world bank document...1996/04/20 · the report draws on the bank's sector report "coal...
TRANSCRIPT
Document of
The World Bank
Report No. 15351-UA
STAFF APPRAISAL REPORT
UKRAINE
COAL PILOT PROJECT
APRIL 20, 1996
Municipal and Social Services DivisionCountry Department IVEurope and Central Asia Region
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CURRENCY EQUIVALENTS(as of February 1996)
Currency Unit = KarbovanetsUS$1 = 180,000 Krb
WEIGHTS AND MEASURESMetric System
ABBREVIATIONS AND ACRONYMS
COM - Cabinet of MinistersERR - Economic Rate of ReturnFSU - Former Soviet UnionGDP - Gross Domestic ProductGOU - Government of UkraineIFC - International Finance CorporationJSC - Joint Stock CompanyMCI - Ministry of Coal IndustryM&E - Monitoring and EvaluationMOE - Ministry of EconomyMOF - Ministry of FinanceNCB - National Competitive BiddingPSC - Project Steering CommitteeSA - Special AccountSOE - Statement of ExpenditureUDKR - Ukrainian State Company for Restructuring Coal
Industry Enterprises
UKRAINE - FISCAL YEAR
January 1 - December 31
STAFF APPRAISAL REPORT
UERALNECOAL PILOT PROJECT
CONTENTS
LOAN AND PROJECT SUMMARY ......................................... i
I. REFORM OF THE COAL SECTOR ................. .. 1..................... A. Economic and Sectoral Background ........................ 1B. The Government's Reform Program ........................ 2C. Possible Operations in the Coal Sector ....................... 3
II. SECTORAL ISSUES AFFECTING MITIGATION ..... .................. 4A. The Coal Industry in a Changing Region ..................... 4B. Technical Issues ..................................... 5C. Divestiture of Social Infrastructure ......................... 7D. Labor Issues ....................................... 8E. Social Protection ................................... 11F. Budgetary Support .................................. 11G. The Need for Effective Public Participation ................... 12
III. PROJECT DESCRIPTION, COSTS ESTIMATES, AND FINANCING ................ 13A. Objectives ....................................... 13B. Selection Criteria ................................... 13C. Costs and Financing Plan .............................. 14D. Project Components ................................. 17
1. Mitigation of Mine Closure ......................... ... 172. Social Mitigation ............................... ... 193. Social Infrastructure Divestiture and Heating Subsidy ........ ... 274. Institutional Strengthening and Job Counselling ............... 285. Technical Services .............................. ... 29
E. The Project's Impact on Local Governments .................. 30F. On-lending Arrangements .............................. 32
IV. PROJECT IMPLEMENTATION AND INSTITUTIONAL ARRANGEMENTS ........ ... 32A. Project Implementation Plan ............................ 32
1. The UDKR ...................................... 342. The Role of the Municipalities ....................... ... 343. Participatory Mechanisms and Evaluation ................... 36
B. Procurement and Disbursement .......................... 37C. Accounting and Auditing .............................. 40D. Supervision, Monitoring and Evaluation ..................... 40
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V. ECONOMIC EVALUATION, BENEFITS AND RISKS .......................... 41Economic and Fiscal Analysis of Mine Closures .................. 41
VI. AGREEMENTS AND RECOMMENDATIONS .............................. 45
ANNEXES
1. Protocol of Discussions between the GOU and the World Bank in London,January 16-19, 1996 on Reforms to the Coal Sector
2. Enactment of President of Ukraine on Coal Industry Restructuring3. Pravda Mines -- Donetsk4. Krasniy Oktyabr Mine -- Yenakievo5. The Removskaya Mine -- Snezhnoye6. Summary of Environmental Issues and Mitigation Options7. Social Portrait of a Miner8. At-Risk Populations9. Impact on Municipal Budgets of Social Infrastructure Divestiture
10. Implementation Bar Chart11. Order of Minister of Coal Industry Creating UDKR12. U.K. Know-How Fund Terms of Reference for Assistance to UDKR13. Estimated Disbursement Schedule14. Supervision Plan15. Cost-Benefit Tables16. Role of UDKR, MCI, MOF, Oblast, and Municipalities17. Terms of Reference for Social Impact Monitoring18. Selected Documents Available in the Project File
MAP IBRD No. 27804
This report is based on an appraisal mission in January 1996, consisting of: J. Balkind (taskmanager), S. Zeijlon (deputy task manager), K. Hunt (coal sector strategy), H. Hendriks(technical), A. Staszewicz (labor/implementation aspects), M. Glasser (municipal finance/publicparticipation), B. McGean (social assessment), T. Cook (social assessment and stakeholderanalysis), P. Bodnar (divestiture of social facilities), and G. Pilch (legal). The peer reviewerswere A. Ewing (PSD) and J. Strongman (IEN). The Division Chief is T. Blinkhorn (EC4MS)and the Department Director is B. Kavalsky (EC4).
Engineering analysis was provided by T. Hastelow (U.K.), labor analysis by B. Weston (U.K.)and environmental analysis by G. Stephenson and J. Korol (Canada). Ms. T. Kantermanprovided staff assistant support. Organizations that participated in the project preparation includethe Ukranian Ministry of Coal Industry, the Donetsk Coal Mining Research Institutes, theDonetsk Oblast Administration, and the three municipal and raion governments.
The report draws on the Bank's sector report "Coal Industry Restructuring", (Report No. 15056-UA), which was discussed with the Government of Ukraine in January 1996 in London(concurrent with visits to British coal mines). The sector report was distributed to the Board inMarch 1996 and was disseminated in a Coal Conference, held in Kiev on April 11-12, 1996.
UKRAINE
COAL PILOT PROJECT
LOAN AND PROJECT SUMMARY
Borrower: Ukraine
Implementing Agencies: Ministry of Coal Industry (MCI); the Ukrainian State Company forRestructuring of Coal Industry Enterprises (UDKR); Donetsk Oblast;city administrations of Donetsk, Yenakievo, and Snezhnoye.
Affected Parties: Employees of coal mines who are affected by the sector restructuringprogram.
Poverty Category: The project includes measures to reduce poverty in affected areas, andto generate employment and income through a variety of measures,such as micro-credit and job creation.
Amount: US$15.8 million equivalent
Terms: Payable in 17 years, with 5 years grace at the Bank's standardvariable rate.
Commitment Fee: 0.75 % on undisbursed credit balances, beginning 60 days aftersigning, less any waiver.
Onlending Terms: Loan proceeds would be passed on to the UDKR and the localgovernments on a grant basis, with the exception of the micro creditcomponent which will be on-lent to individual borrowers at interestrates in accord with the Government's financial policy, taking intoaccount the National Bank of Ukraine discount rate, the administrativecosts and lending risk. The Government would carry the foreignexchange and credit risk.
Project Objectives: The central objective is to mitigate the social and environmentalconsequences that arise from mine closures, as part of an overallGovernment restructuring program for the sector. The project seeksto: (i) test ways to implement mine closures safely, with due regard totechnical, environmental, economic, financial and social aspects; (ii)ensure that mine workers are afforded opportunities to either transferto other jobs in the sector or exit the industry with reasonablecompensation and a choice of assistance for seeking otheremployment; (iii) transfer social assets to municipal management andsupport their rationalization, while helping to ensure that the mostvulnerable groups are adequately protected in terms of access toservices; and (iv) through monitoring and feedback, gain experiencefrom the Pilot Project for subsequent operations.
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Project Description: (a) Mitigation of physical closure (environmental mitigation,equipment and civil works); (b) social mitigation and re-employmentsupport (social protection payments, coal distributions, job creation,and micro-credit subcomponents); social services support though thetransfer of assets to the municipalities (housing, kindergartens, culturalfacilities); institutional strengthening through support for theincremental operating costs of the UDKR; and technical services(including management of the mitigation program, feasibility studiesfor new investment, and social assessment and monitoring/evaluation).
Financing Plan: Bank loan would finance 55 percent of total project costs; Governmentof Ukraine, 40 percent; and bilateral grants, 5 percent, for technicalservices (see Schedule A).
Economic Rate of Return: Economic rate of return (ERR) ranges from 20 percent to 90 percentfor the 3 mines, with an overall rate of 55 percent.
Environmental Category B: Environmental Management Plan with site-specific mitigationmeasures would be prepared.
Staff Appraisal Report 15351-UA
Map: IBRD 27804
Project ID Number: UA-PA-441 10
UKRAINE
COAL PILOT PROJECT
STAFF APPRAISAL REPORT
I. REFORM OF THE COAL SECTOR
A. Economic and Sectoral Background
1.1 The coal industry is in deep crisis in Ukraine. Between 1990 and 1995, coal output decreasedby about 50 percent to 80 million tons/year. The productivity of Ukrainian coal miners -- about 600thousand workers employed directly in coal extraction -- is low, not only by international comparisonbut even by historical Ukrainian standards. In the 1980s, domestically produced coal covered aboutone-third of Ukraine's primary energy consumption, and was also one of Ukraine's major exportcommodities. Coal exports almost totally disappeared in 1995, and imported coal and other fuelscaptured a large share of the Ukrainian market as a result of high domestic coal prices, untimelydelivery, and poor coal quality.
1.2 Like any extractive industry, the Ukrainian coal industry must close mines when reservesbecome exhausted. While a few mines have been closed in the past five years, this has not beendone in any concerted manner because of concern about throwing large number of miners (and relatedservice employees) out of work and depriving them of income and access to social services currentlyprovided by the coal enterprises. But the delay has had its cost: as a result, a significant part of thecoal industry is irreparably uneconomic. The resources required to keep these high cost mines inoperation could have been better deployed for the full utilization and modernization of the capacity oflower cost mines that have a chance to remain competitive.
1.3 Due to high material, energy, and labor costs, the coal industry is unable to cover itsproduction costs. In addition to producing coal, the mining companies also deliver services includingpre-school education, housing, recreation, etc. Carrying the cost of these services further reduces thecompetitiveness of Ukrainian coal mines. Payment arrears accumulated by many of the large coalconsumers further exacerbate financial difficulties, contributing to the inability of many miningenterprises to pay salaries. The capacity and the willingness of the state to subsidize coal productiondropped to an all-time low by 1995, due to a general decline of budgetary revenues in a shrinkingeconomy, and the recognition by policy makers that further large-scale production subsidiesendangered the macroeconomic stabilization effort (see para 2.25).
1.4 In order to restore the competitiveness of the Ukrainian coal industry, average unit costs needto be reduced by at least 20 percent. This will require, among other things, the closure of at least 75high cost mines over a period of 4-5 years (the closure of these mines itself will reduce the averageunit cost by about 9 percent, with possible additional gains coming from the increased capacityutilization of remaining mines). However, the social and environmental impact of the mine closuresneeds careful mitigation measures because of the special historical and economic importance of thesector.
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1.5 Few countries in the Former Soviet Union (FSU) or Eastern Europe have implemented athorough restructuring of the coal sector, including price liberalization, market deregulation, closuresof old mines, and modernization of plant and equipment in profitable mines, to provide a frameworkfor competitive viability. Yet extractive industries need to close uneconomic operations on a regularbasis so that the viable segments of the industry do not get drained by the unprofitable ones. In April1995, the Government of Ukraine (GoU) took the courageous decision to begin restructuring the coalsector, initiating sectoral reforms, and starting a program of mine closures. Old, unsafe mines (about40-70 in number) that have no economic future were targeted for closure, to free resources for thesegments of the industry that have better economic prospects (about 50 such mines). However, sincethe mines to be closed -- like most enterprises in the FSU -- provide a range of social services, aswell as significant regional employment, the program needed to tackle the social aspects, along withthe technical aspects. In May 1995, the Government requested the Bank to assist in tackling theseissues in an integrated manner. The Bank embarked on the necessary analysis to help design anapproach that would help mitigate the social and environmental effects of mine closures.
1.6 The sector. The coal industry includes the following institutions:
* the Ministry of Coal Industry (MCI);- 39 mining associations, of which 24 are engaged in coal production and 15 in related
fields (3 in coal washing, 5 in mine construction and automation, 2 in miningequipment repair, 3 in ecological and geological research, 1 in designing experimentalequipment, 1 specialized in shaft design and sinking);
3 244 mines, most of which are within the 23 production associations (each associationcontrols 8 to 16 mines);
e related social assets (i.e. schools, housing, health facilities) and transportorganizations.
B. The Government's Reform Program
1.7 On January 19, 1996, the Government of Ukraine, in discussions held in London (inconjunction with visits to British coal mines) laid out its reform program for the coal sector (Annex1).' These reforms include:
(a) Establishment of coal markets by providing enterprises the right to sell their coal atprices freely negotiated with customers;
(b) Corporatization of viable coal mines while transferring the mines identified for closureto a newly created entity, Ukrainian State Company for Coal RestructuringEnterprises (UDKR), entrusted with the management of the mine closure process;
1/ The agreed measures build on several previously announced Government programs, such as the "Program for theDevelopment of the Coal Mining Industry of Ukraine and its Social Sphere up to the Year 2005," and the list totalling 39mines designated for closure beginning in 1995 and 1996, which was published in the Spring of 1995. The recentagreements represent a more thorough reform of policy, and more rapid introduction of needed measures, at lower cost,than the previous programs. This program was discussed with representatives from the mining industry as well as nationaland local government officials at a conference held in Kiev on April 10-12, 1996. A decree of the President on Coal SectorRestructuring is included as Annex 2.
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(c) Closure of uneconomic mines with the aim of minimizing the technical cost and thetime required for closure while taking into account the need to protect theenvironment and the livelihood of people affected by mine closures;
(d) Transfer of social assets and liabilities from the mining industry to local governments;
(e) Development and implementation of programs to support the generation ofemployment in regions or cities where major job losses occur as a result of mineclosures and the rationalization of employment in remaining mines;
(f) Elimination of cross-subsidies between mining enterprises and allowing enterprises todecide about the best use of their operating profits; and
(g) Concentration of state support on covering the technical and social costs of mineclosures while relying on the banking sector to provide funds for commercially viableinvestments.
1.8 These measures were incorporated in a Presidential Decree issued on February 10, 1996(Annex 2). Consistent with the above program of reforms, several measures were taken in late 1995and the beginning of 1996 that are crucial to the restructuring program. A new organization -- theUkrainska Derzhavna Kompania z Restrukturizatsii Pidpriemstv Vulhilnoi Promislovennosti orUkrainian State Company for Restructuring Coal Industry Enterprises (UDKR) -- was created tomanage the closure process. The closure program would encompass technical, social, andorganizational aspects, which UDKR would be responsible for handling, working closely with therelevant municipalities.
1.9 UDKR reports to MCI and is funded directly from the State budget. The "Charter" of thisorganization specifies that UDKR is required to close the mines as quickly and economically aspractical, so that it does not become a subsidized coal production company, competing with the newjoint stock companies (JSCs), which are intended to replace the coal production associations.
1.10 MCI's earlier plans for mine closure estimated the average time required for the closure of amine at three years, with a range of up to 13 years. The experience of other countries that haveclosed uneconomic mines demonstrates that rapid closures with only a minimal recovery of old plantand machinery is the most cost-effective approach; normally, this process should take no more than12-18 months. For the Pilot Project, the preparation of physical closure plans (by local designinstitutes) has been guided by the objective of cost minimization; other objectives such as job creationand ensuring the continuation of essential social services have been addressed through separatemechanisms in the project design.
C. Possible Operations in the Coal Sector
1.11 To assist the Government in tackling the extensive problems facing the coal sector, the Bankprepared a sector study and is preparing three lending operations in FY96-98. These are the CoalPilot Project, a Coal Restructuring Project, and a Coal Sector Adjustment Loan.
1.12 Coal Pilot Project. In view of the many complex, partly unresolved technical and socialissues facing the policy makers in sector restructuring, the Bank and the Government agreed to begin
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with a Pilot Project in which funding would be made available for mitigating the social andenvironmental impacts of the closure of three mines. The mines are: Pravda2, Krasniy Oktyabr, andRemovskaya, all located in the heart of the coal mining region of eastern Ukraine (see map) and eachreflecting different economic and social conditions. The three mines currently employ about 4,700workers. The criteria for selection are discussed in para 3.2, while Annexes 3-5 present the profilesof the mines/towns. The project would give the Government valuable experience in implementingmitigation measures, enabling a stronger design of the subsequent projects.
1.13 Coal Restructuring Project. To reduce the large subsidies from the national budget to the coalsector, and to allow profiLable mines a chance to succeed, the Government decided to restructure thesector, using a diverse program that includes policy reforms, closure of uneconomic mines, social andinstitutional re-organization, and modernization of mines with strong economic prospects. TheRestructuring Project, as currently envisaged, would include mitigation of the social andenvironmental impacts of the closure of more than 20 mines. The total costs of the RestructuringProject would be about $120 million, with a possible Bank loan of about $80 million. Scope andtiming of the Restructuring Project will be influenced by progress in implementation of the PilotProject.
1.14 Coal Sector Adjustment Loan. In parallel, the Government has requested assistance for abroader sectoral reform program, based on the action program elaborated in the Bank's sector reportand summarized in the London Protocol. This Protocol draws on the Bank report "Ukraine:Restructuring the Coal Sector" which was distributed to the Board in March 1996. The Bank isworking on preparation of a coal sector adjustment loan (SECAL) to support the sector reformprogram.
II. SECTORAL ISSUES AFFECTING MITIGATION
A. The Coal Industry in a Changing Region
2.1 Donetsk city, with a population of 1.2 million persons, is the capital of Donetsk Oblast (seemap) and one of 23 oblasts in Ukraine. Donetsk is the center of the Donbas region, a denselypopulated industrial and mining belt measuring about two hundred kilometers across its north-southand east-west extensions. The Donbas used to be the principal iron and coal region of the SovietUnion, but the region is now in deep recession. Even before the break-up of the Soviet Union,investment had moved to the lower cost, open-pit mines in Russia and Kazakhstan. Nearly all minesin the Donbas region are deep seam mines, many of them 100 years old or more. In many mines,reserves are virtually depleted and production figures per worker are among the lowest in the world.3
2.2 The Donetsk Oblast has a population of 5.27 million persons. The regional economy'sproblems are typical of coal mining regions in other countries (U.K., France, Belgium, Poland to
2/ The full name of this mine group is: "Mine Named after the Newspaper Pravda."
3/ For similar reasons, there are also numerous unprofitable mines in the Dniepropetrovsk region in Central Ukraine, and,in the Lviv - Volyn region in Western Ukraine.
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name a few). The oblast used to be a center of economic activity, and attracted labor and investmentfrom across the former Soviet Union. However, the region has not kept pace with a dramaticallychanged economic environment, and both surplus labor and deteriorated plants now contribute to theregion's economic ill-health. The coal mines are the most prominent illustration of the region'sproblems: (i) the sector is severely overmanned, (ii) the capital stock is dilapidated, and (iii) there islittle new investment which could generate jobs elsewhere in the local economy. State enterprisesdominate officially recorded production; yet it is the unofficial economy which is providing modesteconomic growth.
2.3 Regional economic development activities could help to reduce dependence on the coal sector,but substantial new investment is needed. A more diversified economy would be the best hedgeagainst the ongoing contraction of the coal industry. Other regions in Ukraine are also struggling tocope with the adverse consequences of industrial contraction (e.g. Temopil, Lviv, and Odessa).These cities are taking an aggressive approach to marketing their regions nationally andinternationally, to attract new investment. Similar measures to increase labor mobility and job-seeking could help stimulate regional and sectoral diversification in Donetsk (para 3.28).
B. Technical Issues
Physical closure
2.4 Mines close because of depletion of their mineral reserves or because the remaining reserveshave become uneconomic as a result of deteriorating geological conditions and more competitivemarkets. Physical closure of an underground coal mine usually involves the following nine steps: (a)arresting underground development work which would prepare new mine panels for coal extraction;(b) mining out the prepared mine panels, if this low-cost operation can be economically justified; (c)recovering equipment and materials, if there is a market for them, and if the prices paid by buyerscover the costs of the recovery, including the extra cost of keeping the mine open longer; (d) sealing-off galleries and other underground workings to the extent required for protection of neighboringmines; (e) preparing the shafts for filling by removing obstructing installations; (f) filling the shaftswith rock normally taken from the waste dump of the mine; (g) installing a safe cover made ofreinforced concrete at the surface opening of the shafts; (h) dismantling and demolishing surfaceinstallations and buildings; and (i) cleaning-up the surface area. During and after the closing period,additional measures may be necessary to deal with gas and water emission from the mine.
2.5 In fast-track closure, extraction from prepared panels is not completed and recovery ofequipment and materials is minimized, in order to shorten the time and lower the high fixed costs ofmine ventilation, water pumping and general mine maintenance. At some mines, water pumping mayneed to be continued temporarily to prevent flooding of the neighboring mines. Rapid closure hasbeen successfully applied in the U.K. and can be easily adopted in Ukrainian coal mines, from thetechnical point of view.
Environmental Aspects
2.6 Environmental conditions (air and water quality primarily) in Ukraine's coal sector are similarto the situation in several other coal mining countries. For example, environmental conditions in theDonetsk area are less severe than in the North Bohemia coal field in the Czech Republic, theKatowice coal field in Poland, the Jharia coal field in India, and the Shanxi coal field in China, but
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worse than in Germany, Belgium and Hungary today. The present environmental situation in theDonetsk coal fields is comparable to that which existed in the older underground coal fields of theU.S.A. and the U.K. during the 1950s-60s.
2.7 The Bank has begun to examine the environmental laws, regulations and procedures, andinstitutional capabilities in Ukraine with regard to closing of mines (the Pilot Project would expandthis work, and would monitor the consistency of Ukraine environmental standards with institutionalstandards and their compliance). In closing mines, domestic design institutes mostly follow Ukrainianprocedures applicable for environmental and safety aspects while the Government supervisoryagencies, in theory, monitor the execution of environmentally acceptable closing plans (see below).In practice, the agencies are short-staffed and under-trained.
2.8 In the past four years, due to insufficient funds available for investment and operation, theenvironmental situation and safety conditions in the coal mining region have deteriorated markedly.For example, life expectancy in the coal fields for underground workers (who are all male; womenwork in occupations at the surface) is considered to be about ten years less than in other occupationsin Ukraine. Accidents resulted in 340 miners having lost their lives in 1995 in on-site orunderground mishaps. The three main environmental concerns are:
(a) Contamination of ground and surface water due to on-going and past mining activities.The mines in the Donbas area produce an average of 3 m3 of waste water for everyton of coal produced. The salinity of this water ranges from as little as 30 mg/l to anenvironmentally hazardous 4,000 mg/l or more. Discharge of this water has raisedsalinity concentrations in some rivers to levels that severely limit use of the water forwater supply or irrigation. In some cases mine water is utilized to dilute municipalwaste water, including sewage, before disposal into the nearest river system;
(b) Pyramidal piles of rock and waste material have formed at all underground mines.On the surface of some piles, combustible material is starting a smoldering firethrough self-ignition. Noxious gases emitted may include carbon monoxide, hydrogensulphide and nitrous oxides, creating a health hazard for local inhabitants living down-wind. Due to rain and erosion, rock masses may slide along the sides of the dump,endangering property or individuals; and
(c) Atmospheric pollution. Gases from burning dumps are perhaps the worstcontaminant. In addition, fine dust blown from waste and coal stock piles may resultin high levels of particulates.
2.9 Annex 6 contains a summary of environmental issues, mitigation measures, and a guide forpreparing an environmental management plan with site-specific mitigation measures. These plans willbe completed in the first stage of implementation of the Pilot Project by August 1996. Besides thethree issues discussed above, two other areas of concern are the surface strength of land aboveshallow mine workings, and the potential emission of methane gas from abandoned mines. Paras3.11-3.14 discuss the project's environmental mitigation measures.
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C. Divestiture of Social Infrastructure
2.10 The coal industry owns and operates a wide range of social infrastructure (kindergartens,houses, medical facilities, etc.). About 77,000 people (or about 8 percent of all employees) areengaged in the operation and maintenance of these assets. The average cost recovery from thebeneficiaries of social services is only about 20 percent of actual cost, estimated with a range of 10-60percent among production associations and variance according to the type of social assets. In 1995,after deducting contributions from the beneficiaries, the cost of operating and maintaining these assetswas estimated to have totaled US$ 150 million, representing about 7 percent of total coal productioncosts. The continued provision of these services by the mines would: (i) continue to divert theattention of management from the key task of coal production; (ii) increase the cost of coal, therebyreducing the competitiveness of domestic coal mining industry; and (iii) maintain the existinginefficiencies in service provision. For these reasons, the Government decided to divest the socialassets and transfer the liabilities to local governments with some budget support.
2.11 The two basic methods to be applied in the divestiture of social infrastructure are the transferof the assets to local governments and privatization: (i) kindergartens would be transferred to localgovernmenmt, in the context of city-wide programs of rationalizing their utilization; (ii) summercamps, rest houses and vacation facilities would be privatized where possible; (iii) sport and culturalfacilities would be transferred to local governments, to be privatized at a later stage; (iv) profilactoria(rest and recuperation facilities) and sanatoria would be rationalized and placed under existing medicalfacilities operated by the regional and central government; and (v) housing stock would be transferredto local governments, to be privatized later. Together with the housing stock, the infrastructure andstaff of the maintenance organizations and utilities would be transferred to local organizations.
2.12 On November 6, 1995 the Cabinet of Ministers adopted a resolution concerning the transferto "communal property" of enterprise housing stock.4 Under Ukraine's property laws, this transfermeans that the housing should be owned and managed by the municipalities in which it is located.This policy is consistent with the recommendations above. Implementation of this policy will presentchallenges: since centrally mandated user charges for housing and communal services are still belowproduction costs, municipalities will face increased operating deficits as they assume responsibility forcoal enterprises' housing stock. Nevertheless, budgeted increases in cost recovery on housing, tobetween 60 and 80 percent of maintenance costs in 1996, will help alleviate this problem.
2.13 Another reason Ukrainian municipalities are reluctant to accept the transfer of mine-ownedhousing is that they do not want to inherit the obligation to renovate this housing, which like much ofthe rest of Ukraine's housing stock is long overdue for capital renovation. There is strong sentimentamong both the mine managers and among the city administrations that the Government shouldprovide for this overdue capital renovation in the context of the transfer from enterprises tomunicipalities. There is a parallel sentiment that the long housing waiting lists should be consolidatedat the time of transfer. However, both the housing waiting lists and the overdue capital repairs stemfrom a chronic lack of capital funds for housing investments. Even if the Government wanted to usepublic funds to address these capital needs, the problems are not limited to the coal sector, and arenot likely to be resolved quickly, considering Ukraine's current financial situation. It is generally
4/ Resolution No. 891 of the Cabinet of Ministers of November 6, 1995, 'On transfer of enterprise housing stock tocommunal property."
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thought that housing privatization will need to proceed at its own pace, while specific interventions tohelp provide an enabling environment for a future private housing market could help speed up theprocess (e.g. the Ukraine Housing Loan, which was approved by the Board on March 14, 1996).
