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Recalibrating Logistics for Coal Exports Under Sanctions Pressure
KEY CONCLUSIONS
Preservation and development of the industry depends on logistical competitive ability

If we talk about logistics, it is not only transport, but also seaports. In this sense, coal companies have invested heavily in the development of seaport terminals. <...> I have to say that coal companies over the last 10 years, I think, have invested about 1 trillion in both production and logistics-related investments. <...> Our coal products have a natural quality advantage over the same coal supplied to the Asia-Pacific market, for example from Indonesia. Our coal is higher in energy terms. <...> Our Chinese colleagues are happy to buy our coal — Anatoly Yanovsky, Assistant to the Chief of Staff of the Presidential Executive Office of the Russian Federation.

The coal market is very large. <...> According to our forecast models, the global market will grow in the next 5–7 years. <...> Russia has really managed to take a good position in this market – Russia is the third exporter in the world after Indonesia and Australia. <...> Logistics is the most important area for us, maybe the most important along with countering sanctions. This is because in the main markets where we can sell coal, the cost of logistics far exceeds the cost of production, many times over. That is, depending on the region, between 50 and 75% of the cost of coal in the end market is logistics. Therefore, we will only be able to maintain our industry and develop it if we are competitive in logistics — Maxim Basov, General Director, SUEK.

We need a clear understanding of predictability, transparency of the rail tariff... the cost of transhipment in our ports... We would like to have a clear understanding of the cost of freight — Sergey Mochalnikov, Deputy Minister of Energy of the Russian Federation.

I believe it will take us 2023 to finally form new logistics corridors and partners. <...> We have agreements with the Indian Republic on coal supplies, there are developments with the People’s Republic of China... our coal is in demand. Most likely, in 2023 we will not reach the parameters that we had in 2022, but from 2024 and for the next 5 years... we will steadily increase, and all those opportunities that logistics constraints will give us will be filled with coal by 100% — Sergey Mochalnikov, Deputy Minister of Energy of the Russian Federation.

ISSUES
International sanctions threaten the loss of major markets for coal exports

Today, we are losing out to those countries that have the capacity to increase production. These are primarily Indonesia, Australia, the US, Colombia, and South Africa. Nevertheless, we are certainly not ready to give up; we have a clear-cut strategy on what needs to be done to improve our competitiveness in logistics, and therefore the competitiveness of our companies — Maxim Basov, General Director, SUEK.

The load of the Eastern Polygon, as we understand it, has become prohibitive. <...> The most important for us and the key parameter is to unconditionally meet the deadlines for commissioning [such as BAM-1 and BAM-2] facilities. This is another project that continues the expansion of backbone infrastructure — Sergey Mochalnikov, Deputy Minister of Energy of the Russian Federation.

As of today, the revenue shortfall... for 2022 alone, we expect more than RUB 28 billion. This is a significant cost for us. <...> We see – yes, indeed, prices have gone down slightly, we see competition in our bidding. But so far, the price that is on the market has not come close to the tariff. This is being dealt with separately — Alexander Charikov, Deputy General Director, RusHydro.

Russian coal is traded at a discount, which prevents it from reaching the sales regions we need most economically. Because of the pressure, we have received restrictions on our ability to charter. <...> Restrictions have been imposed on making our ships available for Russian goods, including coal. These restrictions have led to an increase in freight for Russian coal — Sergey Mochalnikov, Deputy Minister of Energy of the Russian Federation.

SOLUTIONS
Russia needs to find new markets and speed up projects

An important task for us is to increase coal shipments to the Far East. Here, of course, we are working very closely with Russian Railways. There are two very important areas where we need to work together with Russian Railways: the first is to improve technology... new locomotives, innovative railcars, to increase the efficiency of interaction with the railways. <...> The second is the expansion of the Eastern Polygon. <...> We are looking forward to finally getting the facilities of the first stage of the Eastern Polygon expansion up and running this year. <...> It is very important for us to improve the efficiency of the seaports, including increasing the possibility of long-distance shipments of coal on big ships. <...> Very important is the question of insurance. <...> ship investment is a topical issue for us. Many private companies have started to do this now. I think that in next 2–3 years Russian companies will get a fleet which will allow to transport Russian cargoes — Maxim Basov, General Director, SUEK.

By no means move specific measures, facilities... on the contrary, let’s speed up the development of construction of these facilities, and put them into operation more quickly. <...> It is necessary to complete BAM-1 as soon as possible, to accelerate the implementation of BAM-2 facilities. Already now we should start planning for BAM-3 in advance, while being guided by the figures, which are already stipulated in the transport strategy of the Russian Federation — Dmitry Islamov, Deputy Chairman of the Committee on Energy of the State Duma of the Federal Assembly of the Russian Federation.

The material was prepared by the Russian news agency TASS