Metallurgical companies have been offered large coal deposits with big railway problems.
The Federal Agency for Subsoil Use (Rosnedra) plans to sell three large coal deposits in the Ulug-Khem coal basin (Tyva Republic), with reserves of 1.7 billion metric tons of coking coal. The government wants to set up Russia's largest coal-mining complex in the area, with several private companies acting as operators. However, the absence of adequate railway infrastructure may prevent the project's implementation.
Russian Prime Minister Vladimir Putin announced on Friday the government's intention to sell a number of coal deposits. Three large coal deposits in the Ulug-Khem coal basin in Tyva are to be put up for tender, a source in the metallurgical sector told Kommersant.
Rosnedra confirmed the information, but refused to comment. The Kommersant source said the issue at hand is the Western, Central and Eastern deposits with total reserves of about 1.65 billion metric tons of Zh-grade coking coal. This is comparable to Russia's largest Elginskoye coal deposit in southern Yakutia, with reserves of 2 billion metric tons.
The Ulug-Khem coal basin is one of the world's largest, with projected coal reserves of 20 billion metric tons, of which 13.7 billion are coking coal.
Steel-makers learned about the deposits through the sale of the Mezhegey coalfield, with reserves of 213.5 million metric tons. When the deposit was put up for tender in 2008, companies lined up to compete for the licence. The licence was eventually sold to the Evraz Group for 16.9 billion roubles, which rejected it not long after. Mezhegey was put up for tender yet again in 2010. This time, Evraz obtained the licence for only 950 million roubles through competition with Severstal. Severstal, which has not lost interest in Tyva coal, may take part in a tender for one of the new deposits, the company told Kommersant.
On Friday, Severstal General Director Alexei Mordashov presented a concept for developing the Ulug-Khem basin at a regional project exhibition in Novosibirsk, which the prime minister attended.
The concept for developing the coal basin has been discussed since 2007. At the same time, a project was launched on the Kyzyl-Kuragino railway line – 418 kilometres (260 miles) in length – as an integral part of the development process.
Putin said on Friday that the companies that received the licences should unite into a consortium and build the line. In total, over 130 billion roubles will be invested in the project, including 49 billion from the investment fund. Later, the line will be transferred for management to the Russian Railways.
Up until now, licences for the Tyva deposits have only been issued to Evraz and the United Industrial Corporation (OPK). The latter is developing the Elegesta coalfield, with reserves of 895 million metric tons. The investment fund signed an agreement with Evraz in 2007 to co-finance the Kyzyl-Kuragino railway project. With the appearance of new operators in the Ulug-Khem basin, the agreement will be revised, a source in the sector said.
Alexander Frolov, Evraz president, told Kommersant that the company would probably have to finance the railway construction, but only in part. Evraz refused to comment on the issue yesterday.
Meanwhile, Olga Mitrofanova of IFD Kapital said the companies that may be interested in the Tyva deposits include Novolipetsk Steel, which does not have its own coal, and Magnitogorsk Iron & Steel Works (MMK), which is 50% self-sufficient in coal.
At the same time, Denis Nushtayev of the Metropol investment and financial company noted that, as the project is close to China, it will mostly be interesting to exporters, such as Kuzbassrazrezugol and the Mechel steel group.
However, the project may have a number of infrastructure problems. Kyzyl-Kuragino's projected annual transportation capacity is 22.5 million metric tons of coal concentrate, which may be insufficient, OPK said. Meanwhile, Elegesta's capacity alone should be at least 15 million tons, with another 8.4 million tons of coal concentrate being produced by Evraz at Mezhegey by 2016.
OPK added that it is impossible to increase the rail line's capacity due to the challenging mountainous terrain in the area. However, a source at Transstroy is sure that the problem can be solved by straightening the route by adding tunnels and secondary tracks, which is merely a matter of money. The railway project will be endorsed by the year's end, and there is still time to adjust it, a source in the sector said.
Another problem is heavy traffic on the main trunk line linked with the new branch. This section of the Trans-Siberian Railway (TransSib) is already 90% used with a standard requirement of 85%, OPK said. In order to expand its transportation capacity, a 1,000 kilometre section of TransSib will be completely rebuilt, a source familiar with the situation told Kommersant.
Russian Railways' phone lines were dead on Friday and Sunday.
Alexei Bezborodov, general director of the Infranews research agency, estimated the capital repairs of the TransSib section at about 8.8 billion roubles. In addition, several new railway yards, worth about 1.2 billion each, will have to be built, the expert said.
Roman Yekimovsky