D. Labor Issues
2.14 The closure of uneconomic mines and the need to reduce costs in all mines after the industrystarts to operate competitively will significantly reduce the number of jobs available in coalextraction. Perhaps half of the workers directly employed in coal extraction may have to leave theindustry over the next five years. Taking into account likely job reductions in other areas (e.g.,washing plants, construction, and the social sphere), up to 300-400,000 workers may need to exitfrom the coal industry over the medium term. This number represents the largest restructuringprograms ever attempted in Europe. This task is made more complicated by the high concentration ofmining activities in the Donbas region. Furthermore, the country and the mining industry have tostart this process in a period of extreme scarcity of financial resources and the lack of alternativeemployment. Additional problems are an inadequate incentive framework for private sectorinvestment, lack of fiscal and policy decentralization (which would enable regional and localauthorities to develop imaginative programs to deal with their region's specific needs), and a generallack of labor mobility.
Table 2.1: Employees in Coal Extraction
Employees in coalExtraction
1990 723,9241991 722,3311992 717,7641993 716,5641994 681,4451995 619,826
Source: Ministry of Coal
2.15 Natural attrition from the industry has been high in the last five years. In 1990, about 1.2million (on average) workers were employed in the coal industry. In 1995, total employment droppedto 1.0 million (on average). In the same period, total employment in coal extraction decreased by 14percent from 724,000 to 620,000 (Table 2.1). Due to problems of chronic back-wages, aging mines,poor physical conditions and general low morale, people are leaving the mines -- the employableones. Table 2.2 below shows the composition of the coal industry workforce in 1994 and 1995.
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Table 2.2: Employees in the Coal IndustryAverages for 1994-95
I ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~. .... . .. ........ ..-
Number of Employees 1994 1995 1995 to 1994% Cbange
Total in Production 809,642 741,064 -8.5
Coal Extraction 681,445 619,826 -9.0Breakage face workers (inc.) 85,400 72,500 -15.1Tunnellers 51,800 44,300 -14.5
Washing 26,920 24,567 -8.7
Bricketting 2,132 2,103 -1.4
Machine Building 67,485 62,541 -7.3
Construction 11,123 10,638 -4.4
Other 22,702 21,389 -5.8
Total in Non-Productive Sphere Services 115,900 109,400 -5.6
OVERALL TOTAL 925,542 850,464 -8.1
Source: Ministry of Coal
Between 1994-95 total employment in the coal industry declined by 75,000 workers (onaverage) or 8.1 percent. In the same period, the number of employees working directly in coalproduction decreased by 8.5 percent or 68,578 workers (on average) .
2.16 In coal extraction, employment categories that experienced the greatest attrition/departureswere breakage face-workers (15 percent) and tunnellers (14.5 percent). Typically, these twocategories of miners include the largest number of young men under 40 years of age5. At the sametime, the production workers employed in bricketting show the lowest exit rate at 1.4 percent. Thisgroup of workers is typically the smallest among the employees working directly in coal production.However, their production for household heating needs is in high demand. In services (the so-called"non-productive sphere") employment decreased at a rate of 5.6 percent (on average).
2.17 While there is a need for specific measures to mitigate the social impacts of restructuring, thedesign of the measures needs to take into account macroeconomic and fiscal realities. TheGovernment can no longer afford to subsidize the industry by supporting money-losing mines. Oldmines (of which there are more than seventy) are incurring losses of $3-5 million per year onaverage. This is a cost (direct or implicit) to the budget of some $300 million per year or about 0.5percent of GDP.
2.18 Continued natural attrition should be the main method of job reduction. Based on the aboveemployment statistics, it appears feasible that many face workers could be redeployed at other mines,
5/ Data on coal mines of Ukraine collected by Agency for Regional Development in Donetsk.
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provided that new recruitment is halted. There are likely to be additional costs of transferringemployees from one place of work to another, especially if the hiring mine is distant from the closingmine.
2.19 However, many surface workers, especially women, are likely to become redundant. Thepotential loss of employment in certain regions presents a fundamental concern. The most effectivemeasures to counter this threat are those that promise to help, over time, restore economy-widegrowth (i.e. further reduction of the budget deficit, monetary stability, liberalized trade regime,transparent, predictable legal and regulatory framework, and promotion of the private sector). State-imposed obstacles to labor mobility such as the propiska (a requirement that in order to reside in alocation one needs to obtain a permit based on having a job) should be removed. These measures canhelp foster regional as well as national growth.
2.20 In the interim, special assistance efforts will be required to mitigate adverse labor and socialimpacts, especially in the coal regions. Among the options to facilitate the expansion of employmentare: (a) public employment schemes to help the long-term unemployed; (b) cash incentives to firms tohire ex-miners; (c) provision of credit for new business ventures; and (d) retraining programs fordisplaced workers. Such measures would be essential, but it is also important to recognize that thecommunities surrounding old mines typically have a high proportion of older workers and pensioners.To the extent that they have been able, many of the younger people have left the area. Thoseremaining are usually the more risk-averse, and thus generally less marketable employees.
2.21 In order to maximize the effectiveness of retraining programs, the workers will be able tochoose for themselves the kind of training they wish to receive, and to choose the kind of institution(state or private) from which they wish to receive the training. Vouchers would be issued to ex-mineworkers (from the 3 mines under the Pilot Project) eligible for training. The vouchers would havevalue, and eligible workers could "spend" them at State-run programs at private firms or institutes.In effect, workers would "buy" the training they wanted. Both State and private schools would acceptvouchers in payment for training, and they would then receive reimbursement from the EmploymentFund. This would create competition among schools to offer programs that workers really want, andnew providers of training programs are likely to emerge to help meet the demand. Those institutesthat offer courses which trainees want, that teach courses well, and that help find jobs for trainees atthe conclusion of the training courses, would grow and expand.
2.22 In the past, the State made projections about labor market needs, 5 or 8 years in advance andoffered courses in professions that it believed would have been in demand in the coming year. Thiscentralized "manpower planning" approach has not succeeded in other countries, and most countriesoutside the FSU and Eastern Europe have abandoned it. Experience shows that in a dynamiceconomy, the State is not capable of guessing correctly what professions will be in future demand.Individual workers making thousands of individual decisions can provide a dynamic economy withmuch greater flexibility than centralized State decisions. The private sector is likely to account formost future job growth in Ukraine, so the training that workers are likely to seek will be for jobs inthe private sector, rather than in the state enterprise sector.
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E. Social Protection
2.23 The mine workers and their unions have stressed the need for adequate provision for socialprotection of the workers. They believe any mine closure program must provide for coal distributionsand payments for compensation of damage6 to be continued from the national budget, rather thanfrom the associations or mines. The length of the mines' housing waiting lists (5 years on average) issuch that most workers are not likely to receive apartments; yet workers are nearly all housed, oftenby doubling up. School facilities, profilactoria, sanatoria, and rest houses have traditionally beenprovided by the mining associates. Union leaders have expressed concern that if these facilities aretransferred to municipal authorities without adequate planning, workers might no longer obtain access.
2.24 Up to one-third of the residents in some towns are pensioners. The retirement pensions formine workers are paid from a fund maintained by the city, with revenues received from payrolldeductions from mine enterprises. These revenues have essentially stopped, and some of the citiesare out of money in their pension funds. They have been receiving help from the oblast level pensionfunds, but these too are being exhausted. Continuation of pension payments for retirees wouldtherefore be an important social protection measure, but as part of the national system of pensions andsocial protection. As is often the case, older people on pensions and women appear to be among themost vulnerable groups. Women occupy primarily clerical and administrative jobs connected with themines, and their reemployment possibilities are more limited. Another important feature of the socialprotection system is the delivery of free coal to workers and pensioners associated with a given mine.This heating subsidy is an important mitigation measure in the short-term.
F. Budgetary Support
2.25 The support for the coal industry was equivalent to 8.3 percent of total budgetaryexpenditures, or about 4 percent of GDP in 1993, and 5.6 percent of budget expenditures or 3 percentof GDP in 1994 (without taking into account household price subsidies but including creditprovided/guaranteed by the budget). In the revised budget adopted in mid-1995, Krb 20 trillion orUS$ 130 million equivalent of production/investment subsidies were allocated to the coal industry,equivalent to less than 1 percent of GDP in 1995.
2.26 In view of the critical situation of the Ukrainian coal industry, most of the cost ofrestructuring has to be borne by the national budget. However, it is important to channel budgetarysupport in a way that minimizes the risk of distorting decisions about future production activities andinvestments. In other words, the market rather than the government should decide allocation ofresources for coal production. This can be achieved if budgetary support is primarily aimed atrelieving the industry of unproductive expenditures.
2.27 Budgetary resources that support the operation and maintenance of social infrastructure shouldbe provided to the local governments. Assuming that (i) support from the central government budgetis gradually reduced over time; and (ii) cost savings from rationalization and privatization proceedsare fully utilized to finance the rehabilitation of remaining assets, about US$130 million support from
6/ Under Ukrainian law, if an enterprise is liquidated, payment for damage to workers ("disability" payments) is to becontinued by the legal successor, the association or its successor.
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the central government needs to be budgeted for 1996, US$90 million for 1997, and US$45 millionfor 1998. Additional resources need to be provided to regions/cities where major job losses occur forthe retraining of workers and the establishment of funds that facilitate job creation (credit lines andpublic employment programs). The necessary budgetary outlay for this purpose is estimated atUS$20 million per year.
2.28 All other budgetary support for restructuring should be channeled through the UDKR.Assuming that, on average, about 15 mines will be closed annually in the 1996-2000 period, thebudget of the UDKR should be about US$130 million per year, consisting of US$50 million per yearto cover technical closure costs, US$15 million per year to cover environmental protection costs,US$15 million per year for payments to cover the cost of transferring employees from the closingmines to other mines, US$25 million per year for severance pay to workers who do not wish (orcannot be) to be transferred; and US$25 million per year for disability payments and the provision ofcoal to pensioners. The current Budget includes the following items for the coal industry: (i) Krb 51trillion for technical reconstruction of the mines; (ii) Krb 27 trillion for mine closure and mitigationof the social problems; and (iii) Krb 25 trillion for divestiture of social assets (industry-wide, not onlyfor the coal sector). This amounts to Krb 103 trillion or $570 million.
G. The Need for Effective Public Participation
2.29 Participation by affected parties ("stakeholders") is critical to help plan, refine and implementthe most effective strategy for closing individual mines and for restructuring the sector. Stakeholdersinclude managers in the coal industry, mine workers and families, pensioners, municipalities, theGovernment of Ukraine, the UDKR, and political leaders at all levels. Each of these groups has astake in the design and implementation of the restructuring efforts as well as the social andenvironmental impact.
2.30 Issues affecting coal mines and miners are politically very sensitive. For decades, miners ofthe Donbas region were the mainstay of Soviet labor. In recent years, with the independence fromthe Soviet Union and the shocks to the Ukrainian economy, the Donbas region went into severerecession. Workers were often unpaid for months at a time, which made the task of consultation evenmore difficult.
2.31 Over the past few years, there have been several labor marches on Kiev, organized by coalunion management seeking higher wages, payment of back-wages, and indexation of wages. Attimes, these actions have resulted in the emission of credits for payment of back-wages. During alarge strike in February 1996, stoppages occurred at about 100 mines. Wage payments continue to belate (34 months on average), although work stoppages have declined.
2.32 Although it is generally accepted that the mines slated for closure are at the end of theireconomic lives, until recently there has not been a clear view among the Ministry of Coal Industryand industry or the mine managers as to what should be done to offset the social impact of closure.In the absence of a clear sectoral strategy and an effective public information program, many workersbelieve that better management or new technologies will save their mines and thus their jobs. Theyfind it difficult to accept that the problems with the mines are severe and systemic, and to accept theimplication of this on their ability to keep their jobs.
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2.33 Consultation with the miners and the unions has begun in earnest with the coal conferenceheld in Kiev in April 1996, and several local meetings at the three locations included in the project.A number of union leaders are open-minded, realizing that change has to come. The Government isinvolving both the oblast and the municipal authorities closely, with a view to facilitating the effectivetransfer of social assets.
2.34 Those affected by the planned mine closures, including individual workers, unions, municipalofficials, and mine managers, need to be involved in the planning and implementation phases. Lackof involvement and ownership could lead to misunderstanding and resistance. Thus, improving thetwo-way information flow is a priority. Experience in other countries has shown that mine managersand workers who have participated in designing the program, and feel some ownership of it, arelikely to be more helpful in implementing it. Thus, the interested parties will be given fullinformation, and will be encouraged to participate in the monitoring and evaluation of the PilotProject as it is implemented.
III. PROJECT DESCRIPTION, COSTS ESTIMATES, AND FINANCING
A. Objectives
3.1 The central objective of the project is to mitigate the social and environmental consequencesthat arise from the Government's decision to close uneconomic coal mines, as part of Government'soverall restructuring program for the coal sector. The project seeks to: (i) test ways to implement theGovernment's decision to close mines safely, with due regard to technical, environmental, economic,financial and social aspects; (ii) ensure that mine workers are afforded opportunities to either transferto other jobs in the sector or exit the industry with reasonable compensation and a choice of assistancefor seeking other employment; (iii) transfer social assets to municipal management; support theirrationalization and help ensure that adequate social protection measures are put in place to support themost vulnerable affected people; and (iv) through monitoring and feedback, gain experience from theproject for subsequent Bank assistance operations in the sector.
B. Selection Criteria
3.2 The three mines for the pilot project were selected based upon the following criteria: themines should present a mix of issues that the UDKR will face in closing other mines, i.e. simpleversus complex; different parts of the coal basin with different mining technologies and coal markets;single industry town versus diverse town; and readiness of plans for closure. All three mines areuneconomic, each is located in the Donetsk Oblast (which provides administrative simplicity) and allthree are considered by MCI and the Donetsk Oblast to be top priority for closure. Thecharacteristics of the mines are summarized in Table 3.1 and are discussed in Annexes 3-5.
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Table 3.1: Mine Characteristics
PRAVDA KRASNIY OKTYABR REMOVSKAYA
1. Age Profile one of the oldest (about medium-age (opened in one of the younger mines100 years) 1936) (opened in the late-1950s)
2. Coal Reserves only uneconomic no developed reserves no developed reservesreserves left
3. Production high ($50/ton) very high ($70/ton), high ($40 ton) low-gradeCosts/Competitiveness steep seams coal
4. Number of Collieries multiple (three pits) single pit single pit
5. Surrounding nearby Donetsk - well mid-sized town (small small company monoEconomy/Community (labor developed (other machine shops) industry (coal) townabsorption potential) industries: metallurgy,
machine building)
6. Technical Difficulty of multitude of small water pumping for noneClosure abandoned shafts neighboring mines
7. How Long Has Mine Been recent several years recentUnder Consideration forClosure
8. Size of Mine medium (1,928 workers) small-medium (1,485 small-medium (1300workers) workers)
C. Costs and Financing Plan
3.3 Table 3.2 summarizes the project costs. The financing plan (Table 3.3) shows that theproposed Bank loan of $15.8 million would finance 55 percent of total project costs estimated at$28.5 million; 100 % of foreign costs (of $2.4 million) and 51% of local costs. Proceeds of the loanwould be passed onto the UDKR to handle the physical closure of mines, including measures toimprove the surrounding environment. For the divestiture of social infrastructure, the funds would bepassed on by the National Government (Ministry of Finance) via the Donetsk Oblast to the municipaladministrations, upon certification of the incremental net operating costs of the transferred facilities.Counterpart funds would be provided by the national Government (for such items as meetingdisability payments, retirement and other social benefits) and by the municipalities (in the form ofsupport for social infrastructure). The Government's share of the total costs is estimated at 40percent. Bilateral grants are being sought to fund the technical assistance components.
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Table 3.2: Project Components and Estimated Costs(in $ millions)
Millions of US$ % %Forex Base
Local Foreign Total Cost
A. Mitigation of Physical Closure 8.8 0.3 9.1 3 35- environmenzal mitigation 2.0 2.0- civil works 3.5 3.5- equipment 0.3 0.3 0.6- operating costs during closure 3.0 3.0
B. Social Mitigation 9.0 0.5 9.5 5 37- severance payments 0.8 0.8- old age pension benefits 0.7 0.7- disability payments 2.6 2.6- unemployment benefits 0.8 0.8- reemployment support 2.4 2.4- micro credit 1.5 0.5 2.0- public works 0.2 0.2
C. Social asset Divestiture and Heating 4.8 4.8 0 19- kindergartens 1.0 1.0- sport, cultural facilities, and profilactoria 0.6 0.6- housing and communal services 1.8 1.8- heating subsidy (coal distributions) 1.4 1.4
D. UDKR Incremental Operating Expenses 0.9 0.9 0 3
E. Technical Services 1.6 1.6 100 6- physical closure 0.1 0.1- management of the UDKR 0.2 0.2- retraining 0.1 0.1- environment 0.2 0.2- feasibility studies for ongoing mines 0.5 0.5- regional economic development 0.2 0.2- public information strategy 0.1 0.1- social assessment 0.1 0.1- workshops with affected parties 0.05 0.05- monitoring and evaluation plan 0.05 0.05- base costs 23.5 2.4 25.9 9 100F. Contingencies 2.4 0.2 2.6- price 0.8 0.1 0.9- physical 1.6 0.1 1.7
TOTAL 25.9 2.6 28.5 9
Price contingencies include country inflation and exchange rate estimates.
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Table 3.3: Summary Financing Plan(in $ millions)
WB GovernmentLoan of Ukraine Other Total
A. Mitigation of physical closure 7.1 2.0 9.1- environmental mitigation 2.0 2.0- civil works 3.5' 3.5- equipment 0.6 0.6- operating costs during closure 1.0 2.0 3.0
B. Social Mitigation 4.6 4.9 9.5- severance payments 0.8 0.8- old age pension benefits 0.7 0.7- disability payments 2.62 2.6- unemployment benefits 0.8 0.8- reemployment support 2.43 2.4- micro credit 2.04 2.0- public works 0.25 0.2
C. Social asset divestiture and heating 2.4 2.4 4.8- kindergartens 0.5 0.5 1.0- sport, cultural facilities, and profilactoria 0.3 0.3 0.6- housing and communal services 0.9 0.9 1.8- heating subsidy (coal distributions) 0.76 0.7 1.4
D. UDKR incremental operating expenses 0.3' 0.6 0.9
E. Technical Services 0.3 1.3 1.6- physical closure 0.1 0.1- management of the UDKR 0.28 0.2- retraining 0.2 0.2- environment 0.1 0.1- feasibility studies for ongoing mines 0.3 0.2 0.5- regional economic development 0.2 0.2- public information strategy 0.1 0.1
social assessment 0.1 0.1- workshops with affected parties 0.05 0.05- monitoring and evaluation plan 0.05 0.05
Base Costs 14.7 9.9 1.3 25.9
F. Contingencies 1.1 1.5 2.6
TOTAL 15.8 11.4 1.3 28.5
% share (55.4) (40.0) (4.6) 100.0
1/ Excluding civil works to expand water pumping in neighboring mines.2/ Disability payments of $400 per year per invalid (2,170 persons).3/ $600 paid to: self-employed workers or their new employers. Assumed payments would cover 4,000 employees.4/ Assumes 400 loans averaging $5,000 each.5/ $70,000 per municipality for wages for public works for environmental improvements.6/ Free coal distribution (6 tons per year at $36/ton) to approximately 4,850 eligible workers and 4,450 pensioners (9,300persons in total). Bank disbursements on declining scale (see Table 4.3).7/ Assumes a budget of $300,000 per year for 3 years, with Bank financing on a declining scale (see Table 4.3). IncludesUkrainian job counselors (3 people for 12 months) to be trained abroad.8/ The UK Know How Fund has expressed strong interest to assist the UDKR's institutional program.
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D. Project Components
3.4 There are five project components, which would serve as the basic framework for mitigationinitiatives in subsequent sector operations requested by the Government. These are:
1 . Mitigation of Mine Closure(a) physical closure(b) environmental mitigation
2. Social mitigation3. Social infrastructure divestiture4. Institutional strengthening and job counselling5. Technical assistance
Each of these components is summarized below.
3.5 Closure Plan. The key aspects of the closure plans for the three mines are outlined in Box4.1. These plans would include mitigation of physical, environmental and social aspects. Adoptionof a specific plan for each mine would be a condition of disbursement for physical works at that mine(para 6.4 (i)). These aspects are discussed below.
1. Mitigation of Mine Closure
A. Physical Closure
3.6 This component involves carrying out civil works and procurement of equipment to enablesafe mine closures (including filling and capping of shafts, demolition of surface buildings, limitedregrading, and pumping of water where necessary).
3.7 The three mines are simple with few technical closure problems and with low gas levels in thegeneral body of mine air (0.3 to 0.5%). The shaft fill could be obtained from the spoil tips orprocessed rubble from the surface demolition. The shafts are 50-100 years old. All three mines havebeen poorly maintained. They have small and simple surface installations with no substantialstructures. The winding gear and head stocks are made of brick and steel construction, and aresimilar in scale to those at the smallest mines in Western Europe. Little preparation work is requiredbefore filling and capping of the shafts.
3.8 The project will finance the purchase of equipment necessary to effect closure at the threemines, and an allowance for non-productive operation of support systems (e.g. pumps, ventilation,and shaft hoists) during the shaft preparation and filling period.
3.9 The physical mine closing would occur in four stages:
Stage 1: The closure is designed. This step has been essentially completed for all threemines.
Stage 2: Coal production is arrested and men and equipment (to the extent economicallyjustified) are removed from underground. This stage is on-going. It ends on theclosure date (full cessation of these activities).
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Stage 3: Shafts are filled and capped, and surface buildings demolished. This stage beginsimmediately after the closure date and should be completed 6 months later.
Stage 4: The environmental impact of the closure is monitored and further mitigated asrequired. This stage may include water and methane gas monitoring and re-shapingand revegitation of spoil heaps. There is no time limit to this stage.
3.10 The total cost of physical closure at the three mines is estimated at $9.1 million, which isabout equal to what was incurred in the U.K., France, and Belgium ($3 million per mine). Theestimates have been lowered from the original Ukrainian plans by adopting a "fast track" approachthat does not provide for much salvage of dilapidated equipment and materials. Most of the machineryand rail equipment underground is in very poor condition and does not warrant being reclaimed. Themain electrical machinery is serviceable and, if appropriate economically, will be salvaged anddeployed in other mines.
B. Environmental Mitigation
3.11 The project is rated "B". A check list of guidelines for preparation of the environmentalmitigatior; plans for the mines has been formulated (Annex 6). These guidelines are broad incoverage and much of it could usefully apply to the sector as a whole. After approval of the physicalclosure plan by the Donetsk Oblast Department of Environment, an Enviromnental Management Plan(EMP) with site-specific mitigation measures would be prepared, with technical assistance to befinanced by grant funding. The EMP will identify the site specific environmental issues associatedwith the physical closure plan, mitigating measures, and a monitoring program to assure compliancewith the mitigation program. In addition, institutional responsibilities will be identified forimplementation of both mitigation and inventory programs respectively, as well as associated costs. Ithas been estimated that US$100,000 would be required to implement the EMP, and this amount hasbeen included in the project cost. Implementation of the physical closure plan is contingent uponBank approval of the EMP.
3.12 The closure of the three mines should not increase the environmental problems of the coalfields, and would in fact avoid additional pollution associated with ongoing mine operations.Pertinent issues are: (a) safety risks posed by abandoned shafts and audits; (b) safety risks and visualannoyance posed by decrepit industrial structures on the mine's surface; (c) fumes from smolderingfires in one of the waste piles (at Removskaya mine in Snezhnoye); (d) safety risks from methane gasescaping from old mine workings (mainly at Krasniy Oktyabr mine in Yenakievo, though to a lesserdegree also at Pravda mine in Donetsk); (e) possible land subsidence (minor shifts in land levels) afterthe mine's closure; (f) rock waste dumps occupy potentially usable land and are considered to be aneyesore; (g) the tailings pond from the washery at the Removskaya mine could have affected thesurface and subsurface water quality; and (h) minor groundwater pollution may have occurred becauseof improper disposal of oil and grease from workshops associated with the mine.
3.13 At the Krasniy Oktyabr and the Pravda mines, there exists a limited risk of gas seepage fromthe abandoned mine workings to the surface after mine closure. The design institutes are aware of thisrisk and have carefully identified all possible areas where such seepage could occur. These areas willbe monitored in the post-closure period. Should seepage occur, the safety risks can be mitigated bydrilling gas release boreholes, in line with international practice.
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3.14 The environmental management plans will provide, inter alia, for the following mitigationmeasures: all shafts and openings will be filled with rock and permanently sealed off at the surface;unsafe industrial surface structures will be levelled, and rubble and scrap removed; ground water willpumped; and the fire at Removskaya will be extinguished. After closure, the sites will be monitoredfor methane emissions and ground subsidence. Under the project, technical assistance will beprovided for possible longer term environmental improvements, such as improving the slopes ofterracones and examining whether the sites could be used for alterative purposes for future use, andfor remediating any surface or ground-water impacts if needed. The costs of such mitigationmeasures would be borne by UDKR.
2. Social Mitigation
3.15 The social mitigation package under the project consists of the following measures:
(a) Severance payments, pension payments. disability payments, unemployment benefits,and other social protection benefits to be provided by the GOU in accordance withcurrent Ukrainian laws (see para 3.23);
(b) Re-employment support would be offered for workers in closing mines (para 3.24 -3.31);
(c) Micro-credit funded by the Bank loan through an appropriate agency selected by theGOU on terms and conditions satisfactory to the Bank. The agency would makesmall sub-loans available to entrepreneurs, to be lent at interest rates that takes intoaccount the National Bank of Ukraine discount rate. This program would be managedby a suitable agency in accordance with an agency agreement between the agency andthe Government: the agency agreement would contain terms and conditionssatisfactory to the Bank under which the agency would lend small loans to enterprisesor individuals who present sound business plans for investment and working capital inthe region of mine closures. Applicants for subloans could be former coal mineemployees, as well as other persons in the area of the mining communities who aresetting up small businesses (paras 3.32 - 3.38);
(d) Public works. Assistance would be provided in carrying out a small public worksprogram to be undertaken by the municipalities in which the three mines are located($70,000 per city). Such works could include repair of roads, communal services,and environmental improvements at the project sites or the adjacent towns (Annexes3-5 provide more information on site-specifics). During the Project LaunchWorkshop mission, the Donetsk Oblast (and the municipalities) is expected to submit aplan of the criteria for selection of the public works for enviromental improvements inthe areas affected by the project.
3.16 In order to design the package, the profile of the workers had to be obtained. Mine workersfall into four main categories, though these could be further subdivided:
* underground skilled workers who work the face of the coal seam;
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* other underground workers, including tunnellers, drifters, transport and servicepersonnel;
* surface workers associated with the mine operation (technical and administrative); and
* workers associated with other operations supported by the coal industry, such ashousing, kindergartens, and other social infrastructure.
