Policy Papers

  • 24.05.2001

    Price distortions in the Ukrainian coal sector and how to overcome them


    The Ukrainian coal market is characterized by severe distortions of prices. Due to the devaluation of the Hryvnia in 1998 actual reference prices (prices which determine the level for subsidization) set for Ukrainian coking coal are not only lower than prices for imported coking coal but also lower then actual market prices for coking coal in Ukraine. This leads on the one hand to high losses or to high budget subsidies for the coal industry and on the other hand to tremendous rent seeking, mainly of intermediaries or to implicit subsidization of the metallurgical production.

    In addition current price distortions create an artificial deficit of coking coal. As prices for raw coking coal are lower then prices for raw steam coal, power plant purchase coking coal in order to produce electricity.

    The mining industry seems to suffer most from these price distortions and remains in bad conditions. Neither did the billions of Hryvnias subsidies from the state budget help to improve the conditions of the Ukrainian coal industry nor did the coal industry benefit from the fact, that the devaluation of the Hryvnia in 1998 made the officially indicated costs of coal production competitive. The amount of state subsidies did also not decline. On the contrary, the amount of direct budget subsidies increased from 1.591 bn UAH in 1999 to 1.844 bn UAH in 2000. The intention of the government to introduce auctions for coking coal in order to abolish the price distortions have not been successful so far.

    Attached file  (190.4 kb)
    Research spheres:  Real sector
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