For the first time in Ukraine’s history, U.S. anthracite is helping to keep the lights on and the heating going this winter following a deal that has also helped to warm Kiev’s relations with President Donald Trump.
The
Ukrainian state-owned company that imported the coal told Reuters that
the deal made commercial sense. But it was also politically expedient,
according to a person involved in the talks on the agreement and power
industry insiders.
On Trump’s side it provided
much-needed orders for a coal-producing region of the United States
which was a vital constituency in his 2016 presidential election
victory.
On the Ukrainian side the deal helped to win
favor with the White House, whose support Kiev needs in its conflict
with Russia, as well as opening up a new source of coal at a time when
its traditional supplies are disrupted.
Trump’s campaign
call to improve relations with the Kremlin alarmed the pro-Western
leadership in Ukraine, which lost Crimea to Russia in 2014 and is still
fighting pro-Moscow separatists.
However, things looked
up when President Petro Poroshenko visited the White House on June 20
last year. “The meeting with Trump was a key point, a milestone,” a
Ukrainian government source told Reuters, requesting anonymity.
The
Americans had set particular store by supplying coal to Ukraine. “I
felt that for them it is important,” said the source, who was present at
the talks that also included a session with Vice President Mike Pence.
Despite Trump’s incentives, U.S. utilities are shutting
coal-fired plants and shifting to gas, wind and solar power. Ailing
U.S. mining companies are therefore boosting exports to Asia and seeking
new buyers among eastern European countries trying to diversify from
Russian supplies.
Trump, who championed U.S. coal
producers on the campaign trail, pressed the message after meeting
Poroshenko. “Ukraine already tells us they need millions and millions of
metric tons right now,” he said in a speech nine days later. “We want
to sell it to them, and to everyone else all over the globe who need
it.”
The deal with Kiev was sealed the following month,
after which U.S. Commerce Secretary Wilbur Ross said: “As promised
during the campaign, President Trump is unshackling American energy with
each day on the job.”
The deal helped to “bolster a
key strategic partner against regional pressures that seek to undermine
U.S. interests”, Ross added, referring to past Russian attempts to
restrict natural gas flows to its western neighbors.
A MATTER OF NECESSITY
Ukraine
was once a major producer of anthracite, a coal used in power
generation, but it has faced a shortage in recent winters as it lost
control of almost all its mines in eastern areas to the separatists.
Along
with South Africa, Ukrainian-owned mines in Russia have been the main
source of anthracite imports but this is fraught with uncertainty. In
the past Moscow has cut off gas supplies to the country over disputes
with Kiev, while the Ukrainian government considered forbidding
anthracite imports from Russia in 2017 although no ban has yet been
imposed.
Overall anthracite imports shot up to 3.05
million tonnes in the first 11 months of 2017 from just 0.05 million in
all of 2013 - the year before the rebellion erupted.
Neighboring
Poland, which Trump visited in July, is also turning increasingly to
U.S. coal. Its imports from the United States jumped five-fold last year
to 839,000 tonnes, data from the state-run ARP agency showed.
In July
Ukrainian state-owned energy company Centrenergo announced the deal with
U.S. company Xcoal for the supply of up to 700,000 tonnes of
anthracite.
Centrenergo initially said it would pay
$113 per tonne for the first shipment, a price industry experts and
traders told Reuters was expensive compared with alternatives.
However, chief executive Oleg Kozemko said the cost varied according to
the quality of the coal delivered, so Centrenergo had paid around $100
per tonne on average for the 410,000 tonnes supplied by the end of 2017.
Kozemko said in an interview that the U.S. deal was
Centrenergo’s only viable option after three tenders it launched
earlier last year had failed.
“The idea to sign a
contract with Xcoal was a matter of necessity,” he said. “We had
agreements but they didn’t work out, because the pricing that they
discussed with us and that we signed an agreement on didn’t work out.”
Data on the state tenders registry and documents seen by Reuters show
that two of the tenders failed due to a lack of bids, while the results
of the third were canceled.
If that contract had worked out, Centrenergo would have paid around $96
per tonne, according to Reuters calculations based on the exchange rate
at the time of the tender in April.
Energy expert
Andriy Gerus told Reuters the Xcoal deal “probably helps Ukraine to
build some good political connections with the USA and that is quite
important right now”.
MUTUAL DESIRE
The
anthracite for Centrenergo is mined in Pennsylvania, which backed Trump
in 2016. This marked the first time a Republican presidential candidate
had won the state since 1988, and followed Trump’s pledge to reverse the
coal industry’s history of plant closures and lay-offs in recent years.
Centrenergo says it and Xcoal agreed the contract
independently of their governments and without any political pressure.
However, Kozemko said: “If talks between the heads of our countries
helped in this, then we can only say thank you... It was a mutual
desire.”
For the Ukrainian authorities, the diplomatic
benefit is clear. When the first shipment of U.S. anthracite arrived in
September, Poroshenko tweeted a photo of himself shaking hands with
Trump in Washington. “As agreed with @realDonaldTrump, first American
coal has reached Ukraine,” he wrote.
Poroshenko’s press
service said the deal “is an exact example of when the friendly and warm
atmosphere of one conversation helps strengthen the foundations of a
strategic partnership in the interests of both sides for the future”.
The
Washington meeting also discussed U.S.-Ukrainian military and technical
cooperation. Soon after, the Trump administration said it was
considering supplying defensive weapons to Ukraine to counter the
Russian-backed separatists.
In late December the
U.S. State Department announced that the provision of “enhanced
defensive capabilities” had been approved.
Kozemko said
the Xcoal deal was likely to be only the beginning of Centrenergo’s
trade relations with the United States as it is currently holding talks
on supplies of bituminous coal, a poorer quality variety.
“It’s good that we studied the U.S. market because we had never looked
at it before. We see big prospects for bituminous coal,” he said, adding
that other Ukrainian firms were thinking similarly. “We showed how to
bring coal from America and they are following our lead.”
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