3.17 There is demand for some of the underground workers at other mines. The housing andkindergarten workers would be transferred to the municipalities, along with the social infrastructurethey service, and thus would be employed for at least part of the time. Surface workers face the mostdifficulty in seeking new employment and many of them are women. They are engaged in officework and mine maintenance, but are not directly linked to production.
3.18 To arrive at an appropriate design for, and to estimate the cost of social mitigation measures,it was necessary to estimate the projected unemployment from the closure of the three pilot mines.To do this, the employees were disaggregated into four risk groups as shown in Table 3.4 and inAnnex 8. The "highest risk" and "high risk" categories include the surface workers, dividedaccording to occupation and reliance on a single income (women, single heads of households withchildren). The "at risk" and "at risk - mobile" categories include underground workers, dividedaccording to occupation and perceived demand at other mines.
Table 3.4: Unemployment Projections
number of category number of aggregateemployees % unemployed unemployed % unemployed
MIDDLE CASEHighest risk 239 95% 227High risk 1435 90% 1292At risk 391 65% 254At risk - mobile 2808 53% 1474Total 4873 3247 66.6%BEST CASEHighest risk 239 90% 215High risk 1435 85% 1220At risk 391 40% 156At risk - mobile 2808 20% 562Total 4873 2153 44.2%MOST DIFFICULTHighest risk 239 100% 239High risk 1435 95% 1363At risk 391 90% 352At risk - mobile 2808 85% 2387Total 4873 4341 89.1%
This table, taken from data/interviews at Removskaya mine, provides estimated unemployment during two years into theclosure period.
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3.19 Fifty-three interviews were conducted with workers in each of the four risk categories at eachmine. In addition, interviews were conducted with local offices of the Employment Service, minemanagers, labor unions, and local and regional government officials.
3.20 There is no clear consensus on how many workers will be able to find new jobs in the nexttwo to three years. The scenarios presented in Table 3.4 represent a range of possible unemploymentoutcomes six months to two years after mine closure. It may be that the three mines in the pilot willcorrespond to some extent with the three risk scenarios presented: i.e. Donetsk (Pravda mine) islikely to be the best case, while Snezhnoye (Removskaya mine) is likely to be close to the mostdifficult case7. For the purpose of cost projections, the middle case was used. Close monitoring ofre-employment outcomes during the Pilot Project will provide valuable information for planningsubsequent operations.
3.21 A fundamental problem common to all FSU countries is the lack of labor mobility. This isparticularly severe in the coal sector, where most of these workers are deeply identified with theircommunity. They and members of their families have sometimes lived in these settlements andworked at the mines for generations. They are dependent on the mines not only for employment, butalso for coal and other forms of social protection. Few of the workers have any clear idea as to howor where to look for a new job, let alone start any kind of small business. They have no realexperience of a market economy, and little concept of alternatives. They hope that if the mines areclosed, the Government will start new mines or some other enterprise to employ them. The towns ofYenakievo and Snezhnoye (60 - 100 km from Donetsk) are physically and economically remote,aggravating the lack of labor mobility.
3.22 Consequently, the most important feature in the project revolves around the social protectionpackage for the workers. Measures are geared towards assisting affected workers to find alternativeemployment and meet their basic living needs. Thus, the package designed for the 3-mine Pilot goeswell beyond the significance of only this project. It tests a model of how the balance between fiscalaffordability and social justice could be achieved and handled in the future.
3.23 Under the project, all benefits due to workers under the law would be met by theGovernment. Redundant miners and other workers at the mines are entitled to the following benefitsunder the laws of Ukraine:8
7/ The city of Snezhnoye's economy is overwhelmingly dependent on its mines, including the Removskaya mine. Themiries have historically employed generations of workers and multiple wage-earners in a single household. Snezhnoye isremote (2-hour ride from Donetsk) and has poor roads and occasional public transport between mine settlements surroundingthe city. The manager at the Removskaya mine estimates that only 200 to 250 of his most skilled underground workers canbe redeployed to other mines. By contrast, the city of Donetsk, where the Pravda mines are located, offers better prospects.Over the past 18 months, according to independent trade union officials at the mine, half the employees have leftvoluntarily. The director of the mine estimates that 45 to 50% of those remaining can be reabsorbed in the industry. Atleast 5 to 10% more will likely find work in or near Donetsk. The city of Yenakievo, where Krasniy Oktyabr is located,falls between these two extremes. It is a 90-minute ride from Donetsk and is more economically diverse than Snezhnoye.
8/ These benefits, in principle, are available to all workers who become unemployed. However, few are receiving them,according to official data.
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* Severance Pay. For the first 3 months of unemployment, laid-off workers willreceive severance pay at the rate equal to their previous monthly salary. Theseverance payments will commence on date of termination.
* Unemployment Benefits. After the first 3 months of unemployment, those activelyseeking work will receive unemployment benefits for 9 months. Unemploymentbenefits are equal to 75% of their average wage and reduced to 50% after the second3 months of unemployment. Those laid-off miners with less than two years beforeretirement age, will receive unemployment benefits for 15 months. Unemploymentbenefits are covered from the national fund financed from a 2% payroll tax. Thebenefits are not paid to those with pension or other income exceeding the minimumwage.
3.24 Under the project, job creation incentives equivalent to expenditures of $600/worker will beincluded for ex-miners and other workers associated with the three mines who find jobs with privatefinns, or who undertake their own jobs through setting up new economic activities. The type of jobsthat have been typically created in coal mining regions in other countries are construction, autorepair, electrical repairs, bakeries, small flour mills, etc. These jobs utilize skills found amongminers and surface workers and, with some retraining, workers have proven to be able to find jobs.What is needed, however, is the active partnership of the Donetsk Oblast and the three municipalitiesin designing job creation schemes. The Oblast and the municipalities have agreed to jointly work out,with the help of UDKR, a job creation program for ex-mine workers. The project will test differentapproaches/solutions with the central premise that all jobs need to be: (i) competitive in themarketplace; (ii) outside existing state enterprises; and (iii) outside existing mines, as there is excesslabor in those mines (other than face workers).
3.25 The job creation would take the form of re-employment support payments made directly tonew or existing employers of ex-mine workers. Payments would be made to employers (not othermines) who hire workers who have been laid-off at the 3 mines, or those who have exited from thosemines to launch self-employment activities, or who have undertaken training programs.
3.26 Annex 7 presents data obtained by the Agency for Regional Development and Social Studiesof Donetsk; the report is entitled "Social Portrait of a Miner". It collaborates a similar reportconducted by the Russian Institute of Comparative Labor Relations entitled "Residents of Miners'Settlements and Problems of Coal Sector Restructuring". Both reports show unemployment to bemuch higher than the number registered with the official Employment Service. Only a smallpercentage of those unemployed seem to seek work through official channels. Women appear to bemuch harder hit by unemployment than men, because they work primarily as middle managers,administrators, and accountants, rather than directly in the mines. While some miners can transfer toa new mine, administrative jobs do not usually transfer when a mine is closed.
Figure 3-1
Government of Ukraine Severance Pay, Unemployment Benefits, and Project Re-employment Support Program
GOVERNMENT OF UKRAINE
Month I ran equivalent to 3 months BANK LOAN
Month 2 pay LOA
Support for re-employment payments:Month 3 ............................. sequivalent to US$600 per job
would be paid paid to:(i) workers from the 3 mines;
Month 4 (ii) workers who have undertakentraining in search of other jobs;
(iii) new employers whoMonth 5 hire such workers;
(iv) existing employersMonth 6 ~~~~~~~~~~~~~~~~~who hire such workers.
Month 7
paid for 9 month sJ\(xludes pensiones
Month 8
Month 10
Month 10
Month 12 . .......... ... .
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3.27 Only 4% of the Russian workers surveyed (and only 2% of the miners) indicated they wouldlike to set up their own businesses. As revealed in rapid assessments recently done in Ukraine, thislack of entrepreneurial inclination is also typical of mine workers in Ukraine. It was a significantissue even in Great Britain, where the commercial and legal infrastructure to support small businessesis well-developed. The Russian survey showed that being in "business" carries a significant stigma tothe miners (74% of those interviewed in Kiselovsk indicated they would never engage in businessunder any circumstances), especially among older people. This stigma, added to a lack of supportinginfrastructure, poses a significant barrier to new business creation.
3.28 Job Creation Potential at the Regional Level. The project is focused upon the Donetsk Oblastfor several reasons: (i) it is the traditional center of the donbas coal mining region; (ii) the Oblastranks among the top in terms of small-scale privatizations achieved in 1995, as shown below, and isconsequently seen as a region that will actively seek to absorb workers from the mining industry intoother economic activities; and (iii) it is the location of more than a dozen coal mines that need to beclosed over the next few years and therefore the Oblast Government has taken a pro-active stance inassisting the restructuring of the industry.
3.29 The ability of the regional economy to absorb employees who leave the coal industry or aremade redundant through closings and consolidates, will be particularly dependent on the progress ofreforms in the Donetsk, Lugansk, Volyn and Dniepropetrovsk oblasts, where most of the mines arelocated. Tables 3.5 and 3.6 below show the comparative experience of four oblasts (as well asnationally) in assisting privatizations and in attracting foreign investment.
The number of privatized units has increased more rapidly and the pace quickened faster inthe Donetsk oblast than in the three other oblasts mentioned.
Table 3.5: Privatization ExperienceNumber of Enterprises Established
C Small-Scale Medium and Large-Scale
1995 1995 1993-95
National 13,100 3,121 3,962
Lugansk 399 106 139
Donetsk 1,780 349 430
Volyn 299 58 76
Dniepropetrovsk 1,198 243 251
3.30 Small scale businesses have been growing quite rapidly in the Donetsk region. At the end of1993, there were 10,000 such units (defined as up to 200 employees for industry and 25 employeesfor non-industrial activities, and 15 employees in the case of retail trade) employing 134,700 people.By October 1995, the number of units had grown to 11,900 employing 130,000 persons (averagenumber of employees equals 12).
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Table 3.6: Foreign Investment
city Number Or Eutexprises Volume d ilm)*
Jan. 1995 Jan. 1996 Jan. 1994 Jan. 1995 Jan. 1996
National 2123 3842 219.4 483.5 750.1
Lugansk 45 61 15.5 19.1 23.2
Donetsk 142 169 5.7 60.7 69.8
Volyn 13 44 0.6 2.2 3.3
Dniepropetrovsk F 166 224 18.6 43.4 63.1
* Amounts show investment approvals, not implementation. A majority of these projects have yet to be completed.
3.31 Despite good progress in 1995, there is much scope to speed up both private sectordevelopment and privatization in Donetsk city and in the surrounding towns. Current policy doesencourage the establishment of new businesses, and the Oblast Government has begun a campaign tostress that those previously engaged in coal mining could find alternative economic activities if microcredit were made available. The Oblast Government maintains a Market Relations DevelopmentDivision within its Economic Department, one of whose functions is to assist small businesses inregistration and start-up; it provides information on procedures and facilitates new ventures.
3.32 In Donetsk Oblast, as in most of Ukraine, one obstacle cited by people wishing to establishsmall businesses is that it is very difficult to comply with official registration procedures. Havingdone so, small firms find it virtually impossible to get credit. Tax rates can stifle reinvestment ofeamings. One proven means of creating jobs and earnings for poor people, particularly women, is tofacilitate micro-enterprise development. This can be done through provision of carefully supervisedmicro-credit, and by making the establishment of micro-enterprises a simple and fair procedure.
3.33 The Donetsk Oblast has developed a record of pro-active support or encouragement of privatebusinesses. The Oblast plans to create "one-stop shops" where micro-businesses can quickly beregistered, and basic information useful to businesses could be given out. Initially, three such"shops" would be established in the vicinity of the closing mines. Simplification of inspectionprocedures (such as for fire and health safety standards), and reduction of the required frequency ofpermit renewal is being undertaken in tandem. Currently, small commercial establishments can besubject to several inspections a month, and be required monthly to renew permits to sell certainproducts. To help meet the impact of closures, the three municipalities are all establishing "business-friendly environments" that could utilize the skills of ex-miners.
3.34 The Bank loan would help to cover the initial funding for micro-credit lending to smallbusinesses and entrepreneurial activities in the project areas. The program would enable applicants toreceive loans, if they provide business plans with sound financial prospects. Assistance in drawing upthe business plans, and supervision of the loans, would be provided by a suitable lending agency.The business plans would not need to be as detailed as those used by the Business DevelopmentOffice in Luhansk supported by IFC and the U.K. Know-How Fund for larger business loans.
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Provision would be made for cross-fertilization between the Project's offices and the IFC/U.K. Know-How Fund office in Luhansk. The micro-credit loans would not be limited to ex-mine employees, butwould be open to all applicants in the three local communities.
3.35 Criteria for Selecting a Suitable Micro-credit Agencv. Two possibilities exist for providingthe micro-credit financing:
(i) using a financial institution that already exists in Ukraine with experience in providingsuch credits; the institution might need a small amount of technical assistance todeliver such specialized operations; or
(ii) using a non-governmental institution (NGO) with such experience. A few such NGOsare active in Ukraine (e.g Western NIS-Fund that is accredited to lend), butexperience is limited and little has been lent in the small-scale area. The agency wouldneed to asses the commercial and economic viability of applicants and be able tomonitor the use of any credits. In some FSU countries, the NGOs have teamed upwith partner banks to perform the financial transactions.
3.36 Whichever the type used, the microcredit agency would need to be able to demonstrate that itcan meet the following performance standards:
* a good financial standing as well as performance without losses or subsidies (i.e havea viable credit portfolio) and be able to extend loans at interest rates that cover theadministrative and financial costs of credit;
* capacity to do business planning, including provision of micro-credit services in theDonetsk Oblast and the marketing of such services;
* capacity to expand its micro-credit services, including to maintain ability to superviseand check progress in making credit, appropriate system of operations, managementoperations system, financial flexibility and capacity to quickly make decisions onproviding microfinancing;
* experience in delivering small loans to small-scale businesses, especially new entrants,including providing credits on the basis of business plans, evaluation of cash flows,and project proposals, and using collateral (through partner banks if need be) to covercredit risk.
3.37 These criteria were discussed during negotiations. It was agreed that the interest rate payableby the individual borrowers should be determined in accordance with GOU's financial policy, andtake into account the National Bank of Ukraine discount rate (currently 75 percent per annum, havingbeen lowered from 90 percent on April 1, 1996 and 85 percent on April 8, 1996) and theadministrative costs and lending risk.
3.38 Regarding the demand for credit, it is likely that over the three years of the projectimplementation, some 400 small loans of around $5,000 each could be extended, or an amount of $2million. This has been included in the Bank loan amount and would be treated as seed capital for arevolving fund which over the life of the Bank loan could benefit many more than the initial 400 sub-
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borrowers (assuming sub-loan maturities of say 3 years). Other terms and conditions of the on-lending, and selection criteria, would be developed in conjuction with the selection of the fiscal agent.Conclusion of a satisfactory Fiscal Agency Agreement, as well as agreement on eligibility criteria,would be a condition of disbursement of this component of the Bank loan (para 6.4 (iii)).
3. Social Infrastructure Divestiture and Heating Subsidy
3.39 Divestiture of social infrastructure would involve financing of additional expenses incurred bymunicipalities for taking over operation and maintenance of housing, kindergartens and other socialassets from the three closing mines. Such expenditures would be supported by the Bank loan (underthe Project) on a declining scale over the next three years. For the first year, the support would be75% of net expenditures, for the second year 50%, and for the third year 25%. Annex 9 shows thefinancial data for the social facilities at the 3 mines and the impact on the three municipal budgets inquestion.
3.40 The estimated financing for the housing component by the Bank loan (under the Project) isapproximately $0.9 million under a three year sliding scale. Housing waiting lists of the mines to beclosed would be merged with the housing waiting lists of the appropriate municipal authorities (thecities of Yenakievo and Snezhnoye and the Proletarsky Raion of Donetsk).
3.41 The project would include financing for a portion of the operating costs of the ninekindergartens, cultural facilities, sports facilities, and profilactoria that are currently operated by thethree mines in the Pilot Project. These are considered essential services to the community and shouldcontinue to operate during the transitional period. Under the Project, and in accord with nationalpolicy, the social facilities would be transferred to the municipalities, who will have full responsibilityfor their operation and maintenance. There is an evident scope for making these facilities moreefficient with higher enrollment rates (fewer facilities). The project would finance a sliding scale ofcurrent outlays (75 percent of net operating costs less user fees in the first year, 50 percent in thesecond year, and 25 percent in the third year). The municipalities will need to implement a programof rationalization to reduce the operating costs and achieve greater cost recovery and to bring thetransferred social facilities in line with municipal standards. The estimated total financing for theother social infrastructure is approximately $300,000, under the same three year sliding scale.
3.42 For the towns of Yenakievo and Snezhnoye, the city administration would be responsible fortransferred social assets. For the city of Donetsk, which is divided into raions, the Proletarsky Raionwould be responsible (except for housing, which would be managed by the city of Donetsk). TheGovermnent would reimburse these municipal authorities for a portion of their increased operatingcosts resulting from this transfer (less revenues from user fees). The declining reimbursement scaleprovides time and incentive for: (i) rationalization of operations; and (ii) increases in user fees to cost-recovery levels (taking into account the Government's targeted housing subsidy program and otherprograms for assisting the most disadvantaged segments of the population). A condition ofdisbursement will be that the Government will conclude a Subsidiary Grant Agreement with theDonetsk Oblast, which would include procedures to transfer the social facilities to the threemunicipalities (para 6.4 (iv)).
3.43 Heating Subsidy. For many years the mining communities and pensioners have received freecoal (6 tons a year delivered to the homes four times during the year) to heat their houses. The coalcomes from the producing mines, which are now being closed. Interviews conducted by the Bank inthe homes of affected parties revealed that the areas of most concern were: (i) jobs, (ii) the houses
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they live in; and (iii) the ability to heat houses in very cold winters.9 Few of the houses have anydistrict heating and depend entirely on coal for heat and cooking fuel. Consequently, as one of thecritical social mitigation measures, the project includes provision for the UDKR to provide a heatingsubsidy by procuring 6 tons of coal per family and delivering it to the affected parties. As shown inTable 3.3, the workers and pensioners (who currently also receive the coal) number 9,300 persons(4,850 persons currently working at the 3 mines, and 4,450 pensioners also receiving the coalsubsidy).
3.44 The coal distributions under the project would take place in accordance with operationalguidelines to be adopted by the UDKR. It is expected that the UDKR will distribute the coal to eachperson who fits the following criteria: an employee, pensioner, disabled former employee, or memberof the immediate family of a former employee who was killed in a mining accident at one of the threeproject mines; in the case of an employee, such employee is not re-employed by another coal mine;and continuing to live in the same residence in the same municipality as before the mnine closure, saidresidence being one where burning coal provides the only form of heat. At the end of the first year,the subsidy will be reviewed as to the viability of converting it to cash, or phasing it out.
3.45 The funding of the coal distribution program would be on a declining basis, in the sameformula as used for the kindergartens, i.e. (75, 50 and 25 percent the first three years). Criteria toevaluate the continued need for the subsidy would be: (i) the ability of the UDKR to handle the coaldeliveries; (ii) the cost of the coal provided; and (iii) whether the coal was effectively delivered to thefamilies and used appropriately (i.e. not resold). The alternative of "cashing out" the mitigationmeasure i.e. letting farnilies buy their own coal if funding were provided, would be studied. Projectimplementation would include spot checks to monitor progress in this area. The UDKR wouldinclude the costs of coal purchases and delivery in its annual operating budget.
4. Institutional Strengthening and Job Counselling
3.46 The Bank loan would support the incremental operating costs of the UDKR, on a decliningbasis. This is discussed in paras 4.1 - 4.4. To assist in the job search and to provide advice as towhere openings might exist, job counsellors to be recruited by the UDKR would help miners andsurface workers to find jobs at other mines or to secure alternative employment opportunities. Grantfunds (e.g. from Canada) are being sought for this component. The counsellors would be initiallytrained abroad and would be stationed at each of the closing mines for a period of six to twelvemonths.'" The counsellor would serve as a type of ombudsman and would be available for dailyconsultation with miners, related workers, and their families on such issues as where are therealternative job possibilities (in the mines or other industries), what is the housing situation there, andis there availability of kindergartens and other social services. Grievances that workers may haveabout the process could be brought to the attention of the counsellors, who would refer them toUDKR management.
9/ Interviewees all said "we will freeze to death without coal supply and funds to buy the coal."
10/ A recent Bank study on several countries in Eastern Europe (Hungary, Poland) has shown that in OECD countries, jobplacement services have been two to four times as cost-effective as retraining of workers shed through industrialrestructuring. Germany, on the other hand, has had good experience with re-training workers from former East Germany.The various findings point to the need for careful monitoring and fine-tuning of both types of assistance. For this and otherreasons, close monitoring will be done under the Pilot Project.
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5. Technical Services
3.47 Technical services for the following subcomponents would be provided under the project":
(a) Mitigation of physical closure. Assistance in contracting and implementing works forphysical closure would be provided. The U.K. Know-How Fund has expressedstrong interest in supporting UDKR's institutional program (Annex 12).
(b) Management of UDKR. Consultant services would be provided to the UDKR toassist establishment and initiation of operations, including project implementation,accounting, budgeting and auditing systems (U.K. Know-How Fund, as above).
(c) Retraining Programs. Assistance in preparing and delivering retraining programscentered around new job skills for competitive markets would be provided. Emphasiswould be on voucher-based training that encourages individual choice (paras 2.21 -2.22).
(d) Environment. Assistance in preparing and implementing plans for environmentalmitigation would be provided.
(e) Feasibility studies for investments to increase productivitv of viable mines. Thesector restructuring program includes possible investment into profitable mines tomake them more viable. Modernization and rationalization of existing mineoperations is needed so that they can remain competitive. Assistance in preparing andimplementing studies for investments, which would support suchmodernization/rationalization of viable mines would be provided. The studies wouldbe prepared by the mines, with the assistance of Ukrainian and international experts.Up to six mines would be involved. The mines would be analyzed to see if thepossible investments would promise sound economic and financial returns, in light ofthe remaining economic life of the mine, the suitability of the mine to expand itsoperations, and the management capacity.
(f) Regional economic development activities would identify the Donbas region'spotential and help it to compete for new private investment. A diversified economy isthe best hedge against the ongoing contraction of the coal industry. Technicalassistance would be used to help establish local economic development offices andprepare strategies for each of the cities affected by mine closures.
(g) Public information strategy. A strategically phased public information program wouldbe collaboratively designed and implemented by the GOU through the UDKR and
II/ As indicated, bilateral grants are being sought for several of these technical services components.
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local groups. The strategy would entail information dissemination and outreach,including national, regional, oblast, raion, and local mine levels.'2
(h) Social assessment. Building on the first phase of social assessment, there is a needfor a second phase, multi-disciplinary social assessment which addresses issues ofpoverty, gender (i.e. impacts on woman and children), health and nutrition, andvalues, attitudes, and outlooks of the mine community (i.e. by adapting a successfulcoal miners' survey conducted in Russia). The 2-3 month assessment will attempt tocombine rapid qualitative and more quantitative survey methodologies, aimed atgathering both secondary and primary data from the communities facing immnediateclosure. If possible, investigation of the status of those workers previously laid-off orwho left voluntarily from both the mining and other enterprises will be carried out.Quantitative household surveys would establish necessary baseline data from which tomonitor and evaluate changes once the pilot mines close.
(i) Consultation and participation of affected parties. In order to engage and learn fromthe affected workers in the Pilot mines, a process of consultation and participation willbe initiated at an appropriate stage in each pilot mine through facilitated on-sitemeetings of affected parties (workers, their families, other stakeholders). Thesediscussions will offer a forum for information-sharing, review and deternination ofsocial protection and mitigation options, design of monitorable indicators, and theestablishment of representative participation committees or advisory panels as long-term mechanisms for ongoing project monitoring and evaluation.
(j) Monitoring and evaluation. One of the most important elements of the Pilot Projectinvolves setting up of a monitoring and evaluation (M&E) system which woulddirectly inform about project implementation in the pilot phase, and would influencedesign and implementation decisions for the planned subsequent projects. The M&Eprogram needs to be tailored to two levels: (i) for project as a whole, and (ii) foreach mine. A process of participatory monitoring would be carried out byrepresentatives of affected parties, including workers, municipalities, the UDKR, theMinistry of Coal Industry, and possibly an outside party such as an NGO.
E. The Project's Impact on Local Govermnents
3.48 Local governments in Ukraine are in the process of a major transition. Their responsibilitiesare increasing as revenues decrease. This project takes place against the backdrop of two majorchanges in national policy, both of which are still. in the process of being implemented. The first isthat the Soviet-era network of enterprise-supported social infrastructure is being transferred tomunicipal authorities in all sectors. In the case of the coal industry specifically, a Presidential Decreedated February 7, 1996 provides that enterprise-owned social assets will be transferred to municipalownership during 1996 and the first half of 1997. These transfers, in the aggregate, will require
L2/At the national level, GOU has already announced publicly its intention to close 92 mines, and the Cabinet of Ministershas signed a decree committing its support for: a) the closing of the three Donetsk Oblast mines and b) the Bank-assistedPilot Project to mitigate the social and environmental consequences of the three closures. At the mine level, informationneeds to be conmmunicated more fully to the workers.
31
significant additional budget support for the municipalities. The Project will provide such support, ona declining basis, but only for the social assets associated with the three pilot mines.
3.49 The second national policy change in process is that charges to residents (owners and rentersalike) for housing and communal services are being systematically raised to cost recovery levels.They have already risen from approximately 5% of operating costs to 60% of operating costs in lessthan two years, and are tentatively planned to cover 100% of costs by the end of 1996. Thisdramatic increase is offset for the poor by a new program of needs-based subsidies which is intendedto limit housing expenses to 15% of family income.
3.50 The Project's impact on the three municipalities is summarized below and in Annex 9.13
Because the coal mines in question are not paying significant taxes today, the cities do not expect adirect impact on their revenues from the mines' closure. In the long run, there could be somenegative impact on personal income tax revenues (approximately 1 % of the city's revenues inSnezhnoye, which is the worst case), although all three cities report receiving little or no directrevenues from these mines today. And there will be a small but measurable increase in expendituresas the social assets are transferred to the municipalities. Without the mitigation funding provided bythe project, the impact on the municipal budgets, based on 1995 costs, expressed in US dollars, is asfollows:
Proletarsky Raion'4 Yenakievo Snezhnoye(US Dollars)
Mine's social asset costs 47,370 407,800 414,173Municipal Budget 6,151,667 10,274,187 5,919,247Mine/Municipal proportion 0.8% 4.0% 7.0%
With mitigation funding provided by the project, the impact of the transfer of these socialassets as a percentage of the municipal budget is less, as follows:
Year 1 0.2% 1.0% 1.8%Year 2 0.4% 2.0% 3.5%Year 3 0.6% 3.0% 5.3%
3.51 The financial impacts on the cities of these three mine's divestiture of social infrastructure istrivial in comparison to the likely impact of the two national policies discussed above. If the nationalpolicy for full-cost recovery of housing and communal services is implemented as expected, over halfof the asset transfer's impact on city budgets is eliminated. If the national policy for transfer of allenterprise assets, or even all coal enterprise assets is implemented, the impact on municipal budgetsfrom these pilot asset transfers is dwarfed, and significant resources beyond the scope of this Projectwill be required from the national budget. In the larger picture, this merely amounts to a change in
13/ As shown in Annex 9, two scenarios are presented for Snezhnoye and Yenakievo, one assuming no change in usercharges for housing and communal services, and one assuming the Government's policy of increasing such charges to cost-recovery level is implemented. For the Proletarsky Raion of Donetsk, only one scenario is presented, as the Raion will notbe affected by the housing transfer.
