can be launched in the coal industry. The exception is metallurgical coal – the outlooks for this sector are more favourable.
• In the first six months of 2017, coal production in the Kyrgyz Republic gradually recovered growth: after a 7% cut in 2016, the aggregate output in January-June 2017 increased by 0.8% (to 591,000 tonnes). In the medium term, despite the existing constraints, production is expected to grow further while imports should go down. An important factor enhancing the use of coal in the country will be the completion of the upgrade at the Bishkek combined heat and power plant, which is one of the key consumers of coal. This raw material may remain a strategically important source of energy for the economy in the longer run as well. As in the case with Tajikistan (described below), coal is the source of energy for the Kyrgyz Republic that will be difficult to substitute fully in the foreseeable future.
• Tajikistan has activated its coal reserve developments since 2012 when natural gas supplies from Uzbekistan began to shrink. The average annual growth in 2012-2016 approximated 44%. The rate for the first six months of 2017 was 20.6% (to 541,000 tonnes). In the medium term, the government intends to enhance outputs significantly to meet the domestic demand and export coal and its products abroad. Tajikistan is one of the EDB member countries with significant development prospects for the sector.

Coal production is of interest to EDB because of the favourable investment situation in the industry and its linkages to metallurgy and the power sector that are of strategic importance for the development of the Bank’s member economies. EDB prefers projects with moderate timeframes that promote labour productivity and safety to those aimed at enhancing production capacity. The Bank adheres to strict standards and assesses project proposals in terms of their environmental impact.

Additional Information:

Eurasian Development Bank (EDB) is an international financial institution founded by Russia and Kazakhstan in January 2006 with the mission to facilitate the development of market economies, sustainable economic growth, and the expansion of mutual trade and other economic ties in its member states. EDB's charter capital totals US $7 billion. The member states of the Bank are the Republic of Armenia, the Republic of Belarus, the Republic of Kazakhstan, the Kyrgyz Republic, the Russian Federation, and the Republic of Tajikistan.

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