14/ Note that the housing associated with the Pravda mines will be transferred to the City of Donetsk, rather than theLion, and is not included in these figures.
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channels, since these assets were historically supported from the national budget, through theenterprise channel.
F. On-lending Arrangements
3.52 The on-lending arrangements are as follows:
(a) The Bank would sign a Loan Agreement with Ukraine;
(b) The Bank would sign Project Aereements with the UDKR and with the DonetskOblast. The arrangements between the Donetsk Oblast and the three municipalitieswould be governed by Participating City Agreements. Each agreement would outlineimplementation procedures and requirements; and
(c) The Government of Ukraine would pass the proceeds of the loan on a grant basis tothe UDKR and to the Donetsk Oblast through Subsidiary Grant Agreements; theOblast will in turn pass the proceeds on to the three cities, on the same grant basis,through Participatory City Agreements.
IV. PROJECT IMPLEMENTATION AND INSTITUTIONAL ARRANGEMENTS
A. Project Implementation Plan
4.1 Responsibilities for project execution are summarized in Table 4.1. The detailedimplementation steps are shown in Box 4.1 below. The main implementation responsibility is withthe UDKR. Overall project oversight and policy coordination will be handled by a Project SteeringCommittee (PSC) comprised of representatives of MCI, the Donetsk Oblast, the three municipalitiesand the Ministry of Economy and Cabinet of Ministers who will meet periodically to review progresson the project and to resolve outstanding issues. Management of social infrastructure will be carriedout by the local administrations (the city administration for the cities of Yenakievo and Snezhnoye,and the district administration for the Proletarsky rayon of the city of Donetsk). Respective roles andfunctions of these entities are described below (diagrams depicting the organizational set-up andprocess are shown in Annex 16).
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Box 4.1: KEY IMLEMENTATION SIEPS
A. OVERALL P}OORAM'provide short-term operadng funds and commit to long-term operating funds for UDKIt and agree in principle to closure budget(Ministry of Finance)*fmalize the UDKR charter*employ key staff of the UDKR (UDKR)*launch public information campaign with Coal Conference in April (UDKR/MCI)
B. BEFORE EACH MINE CLOSURE*establish date (July 1996) to close each mine (MCI)*employ staff as necessary (UDKR)*develop closure plans, which include technicad, enviromnmental, social, labor, financial, and timing provisions MCI, UDXR, city,and institute), subject no objection by the WB*establish implementation manual and accoundng system in accordance with generally accepted accountng principes (UDfR)*obtain regulatory approvals required by Ukrainian law (environmental, social, labor, etc.) (MCIUDKR)*conclude sub-agreement between GOU and UDKR, subject to no objection from the WB*organize economic development/unemployment midgation program (JDKR)*employ and train UDKR employment counselor(s) (UDKR)'organize transportation program (UDKR)*give notice to redeployable workers and those to be laid off (MCI)*prepare and execute agreement between mining association and city on transfer of social infrastructure (UDKR)*continue public infonnation program (UDKR)*conduct social assessmnent for each mine, including poverty, gender, and heal and nuttitio analyses. (MCI in collaboratioa withlocal entitites)'conduct workshops with affected parties to explain menu of options (UDXKR)*develop project monitoring and evaluation plan (UDKR, MCI, municipalites, and othre affected parties)*establish advisory participation panel for monitoring and evaluation (UDIRKRmunicipalities)*award contracts to contractors selected (in accordance with WB procuretent rules) for closure and environmental mitigation(UDKR)*phase out coal production and recover underground equipment (if any) (MCI)
C. ON DATE OF CLOSURE OF EACH MINE*cease all coal production and underground equipment recovery (MCI)*redeployable workers moved to new mines (MCI)spay severance to laid off workers (MCI)'pay back-salaries (MCI)'fonnally transfer mine to UDKR (MCI)*transfer fluds to UDKR accounts for closure expenditres (MOF)*MCI retains debts of mine*transfer social assets, equipment, and employees to municipalities (MCI)*merge mine's housing waiting list with city's (mnunicipalities)
D. AFTER CLOSURE DATE OF EACH MINE*implement tedhnical closure and environmental mitigation (UDKR)*operate social infrastructure, record revenues and expenditures (municipalities)*submit quarterly accounts to UDKR for approval (municipalities)*after UDKR approval of accounts, reimburse municipalities' net expenditures for transfered social assets on declining scale (75%,50%, 25%) by transfer to city (MOF)*distribute coal as heating subsidy (UDKR)*implement econtomic developmenutlunemployment mitigation program (UDKR)'pay all social benefits due to workers from closed mines, including: pensions (MOF) disability (MCI), and unemployment(Ministry of Social Welfare)*nonitor and evaluate project implementation against project indicators, twice each year, with participation of affected panies(GOU,UDKR).
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1. The UDKR
4.2 The Minister of Coal Industry established the basis for UDKR's creation by order datedJanuary 1, 1996 (Annex 1 1). The UDKR was registered with the Donetsk City Executive Committee(certificate dated March 13, 1996). UDKR's Charter (Ustav) and staffing plan were approved by theMinister of Coal Industry on March 1, 1996. The primary objective of the UDKR is to providepractical and effective assistance to workers and businesses in the coal producing regions in order tostimulate job creation and promote economic regeneration. In order to meet this objective, theUDKR's role will be to encourage and support local initiatives which aim to provide economicrestructuring and social development in areas affected by mine closures. Annex 12 shows a programof institutional support that the U.K. Know-How Fund plans to provide to UDKR.
4.3 The UDKR will assume responsibility for the actual closure of mines and for the socialmitigation and heat subsidy program. Once fully staffed (the plan calls for 135 employees), theUDKR will begin the immediate task of establishing the local network of contacts to ensure themaximum contribution is made to the job creation, and economic regeneration objectives. Inaddition, the UDKR will be responsible for disbursement of all funds made available for workers'compensation, transfer benefits, redundancy, and the promotion of job creation and economicregeneration.
4.4 The UDKR will also undertake a program of public information designed to assure that allaffected parties are aware of the overall restructuring context as well as specific mine closureactivities.
2. The Role of the Municipalities
4.5 Housing and kindergartens would be transferred to the appropriate municipal authorities. Forthe cities of Yenakievo and Snezhnoye, this is the city administration. As mentioned, for the city ofDonetsk, which is divided into raions, this is the Proletarsky Raion for kindergartens and other socialassets, and the city of Donetsk for housing. The Government of Ukraine would reimburse thesemunicipal authorities for a portion of their increased operating costs resulting from this transfer (lessrevenues from user fees). The reimbursement (financed by the Bank loan on a declining scale)provides time and incentive for (i) rationalization of operations; and (ii) increases in user fees to cost-recovery levels (paired with the Government's targeted housing subsidy program), thus facilitatingsustainability of operations for the rationalized social assets. The cities would track their incrementaloperating costs for the transferred social infrastructure, and would certify the amounts to the UDKR.The UDKR would review these reports, and upon UDKR approval, the MoF would transfer thereimbursement directly to the municipal authorities.
4.6 Housing waiting lists of the mines to be closed would be merged with the housing waitinglists of the appropriate municipal authorities.
4.7 Electric substations owned by mines to be closed but serving existing housing would betransferred to the municipalities together with the housing they serve or to the appropriate localelectric utility enterprise.
4.8 Other assets of the mines to be closed (profilactoria, sanitoria, rest houses, palaces of culture,clubs, etc.) would be transferred to the appropriate health or municipal authorities (the cities ofYenakievo and Snezhnoye and the Proletarsky Raion of Donetsk), except in the case of remotefacilities, which should be privatized through auction as soon as possible.
35
UKRAINECOAL PILOT PROJECT
Table 4.1: Responsibilities for Project Implementation
Component Supervision Agency Implementing Agencyor End-Beneficiary
A. Mitigation of physical closure- environmental mitigation MCWUDKR Contractors- civil works UDKR Contractors- equipment UDKR Closing mines- operating costs during closure UDKR Local Suppliers (incl. Donbassenergo)
B. Social Mitigation- severance payments MOF/UDKR Laid-off workers- old age pension benefits MOFIUDKR Pensioners- disability payments MOF/UDKR Disabled ex-workers- unemployment benefits MOF/MCI Laid-off workers- reemployment support UDKR/Donetsk Oblast Laid-off workers, new employers- public works Donetsk Oblast Municipalities- micro credit micro credit agency to be New businesses
selectedC. Social asset transfer- kindergartens MCI/MOF/Donetsk Oblast municipalities- sports, cultural facilities, and profilactoria MCI/MOF/Donetsk Oblast municipalities- housing and communal services MCI/MOF/Donetsk Oblast municipalities- heating subsidy UDKR Workers and pensioners
D. UDKR incremental operating expenses UDKR UDKR
E. Technical assistance- physical closure UDKR UDKR- management of the UDKR UDKR UDKR- retraining UDKR/Donetsk Oblast Workers- environment MCI/UDKR UDKR- feasibility studies for ongoing mines MCI Selected mines- regional economic development MCI/Donetsk Oblast Donetsk Oblast- public information strategy MCI/Donetsk Oblast Donetsk Oblast- social assessment UDKR Workers and Families- workshops with affected parties UDKR Ditto- monitoring and evaluation plan UDKR GoU/Bank
Note: The UDKR would have the main responsibility for the project; the Donetsk Oblast and the municipalities wouldhandle the disbursement of proceeds for dives.iture of social infrastructure and public works. The Donetsk Oblastwould handle regional economic development, retraining and public information; an agency to be determined (tbd)would handle the micro-credit. The Ministry of Coal Industry would handle the feasibility studies.
36
3. Participatory Mechanisms and Evaluation
4.9 The two-fold challenge is (i) to get meaningful participation by affected parties in the PilotProject, and (ii) to learn by doing, i.e. to use the Pilot Project as a tool for stakeholder analysis,monitoring, and evaluation so that the subsequent restructuring projects are well designed.
4.10 Beneficiary participation would be achieved through four mechanisms:
(i) the establishment of participation panels at each of the three sites to monitor projectimplementation;
(ii) the establishment of an overall Project Steering Committee (PSC) to provide policyguidance and to resolve outstanding issues;
(iii) an ongoing public information strategy; and(iv) periodic social assessment work to identify the Project's impact at each site.
4.11 Each site-specific Participation Panel would be an advisory group to the UDKR; one Panelwhich would include representatives of:
- each of the unions at the closing mine;- the local administration (city and if applicable, raion);- the local elected council (city and if applicable, raion);- the mine's managers;- several workers and family representatives; and- the local newspaper, television, or radio station.
Each Participation Panel would be regularly informed by the UDKR about implementationprogress, in order to provide (a) systematic infornation to, and consultation with key stakeholders;and (b) meaningful feedback to the UDKR and other decision makers. The three Participation Panels,would continue in existence during the life of the project, and would be convened as often asrequired. The Panels will prepare in tenns reports every six months. At the end of the project, adetailed report and debriefing of each panel will allow the Government and the Bank to evaluate theproject as implemented against its design objectives. Each panel would be professionally facilitatedand will be provided with training and substantive education in the issues. Because the Pilot Projectwould begin essentially immediately, it is anticipated that the greatest uses of the Participation Panelswould be:
(a) to allow the Government entities (national and local) and the World Bank to monitorand evaluate implementation, as it occurs at each site; and
(b) to inform the design of the subsequent assistance operations.
4.12 The Project Steering Committee would include representatives of:
the Cabinet of Ministers (CoM) or their designated representatives (e.g. Ministry ofEconomy, Ministry of Finance, Ministry of Social Protection);the Ministry of Coal Industry;the UDKR;
37
each of the unions (the official miners' union, the two independent miners' unions,and the "white collar" technical and administrative union);local administrations;Oblast Administration; andmine managers.
The PSC would help to guide the UDKR on policy aspects and on resolving any major difficulties inthe course of implementation. The PSC would also evaluate the project and formulaterecommendations regarding next steps in the work of the UDKR.
4.13 The public information strategy would be developed by the PSC, the Government, and theBank, and would be designed to keep the public at large and the citizens at each site fully informedabout the status of the project, planned events, and the work of the Participation Panels and the PSC.Technical assistance would be provided as described earlier. Where appropriate, mediarepresentatives would be invited to meetings of the Participation Panels and the PSC.
4.14 Social assessment and survey work would be carried out by qualified Ukrainian institutionsto determine and establish baseline information and expectations at the beginning of the project, aswell as during and after the project's implementation. Technical assistance would be provided asdescribed earlier.
B. Procurement and Disbursement
4.15 Procurement under the Bank loan would cover: (i) civil works needed to support the civilworks for physical closure and environmental mitigation out the physical closure and environmentalmitigation; (ii) the purchase of auxiliary equipment needed to support the civil works for physicalclosure and environmental mitigation; and (iii) the hiring of consulting services. For all otheractivities financed under the proposed loap, such as the divestiture of social infrastructure, and re-employment support, no procurement arrangements are applicable. Given the small size of thecontracts expected for physical closure and environmental mitigation and the fact that the works aregeographically scattered and labor intensive, civil works will be procured following NationalCompetitive Bidding (NCB) procedures acceptable to the Bank. Foreign firms are unlikely to beinterested in these contracts but will not be excluded from participation. The relevant implementingagencies will use the Bank's regional sample bidding documents for NCB. Consultants would beappointed in accordance with the Bank Group's guidelines for the Use of Consultants (August 1991).For the feasibility studies, consultant services would be procured using short listing; for othertechnical assistance tasks, each of small value, a sole source basis would be used. Table 4.2summarizes the procurement arrangements. All of these arrangements will be discussed in depth atthe Project Launch Workshop in May 1996 (see para 4.25).
4.16 In Ukraine, like many other states of the former Soviet Union, there is no public procurementlaw at present. A country procurement strategy note is scheduled for 1997. Experience in competitivebidding is limited to a few projects financed by international organizations.
4.17 Procurement of mine operating costs during closure, social mitigation expenses, social assetstransfer expenses and UDKR administrative expenses will be undertaken through a yearly operatingbudget program prepared by the implementing agency and approved by the Bank.
38
Table 4.2: Procurement Arrangements
L ProDurement Mdsi
Type of Expenditures National Other Not Bank- TotalCompetitive Financed Costs
______ ______ ______ _____ B idding _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
Works 6.0 - 6.0(6.0) (6.0)
Goods 0.7' 0.7(0.7) (0.7)
UDKR Incremental Operating 1.12 1.1Costs (0.3) (0.3)
Social Mitigation Expenses 8.53 8.5(2.8) (-) (2.8)
Sub-Loans 2.04 2.0(2.0) (2.0)
Social Assets Transfer 5 2 65 5.3(2.6) (2.6)
Consultant Services 0.36 1.3 1.60.3 (-) (0.3)
Project Mines' Operating - 3.37 - 3.3Costs during Closure (1.1) (1.1)
Total 6.0 21.2 1.3 28.5(6.0) (9.8) (-) (15.8)
Note: Figures in parenthesis are the amounts to be financed by the Bank.
1/ International shopping for small equipment items and materials required for physical closure and environmentalmitigation.2/ Incremental operating expenses of UDKR, including cost of rent and utilities, salaries, office equipment and supplies,maintenance, communications and transportation (see Table 4.3 for disbursement percentages) of Bank-financed portion.3/ Severance payments, old age pension, benefits, disability payments and re-employment support (see Table 4.3 for Bank-financed portion of disbursement percentage).4/ Micro credits for eligible individuals and employers. A maximum value of $5,000 per contract, would be procuredthrough usual commercial practices.5/ Payments for operation and maintenance of housing, kindergartens, cultural and social facilities and heating subsidies (seeTable 4.3 for disbursement percentage of Bank-financed portion).6/ Consultants' services procured in accordance with the guidelines for the use of consultants.7/ Utility, electricity and other operating costs after mining ceases, during the physical closure process, excluding salaries toregular staff and management (see Table 4.3 for disbursement percentage).
Prior review. Contracts under NCB and for goods and works amounting to US$300,000equivalent and more would be subject to prior review. All contracts for consulting firms amountingto US$100,000 and more, as well as all contracts for individual consultants amounting to US$50,000and more would also be subject to the Bank's prior review. Terms of reference for all consultingservices shall have a prior review by the Bank.
4.18 Loan proceeds are expected to be disbursed over a three-year period. The Bank's standarddisbursement profiles do not provide a suitable basis for comparison, due to the special nature of this
39
project. The disbursement categories and the percentages of expenditures to be financed by theproposed loan are shown in Table 4.3. The disbursement schedule is shown in Annex 13.
Table 4.3: Allocation of Bank Loan(in US$ million equivalent)
Category Amount % of Expenditures to beFinanced
(see loan Agreement Schedule)
Works 5.5 70% of total
Goods 0.6 100 % of foreign expenditures100 % of local expenditures (ex-factory cost) and80% of local expenditures for otheritems produced locally
Incremental Operating Costs 0.3 50% of expenditures during 1996-9733% of expenditures during 1997-9816% of expenditures during 1998-99
Social Mitigation Expenses and re- 2.6 100%employment support
Sub-Loans 2.0 100%
Social Assets Transfer and heating 2.4 75% of expenditures during 1996-97subsidy 50% of expenditures during 1997-98
25% of expenditures during 1998-99
Consultant Services 0.3 100%
Project Mines' Post-Closure 1.0 30% of totalExpenses
Unallocated 1.1
Total 15.8
* Net of local taxes and duties.Disbursement for works, incremental operating costs, social mitigation expenses, and social assets transfer will beundertaken based on a yearly operating budget program prepared by the implementing agency and approved by the Bank.
4.19 To facilitate disbursement, the Government would establish two separate Special Accounts(SAs) in commercial banks for the two main implementing bodies -- the UDKR and the DonetskOblast. The SAs would cover the Bank's share of expenses under the project. The Donetsk OblastSpecial Account would cover the transfer of social assets.
4.20 An initial deposit of US$500,000 would be made available for the Special Account for UDKRupon Loan effectiveness. For the Donetsk Oblast Special Account, an initial deposit of US$200,000would be made available. The Bank would replenish the Special Accounts upon receipt of satisfactoryproof of incurred eligible expenses, accompanied by a bank statement and reconciliation of the SpecialAccounts. Payments for expenditures prior to the date of the Loan Agreement, except for
40
withdrawals, in aggregate amount not to exceed the equivalent of $1,500,000, may be made onaccount of payments made for expenditures before that date but after January 12, 1996 (creation ofUDKR).
4.21 The UDKR would maintain the Special Accounts for loan-financed components and wouldkeep them separately from any existing accounts. All disbursements would need to be fullydocumented except for all operating costs, social mitigation expenses, coal distributions, expendituresfor goods and works under contracts costing less than $300,000 equivalent for incremental operatingcosts, and for expenditures of consultants' services under contracts costing less than (i) $100,000 forfirms, and (ii) $50,000 equivalent for individuals, under such terms and conditions as the Bank shallspecify by notice to the Borrower.
4.22 The Donetsk Oblast would maintain the Special Account for the social assets component andwould keep it separately from any other existing accounts. Disbursements will be made againststatement of expenditure (SOEs). The Donetsk Oblast would be responsible for preparing withdrawalapplications. The documentation for withdrawals under SOEs will be retained at the Donetsk Oblastfor review by Bank supervision missions and for regular and semi-annual audits. At the city andraion level detailed quarterly and yearly reports that itemize uses of funds would be kept. QuarterlyUses-of-Funds statements that are very specific in relation to social assets would help to clear varioususes of the funds , and also help to separate them from municipalities' other activities. For example,for kindergartens, the quarterly Uses-of-Funds include payroll, food and day attendance. The yearlyUses-of-Funds reports would show utilities expenditures. The supervisory role would be managed bythe Donetsk Oblast, which would spot-check the disbursements, and arrange audits of the expenditureas necessary.
C. Accounting and Auditing
4.23 The UDKR and the Donetsk Oblast will maintain accounts for loan-financed componentsseparate from any other existing accounts. They will maintain records of all receipts anddisbursements of funds. Copies of these documents will be routinely submitted to the UDKR and tothe Donetsk Oblast. Each project account will be audited separately on an annual basis by a firm ofindependent accountants acceptable to the World Bank. Audits will be made available to the WorldBank by June 30 each year. The audits will include a separate opinion on the SOEs and each SpecialAccount. These arrangements will be confirmed during negotiations.
D. Supervision, Monitoring and Evaluation
4.24 Supervision, monitoring and evaluation of project implementation at the national level wouldbe assigned to the PSC. The PSC would draw on the work of the Participation Panels. Monitoringand coordination of project implementation would be assigned to implementation advisors (UDKRemployees) and the job counsellors at each mine. Consultants financed through the technicalassistance component of the project will provide expert advice in procurement, financial managementand beneficiary assessment. The UDKR will prepare a quarterly progress report on overall projectimplementation based on reports from the local governments.
4.25 Since the UDKR is a new body and the MCI has no experience in implementing Bankprojects, the project will require substantial supervision by the Bank during its implementation. Aproject launch workshop is scheduled for May 1996. At negotiations, the Bank reached an
41
understanding with UDKR and the project municipalities on the critical actions to be taken by quarterand this will be discussed more fully at the project launch workshop. A formal mid-termimplementation review is scheduled for the first half of 1997 whereby senior government officials andthe Bank would undertake a comprehensive review of project implementation to date, especially onthe labor and social mitigation package. Under the supervision of the PSC, the implementationadvisor (U.K. Know-How Fund) and the job counsellors will coordinate with the UDKR and willprepare an evaluation report by March 1907. The report will be reviewed by the Bank andGovernment. In the subsequent year, supervision efforts may be reduced, depending on the successin the implementation process and accumulation of the relevant experience by local authorities. Thesupervision plan is shown in Annex 14. A bar chart of implementation steps at the mine level isshown in Annex 10.
4.26 Given the complexity of the project, and the importance of monitoring employment generationand labor movements, monitoring plan and performance indicators for the social components wereagreed upon during negotiations. Annex 17 shows the terms of reference for social impactmonitoring plus indicative monitoring indicators for the social aspects (indicators for the technicalaspects are more routine). The information will be collected by UDKR in a timely manner for itsown understanding of the impact of the social mitigation measures, and such information will besubmitted quarterly to the Bank.
V. ECONOMIC EVALUATION, BENEFITS AND RISKS
5.1 A full cost-benefit analysis for the three mine Pilot Project has been carried out. Annex 15shows these calculations for each mine individually as well as consolidated for the Pilot Project. Thecost and benefit cash flows have been discounted by 12% annually and they have been extended for afive years period after the project completion, i.e., up to the year 2003.
Economic and Fiscal Analysis of Mine Closures
5.2 The net benefits in the long run of closing a mine depend upon:
* the reduction in non-labor mining costs -- energy, pit props, other material inputs, andreplacement equipment -- resulting from the fall or transfer of coal production plus thenet increase in the value of output due to the redeployment of mine workers;
* the cost of replacing the lost output from other mines or by importing coal or by theuse of alternative fuels.
These net benefits are set against the costs of closing the mine, allowing for the fact thatmany of these costs might, in any case, have been incurred at a later date when the mine's reservesare exhausted.
5.3 Usually, such calculations do not take into account the redistribution of income caused by theproject or its impact on the labor market. However in this case, a fuller analysis was performed,estimating the impact of the mine closure on different groups within the economy. Table 5.1 belowpresents a more complete picture of the flows associated with two scenarios in which the minecontinues to operate, and where it is closed immediately. Many of these items cancel out when
42
looking at the problem from the perspective of the economy as a whole, especially if somesimplifying assumptions are made. In particular, by assuming that (a) coal prices are set equal toimport parity plus transport and distribution costs; and (b) the marginal and average costs of transportand distribution for coal are approximately equal, the costs and benefits under each scenario may besummarized as:
(a) Without project:
Benefits: Locally produced coal delivered to consumers:
Costs: Material inputs & replacement equipment (import cost);Wages of workers in alternative jobs (economic cost of labor);Maintenance and operation of social assets;Coal cleaning costs;Coal distribution and transport; andFuture closure and mitigation costs.
(b) With project:
Benefits: Equivalent of imported coal delivered to consumers; andValue of extra output from redeployed miners:
Costs: Coal imports + transport & distribution costs (=coal sales);Closure costs;Wages of workers in alternative jobs;Social mitigation cost (incl transfer of workers, free coal & specialemployment programs);Maintenance and operation of social assets; andAdministration of closure program.
In aggregate terms, the net benefit of implementing the project is, thus, equal to the differencebetween the benefits minus the costs under the with project and no project scenarios. The economicrate of return works out to 55% (ranging from 20% for Removskaya, 93% for Pravda and 65% forKrasniy Oktyabr). The ERRs are high because of the avoidance of continued future losses andsubsidies.
5.4 The table also shows that the closure of a mine causes a substantial redistribution ofincome between different groups. Specifically, mine workers will be net losers if the sum of wagesin alternative jobs plus severance, unemployment and social security payments is less than the wagesthat they currently receive from the mine. The payment of wages has often been delayed by manymonths, so the magnitude of this loss may be small or zero. High rates of voluntary tumover in theindustry -- prompted by late payment of wages -- suggests that this may, indeed, be the case. On theother side, the Government budget is likely to gain because the fall in subsidies (after allowing forclosure, social mitigation and other costs) will exceed any loss in revenue. However, in this contextthe Govermnent is simply the channel through which money is transferred from taxpayers -- otherhouseholds -- to those who benefit from the continued operation of the mine. This means that theoverall distributional impact of the project may be positive if the typical taxpayer or recipient ofgovernment transfers is less well-off than the typical recipient of mining subsidies. The key variable
43
is how many workers will find alternative jobs in the short- and long-term. In Table 3.4, estimateswere presented about the likely magnitudes of those who might find employment versus those whomight not, and in which risk categories. In the middle case, 66 percent would not find alternativejobs in the near term (two years), but over a longer term, the outlook would improve. The mitigationbenefits provided for under this Pilot Project offer social protection to meet these concerns.
Table 5.1: Costs and Benefits of Closing Mines in Ukraine(Pravda, Krasniy Oktyabr, and Removskaya)
Agent Costs/Expenditures Benefits/Revenues
A. Mine continues to operate
Mining Material inputs (incl tax) Revenue from coal salesenterprise Equipment replacement (incl tax) Subsidies received by mine
Labor costsWages & benefits (incl free coal)Social security charges & taxes
Coal cleaning costsCoal transport & distributionTaxes & royalties oni coal production
Workers Wages in alternative jobs Wages & benefits from mine
Rest of Import cost of material inputs Sales of material inputs (excl tax)economy Import cost of equipment Sales of equipment (excl tax)
Marginal cost of transport & distribution services Sales of coal transport & distributionservices
Government Subsidies to mine Taxes, etc from coal productionFuture mine closure and social mitigation costs Taxes on material inputs, equipment, etc
Social security charges & taxes
B. Immediate mine closure
Workers Wages in alternative jobs Severance, unemployment and socialsecurity paymentsWages in alternative jobs
Rest of Coal imports Revenue from coal saleseconomy Marginal cost for transport & distribution of Value of output produced by redeployed
imported coal minersWages paid to miners in alternative jobsSocial security charges & taxes for new employses
Government Mine closure costs Social security charges & taxes for newSocial .-. itigation costs employees
Transfer of workers to other minesSeverance, unemployment and socialsecurity paymentsCosts of special employment programs
Free coal for former mine workersMaintenance & operation of social assetsAdministration of closure program
44
5.5 Risks. There are several significant risks (hence the Bank felt it necessary to start with aPilot Project):
(i) the affected workers might not be able to find other jobs and thus the social mitigationmeasures as provided for in the Project might prove inadequate.
* Approach: The Government has adopted a regional approach starting thisPilot Project through one Oblast. UDKR will mount specificmonitoring/evaluation of job search progress; work closely with the jobcounsellors, and review whether the package of social mitigation measures willneed to be modified as implementation proceeds.
(ii) A second risk is that the disparate interest of workers, mine management and theGovernment could result in inaction and social dislocation.
* Approach: The Government is mounting increased public discussions of thesector restructuring program. 7he PSC would review implementation veryclosely and Bank supervision should liaise intensively with the PSC.
(iii) A third risk is that the UDKR could become ineffective as it attempts tohandle the mine closure process, the social mitigation and the economicregeneration activities.
& Approach: Substantial technical assistance will be provided by the U.K.Know-How Fund to assist in start-up and early operations. The DonetskOblast will assist in economic regeneration.
5.6 The risks of the Project are considerable. Yet, the Government has decided for very soundreasons to proceed with restructuring of the coal sector, including closure of unprofitable mines.There is little doubt that with mines being closed the miners and related workers (and their families)will be better off with the mitigation package as included in the project, than without it. In fact, inthe half-dozen mine closures that have occurred over the past five years, there was no mitigationpackage to speak of, and the restructuring of the sector became delayed. The design of the project,with its mine-by-mine approach, allows the GoU and the Bank to review progress closely and "toleam by doing" in this challenging initiative of implementing a well-targeted social protection safetynet.
5.7 The risks have also been reduced through careful project design, including such steps as:
* provision of initial technical assistance to the UDKR and to design institutes (financed bythe Japan PHRD);
* increased consultations with stakeholders during Pilot Project preparation;* contracting of the physical closure of the mines; and* inclusion of detailed monitoring and evaluation mechanisms for inplementation of the
Project.
45
VI. AGREEMENTS AND RECOMMENDATIONS
6.1 Prior to negotiations, the following actions were carried out:
(i) the Government designated the three mines under the project as mines that will beclosed (para 3.2).
(ii) the Government registered the UDKR, appointed a chief executive, and approvedUDKR's charter, including its operating and staffing plan (para 4.2);'5
6.2 The following agreements were reached during negotiations and are reflected in the Loan andProject Agreements and recorded in the Minutes:
(i) the Government will establish the Project Steering Committee (para 4.1);
(ii) a Charter for the UDKR, satisfactory to the Bank will be prepared for its operations(this has been done);
(iii) the three participating cities/towns (Donetsk, Yenakievo, Snezhnoye) has taken over thesocial assets of the three mines pursuant to the Participating City Agreements (para 3.42and Annex 9);
(iv) obligations to affected workers (such as three months severance and disability payments)will be met (paras 3.23);
(v) the eligibility criteria for micro-credit lending to be developed prior to disbursements(para 3.36); and
(vi) the UDKR will collect and document information necessary for monitoring andevaluation; such information will be submitted every three months (para 4.26 andAnnex 17).
6.3 The following are conditions of effectiveness:
(i) that the Borrower will enter into the Subsidiary Agreement with the UDKR; and
(ii) that the UDKR will be adequately staffed to carry out its role and its functions underthe project.
6.4 Conditions of disbursement for their respective categories are:
(i) adoption of a mine closure plan by the UDKR for each of the 3 mines, satisfactory tothe Bank, including the environmental mitigation plan;
15/ MCI Decree No. 11, dated January 12, 1996; UDKR was registered on March 13, 1996. The charter (ustav) wasapproved by rt.e Minister of Coal Industry on March 1, 1996.
46
(ii) for the social mitigation package, the UDKR will prepare a manual or otherdocumentation of the procedures for making and accounting for payments to affectedparties, and for the heating subsidy (para 3.44). This would include details of requireddocumentation for confirming the eligibility of recipients to receive social mitigationpayments and the coal distributions (para 3.5 and Box 4.1);
(iii) for the micro-credit component, execution of a satisfactory Fiscal Agency Agreementbetween the Borrower and the agency selected for carrying out the micro-credit lending.This should include appointment of the agency to appraise the micro-credits andsupervise lending, including obtaining repayments from beneficiaries, applicationprocedures, selection criteria, and terms and conditions of on-lending. Theadministration costs of the fiscal agent would be covered by a management fee out ofproceeds from the subcomponent (para 3.35 - 3.38); and
(iv) the Borrower will conclude a Subsidiary Agreement with the Donetsk Oblast whichwould include procedures to transfer the social facilities to the three municipalities(paras 3.39 - 3.42).
6.5 Subject to the above conditions, the proposed Coal Pilot Project is suitable for a loan toUkraine of US$15.8 million for a period of 17 years, including five years grace at the Bank'sstandard variable interest rate.
UKRAINE
COAL PILOT PROJECT
ANNEXES
ANNEX I
Page 1 of 2
PROTOCOL
DISCUSSIONS BETWEEN REPRESENTATIVES OF THE GOVERNMENT OFUKRAINE AND THE WORLD BANK ON RESTRUCTURING THIE UKRAINIANCOAL INDUSTRY
JANUARY 15-20, 1996, LONDON
In view of the (i) need to increase the efficiency of the coal industry of Ukraine, promotecompetition, improve the profitability of enterprises, and speed up restructuring; and (ii) thecommitment of the World Bank to actively support the achievement of these goals;
Taking into account the experience of Great Britain, Hungary, Belgium; and France in therestructuring of their coal industries; and
Considering a number of proposals prepared by the Ukrainian side and the World Bank;
The delegations reached agreement on the need to implement the following measures:
Establishment of coal markets by providing enterprises the right to sell all their coal atprices freely negotiated with customers.
Corporatization of viable coal mines while transfering the mines identified for closure to anewly created ehltity, Ukrainian Coal Company, entrusted with the management of the mineclosure process.
Closure of uneconomic mines with the aim of minimizing the technical cost and the timerequired for closure while taking into account the need to protect the environment and thelivelihood of people affected by mine closures.
Transfer of social assets and liabilities from the mining industry to local governments.
Development and implementation of programs to support the generation of employment inregions/cities where major job losses occur as a result of mine closures and therationalization of employment in remaining mines.
Elimination of cross-subsidies between mining enterprises and allowing enterprises to decideabout the best use of their operating profits.
ANNEX 1
Page 2 of 2
Concentration of state support on covering the technical and social costs of mine closureswhile relying on the banking sector to provide funds for commercially viable investments.
In order to assist Ukraine with the implementation of the above measures, the World Bankplans to provide loans for the coal sector in a total amount of US$ 300-400 million in the 1996-98period. Within this amount, US$ 80-100 million is planned to be approved in 1996. The proceedsof these loans will be utilized to finance investments in the viable part of the coal industry, coverpart of the costs of closing down uneconomic mines, assist local governrments in taking over socialassets from mining companies, and mitigate the possible negative social consequences ofrestructuring.
The World Bank is prepared to assist the Government of Ukraine in obtaining technicalassistance from the UK Know How Fund and other donors for the restructuring of the coalindustry. The World Bank is also prepared to assist Ukraine to obtain resources from the GlobalEnvironment Facility for the extraction and utilization of coalbed methane.
The Ukrainian delegation would like to express its gratitude to the World Bank and theBritish Know How Fund for the outstanding organization of the meeting, and the very informativeand useful visit to a number of British coal mines.
For the Ukrainian delegation: For the World Bank:
V. 1. Yevtukhov D. LallementVice-Pr Minister fq ECqI
kVja iq 1 jqqto
ANNEX 2
Page 1 of 3UKRAINE
COAL PILOT PROJECT
ENACTMENTOF THE PRESIDENT OF UKRAINE
On Coal Industry Restructuring
1. With the aim of raising the efficiency of the coal industry of Ukraine, carrying out itsrestructuring under conditions of market reforms, creating a competitive environment and inaccordance with point 7 of Article 24 and part two of Article 25 of the Constitutional Agreementbetween the President of Ukraine and the Verkhovna Rada of Ukraine "On Main Principles for theOrganization and Functioning of State Power and Local Self-Government in the Period till theAdoption of the New Constitution of Ukraine," and Article 3 of the Law of Ukraine "On Privatizationof State Enterprise Property", I decree:
2. Ministry of the Coal Industry of Ukraine shall undertake the following measures for therestructuring of the coal industry:
o in the period of one month to set up state enterprises having the status of legal entity,on the basis of mines and other structural subdivisions, which do not have the statusof legal entity and are part of the associations, trusts, or combines belonging to thesphere of management of the Ministry of the Coal Industry of Ukraine;
o to ensure the separation of facilities from the coal extracting and coal washing stateenterprises, the activity of which is not connected with the extraction and processingof coal;
o by September 1, 1996 in coordination with the Ministry of Economy of Ukraine andthe Antimonopoly Committee of Ukraine to carry out the corporatization of Stateenterprises, belonging to the sphere of management of the Ministry of the CoalIndustry of Ukraine, in the procedure deternined by Enactment #210 of the Presidentof Ukraine of June 15, 1993 "On Corporatization of Enterprises" (with amendmentsintroduced by Enactments of the President of Ukraine, #354 of August 21, 1993,#580 of December 13, 1993 and #20 of January 22, 1994), transforming theseenterprises into state open joint-stock companies, state joint-stock coal companies aswell as establishing state holding companies in accordance with Enactment #224 of thePresident of Ukraine of May 11, 1994 "On Holding Companies, Set Up in theProcess of Corporatization and Privatization."
3. Not subjected to corporatization shall be unprofitable state mining enterprises (or strip mines),to be closed in the established procedure, their property shall not be included in the authorized fundsof state open-joint stock companies, state joint-stock coal companies and state holding companiesbeing established in accordance with Article 1 of the present Enactment. The Ministry of the CoalIndustry of Ukraine shall undertake measures for the leasing, privatization of unprofitable state
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mining enterprises (or strip mines) in the established procedure. In three months time the Ministry ofthe Coal Industry of Ukraine together with interested ministries, other central bodies of stateexecutive power, Volyn, Donetsk, Zhytomyr, Kirovograd, Lugansk, Lviv and Cherkassy RegionalState Administrations, shall work out and submit a state program on the closure of certainunprofitable state mining enterprises (or strip mines) to the Cabinet of Ministers of Ukraine, havingenvisaged, in part, measures for the social protection of the workers released in connection with theclosure of such enterprises.
4. To establish that the administration of shares of state open joint-stock companies, statejoint-stock coal companies, as well as state holding companies, established in accordance with Article1 of the present Enactment, shall be carried out by an authorized persons appointed by the Ministry ofthe Coal Industry of Ukraine. By June 1, 1996 the Ministry of the Coal Industry of Ukraine with theparticipation of the Ministry of Economy of Ukraine and the State Property Fund of Ukraine shallwork out and submit proposals as to the procedure for the administration of shares of state open joint-stock companies, state joint-stock coal companies, as well as state holding companies, established inaccordance with Article 1 of the present Enactment.
5. Grant the right to state open joint-stock companies, state joint-stock coal companies, as wellas state holding companies, established in accordance with Article 1 of the present Enactment, toindependently sell their own products for contractual prices. The declaration of prices on suchproducts on the domestic market of Ukraine shall be introduced only if the level of prices surpassesthe level of prices on the world market.
6. A registration fee for the state registration of state enterprises, which are being established inaccordance with paragraph two of Article 1 of the present Enactment, shall not be charged.
7. To establish that the social assets of enterprises, belonging to the sphere of management of theMinistry of the Coal Industry of Ukraine, shall be subjected to separation and transferred to themunicipal ownership of corresponding administrative and territorial bodies. The Cabinet of Ministersof Ukraine, Volyn, Donetsk, Dnipropetrovsk, Zhytomyr, Kirovograd, Lugansk, Lviv and Cherkassyregional State Administrations shall undertake measures to ensure the stage by stage transfer of socialassets, specified in the part one of this Article, to municipal ownership during 1996 and the first halfof 1997.
8. Objects separated in accordance with paragraph three of Article 1 of the present Enactment,and whose activity is not connected with the extraction and processing of coal, shall be subjected toprivatization according to the Legislation of Ukraine.
9. The Ministry of the Coal Industry of Ukraine together with the Ministry of Economy ofUkraine, the State Property Fund of Ukraine and the Antimonopoly Committee of Ukraine shall workout and submit to the Cabinet of Ministers of Ukraine proposals on reducing the list of stateenterprises, belonging to the administrative sphere of the Ministry of the Coal Industry of Ukraineand are not subjected to privatization, for the further solution of the issue in the establishedprocedure.
10. To establish that funds, received from the privatization of state property during the
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restructuring of the coal industry, shall be entered into the non-budget State Privatization Fund. Afterthe reimbursement of costs, connected with privatization, the remaining funds shall be addressed totechnical upgrade and supplementing the working capital of coal extracting and coal washing subjectsof entrepreneurship, established in accordance with the present Enactment.
11. The Cabinet of Ministers of Ukraine shall undertake measures to introduce rental paymentsfor coal in 1996, differentiated depending on the mining and geological conditions of the coaldeposits.
12. To establish that restrictions, envisages in para. 23 and 25 of the Statute on HoldingCompanies, established during the process of corporatization and privatization, approved byEnactment #224 of the President of Ukraine of May 11, 1994, shall not apply to state holdingcompanies, being established in accordance with the present Enactment.
13. The present Enactment shall go into force on the day it is signed.
L. KUCHMAPresident of UkraineKyivFebruary 7, 1996#116/96
ANNEX 3
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UKRAINECOAL PILOT PROJECT
PRAVDA MINES - DONETSK
1. The Pravda mines are located in the Proletarsky Raion of the City of Donetsk. It is one ofthe oldest raions of the city, and is physically remote. The Proletarsky Raion includes several minesin addition to those in the Pravda group. All are older mines. The city as a whole has a relativelydiversified economy, and thus the best chance of the three pilot cities to absorb coal workers in othersectors. Some two thousand workers are employed by the Pravda group, including miners, surfaceworkers, managers, and others. The Proletarsky Raion is the largest raion in Donetsk, with apopulation of 138,000. Of these, 39,000 (28.26%) are pensioners.
1. Technical issues
2. Pravda Mine. This mine is located next to the city of Donetsk, in an area where coal miningbegan a century ago. Underground mine workings proceeded from the area where the coal seam reachthe surface to increasing depth by a complex network of galleries and shafts. Production costs andthe burden on the urban enviromnent have become so high that continuation of exploitation is nolonger justified. The mine property includes land where mining ceased long ago but many smallshafts, with partially unidentified location, were left behind unfilled. Those shafts now pose a safetyrisk and environmental nuisance. Their detection and proper filling is a key feature of the physicalclosing plan for this mine. Apart from this, the closing process of the Pravda mine is uncomplicatedand low-cost.
2. Social Infrastructure
The following assets are associated with the Pravda mines:
- 148,500 square meters of housing, in 627 buildings, housing 9,842 people- one kindergarten, with 96 places, and an enrollment of 72 children'- one dormitory, with 40 places, housing 40 people- three cultural facilities, with a total capacity of 1,328- two recreational bases (one on the Azov Sea of three cottages with 2 places each, and
one 20 km. from the mine with 15 cottages with 8 places each)- one summer camp, that was apparently never actually opened
1/ A site visit found 12 children and 14 employees at the kindergarten.
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3. City officials plan to initially take on all of the social asset-related employees together withthe social assets, but that they will be looking for opportunities to restructure to operate moreefficiently. Proletarsky Raion officials are exploring means by which the cultural facilities and clubscan remain in operation after the mine closes. They are working on a plan to consolidatekindergartens for greater efficiency. City officials are concerned with practical aspects of thetransfer, for instance at what level of local government the housing will be owned and operated. TheCity has appointed a special commission to document the condition of each house to be transferred tothe City.2
4. Raion officials will be the ones responsible for operating the social assets, and are workingwith the City of Donetsk officials to arrive at joint solutions.3 City officials plan for local authoritiesto take over all of the social sphere from the Donetskugol Association, regardless of any particularmine closings. Under this scheme, housing would be transferred to the city level, while waiting listsfor housing, kindergartens, and cultural facilities would be transferred to the raion level.
3. Labor Issues
- breakdown by age- number of "disability" recipients- number of "retirement" recipients- other demographic informnation, as available)
5. Raion officials predict that half of the Pravda mine workers will retire. They would like asignificant portion of the remaining workers to be employed over an extended closing period at themines, and envision that the rest would go to other mines. Both City and Raion officials areconcerned that a fast closing will throw a lot of people out of work. Miners consider their jobs to beprestigious, and psychologically resist entering service industries. The City would like to see surfacefacilities at the mines converted into small factories, although British experience suggests this is aninefficient approach.
4. Financial Impact6. According to figures provided by the City Administration, total expenditures for upkeep of the
2/ This commission is to determine the amount of repairs needed to each house, and these calculations may serve as thebasis for a claim by the City against the mining association or any available successor.
3/ From the City's point of view, they finance the operations of the City's raions through the city budget, and thus are theappropriate level to consider the financial impacts associated with increased operating costs. Under Ukraine's multi-levelsystem, Oblast officials similarly feel that since they finance the cities' operations, they are the appropriate level to considerfinancial issues. However, because the methods by which each level judges how much to provide to lower levels areobscure, it is recommended that funding be provided to the operational level, whether that is the city or the raion, and not tosupervisory levels.
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mining association's housing in the fourth quarter of 1995 were some 150 billion krb., and for 1996are projected at some 678 billion krb. This is approximately $1.16 per square meter per year, and isgenerally consistent with figures from other cities for maintenance of older, detached housing.4 Cityofficials report that the City generally maintains housing to a higher standard than the mineenterprises, although formerly this situation was reversed.
7. All of the Association's housing is planned to be transferred to municipal ownership in 1996.In general, mine-owned housing is separate, small houses, while the city owns and operates mostlyapartments. At the overall unit operating cost of $1.16 per square meter, this implies some $173,000in annual operating expenditures. However, the mining association separately calculated 24.029billion krb in losses (net of user charges) for the Pravda housing in the first eight months of 1995.This comes to $1.35 per square meter, or approximately $200,000 per year in annual operatingexpenses. These two figures are close enough for the purposes of this scoping exercise, and it is pro-posed that we accept the latter figure.
8. In addition, based on calculations provided by the mining association, the city administrationwill incur some $42,450 in operating losses associated with Kindergarten #232. If all socialinfrastructure (including cultural and recreational facilities) were transferred, the mining associationcalculates the annual operating loss would be some $263,000.
9. The potential loss of tax revenues is not a large concern to the City of Donetsk, because thecoal enterprises are not currently paying significant taxes, although they have a theoretical obligationto do so. Coal enterprises are engaged in the barter economy. Sometimes the City takes coal in lieuof taxes, but it is difficult because coal production has declined sharply and what there is needed mostby power plants and other production enterprises.
10. Raion officials believe that if the Government or World Bank provides transitional funding tohelp offset these operating losses, it should be provided directly to the Raion. They suggest thatfunds be deposited into the Raion's account in the PromInvestBank. However, City officials believethe money should be deposited in the City's account, and not given to them through the nationalbudget system.
5. Other Social Commnitments
11. About 990 people are on the Pravda mines' waiting list, and more than a thousand on theRaion waiting list, but Raion officials do not consider these numbers (or the waiting lists) meaningful.The average wait for an apartment in the raion is said to be 24 years. By the time a worker marriesand becomes eligible to be on the list, he or she may very well not live long enough to get anapartment. Many people who have a legal right to be on the list have not bothered to register,because they don't expect to get housing from the official waiting lists.
4/ These figures are net expenses after contribution of user charges, which are now set at 30-35% of expenses for housingand co.amunal services, and are scheduled to increase to 60% by 1997. However, as prices have increased, non-paymentrates have also. Donetsk officials estimate that 30-40% of residents do not pay on time and that 15-20% never pay. 35-4055 of the housing in Donetsk has been privatized, but this. does not affect charges paid by residents.
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12. Formerly, a few apartments each year were built in the Raion for the DonetskugolAssociation, which gave money for apartment construction to the City of Donetsk. The city builthousing and distributed it to various entities in proportion to the capital they had contributed.However, even this construction has stopped. Neither have apartments been built recently for theRaion's own waiting list, for people who do not work for one of the enterprises. The last people toreceive apartments from the Raion list were people who had been waiting since 1976. At least halfthe people on the Raion list are pensioners. The only apartment distributions occur when a residentemigrates or dies without heirs.
13. Miners and retirees living in housing without central heating receive free coal, either 5.9 mtor 2.9 mt, depending on the quality of the coal.
ANNEX 4
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UKRAINECOAL PILOT PROJECT
KRASNIY OKTYABR MINE - YENAKIEVO
1. The City of Yenakievo (pop. 183,200) is subordinated directly to Donetsk Oblast. It has noraions, and thus the city administration is the organ of local government which will assume re-sponsibility for maintenance and operation of housing, kindergartens, and other social infrastructure.It has a somewhat diversified economy, with relatively better mines and other industries (especiallymetallurgy) that provide some capacity to absorb redundant coal sector workers.
1. Technical Issues
2. This mine is located in the Central Donbas, where the coal seams are steeply inclined, miningconditions most difficult and production costs highest. Mine development and coal extraction havebeen stopped. The mine continues to pump water in order to protect neighboring mines fromflooding. Since those mines are also uneconomic and have to be closed soon, a low-cost scheme fortemporary continuation of water pumping from Krasniy Octyabr has been designed. The capital costsfor this scheme have been included for financing under the proposed loan; the operating costs aftercompletion of the project would be covered by UDKR until the neighboring mines are closed. Apartfrom the water pumping scheme, the closing process of the Krasniy Octyabr mine is uncomplicatedand low-cost.
2. Social Infrastructure
3. The following social assets are associated with the Krasniy Oktyabr mine:
- 46,000 square meters of housing- 3 boilers, with 2.7 km of heating pipe- 8.1 km of sewer mains- three kindergartens, with 320 places, and an enrollment of 256 children- one dormitory- one cultural facility, with a total capacity of 350- two sport complexes
4. The housing associated with the Krasniy Oktyabr mine is a standard mining settlement,consisting mostly of one story detached houses and a few two story buildings. 60% have nocommunal services, such as water and sewer. This is typical of the housing in many miningsettlements, and is considered considerably less desirable than multi-family apartment buildings,almost all of which have water, sewer, heating, and other utilities. The city is now considering aspecific program to transfer these mine-owned houses to the city administration, and expect that this
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will be done, but know that this will mean an additional operating burden on their already strainedcity budget. Only 30% of the cost of providing housing and communal services is now covered byuser charges. A single housing maintenance committee ("ZhEK") now serves both the KrasniyProfintern and Krasniy Oktyabr mines.
5. City housing officials would like to try to encourage residents of detached, one-story homes toprivatize. However, as elsewhere in Ukraine, the legal obligation of the city or enterprise tocompletely renovate ("remont") housing prior to privatization is a barrier. At this point some 36% ofthe housing in the city as a whole has been privatized, but administrators believe this figure is muchlower with the mine housing, which is older and in worse condition.
6. Three of the four kindergartens formerly associated with the Krasniy Oktyabr mine have beentransferred to another mine (the Krasniy Profintern mine). One was apparently leased for businessuses. These three or four kindergartens can be transferred to the city, adding to the city's existing 25kindergartens.
7. The city has, at least in theory, merged all of the social infrastructure of the Krasniy Oktyabrmine with those of the Krasniy Profintern mine, including kindergartens, housing, palaces of culture,and even the housing waiting list. They believe they have already rationalized kindergartenoperations to the extent possible, combining different kindergartens and closing those in deterioratedbuildings. Children are enrolled where there is room, without regard to their parents' employment.The transfer of social assets from unprofitable mines to other mines, or to the city administration, isan ongoing process throughout the Donbas region. City officials feel that inter-mine transfers are nota real solution. It does not remove the costs from the industry, nor does it solve any problems morethan temporarily since most of the mines in the area are threatened.
3. Labor Issues
8. The biggest single concern city officials expressed regarding the mine closure is the potentialunemployment problem, especially for women. Some ten percent of mine workers are women whichspecific skills (clerical, personnel) that are not readily transferable to other mines (as they havesufficient surface workers). City officials believe that most underground workers can find jobs atother mines. They estimate that some three to four hundred people will not be able to find otheremployment.
4. Financial Impact
9. Apart from the increased burden from operating loss-making housing, city officials do notexpect significant financial impacts from the closing of the Krasniy Oktyabr mine. City officials inYenakievo do not expect their tax revenues to go down significantly when the Krasniy Oktyabr minecloses. They report that the city receives essentially no tax payments from the OrdzhonikidzeUgol,the mining association of which K.O. is a part. There is no revenue from value added tax (VAT)because there is no VAT on coal. The City receives no enterprise profit taxes because the enterprisesare all loss-making. The only revenues the city does receive from the mining association are somepayments on land and some payments for communal services. There may be some indirect lost
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individual income tax revenue from the three to four hundred workers who the city anticipates willnot find other jobs.
10. The city owes significant debts which it cannot pay because of lack of revenues, and is owedsignificant debts by enterprises located in the city, including coal enterprises.
5. Other Social Commitments
11. The mine has a list of some 300 people who are theoretically entitled to housing. Thosewaiting the longest have been on the list since the list since the mid-1980s, and will not want to losetheir place in line as they transfer to new jobs. The mine list is perceived as better than the city'sown list, because the city's list has people who have been waiting since 1978.' Although city officialshave theoretically moved people from the Krasniy Oktyabr waiting list to the Krasniy Profmtern minelist (a neighybouring mine). Overall, there are some 6,000 people on various city and enterprisewaiting lists in Yenakievo, of whom approximately 2,000 are on the city's own list.
12. City officials expect to move the names of the Krasniy Oktyabr mine workers from the mine'slist to the city's list when it closes. During the last three years, the mine has not built any newhousing and has not paid the city to build any new housing. For the last two years, the city itself hasbuilt only some 4,000 square meters of housing per year.
1/ Those persons on the housing waiting lists are not homeless. They are living in crowded situations, with relatives, or inother situations that are recognized as inadequate.
ANNEX 5
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UIRAINECOAL PILOT PROJECT
THE REMOVSKAYA MINE -- SNEZHNOYE
1. Like Yenakievo, the City of Snezhnoye (population 95,600) is a city of oblast subordination,and has no internal raions. Although the city is physically closer to Lugansk, it is part of the Donetskoblast, and its economic life is integrated with the Donetsk oblast. The city grew out of a collectionof settlements clustered around mines. Its housing is predominantly village-style cottages with a fewlow-rise multiple family units. The housing stock is the oldest of the three cities, and the city has theleast diversified economy. There is little employment which is not related to the coal industry, andthe other mines in the region are generally also old and provide little opportunity for absorbing redun-dant miners. This is the most remote of the three communities affected by the pilot project, and themost dependent on the mines.
2. The Removskaya mine has been in operation since the 1950s. The mine itself employs 1401workers, of whom 939 work underground. Production has been decreasing, and mine managers arewell aware that the mine has nearly exhausted its resources.
3. By contrast with Yenakievo, the older mines in Snezhnoye produce anthracite coal which isused only for heating homes and has little commercial value. The mines in Yenakievo producecoking coal, for which there is at least some demand. Snezhnoye administrators point out that thecity of Yenakievo is a younger city with a more diverse industrial base, specifically the metallurgicalfactory located there.
1. Technical Issues
4. Removskaya Mine. This mine is located near the southern rim of the Donbas basin whereanthracite coal prevails. A shrinking market for anthracite and depleted coal reserves require closingof this mine. The coal reserves originally planned for exploitation have been depleted years ago andthe mine has been surviving by recovering coal, in an improvised way, from pillars left behind andby starting mining in a thinner coal seam at higher costs. These operations are not sustainable and themine should therefore be stopped, even though its present production costs are not among the highest.From the viewpoint of physical closure, the Removskaya mine is the simplest of all three mines and isproblem-free.
2. Social Infrastructure
5. The social assets associated with the Removskaya mine are shown in Table 1. The minehousing is old, and is disparagingly referred to as being 3 stories or less. In Ukraine, multi-familyapartments are usually considered more desirable than detached "village-style" housing. Some of theCity's housing dates from 1905, and has not been renovated since. It is generally not served with
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municipal gas lines or other communal services. 40% of the city's housing is connected to sewerlines, while the majority uses outhouses.
6. The Snezhnoye city administration has two ZhEks. One spends 80,000 krb annually persquare meter for maintenance. The other spends 95,000 krb. By contrast, the mine ZhEK spendssome 150,000 krb per square meter. City officials believe this is due to the dilapidated condition ofmine housing, and the fact that it is inefficient single-family detached housing, not because it ismaintained to a higher standard. The city administration has eight boilers serving its housing stock,while the mining association has 45 separate boilers to maintain for its housing. Because of theseproblems, and because it does not want to inherit the renovation responsibilities for this housing, thecity administration is reluctant to take over the mine housing.
7. All of the housing is maintained officially on the books of the TorresAntrasit miningassociation as a whole. None is officially associated with a particular mine, though physically, it is.The TorresAntrasit association owns 406 thousand square meters of housing in Snezhnoye (some1,700 houses), slightly less than a quarter of the city's total housing stock of 1,770 thousand squaremeters. Some 37% of the city's housing stock is reportedly privatized, and city officials believe thesame percentage of mine housing has been privatized.
8. Each mine has its own electric substation which serves housing. These substations step downthe voltage from the high levels used for transmission mains to levels suitable for domestic use. Ifthe mines close, the city or the local electric enterprise will have to take over operation andmaintenance of these substations. Transportation is a problem for kindergartens. People cannot sendtheir children to kindergartens 5 to 10 kilometers away in another settlement. Because of distance,city officials do not see much opportunity for rationalizing kindergarten operations by combiningoperations.
9. As elsewhere in Ukraine, user charges cover perhaps 30% of the cost of providing housingand communal services, but the city's large population of pensioners pays only 10% of the normalrate, so the cost recovery problem is compounded by the aging population.
3. Labor Issues
- face workersother underground workerssurface workers associated with the mine
10. City officials are very concerned about employment opportunities for mine workers once theRemovskaya mine is closed. Inevitably, they know, at least three other similar mines in the city will
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also have to close. Both city and mine officials feel that the right answer would be to establish a newenterprise, perhaps a manufacturing enterprise, at the mine site.
11. With four neighboring mines also slated for closure in the next 2-3 years, the city officialsenvision 10,000 potentially unemployed residents. The city of Snezhnoye grew out of a collection ofeleven separate settlements surrounding specific mines. These sub-communities are 5 to 7 kilometersapart. The city is some 30 kilometers across. Each community was always more or less reliant onthe mine for communal services, distribution of goods, and other municipal functions. The peopleliving in the Removskaya region do not have good public transportation links to the rest of the city,let alone other cities in the area. Although the city is physically closer to Lugansk, its economic andtransportation links are with Donetskaya oblast, of which it is a part. There is no train transportationfor workers to get to jobs in Lugansk oblast or other regions.
12. Seven mines have already been closed in Snezhnoye, though their settlements remain. TheSoviet-era policy when closing of mines was to plan new production at the site, but in fact this hasnot worked, and these isolated settlements are dilapidated.
13. Transportation is one of the biggest issues for this city. The city pays some 60 billion krb toa State enterprise for municipal bus service, since the Government requires cities to make upoperating losses from transport services. But the losses result in part from the low levels at which theGovernment sets the fares, and are exacerbated by the fact that some 15 privileged categories ofcitizens pay no fares or only token amounts.
4. Financal Impact
14. As with other cities, the base-line financial condition of Snezhnoye is in poor condition. Thecity of Snezhnoye's 1995 budget was originally set at 980 billion krb ($5.4 million US dollars), butwas reduced by the oblast to 580 billion krb. Of this, the city was supposed to receive some 330billion krb in revenues, principally the so-called regulating revenues, and 250 billion krb in subsidiesfrom the oblast. However, this budget does not correspond with reality. For example, at the time ofour visit, the city of Snezhnoye owed suppliers some 108 billion krb in unpaid debts, principal amongthese some 40 billion krb for water service and some 45 billion krb for energy. Enterprises owed thecity some 40 billion in unpaid taxes.
15. The city officials do not see a direct financial impact from the closing of the mines, becausethey receive few revenues from the mines. As previously mentioned, there is no VAT on coal. Inthe case of Snezhnoye, any enterprise profit taxes would be paid to the city of Torres, where theTorresAntrasit mining association is headquartered, rather than to the city of Snezhnoye where themine is located. The city has been taking on more and more civic obligations from the mines as theirfinancial picture has worsened, leaving the city in extreme financial distress. There is no money forsolid waste disposal, drainage, or sanitation.
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5. Other Sodal Commitments
16. All municipal and enterprise lists in the city include some 4,500 people. 1,280 of these areon the city's list, 190 on the Voskhod mine list. Each mine maintains its own list. The people whohave been on both the city's and the mine's list the longest have been waiting since 1978.
17. Until three years ago, each enterprise in the city gave the city money for housingconstruction. The city did the construction and assigned units in proportion to the capital contributed.But, as in Yenakievo, the enterprises have stopped paying these construction funds, and the city hasstopped construction. At present, the only way for a person on the waiting list to get an apartment isif a resident leaves town or dies without an heir.
18. The mine is also supposed to fund "disability" payments worth 160 billion krb per year.Because the mine cannot pay, the TorresAntrasit Association has been making some payments, but theCity says the Association is now 630 billion krb in arrears ($3.5 million U.S. dollars), and that figureis growing. City officials are concerned that if the mine is closed, there will be no payments madeinto the city's pension fund. The oblast, which had been making up the shortfall, has notified the citythat after the end of 1995 they will be unable to help the city meet pension obligations. Pensionersare receiving 20% less than their entitlements, because of the shortfall in available funds. Roughlythirty percent of the 100,000 residents of Snezhnoye are pensioners. City officials were quiteconcerned about what mechanism can be set up to cover these recurring expenditures.
ANNEX 6
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SUMMARY OF ENVIRONMENTAL ISSUESAND MITIGATION OPTIONS
Note: This table lists features, impacts and mitigation options which generally apply to closing of underground coal mines. Items relevant to thethree mines under the pilot project are highlighted in italics. The purpose of this table is to provide a checklist for the preparation of theenvironmental Management Plan of the three mines.
NEGATIVE ENVIRONMENTALPHYSICAL FEATURES IMPACTS MITIGATION OPTIONS
Terracones and Rock Piles Air Oualitv Air Oualitv
Waste rock produced from the mine is dumped in Sulphur Oxidescone shaped piles. The pile may also contain coal, Particlestimber, fabric and possibly scrap metal. Many of Methane * Extinguish heatings in waste piles.these waste piles have heated spontaneously and are Carbon Oxidesburning with release of gases and smoke. Oxides of Nitrogen * Level terracones.
Note: According to the Ukrainian design institutes, * Strong sulphurous odours. * Keep terracones and piles wet.only one terracone (at the Removskaya mine) isburning among all terracones and rock piles of the * Chemical reaction with sunlight creates ground * Supply air packs.three mines under the pilot project. level smog.
* Move most susceptible members of community.* Harmful to human breathing especially
asthmatics. * Encourage resistant plants and animals.
* Can kill animal and plant life. * Develop greenhouse gas offsets.
* Poor visibility for air and ground traffic. * Revegetate.
* Contributes to potential for global climatechange.
* Aesthetics imnpaired.
ANNEX 6
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,EOAIW E --E i .Ni: V -7 ! .E .: E --....:: -. N-.-M E E E :: E : :: .i, -E.:.E.:.:...i
Termcones and Rock Pies Surface Water Ouslt Surface Water Ouallv
Sulphur Acids * Determnine background surface watcr quaLi andSteep side slopes and various sizes of material leads to Alkaline Salts sources of swface water contamination.erodibility from rain and snow melt. Runoff contains Suspended Solids * Prevent water ruoff into surface streams.solids and possibly chemical contaminants. Heavy Metals * Collect and treat rnmoff.
*Create ponds and lakes for untreatable runoff.* Reduced ability to support fish or other * Cover erodible areas.
aquatic life. * Bury fines.* Bury and/or seal acidifying material.
* Contamination risk for domestic water * Neutralize acids or alkealies......... .. supplies. * Treat water for domestic use.
* Review current quality standards for mine water* Cumulative contamination of rivers, lakes released from settlement ponds.
and ponds. * Monitor water quality and discharge rates.* Build bulrush water filter beds.* Develop streams and ponds for sport fishing.* Re-introduce fish and plants to streams and ponds.* Haul in water for human consutption.
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NEGATIVE ENVIRONMENTALPHYSICAL FEATURES IMPACTS MITIGATION OPTIONS
Terracones and Rock Piles Groundwater Quality Groundwater Quality(Cont'd)
* Leachate could be introduced into the * Collect and treat leachate.The leachate produced by water infiltrating through groundwater flow system.the sites constitutes a potential source of groundwater * Monitor groundwater quality in the vicinity ofcontamination.. surface disturbances.
* Restrict groundwater source development inregions highly susceptible to contamination.
ANNEX 6
Page 4 of 11
N 'EGATMVE ANION TL:l:E..:: :.:::::R::I: :-p fmE i: EAT: I:i: : M :: :.:: .... .. .: :. impR .... ....; ..:EE. ::::::PHYSICAL FE TURES IM~~~~.. ... p ACTS.. . .. MTGAON PT)
Tailiines Ponds Surface Water Qualitv Surface Water Oualitv
Sludge or waste water containing soil and rock fines Sulphur Acids * Determine background surface water quality andare produced from mines and preparation plants. Alkaline Salts sources of surface water contamination.Sludge is collected in settling ponds where the fines Suspended Solids * Prevent water runoff into surface streams.settle out. Water discharging from settling ponds Heavy Metals * Collect and treat runoff.carry and suspended solids and often chemical * Create ponds and lakes for untreatable runoff.contaminants. * Reduced ability to support fish or other * Cover erodible areas.
aquatic life. * Bury fines.Bury and/or seal acidif*ig miaterial.Note: Water discharge from all three mines under the * Contamination risk of domestic water Neutralize acids or alkalies.
pilot project (or, possibly, reduced in the case of the supplies. * Treat water for domestic use.Krasni Octiabr mine). * Review current quality standards for mine water
* Cumulative contamination of rivers, lakes released from settlement ponds.and ponds. * Monitor water quality and discharge rates.
* Build bulrush water filter beds.* Deterioration of surface waters produced by * Develop streams and ponds for sport fishing.
decreased mine water release. The mine water may * Re-introduce fish and plants to streams and ponds.be less contaminated than surface water. * Haul in water for human consumption.
ANNEX 6
Page 5 of 11
--- .- -- NEGATIVE ENVIRONMNTAL |PHYSICAL FEATURES IMPACTS.. MMGATION OPTIONS
Tailinis Ponds Groundwater Oualitv Groundwater OualityCont'd)
* Potential contamination of groundwater * Monitor groundwater quality in the vicinity ofSludge or waste water containing soil and rock fines resource caused by mining disruption of protective surface disturbances.are produced from mines and preparation plants. cover.Sludge is collected in settling ponds where the fines * Drain ponds and cap sludge in the settling pondssettle out. Water discharging from settling ponds * Rapid distribution of groundwater to reduce infiltration.carry chemical contaminants and suspended solids. contamination through mine workings.
* Monitor for coliforms.
Note: As water discharge from the three mines under * Prohibit domestic water wells in regions highlythe pilot project is being, stopped, risk of groundwater susceptible to contamination.quality deterioration due to discharge from ponds isexpected to disappear.
ANNEX 6
Page 6 of 11
... ...... NSATIVE ENVIRONMENTAL.:::~;:PHYSICAL KEAMM1~S I .ACT MITIGATO PIONUnderground Workings Closed Safety and Air Quality Safety and Air Oualitv
When underground workings are closed, methane gas Methane * Monitor risk zones for methane accumulation.may be trapped, groundwater can build up andsubsidence or open pits can pose significant danger to * Risk of asphyxiation of people in conflned * If required, drill methane vent holes.humans and animals. spaces.
Note: Risk of methane gas escaping from old mine * Risk of explosive conditions in depressions,workings exists mainly at the Krasni Octiabr mine underground cavities and basements of houses in riskand, to a lesser degree, at the Pravda mine. zones.
Drilling and mining has produced openings which Surface Water Ouality Surface Water Oualityextend to surface and provide conduits for rapidtransport of surface spills deep into the groundwater Alkalis * Improve surface drainage.flow system. Acids
MetalsOnce a number of mines have been closed, mines Suspended Solidslocated at a higher elevation will dischargegroundwater into the mines located at a lower * Leachate from abandoned tailings, wastes.elevation and cause them to flow to surface.
* Loss of an industrial water source.Most of the groundwater previously pumped from anabandoned mine will spill over into operating mines. * Surface flooding caused by abandoned mine
discharge. This impact will not occur until blocks ofmining operations are closed.
ANNEX 6
Page 7 of 11
. . ........ .......... NE.A TIVEb ENVIRNMETAL....PIHICAL EM A MIIGATION OPTIONS
Underground Workinzs Clsed Groundwater Oualitv Groundwater Oualitv(Cont'd)
Flooding * Decrease surface water infiltration rates for bothThe groundwater flow system near existing water Contaminants From Surface abandoned and operating mines by backflhlingwells may change as water levels in the vicinity of the near surface mine workings and drill holes.mines recover. * Mine water spillovers from abandoned mines * Monitor groundwater recovery levels in
into operating mines through interconnected workings. abandoned mine.* Abandon mines in blocks rather than individually.
* Mine water spill over will place," anincreasing water handling and treatment burden on the * Increase pumping capacity of adjacent mines.remaining operating mines. * Develop an alternate source of water for
industries, (ie, wash plants) currently using mine* Current water supply systems could become water.
more susceptible to contamination. * Identify water supply systems influenced bymining activity.
* Monitor water quality of existing groundwatersources.
* Continue some limited pumping at the mine toprevent contaminant movement toward existingsystems.
* Continue to pump the abandoned mine andcontinue to use the water treatment facilities.
Safetv
* Seal off underground cavities.* Prohibit entry to area.
ANNEX 6
Page 8 of 11
I NEGATIVE ENVTSMIRONTIONTATIONPHYSICAL FEATURES IMPACT MTGATINOPINBuildmnas and Structures Waste Materials/Safety Waste Materials/Safety
Old and abandoned buildings are potential safety Waste Metals * Demolish all old and unused structures.hazards, may contain hazardous materials (PCB's, Waste Brick, Concrete, Asbestosoils, asbestos, acids, alkalies) and contain solid Waste Asphalt * Sort materials for reuse and sale.residues.
* Hazardous structures. * Landfill inert waste.Note: The three mines under the pilot project have notbeen handling significant amounts of chemicals. * Hazardous wastes left after demolition. * Contain hazardous and toxic waste.
The surface areas occupied by mine buildings such as * Solid wastes may occupy significant landfill * Maintain monitoring on highly contaminated sites.offices, work shops, warehouses etc., and handling volume.facilities, may have become contaminated with * Restrict access where conditions hazardous.accumulated spills and disposal of liquids. * Aesthetics.
ANNEX 6
Page 9 of 11
.NEGATIVE ENRONMENTALPHYSICAL FEATURES IMPACTS MIGATION OPTONS
Solid/Liquid Wastes and SolidlLiquid Wastes Solid/Liquid WastesSurface Soils
Oils * Prevent furdter additions of most deleteriousDecommissioning and abandonment of industrial and Greases contaminants.commercial property normally includes quantities of Acidssolid and liquid wastes (wood, metals, chemicals, Alkalies * Prevent oil spills and control waste oil disposal.plastics, construction materials). Often storage sites Chemicalscontain large quantities of unidentified mixtures of oils Wood, Metals, Aggregates * Develop secondary uses for used petroleumand other liquids. Sewage lagoons may be included. Sewage liquids and sewage.
Industrial areas are frequently contaminated over large * Soil contaminated with oils, chemicals. * Dispose coal washery fines in designated ponds.areas due to incremental pollution. Top soil may have * Leaching into groundwater and domesticbeen physically removed for development or has been supplies (health risk) -progressively eroded in both quantity and quality. * Storage of unidentWied materials.
Note: The three mines under the pilot project have notbeen handling signficant amounts of chemicals.
ANNEX 6
Page 10 of 11
e :: : 7::: 7 7: : . :: 7:::: : . ::: i . 7 :: :: ::: :.:.... .. ... . . . . ........ ... :: . .. . .... . ::.: NE.ATIVB ENVIRONMENTAL :
PHYSICAL FEATURES ~~~~~~~~IMACTS: MITIGATION.OTIN
Solid/Liquid Wastes and Soil Reclamation Soil ReclamationSurface Soils (Cont'd)
Degraded Topsoil * Recontour.Decommissioning and abandonment of industrial and Contaminated Subsoilcommercial property normally includes quantities of Poor Soil Structure * Addition of organic mnatter.solid and liquid wastes (wood, metals, chemicals,plastics, construction materials). Often storage sites * Soil structure unable to sustain vegetation. * Revegetate.contain large quantities of unidentified mixtures of oilsand other liquids. Sewage lagoons may be included. * Limitation or prevention of vegetation * Construct wind breaks.
growth including agricultural crops.Industrial areas are frequently contaminated over large * Treat contaminants to neutralize.areas due to incremental pollution. Top soil may have * Recreation and aesthetic impairment.been physically removed for development or has been * Contain and seal off most severely contaminatedprogressively eroded in both quantity and quality. * Erodible slopes. soil.
* Lost topsoil from wind and water erosion. * Irrigate to dilute contaminants.Note: The three mflines wader the pilot project have notbeen handling significant amounts of chemicals. * Add nutrients to overcome contaminant effects.
* Treat sewage streams.
ANNEX 6
Page 11 of 11
NEGATIVE ENVIRONMENTALPHYSICAL FEATURES IMPACTS | MITIGATION OPTIONS
Tailing Piles Air/Water/Soil Air and Water
The fine tailings from many years of mine operations Fines * Level and contour.are stored at site. Tailings piles may include topsoil, Metalsoverburden, underground dross and residue from coal Rock and Soil * Keep piles wet.separation and cleaning operations.
* Wind erosion from exposed faces. * Cultivate and revegetate.Note: Only one of the three mines under the pilotproject (Removskaya) had a coal washing plant. That * Water erosion of steeper slopes and fines. * Build wind breaks.plant had not a fine coal washing section (flotation)and has not been using chemical reagents. * Contributes to surface water quality * Create ponds for untreatable runoff.
contamination.* Neutralize hazardous contaminants.
* Reduces land surface available forproductive use. Soi
* Aesthetic disfigurement. * Cultivate.
* Add organic material.
* Build wind breaks.
* Revegetate.
Recoverable Material
* Separate economically valuable materials.
* Seek out uses/markets for valuable materials.
ANNEX 7
Page 1 of 3
UKRAINECOAL PILOT PROJECT
Social Portrait of a Miner
I. Background
The study was conducted by the Agency for Regional Development and the RegionalService for Social Studies of Donetsk in December 1994. The purpose of the study was toinvestigate the social and economic conditions in the coal mining sector in the DonetskayaOblast during the transition to the market economy. Data was collected in interviews with 635coal mine employees living in the cities of Donetsk, Khartsizk, Shakhtarsk and Torrez. Thefigures below summarize occupations of the interviewees.
Occupations of the interviewees
Admin. Mgnmwoikers team
Engineers 4% 2%12%
Undergrund
Surface workersworkers 70%
12%
II. Findings
* Attractiveness of the mining profession is high (50% of the interviewees take pride in theirmining profession, compared with 34 % who said they are unsatisfied).
* Reasons for changing careers to the coal mining sector For who entered from otherindustries, reasons for choosing jobs in the coal industry include: lack of other jobopportunities in the region (43%), better wages (26%), preference for a mining specialty,and family tradition (12%).
* Reasons for choosin8g car The respondents who started careers in the miningindustry have mentioned the following reasons for choosing mining specialties: good wages(61 %), influence of relatives (20%) and friends (7%), location of a mine close to home(17%), early retirement (15%) and availability of an educational facility (10%).
ANNEX 7
Page 2 of 3
Reasons for Choosing a Career in Mining
Influence of friends
Education facility
Early retirenrnt
Close location
Influence of relatives
Good wages -V.
0 10 20 30 40 50 60 70
% of respondents
* Working Conditions Working conditions in the mines are generally described by theemployees as unsatisfactory (77 % of respondents rated equipment as poor and 44% ratedlabor safety as unsatisfactory).
* Responsibility for the state of mines As shown below, 63 % of the respondents stated thatthe general manager bears direct responsibility for the state of mines, followed by theGovernment (35%) and the Mining Association (25%). However, respondents believe thatthe settlement of problems related to poor conditions should be initiated directly on thelevel of the mines.
Responsibility for the State of Mines
Miners Difficult to
themselves answer Government10% 3% 23%
M mingAssociation
16% Oblastadministration
6%Trade Unions
2% Director of theMine40%
* Key factors for improvement of the mine performance Forceful managers (64%),imnplementation of new technologies (44%) and increasing the labor efficiency are rated asthe key factors for improving performance of the mines. General managers of mines aretrusted by employees, who believe that they have enough power to enact changes, beingsufficiently backed by authorities and their own experience.
ANNEX 7
Page 3 of 3
Key Eactors for improvement of the mineperformance
Difficult to New
Labor Other answer technologiesefficiency 10% 28%
13%
Privatization Forceful4% manager
42%
* Expectations of changes in the state of mines The majority of respondents expect nosignificant changes in the state of the mines. More than 20% of interviewees expectworsening of working conditions (22 % in the area of equipment, 21 % staffing, and 25 % -wages).
* Mine Closure The closure of the mines is believed to be a doubtful if not remotepossibility (only 14% of respondents believed that their mines might be closed in nearfuture, while 68% stated that it seemed unlikely or completely improbable to them).
* Attitude toward change of employment Miners feels themselves "held captive" by theirjobs and coal mines. Still 56 % of those interviewed wish to change their jobs.
- Evaluation of-Chances for finding other jobs 58% of the respondents did not believe thatthere were any chances to change their jobs.
* Alternative occupations selected by respondents are depicted in the Figure below. 54% ofinterviewees could not choose an alternative occupation.
Alternative jobs selected by respondents
Farmer6% Electrician Carpenter
Salesman 5 % 2%6%
Auto mechanic7%
Constructionworker DNo response
8% 12%
ANNEX 8
Page 1 of 2UKRAINE
COAL PILOT PROJECT
AFFECTED AT-RISK POPULATIONS
Survey Purpose
A World Bank team of social scientists sought to identify the different groups of mineworkers in terms of their vulnerability to adverse consequences from the pilot mine closures. Theteam used labor profile data, in-depth interviews and focus groups with above-ground andunderground miners, miners' families, mine pensioners, trade union representatives and minemanagement.
Survey Sample
A total of 53 interviews were completed at the three mines included in the pilot project:Pravda mine; Krasny Oktyabr mine; and Removskaya mine. The respondent sample was selected by atrade union representative at each mine. The survey team received the full cooperation of the Oblastadministration and the mine management at the three mine.
Levels of risk
The analysis revealed four levels of risk. The definitions of these levels were informed byanswers of mine managers, trade union representatives and mine workers to two key questions: 1)Who will be hit the hardest by the mine closing? 2) Who will adapt best to the impacts of mineclosure? Table 1 sununarizes these results.
Table 1
Risk Profile Pravda Krauy Removskkaya TowalI__ - ,' . ... , : O ltyabr _ - , . , - ' ,:
Highest Risk 183 56 0 239 5%
High Risk 408 565 462 1435 29%
At Risk 488 812 301 1601 33%
At Risk- 830 130 638 1508 33%Mobile
Total 4873
ANNEX 8
Page 2 of 2
Level One: Highest Risk
A woman, alone, with children, with 70% or more of the family income derived mine wages. Thisperson is clearly the most at risk of losing everything.
L.N'. is 35 years old, and has lived in the community all her life. She has two school age daughters.Her ex-husband moved away and provides no child support. She has worked in the mine five years asan unskilled above ground worker and earns $32 a month in total family income, all of which comesfrom the mine. Her job will be one of the first to go and is not considered to be transferable toanother mine. She is very worried about how she will take care of her children.
Level Two: High Risk
Other above - ground workers comprise this category. As a general observation, above groundworkers are considered a highly vulnerable group of workers, not possessing particularly transferableskills. All women staff work above - ground, and 83 % of total number of above - ground workers(1389) are women; 17 % (285) are men.
V. C. is 60 years old and has lived 60 years in this community. She has worked 30 years in the samemine. She currently works above-ground in the stockyard in an unskilled position. She and herhusband have a monthly family income of $64, which includes their pensions. Their family income isclosely tied to the mine and will be cut in half, to about $1 a day, when the mine closes. She isfrightened when she thinks about it closing. No one will hire her.
Level Three: At-risk
Underground workers in the engineering and other professions comprise this group. They are thehighest risk group of the underground workers.
V. G. is a 40 year man who has worked 25 years in the mine. He is an electrician underground andearns $64 a month to support his wife and two school age children. He is totally dependent on themine - his wife is unemployed and 100% of the family monthly income comes from the mine. He hasno savings and worries that the mine closing is going to be a disaster for his family
Level Four: At Risk but mobile
Underground skilled workers (face miners, drifters, timberers/fitters and coat transportworkers). These workers have the best chance of adjusting to a mine closing. They are potentially themost in demand for their skills and hence the most mobile
O.Z., 38, has worked underground in the mine for 19 years, most recently handling explosives. 75%of his family income comes from the mine. His wife earns $18 a month working in the hospital and heis worried that the hospital will close if the mine closes. He earns $88 a month. He is worried aboutthe future for his two sons - where will they work ? He has lived in the same community his whole lifeand does not want to leave for another job. His skills raise considerably his chances of getting a newjob. "
ANNEX 9
Page 1 of 9UKRAINE
COAL PILOT PROJECT
IMPACT ON MUNICIPAL BUDGETS
1. The social assets of the three mines set for closures comprise 238,500 sq. meter of housing, 8kindergartens, 6 cultural facilities, 2 sports facilities and one profilactoria.
Housing
2. The housing provided by the mines to its employees is managed by the mining associationsand its cost is comprised in the mining associations balance sheet. The housing transfer of the threemines set for closures to the municipalities, will decrease the associations' housing cost as follows:Pravda mine's housing transfer will decrease 10 percent of the total housing of Donetskugol miningassociation, the Removskaya's mine housing will reduce 5 percent of the housing of Torezantratsitassociation and mine Krasniy Octyabr 11 percent of the housing of Octyabrugol associations. Theattached tables show the percentage of housing to be transferred in relation to the existing housing inreceiving cities.
3. The Pravda mine housing will be transferred to the communal property of the city of Donetskwhich manages the housing funded by the city budget. The Proletarsky Raion administration wherethe Pravda mine is located has approval authority for the housing transfer but the housing is notfunded by the Raion budget. Housing associated with the mine represents 1 percent of the Donetskcity housing.
Kindergartens
4. Kindergartens owned by the mines are located in small rural settlements administrativelyattached to the cities; the kindergartern belonging to the mine is usually the only one in eachsettlement. These kindergartens provide services to all children of the community and some are open24 hours daily. Fees are about Krb 600,000 per month (about $3.20 p.m.). Certain categories areexempt from paying fees (e.g. single, unemployed mothers). As a result of mine closures, it isexpected that children's attendance will decrease by about 20 percent as parents who becomeunemployed choose to keep their children at home, rather than pay the monthly fees. Some costreduction measures may be implemented by the municipalities such as discontinuing 24 hour serviceand reducing some personnel (currently the payroll accounts for one-third of costs; food accounts forone-third and utilities for one third).
Cultural and Sport Facilities
5. Cultural and sport facilities owned and operated by the mines are the only of such facilities.The facilities comprise theaters, libraries, sports rooms and meeting rooms. These facilities andservices could be restructured to increase community service and cost recovery.
ANNEX 9
Page 2 of 9
Profilactoria
6. The Removskaya mine profilactory has a capacity of 75 beds, and provides miners withpreventive treatments for professional diseases during a stay of twelve to twenty four days. Duringthe treatment miners continue to work in the mine while they return to the profilactory for lodging,food and treatment. The municipal health system does not provide such services. Profilactoriafacilities may be rationalized by discontinuing food and lodging services once the mine closes, andmoving medical treatments to the nearby municipal health clinic. The two floors building may beused for other purposes by the municipality.
Transfer Cost
7. The attached tables show inventory and yearly recurrent cost of the three mines's socialassets, as well as the total amount to be financed by the World Bank. The total recurrent costsamounts to US$ 1,114,844 and three years of financing in a declining basis of 75 , 50 and 25 percentwill represent US$ 1,672,262.
City of Snezhnoye
8. The comparison of 1995 municipal budget shows an increase in expenditures increase of 28percent over the budgeted, which was covered by a treasury loan. The city's actual expenses for theyear 1995 were US$ 5.9 million with the shift in line items budgeted expenditures showing a decreasein housing and an increase of expenses in education, health and culture.
9. The transfer of the social assets of Removskaya mine would represent an increase of 7 percentof the 1995 actual expenditures.
Yenakievo
10. The comparison of 1995 municipal budget shows an increase of 18 percent of expenditureover the budgeted, which was mostly covered by a two-fold increase of profit tax, and 51 percent ofwage tax. The city actual expenses for 1995 were US$ 10.3 million.
11. The transfer of the social assets Krasniy Octyabr mine would represent an increase of 4percent of 1995 actual city's expenditures.
Proletarsky Raion
12. The raion's actual expenditures are 87 percent over the budget with a shortfall of US$ 6,151million. The education and culture facilities represent less than 1 percent of the 1995 actualexpenditures.
ANNEX 9Page 3 of 9
SNEZHNOYE SCENARIO 1: WITH CURRENT HOUSING DEFICIT 1996 AND BEYONDCity of Snezhnoye Mine Ramovseyay Consolidated 1996 1997 1998 1999
1995 Municipal budget Social assets % to municipal expendituresMlanned Actual Variance operating cost budget
actual 1998AssumptionsChange in wage taxes 1449,8231 (849.8231 (849.623) (*49.6231WB loan financing % Of social asset transfer 75.00% 50.00% 25.00% 0.00%Housing cost recovery no change no change no change no change
RevenuesVAT $276,347 $277.007 100% *277.007 $277,007 $277,007 $277,007Profit tax $330,513 $657,593 199% *657.593 $657,593 $657,593 $657,593Wage taxes $753,220 $1,035,800 138% $986,177 8986.177 8986,177 8986.177Excise taxes $10,933 86.053 55% $6,053 $6,053 $6,053 $6,053Land tax $350.51 3 8295.860 84% *295.860 $295,860 $295,860 $295,860Other $757,147 8324.587 43% $324,587 8324.587 $324.587 $324,587Subsidies $2,178,293 $2,178,293 100% $2,178,293 82,178.293 82,178.293 82.178.293Treasury loan $0 $1,177,860 $1,177,860 $1,177,860 81.177.860 $1.1 77.860WB loan $310,630 $207,087 $103,543 $0
Total $4,656,967 $ 5.953.053 128% $6,214,060 $6,110,517 $6,006,973 $5,903,430
ExpensesHousing 8673.133 $558,647 83% $172,460 30.88% $731,007 8731.007 8731,007 8731.007 8731.007Education $922,527 *1.757.940 191% *158,647 9.02% 81.916.687 81.916.587 $1,916,587 $1,916,587 $1,916,587Culture $106,980 *151,827 142% $29,747 19.59% $181,573 $181,573 $181,573 $181,573 $181,573Health 81,725.027 *2,205,907 128% $53,320 2.41% $2,262,227 82,262.227 $2,262,227 82.262.227 82.262,227Other 81,229,300 *1.242.027 101% *1.242.027 $1,242,027 81.242.027 $1,242,027 81.242.027
Total $4,656,967 $5,919,247 127% *414,173 7.00% 86.333.420 *6.333.420 $6,333,420 $6,333,420 86.333,420
Shortfall/(Surplus) $119,360 *222.903 $326,447 8429.990% shortfall (+) or surplus (- 2% 4% 5% 7%
Exchange rate one US dollar - 150000 Krb.
ANNEX 9
Page 4 of 9SNEZHNOYE SCENARIO 2: WITH FULL HOUSING COST RECOVERY 1997 AND BEYOND
City of Snezhnoye Mine Removskaya Consolidated 1996 1997 1998 19991995 Municipal budget Social assets % to municipal expenditures
Planned Actual Variance operating cost budgetactual 1995
AssumptionsChange in wage taxes ($49.623) ($49,623) (*49,623) ($49,623)WB loan financing % of social asset transfer 75.00% 50.00% 25.00% 0.00%Housing cost recovery 60.00% 100.00% 100.00% 100.00%
RevenuesVAT *276,347 *277,007 100% $277.007 $277,007 $277,007 S277,007Profit tax $330,513 *657.593 199% *667.593 $667.593 $657,593 $657,593Wage taxes $753,220 S1,035,800 138% $986,177 $986,177 $986,177 $986,177Excise taxes *10,933 66,053 55% $6,053 $6,053 $6,053 $6,053Land tax $350,513 $295,860 84% $295,860 $295,860 $295,860 0295,860Other $757,147 $324,587 43% $324,587 *324,587 $324,587 $324,587Subsidies $2,178,293 $2,178,293 100% *2,178,293 $2,178,293 $2,178,293 $2,178,293Treasury loan $0 *1,177,860 $1,177,860 S1.177.860 $1,177,860 *1,177,860WB loan $310,630 $207,087 $103,543 $0
Total $4,656,967 $5,953,053 128% *6,214,060 $6,110,517 *6,006,973 *5,903,430
ExpensesHousing *673,133 t658,547 83% $172,460 30.88% S731,007 *292,403 $0 *0 $0Education $922,527 *1,757,940 191% *158,647 9.02% $1,916,587 S1,916,587 S1.916,587 $1,916,587 $1,916,587Culture $106,980 $151,827 142% *29,747 19.59% $181,573 $181,573 $181,573 $181,573 $181,573Health $1,725,027 *2,208,907 128% $53,320 2.41% *2.262,227 *2,262,227 $2,262,227 *2.262.227 02,262,227Other $1,229,300 *1,242,027 101% *1,242,027 S1,242,027 *1,242.027 *1.242,027 *1,242,027
Total *4.656.967 *5,919,247 127% *414,173 7.00% $6,333.420 *5,894,816 *5.602,413 *5,602,413 95,602,413
ShortfaflSurpkusj (*319,244) (*608,103) (*404,560) (*301,017)% shortfall (+1 or surpkus () -5% -8% -7% -5%
Exchane rate one US dolr - 150000 Krb.
ANNEX 9Page 5 of 9
YENAKIEVO SCENARIO 1: WITH CURRENT HOUSING DEFICIT 1996 AND BEYONDYenakievo Mine Krasnay Oktyabr Consolidated 1996 1997 1998 1999
1995 Municipal budget Social assets % to municipal expendituresPlanned Actual Variance operating cost budget
actual 1995AssumptionsChanige in wage taxes (56,070) (56.070) (56.070) (56,070)WB loan financing % of social asset transfer 75.00% 50.00% 25.00% 0.00%Housing cost recovery no change no change no change no change
RevenuesVAT $1,169,007 $1,396,133 119% $1,396,133 $1,396,133 $1,396,133 $1,396,133Profit tax $905,487 $2,217,320 245% $2,217,320 $2,217,320 $2,217,320 $2,217,320Wage taxes $1,382,060 $2,091,633 151% $2,035,564 $2,035,564 $2,035,564 $2,035,584Excise taxes $26,360 $12,907 49% $12.907 $12,907 $12.90? $12.90?Land tax $1,529,960 $1,739,587 114% $1,739,587 $1,739,587 $1,739,587 $1,739.58?Other $1,784,127 $875,913 49% $875,913 $875,913 $875,913 $875,913Subsidies $1,940,693 $1,940,693 100% $1,940,693 $1,940,693 $1,940,693 $1,940,693Treasury loanWB loan $305,845 $203,897 $101,948 $0
Total $8,737,693 $10,274.18? 118% $10,523,962 $10,422,014 $10,320,065 $10.21 8,117
ExpensesHousing $1,365,360 $198,413 14.53% $1,583,773 $1,563,773 $1,563,773 $1,563,773 $1,563,773Education $2,774,030 $121,680 4.39% $2,895,710 $2,895,710 $2,895,710 $2,895,710 $2,895,710Cutture $410,967 $87,700 21.34% $498,667 $498,667 $498,667 $498,667 $498,667Health $4,726,126 $4,726,126 $4,726,126 $4,726,126 $4,726,126 $4,726,126Other $997,703 $997,703 $997,703 $997,703 $997,703 $997,703
Total $8,737,693 $10,274,187 118% $407,793 3,97% 410,681,980 $10,681,980 $10,681,980 $10,681,980 $10,681,980
Shortfall/(Surplus) $158,018 $259,966 $361,915 $463,863% shortfall (+) or surplus (- 2% 2% 4% 5%
ANNEX 9Page 6 of 9
YENAKIEVO SCENARIO 2: WITH FULL HOUSING COST RECOVERY 1997 AND BEYONDYenakievo Mine Krasniy Oktyabr Consolidated 1996 1997 1998 1999
1995 Municipal budget Social assets % to municipal expendituresPlanned Actual Variance operating cost budget
actual 1995AssumptionsChange in wage taxes (56.070) (56,070) (56,070) j56,070)WB loan financing % of social asset transfer 75.00% 50.00% 25.00% 0.00%Housing cost recovery 60.00% 100.00% 100.00% 100.00%
RevenuesVAT $1,169,007 81,396,133 119% $1,396,133 $1,396,133 $1,396,133 $1,396,133Profit tax *905.487 $2,217,320 245% *2,217.320 *2,217,320 $2.217,320 $2,217,320Wage taxes $1,382,060 $2,091,633 151% $2,035,564 *2,035.564 S2,035,564 $2,035,564Excise taxes $26,360 *12,907 49% *12,907 S12,907 $12,907 $12,907Land tax $1,529,960 $1,739,587 114% $1,739,587 *1,739,587 $1,739,587 $1,739,587Other $1,784,127 0875,913 49% $875,913 $875,913 $875,913 $875,913Subsidies $1,940,693 $1,940,693 100% *1,940.693 $1,940,693 $1,940,693 $1,940,693Treasury loanWO loan $305,845 $203,897 $101,948 $0
Total $8,737,693 S10,274.187 118% *10,523,962 S10.422,014 *10.320,065 *10,218,117
ExpensesHousing $1,365,360 $198,413 14.53% $1,563,773 $625,509 $0 $0 *0Education $2,774,030 $121,680 4.39% *2,895,710 *2,895,710 $2,895,710 $2,895,710 $2,895,710Culture $410,967 *87.700 21.34% *498,667 *498,667 *498,667 *498.667 *498,667Health *4,726.126 *4.726,126 $4,726.126 S4,726,126 *4.726.126 *4.726.126Other S997.703 t997,703 $997,703 S997,703 *997,703 $997,703
Total $8,737,693 $10,274,187 118% $407,793 3.97% $10,681,980 $9,743,716 $9,118,207 $9,118,207 *9,118.207
Shortfall(Surplus) (*780.2461 ($1.303,8071 ($1,201,8591 (*1.099,910)% shortfall (+) or surplus -) -7% -13% -12% -11%
ANNEX 9Page 7 of 9
PROLETARSIKY RtAION SCENARIO - SINGLE SCENARIO (NO HOUSING)Proletaraky Raion Mine Pravda Consolidated 1996 1997 1998 1999
1995 Muniicipal budget Social assets % to municipal expendituresMlanned Actual Variance operating coat budget
actual 1995AssuptonChange in wage taxes (*33.808) 1*33.808) (*33,808) (*33,808)WS loan financing % of social asset transfer 75.00% 50.00% 25.00% 0.00%Housing cost recovery nle rnle n/a Wea
….------ ---- -- --- - …- ---- - ---- ---- --- - ----- -------------- -- ---------- --. ……-- ----- ------- - --------- --------- -- - ----------- --,…-------- - --- .-- -------------…-…------ …-------…
RevenuesVAT $508,607 *167,953 33% *167,953 $167,953 *167.953 $167,953Profit tax *73.347 *363,887 496% *363,887 *363.887 *363.887 *363,887Wage taxes $320,307 $612,340 191% $578,532 *578.532 *578.532 *578,532Excise taxes $500 $100 20% $100 $100 $100 $100Land tax *927.107 *1,107,993 120% *1,107,993 $1,107,993 $1,107,993 *1.107.993Other *701,053 *278.647 40% $278,647 *278,647 $278,647 $278,647Subsidies *783.273 $783,273 100% *783.273 *783,273 *783,273 *783.273Treasury loan *0 *2.868,327 *2.868.327 *2,868,327 *2.868.327 62,868,327WB loan *35,530 *23,687 *11,843 $0
…. -------- ------ ------ - ------ --------------- -----. …--… ----- ---------…… -…-------- -- ------------- ------ - …-- ----- - ------ -------- -------…- --- ---- --- ------ - ------ …------
Total $3,314,193 $6,182,520 187% $6, 184,241 $6,172,398 $6,160,555 $6.1 48.712
ExpensesHousing $0 n/a 0% 0 0 *0 $0 $0 *0Education *4.162,280 *2.289.254 55% *4,807 1.96% *2,334,061 *2,334,061 $2,334,061 *2.334.061 *2.334.061Culture *89.347 *49,141 55% *2.566 5.22% *51.707 *51.707 $51,707 *51,707 $51,707Health *8,587.060 *3,622.883 55% *0 *3,622,883 *3,622.883 $3,622,883 *3,622.883 *3,622,883Other *256,807 *154,084 60% *154.084 *154,084 *154.084 *154,084 *154,084Shortfall ($7,781,300) *6.115.362
Total *3,314,193 *6,151,667 186% 047.373 0.77% *6,162,735 *6,162,735 *6.162.735 *6.162,735 *6,162.735
ShortfaIII/(Surpitus) (*21,507) (*9.664) *2,180 *14.023% shortfall I-W or surplus (I0% 0% 0% 0%
exchange rate one US dollar = 1 50000 KrbHousing is in the budget of the City of Donetsk
ANNEX 9Page 8 of 9
Ukraine Coal ProjectDivestiture of soclal assets
Inventory and capacity data on social assets of mines and cities
Mine KrasniyOctiabr City of Yenakievo Mine Removskaya City of Snejnoi Mine Pravda
Housing
surface sqm 46,142 1,159,056 45,989 404,200 146,500
% of mining association housing 11% 5% 5%/
% of transfer 4% 11%
Kindergartens
Number 3 15 4 14 1
capacity 230 1700 250 1125 75
attendance 204 1160 220 982 61employees 90 420 94 335 25% of utiliation 89% 68% 88% 87% 81%
Ratio child/personnel 2.27 2.76 2.34 2.93 2.44
Cultural facilities
Number 1 0 2 5 3capacity 300 460 290employees 4 17 4
Sport Facilities
Number 2 0 0 0 QCapacity 1000employees 34
Profilactoria
Number 0 0 1 0 0Capacity 75employees 12
ANNEX 9Page 9 of 9
UKRAINE COAL PROJECTDIVESTITURE OF SOCIAL ASSETS
Inventory and recurrent cost for operating social facilities for three mines (million Krb)Actual costs for 1995
Social assets Housing (sq m) Kindergartens Cultural facilities Sport facilities ProfilactoriaInventoryKrasniy Octiabr 46,000 3 1 2Removskaia 45,989 4 2 1Pravda 146,500 1 3Total 238,489 8 6 2 1
TOTALReccurent cost/year Krb $ Krb $ Krb $ Krb $ Krb $ Krb $KrasniyOctiabr 29,762 198,413 18,252 121,680 4,288 28,587 8,867 59,111 0 61,169 407,791 407791Removskaia 25,869 172,460 23,797 158,647 4,462 29,747 0 7,988 53,253 62,116 414,107 414107Pravda 34,655 231,033 6,721 44,807 2,566 17,107 43,942 292,947 292947Total 90,286 601,907 48,770 325,133 11,316 75,440 8,867 59,111 7,988 53,253 167,227 1,114,8441 $ = 150,000 Krb
TOTALFinancing Krb $ Krb $ Krb $ Krb $ Krb $ Krb $Year 1, 75% 67,715 451,430 36,578 243,850 8,487 56,580 6,650 44,333 5,991 39,940 125,420 836,133 39,940 180,793Year 2, 50% 45,143 300,953 24,385 162,567 5,658 37,720 4,433 29,556 3,994 26,627 83,613 557,422 26,627 120,529Year 3, 25% 22,572 150,477 12,193 81,283 2,829 18,860 2,217 14,778 1,997 13,313 41,807 278,711 13,313 60,264Total 135,429 902,860 73,155 487,700 16,974 113,160 13,300 88,667 11,982 79,880 250,840 1,672,267 79,880 361,587
ANNEX 10
Page 1 of 1UKRAINE COAL PILOT PROJE3:CT
Time-line of lmplementation Steps
May-96 Jun-96 Ju1-96 Aug-96 Sep-96 Oct-96 Nov-96 Dec-96 I Jan-97 Feb-97 Mar-97 Apr-97 May-97 Jun-97 Jul-97 Aug-97 Sep-97 Oct-97
OFFICLAL Board Parliament LoanACTIONS Approval Approval Effectiveness
MCI/UDKRannouncement
TECHNICAL/ Contracts' Work StartsPHYSICAL AwardCLOSURE a/
DIVESTITURE OF Inventory SocialSOCIAL ASSETS Preparation Assets'
Transfer ~~~~~Transitional Subsidies: 3 years -Transfer
LABOR WorkersCOMPONENT Notified
EMPLOYMENT Recruitment CounsellorsCOMPONENT and Training Start Work
ofCounsellors
Note:a. Technical/physical closure will proceed simultaneously to divestiture of social assets. Work would last 9 months at each side.
Mine closing would proceed in parallel with each other, starting in August, i.e., within 2 months of contract award.
ANNEX 11
Page 1 of 14
UKRAINE
COAL PILOT PROJECT
ORDEROF THE MINISTER OF COAL INDUSTRY OF UKRAINE
#1 1, January 12, 1996ON CREATING THE UKRAINIAN STATE-OWNED
COMPANY FOR RESTRUCTURING COAL ENTERPRISES
With a view to imnplement coal enterprises restructuring program, to provide the concentration and targetuse of funds allocated form the state budget and by the World Bank, taking into account a great social andeconomical significance, large scale, and long duration of coal sector restructuring in accordance with theEnactment of the Cabinet of Ministers of Ukraine "On Managing the Property Owned by the State" of December15, 1992 1hereby decree:
1. To establish the enterprise, the Ukrainian State-Owned Coal Company for Coal EnterprisesRestructuring ("Ukruglerestrukturizatsiya") with location in Donetsk.
2. To appoint Poshtuk A.Z. as acting General Director of the Ukrainian State-Owned Coal Company forCoal Enterprises Restructuring.
3. To specify the "Ukruglerestrukturizatsiya" Company's major task as follows: to execute the wholepackage of works on the organization and measures concerned with the sanitation, closure, and liquidation of coalmines, collieries, and other enterprises including measures on the social protection for the workers of the coalmines to be closed.
4. To instruct Poshtuk A.Z., acting General Director of "Ukruglerestrukturizatsiya":
4.1. To design and submit for approval the Charter of the Ukrainian State-Owned Company forRestructuring Coal Enterprises to the Ministry of Coal Industry of Ukraine not later than March, 15,1996.
4.2. To effect the state registration of "Ukruglerestrukturizatsiya" within one-week tern after theCharter is approved in accordance with the acting legislation.
4.3. To design the managerial structure of "Ukruglerestrukturizatsiya" not later than March 1. 1996.
4.4. To prepare and submit the Draft Contract to be concluded with the manager of company"Ukruglerestrukturizatsiya" to the Ministry of Coal hidustry of Ukraine not later than March 1, 1996.
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Page 2 of 14
5. To set the first group of remuneration of labor used for the mines as for the employees of Company"Ukruglerestruturinatsiya" .
6. To instruct Deputy Ministers Zipir A.P., Radchenko V.V. to provide finance for the works to beperformed in 1996 and to allocate funds required for Company "Ukruglerestukturizatsiya"'s administration onthe basis of financial sources stipulated for those objectives.
7. To instruct Kovalyov A.N., Deputy Minister, and Poshtuk A.Z., Acfing General Director of Company"Ukruglerestrukturizatsiya", to submit the proposals on the Company's location in the city of Donetsk not laterthan March 1, 1996.
8. To subordinate "Ukruglerestrukturizatsiya" Company to Radchenko V.V., Deputy Minister with a viewof distributing duties between the management of the Ministry of Coal Industry of Ukraine.
9. Radchenko V.V., Deputy Minister, shall assume control over the execution of the present Order.
S.V. PolyakovMinister
Registered with the Executive APPROVEDCommittee of the Donetsk Soviet of Minister of CoalPeoples Deputies Industry of Ukraine
Edict #445r S.V.PolyakovasofMarch 13, 1996 March 1, 1996
Identification Code 24166975
A.D.KushnigBusiness Manager
ANNEX 11
Page 3 of 14
CHARTEROF THE UKRAINIAN STATE-OWNED
COMPANY FOR RESTRUCTURING COAL ENTERPRISES
1. GENERAL PROVISIONS
1.1. The Ukrainian State-Owned Company for Restructuring the Coal Enterprises("Ukruglerestrukturizatsiya") is a state-owned enterprise on the basis of state-owned property and its activity isregulated by the legislation of Ukraine and subordinated to the Minister of the Coal Industry of Ukraine.
1.2. The full name of the Comnpany is the Ukrainian State-Owned Company for Restructuring CoalEnterprises (hereinafter referred to as the Company).
The abbreviated name is "Ukruglerestrukturizatsiya!'.The legal address of the Company is: 97, Artyoma St., Donetsk 340000, Ukraine
2. GOAL, MAIN TASKS OF COMPANY'S ACTIVITY
2.1. The Company has been established to arrange and execute the whole work package on sanitation,closure and liquidation of the Ukrainian coal enterprises and to implement the national policy in this sphere takinginto account the social significance, large scale, and duration of closing the coal enterprises.
2.2. The main task of the Company is to develop and realize actions complex concemed with the sanitation,closure and liquidation of the coal enterprises and new jobs creation on the basis of budgetary and other fundsallocated for this task by the Government, Ministry of Coal Industry, banks, other institutions and foreigninvestors.
3. THE SUBJECT-MATTER OF THE COMPANY
The subject-matter of the Companys activity is:
3.1. To participate in the examination of "Feasibility Studies" for the closure and liquidation of uneconomicand particularly unprofitable mines, collieries, and other coal enterprises.
3.2. To participate in the preparation of the materials concerned with the implementation of 'FeasibilityStudies' and 'Prjects' r the Government Interdepartmental Commission required to take decisions as for theclosure of the coal enterprises.
3.3. To participate in the preparation of annual list of enterprises to be subject to sanitation, closure andliquidation for approval by the Ministry of Coal Industry of Ukraine.
ANNEX 11
Page 4 of 14
3.4. To plan measures involved with the sanitation, closure and liquidation of coal enterprises.
3.5. To make-up the annual draft estimates for the sanitation, closure and liquidation of coal enterprisestaking into account the Company's administration expenses and calculation of the sources to finance the costsstipulated by the estimates.
3.6. To detennine the amount of works to be executed with own efforts and by contract.
3.7. To finance the works on sanitation, closure and liquidation of coal enterprises according to the costestimates within the financial sources allocated, providing the efficient use of funds.
3.8. To arrange and carry out the works on sanitation, closure and liquidation of coal enterprises.
3.9. To execute the works, with own efforts and by contract, required for the sanitation, closure andliquidation of enterprises that provide for:
* closing down underground workings, dismounting and removing equipment, machinery, metalwork,cables, etc.;
* dismantling and demolishing surface installations and buildings;* rehabilitating and repairing buildings, installations and communications;* constructing and organizing new productions;* executing measures as for the environmental facilities;* sealing-off underground workings and their outcrops;* exercising actions to restore the facilities of the enterprise to be liquidated to a safe and
environmentally acceptable condition, ramshackle and emergency buildings being dismantled;* extnguishing fire and planting of trees and shrubs in the waste dumps;* cleaning-up surface areas in compliance with the Law "On the Protection of the Environment".
3.10. To revise the documents confirming the coal reserves have been written-off, transferred to theneighboring mines or registered as "Balance stock category".
3.11. To control over the observance of safety rules and regulations at the enterprises to be closed andliquidated according to the labor legislation. In case of violation the legislation on the environment protection bythe Company, the Company's activities can be restricted, temporarily prohibited or suspended in compliance withthe legislation in force.
3.12. To prevent possible migration of underground water from exhausted underground workings of the mineto be closed into the operating workings of the neighboring mines.
3.13. To provide for gas seepage by drilling gas release boreholes to remove excess gas pressure inunderground workings and worked-out areas.
ANNEX 11
Page 5 of 14
3.14. To create and arrange new jobs if the opportunities are exhausted that the workers can be transferred toother jobs at operting enterprises and find the work with the help of Employment Service under the localexecutive authorities.
3.15. To trnsfer the facilities to the legal successors.
3.16. To provide the whole range of social protection to the workers of mines to be closed and liquidated incomnphance with the legislation of Ukraine which stipulates:
* transfer of the workers to other mines with lump sum payments to the transferred workers;* shedding of the workers due to the closure of mines with payments of severance to workers and
benefits to low-income families;* shedding of the workers at effective retiremen= age and those wishing quittig due to the closure
of mines with payments of severance to workers and benefits to low-income families;* assigning of workers in accordance with their desire to vocational training (taining) with the
payments for the training period in accordance with the acting legislation of Ukraine;* reimbursement of losses to transfer employees to job in other cormmunities;- financing costs to create new jobs in cities and settlements in which the mine to be closed are
located;- financing costs of transportation for the workers to new places of work;- compensation of costs of early retirement provided that the employees have statutory length of
service;- compensation of costs of disability payments and one-time disability benefits;- compensation of costs of distributing free and preference coal to workers and pensioners of the
mine to be dissolved in case of their non-assigniung to other enterprises.
3.17. To create new jobs.
3.18. To train and retrain the personnel.
3.19. To prepare feasibility studies and projects on the organization of new productions.
3.20. To settle other issues involved with the social protection for the displaced workers and cash benefits.
3.21. To execute administrative, economical, and financial activities.
3.22. To consider claims and complaints of detached organizations and workers of the coal enterprises to bedissolved.
3.23. To agree the decisions on social and economic issues with the local authorities and trade-unions.
3.24. To coordinate the activities and control over the implementation of mine liquidation projects.
ANNEX 11
Page 6 of 14
3.25. To organize monxoring over gas seepage and mine water flowing to the underground workings ofneighbonng mines and the surface.
3.26. To sell out the property of the enterprises to be liquidated.
3.27. To perform financial operations to obtain funds from the state budget, the Ministry of Coal Industry,other institutions, foreign mvestors and other sources allocated to restructure the enterprises of the coal sector andpay works and services made at the enterprises to be closed, as well as cash benefits for the social protection ofthe displaced workers within the limits of the funds allocated.
3.28. To supervise the expenditures under the state funds allocated to restructure the coal enterprises.
3.29. To perform other activities not contradicting to the legislation in force.
4. LEGAL STATUS OF THE COMPANY
4.1. The Company is a corporate body in compliance with the legislation of Ukraine.
4.2. The Company assumes a body corporate status on the day of its state registration.
4.3. The Company has independent balance, settlement, currency exchange and other accounts with thebanking institutions, as well as seals and stamps with its emblem and denominations, including other requisites.
4.4. The activities of the Company are effected in accordance with the legislation of Ukraine, the guidelinesof the Cabinet of Ministers of Ukraine, the orders of Minister of the Coal Industry of Ukaaine and regulations ofthe Ministry Board, norms and rules ensuing from the international agreements, in which Ukraine enters andwhich are concerned with the activities of the Company, as well as the present Charter.
4.5. The Company may acquire proprietorial and personal non-proprietorial rights, conclude agreements andtreaties, other legal acts with the enterprises, organizations and natural persons both at the territory of Ukraineand outside it as well as be, on its behalf, a plaintiff and defendant in courts, including arbitration.
4.6. The Company is considered active based on the economic self-dependency; the Company plans itsactivity on its oW4 is to bear responsibility for the results of such activity, is to perform liabilities to the budgetand partners, as well as for the target utilization of funds allocated by the Government, Ministry of Coal Industryof Ukraine, foreign investors to the Company to sanitate, close and liquidate coal enterprises.
ANNEX 11
Page 7 of 14
4.7. The Company is to be responsible for the its liabilities with the property owned by it. The Company isnot bound by the liabilities of the Government and Ministry of Coal Industry of Ukraine, unless ohewiseprovided for by the legislation of Ukraine. The Government and the Coal Ministry of Ukraine are not bound bythe liabilities of the Company. The losses incurred to the Company as a result of violation of the Company'spropiietary rights are to be reimbursed by the decision of the Court or Arbitration.
4.8. The Company has the right to create its affiliations, subsidiary companies and representative offices atthe territory of Ukraine and outside it according to the stipulated procedures. The activities of the affiliations,subsidiary companies and representative offices are to be based on the Regulations approved by the GeneralDirector of the Company.
4.9. The Company may by a stockholder and participate in the economical partnerships, concerns and otherassociations, including those with the participation of foreign legal and natural persons in accordance with theacting legislation of Ukraine.
4.10. The Company exercises the foreign and economical activity in accordance with the legislation ofUkraine, goal, main objectives and subject-matter of the Company, provided for by the present Charter.
4.11. The Company realizes its own production, renders services including consulting, executes works at thenegotiated prices. The property of the enterprises to be closed shall be realized, leased in accordance with theacting legislation of Ukraine as agreed with the Ministry of Coal Industry of Ukraine.
5. PROPERTY, AUTHORIZED FUND OF THE COMPANY
5.1. The property of the Company includes fixed assets, circulating assets and other values which comprisethe Authorized Fund of the Company, as well as other property allotted to the Company. The cost of theproperty allotted to the Company is to be included in its independent balance.
5.2. The Company has a right of complete economic ownership for:
* property allotted to it;* income obtained as a result of its own economic activity;* budgetary funds and funds from other sources allocated by the Government, Ministry of Coal
Industry, other institutions, foreign investors for the sanitation, closure and liquidation of coalenterprises;
* other property purchased on the principles not prohibited by the legislation of Ukraine.
5.3. The Company exercises the right for complete economic ownership, utilizes and manages, on its own,the property owned to it, as well as exercises any activity which does not run counter to the legislation of Ukraineand the present Charter.
ANNEX 11
Page 8 of 14
6. COMPANY'S PROFITS AND ITS UTILIZATION.PROCEDURE FOR COST ACCOUNTING
6.1. The indicator of the efficiency of Company's aclvties is a decrease in piarmed costs sfipulated in thre costesimates to sanitate, cose and liquiate the coal enteprises including the Company's administrationexpenditues, as well as proceeds from the Cmpany's own economic actvities.
6.2. Funds provided for by the cost esfimates for coal enterpnse sanitatio, closure, and liquidation, as wellas proceeds firm the Company's own economic acivities constitute the source for the Company's economicstinulaio fimd, labor protedon fimd, and reserve fiud, including costs to the national budget and tax paymm
6.3. Benefits from the Company's own economic activities are made on the basis of proceeds from theCompany's own economic activities less recovery of costs which are attributed to the production cost of products,works, services.
6.4. Cost estinates for coal enterprise sanitation, closure, and liquidation approved annually by the Ministryof Coal Industry of Ukraine include:
* costs directly ooncemed with the coal terprise sanitation, closure, and liquidation includingcosts for the social proction of workers of the enterprises to be cbsed;
* the Compans admistaton expenses including finance to create the Conpany's econonicstimulation fimd, labor protection fund, and reserve fund, including costs to the national budgetand tax payment in accordance with the acting standards.
6.5. To crea the Company's ecmonoic stimulation funds the proceeds from the Company's own economicactovities can be used in compliance with the legislation of Ukraine and acting standards.
6.6. The Company creates on the basis of fimds stipulated in the cost esfimates to sanitate, dose and liquidatethe coal entprises, as wel as s procweds from the Company's own economic activities in compliance with thelegislation of Ukraine and acting standars:
6.6.1. Fund for strengthening the Company's material and technical base.
6.6.2. Fund for the CompaIns personnel social assistance and incentives for the Company'semployees.
6.6.3. Labor protection fimd.
ANNEX 11
Page 9 of 14
6.6.4. Comnpany's reserve (insurance) fund in the amnount of 25% of the Authorized Fund (or "CostEstimates") cover unforeseen costs.The reserve fund required to cover the contingencies is forrned through the annual deductions at the rateof 5% of resources stipulated in the cost estimates for enterprise sanitation, closure and liquidation untilthe stipulated amount of the fund is reached.The procedures for the creation and utilization of the funds listed in Items 6.6.1 -
6.6.4. are to be established by the Company's management.
7. COMPANY'S MANAGERIAL BODIES
7.1. The Company is guided by the General Directorate of the Company.
7.2. The General Directorate of the Company:
* arranges the Company's activities in compliance with the present Charter, financing of worksand services, accounting and reports;
* deternines the Company's organizational structure;-- takes decisions on the creation, reorganization and liquidation of affiliations, subsidiary
companies, representative offices of the Company and executes managerent of their activities,ensures the perfbrmiance of task assigned to them;
-- takes decisions on buying shares (stocks) of managing partnerships;- discusses the issues of selection, training and follow-up education of the Comnpany's employees;- determines the payroll, approves terms and conditions of labor remuneration, employee's wage
rates, schemes of rates of pay in compliance with the legislation of Ukraine and "branch tariffagreement";
- reviews the results of auditing, as well as reports of the heads of structural subdivisions being apart of Company, heads of affiliations, subsidiary companies, and representative offices andtakes relevant decisions;
* prepares Company's annual report and balance;* considers the problems of the Company's employees stimulating and making materialy
responsible;* takes decisions on otier issues of the Company's activities.The decisions of the General Directorate are to be executed by the orders of the Company's General
Director.
7.3. The General Directorate is guided by the General Director ofthe Company, he is to organize its activitieswith the help of deputies and is to bear responsibility for executing the objectives assigned to the Company.
7.4. The powers of the Company's working body are to be realized by the general meeting (conference) atwhich the working body has the right to elect the self-management bodies participating in settling the social and
ANNEX 11
Page 10 of 14
economic issues. The General Director of the Company can be elected member of the Coipary's self-managment bodies.
8. THE GENERAL DIRECTOR OF THE COMPANY
8.1. The General Director of the Company is to be appointed and discharged on a contact by the Minister ofCoal Industry of Ukraine:
* acts on behalf of the Company without proxy;* manages the Company's property in accordance with the legislation of Ukraine;* presents the Company in relations with other enterprises, oganizations and natural persons;* entrusts to take actions on behalf of the Company;* stipulates procedures for the preparation of agreements and other treaties to be concluded on behalf
of the Company;* employs and terminates employees of the Company, approves specific wage rates and salaries of the
Company's employees, applies measures including incetives and disciplinary punismnt incompliance with the legislation of Ukraine, "branch tariff agreement" and collective treaty;
* allocaues responsibilities of his Deputies and Directorate's Directors,executes other functions in compliance with the legislation of Ukraine and the present Charter.
9. ACCOUNTING AND REPORTS
9.1. The Company executes accounting of its economnical activities in compliance with the legislation ofUkraine.
9.2. The financial results of the Company's activities are to be estimated based on the anmual accountingbalance sheet. The annual accounting balance sheet and financial report are to be approved by the Ministry ofCoal Industry of Ukraine.
9.3. The first fiscal year of the Company begins on the date of its registration and terminates on December 31of the current year. The following fiscal years agree with calendar years.
9.4. The Company is to submit the statistical reporting to the Ministry of Coal Industry of Ukraine andbodies of state statistics within the volumes and terms stipulated by the legislation of Ukraine.
9.5. Auditing of the Company's financial activities is to be executed in accordance with the legislation ofUkraine.
10. CESSATION OF THE COMPANY'S ACTIVITY
10.1. The Company's activity is ceased through its reorganization (merging, incorporation, division,separation, transformation) or liquidation.
ANNEX 11
Page 11 of 14
10.2. The Company's reorganization is carried out by the decision of the Ministry of Coal Industry of Ukraineand in cases specified by the legislation is effected by the collective body or the court of arbitration.
10.3. The Company liquidation is effected by a Liquidation Commission appointed by the Ministry of CoalIndustry of Ukraine. The representatives of the Ministry of Coal Industry of Ukraine and those of the Company inthe person of Company's managerial bodies are the members of the Liquidation Conrission. The liquidationprocedures and temporal terms, as well as the term for filling claims are determined by the Ministry of CoalIndustry of Ukraine. In case of bankruptcy the Company's liquidation is effected in compliance with the Law ofUkraine "On Bankruptcy".
10.4. On the day of its appointment, the Liquidation Commission is delegated Company's managerialauthority. The Commission compiles the liquidation balance and submits it to the Ministry of Coal Industry ofUkraine. The creditors and other legal persons that are under cortraclal obligations with the Company are to benotified in written form.
10.5. In case of Company's reorganization or liquidation the rights and interests of the discharged workers aresecured by the labor legislation of Ukraine.
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Page 12 of 14
DONETSK SOVIET OF PEOPLE'S DEPUTIESEXECUTIVE COMMITTEE
ENACTMENT #448rof March 13, 1996
"ON THE REGISTRATION OF THE UKRAINLAN STATE-OWNED COMPANYFOR RESTRUCTURING COAL ENTERPRISES"
Having considered the application of Poshtuk A.Z., the General Director of the Ukrainian state-ownedcompany for restructuring the coal enterprises, and having govemed by the Law of Ukraine "On the enterprises inUkraine", the Executive Committee of Donetsk Soviet of People's Deputies hereby RESOLVES:
1. To register the Ukainian state-owned company for restructuring the coal enteprises located at theaddress: 97, Artyoma St., 340000 Donetsk.
2. To establish budgetary relations in compliance with the acting legislation.
3. In case of changes in the legal address, the Company is to notify the new address to Donetsk ExecutiveComuittee, State Taxation Inspection and bodies of State Statistics within the period of 7 days.
A.P.KluyevFirst Deputy ChairmanExecutive Conunittee
ANNEX 11
Page 13 of 14
COMPANY "UKRUGLERESTRUKTURIZATSIYA"'S STATEMENT OF EXPENSESON WAGES (WITHOUT INCENTIVE PAYMENTS AND BONUSES) FOR THE YEAR 1995
IteN Description of expense items Unit Amount of expensesNo.
1996, includingtotal
I -st qr. 2-nd qr. 3-rd qr. 4-th qr.
1. Wages with charges Krb. 23,082,150 177,550 7,102,200 7,102,200 7,102,200thousands
including
1.1. Wages 15,185,625 1,168,125 4,672,500 4,672,500 4,672,500
1.2. Deduction to the social insurance, 7,896,525 607,425 2,429,700 2,429,700 2,429,700Fund for Chernobyl consequences'elimination, Employment Fund
A.Z.PoshtukGenemal Difector
Company "tkresturizatsiya"
ANNEX 1 1
Page 14 of 14
STRUCTURE OF UKRAINIAN STATE-OWNED COMPANY FOR RESTRUCTURING COAL ENTERPRISES(UKRUGLERESTRUKTURIZATSIYA) (Total number of employees is 135)
Approved by the order of theMinister of Coal Industry of Ukraine" ____ " ___________________ 1996
GENERAL DIRECTOR (1) personnel under the management(8)
Deputy General Director on enterprise Deputy General Director on Deputy General Director on Deputy General Director on laborrestructuring (1) financial and investment, planned material and technical supply and redeployment and social problems
and economical, including transport (1) (1)commnercial works (1)
1. Department of feasibility study I. Finance and Investment 1. Department for Material and 1. Department for Studyexamination, operation Department (7) Technical Supply (16) Population Employment andexpediency and enterprise 2. Planning and Economical 2. Transport and Handling Employment of Displacedliquidation projects (5) Department (6) Department (5) Workers of the Enterprises to
2. Technical Departmnent (6) 3. Sales Department (6) Be Closed (5)3. Mine Surveying Departrnent 4. Estimate and Agreement 2. Department for Organization(4) Department (5) Training and Retraining of4. Departmnent of Safety Rules and 5. Accounts Department (9) the Displaced Workers
Regulations (4) 6. Legal Department (5) (4)4. Departmnent of Chief Mechanic 3. Company's Employees Social
(5) Assistance Department (5)5. Department for Coordination 4. General Service Department
and Control over the Enterprise (6)Restructuring Progress (9)
6. Department for Rehabilitationof development sites andEcology(5)
7. Department for Study LaborDemand and New Job Creation
(5)
ANNEX 12
Page 1 of 5UKRAINE
COAL PILOT PROJECT
Terms of ReferenceAssistance the Govermnent of Ukraine
Support to the Ukraine State Company forRestructuring Coal Industry Enterprises (UDKR)
1. Background
1. As an integral part of the conversion of the Ukrainian economy from the centrally planned modelto a market basis the national coal mining industry is undergoing a fundamental restructuring. Theprogress is Intended to lead to a coal sector that is economically and financially viable, satisfyingdomestic demand for coal of the qualities available within Ukraine without government subsidy. Thereis general acceptance that closure of a number of mines will be necessary either because the reserves arcexhausted or because the casts of operating prohibit rational continuation of exploitation.
2. Mine closure under the central planning regime was a rare occurrence, only permitted whenreserves were entirely exhausted and generally then only when a replacement mine was developed bothto replace the output lost from the closing mine and to employ the displaced miners. There is thus verylittle experience of closing mines within Ukraine, and what d - Cs exist relates to conditions under whicha choice of actions did not need to be economically justified.
3. The Ukrainian government has now agreed an action plan for coal industry restructuring. This includesmarket liberalization and restructuring the corporate structure. It also involves a plan to close mines. Theaim is to close at least X mines during 1996 and thereafter to close remaining un-economic mines asefficiently and as quickly as possible.
4. The World Bank have prepared a pilot 3 mine closure project with the aim of preparing practicalguidelines and best practice for mine closure and are expected to follow this up with another mine closureproject to finance the costs of closing another 24 mines. Funds provided by tho Bank will be providedfor local cost financing through the budget. Funds are expected to cover the costs of technical andenvironmental support, lump sum payments for transferring employees (of mines and the social sphere),and other related costs to be defined during the pilot (e.g. for existing disability labilities, severancepayments).
5. To manage the mine closure process the Ukraine have decided to establish a Ukrainian CoalCompany (UDKR) closed modelled along the lines of British Coal Enterprise (BCE). UDKR will takeprime responsibility for the actual closure of the mines and will be responsible for the design andimplementation of programmes to mitigate the social and economic aspect of mine closure. This is likelyto include redundancy counselling and outplacement advice as well as direct interventions in the labourmarker.
6. Like BCE, UDKR is expected to take a strong "partnership" approach to its task, working closelywith local authorities and other key local players in the regions affected by closure and acting as a catalystfor regional regeneration.
ANNEX 12
Page 2 of 5
7. UDKR will have its headquarters in Donetsk and a Chief Executive has already been identified.
2. Objectives
8. The objective of this technical assistance project is to assist with the establishment and operationof UDKR The KHF will provide advisory (and; if required, executive) support to UDKR over two yearsThe main aim is to ensure a socially responsible and cost-effective mine closure programmne.
3. Scope of Work
Phase I
9. Tho first phase will provide support to establish the UDKR. This will involve:Defining the key functions and mission statement of the UDKR (in particular separation ofresponsibilities between UDKR and MCI)
Assisting UDKR Chief Executive agree these functions with key players including MCI and localauthoritiesDefining the organization and staffing structure of UDKR, this will include preparing detailed
job descriptions
Assist UDKR recruit key staff
Preparing a business plan
Preparing and agreeing with UDKR Chief Executive a programme of continued technicalassistance including detailed job descriptions and skills requested
Assisting the KHF and UDKR tender for this long term programme of support
Providing continued high level management support to UDKR until the full time team is in place
Phase II
10. The exact detail of Phase II will emerge during Phase l. But the following support is expectedto be provided:
(a) Management and Financial Control
General advice to management to run the new organization efficiently establish efficient financialmanagement systems, transparent and effective financial systems will be especially important ifthe UDKR channels the payment of subsidies to employers of redundant miners, payments tolocal authorities for social sphere costs and other direct budget transfers.
Assist UDKR develop an effective communications approach with the Mining and localcommunities most affected by closure. This is expected to be a highly participatory approach
ANNEX 12
Page 3 of 5
allowing feedback and is not just a PR exercise. The arm is to reduce uncertainly and anxiety about
mine-closure and the social change it requires and to involve the local communities in key decisions
11. Assist UDKR develop a Public Relations strategy. This will include a strategy for dealing, withthe press and the broadcast media and other aspects of PR intended to generate wider support for themine-closure programme.
12. Advice will bc provided from consultants experienced with communications and PR in the FSUcontext (successful examples include work on voucher privatization and land reform in Russia).' Aworking knowledge of Russian or Ukrainian will be essential.
13.(c) Redundancy. Job Creation and Regional Regeneration
14. The existing Action Plan includes the outlines of a scheme for dealing redundancies caused bymine closures. The scheme, based on flat rate payments to employers for taking on redundant miners,will be tested through the 3 mine pilot programme. UDKR will need to develop the capacity to monitorand evaluate the results of the pilot and to implement redundancy job creation schemes. The schemewhich the pilot will test has been influenced by World Bank policy and not by demonstrated successesin or West European context.
15. The Protocol with the Bank has agreed that a wider study of regional regeneration and Jobcreation should be undertaken (probably by the Ministry of Economy) but the UDKR will need to be ableto influence and interact with this work.
16. The consultants should assist the UDKR Co develop both policy understanding and practicalimplementation capacity to deal with redundancy, job-creation and wider regional regeneration issues.Subjects to bc covered include:
o Redundancy counselling
o Outplacement and job search, support to labor mobility
o Job creation through SME support schemes (eg loan guarantee, equity
o Job Creation through other mechanisms (eg subsidy to new employers)
o Broader partnership approaches to regional regeneration based an European approachesto local development including methods of working with the emerging private sector andlocal authorizes
(d) Social Sphere
Bidders should look at the Know How Fund and IFC experience with PR and communications work in Donetsk LandPrivatization programme.
ANNEX 12
Page 4 of 5
The UDKR is expected to take: responsibility for ensuring the smooth transfer of the socialsphere to Local municipalities. The World Bank projects will fund the additional costs tomunicipal budget. The UDKR will need to develop the capacity to plan and organize the transferof services and possibly to train new municipal managers. It will also need to deal withunemployed social sphere workers.
17. Particular issues include how to deal with housing transfers. Consultants shouldhave similar expcrience of social divestment from other projects in the FSU.
(e) Technizal Mine Closure Issues
* Definition of the options for closure or merger of mines and/or their reserves andfacilities;
* Planning the underground works and facilities associated with mine closures and/ormergers, including consideration of the viability of salvage operations and of the need forscaling against water and gas migration; consideration of pumping installations and theircost implications on adjacent mines to ensure that closure of one mine does not add anunnecessary burden to others.
3 Consideration of the possible subsidence regime after mine closure and the potential needfor mitigation, either by prevention or by installation of drainage or other systems.
3 Planning of the shaft sealing operations and of its impacts;
3 Planning of the site conversion process, including choice of installations to he demolishedand those to be retained;
3 Costing of all the above, including estimation of the labour requirement and the time forwhich it will be required;
* Preparation for announcement of the impending closures on a mine by mine basis.
The consultant will be required to give consideration, on the basis firstly of closure plansprepared by Ukrainian specialists and later of plans revised in the light of the consultant's advice, on thedesirability of setting up special peripateic mine closure action teams with a view to minimizing the timeand cost entailed in a mine closure operation.
(f) Relationship with World Bank
18. The UDKR will be responsible for implementing the pilot and full mine-closure projects. Thetechnical assistance provided to UDKR by the KHF will strengthen capacity to undertake the pilot andto monitor and interpret results from the pilot but the KHF advisers will not have any direct responsibilityfor implementation.
Separate direct implementation support for the pilot is being considered by the KHF.
ANNEX 12
Page 5 of 5
4. Effort
19. Phase I Bidders should recommend an approach to Phase I The KHF expects that it will requireat least five weeks of intensive input for the first organizational stage and continued support of about 2weeks a month until the full team is in place.
20. Phase II. The KHF is willing to support up to five full time advisers (or the equivalent from amix of full time and short term support) to the UDKR for the first year of operation and to continue thissupport at a lower level during the second year.
21. Bidders should recommend an approach to this work. Bids should be made for both Phases I andII on the understanding that the exact details of Phase II will be renegotiated after Phase I design work.Continuity between Phases I and II is essential.
22. Skills Required [to be added]
5. Reporting, Work Planning
23. Short monthly workplans to the UDKR will be prepared by the consultant and copied to the KHFand the World Bank.
24. All documentation will be provided in Russian and English at the expense of the contractor.
25. Short reports to the UDKR will be written after each visit and copied to the KHF and the WorldBank task manager. The reports will be submitted within seven working days of the period covered inthe report.
26. More detailed reports to the KHF will be prepared quarterly.
ANNEX 13
Page 1 of 1
UKRAINECOAL PILOT PROJECT
Estimated Disbursement Schedule(US$ million)
Bank Fiscal Year Disbursements Cumulative Disbursementsand Quarter by Quarter by end Quarter
FY961st Quarter2nd Quarter3rd Quarter4th Quarter 0.2 0.2
FY97
1st Quarter 0.5 0.72nd Quarter 1.0 1.73rd Quarter 2.0 3.74th Quarter 2.0 5.7
FY98
ist Quarter 2.5 8.22nd Quarter 2.3 10.53rd Quarter 2.0 12.54th Quarter 1.0 13.5
FY99
1st Quarter 1.0 14.52nd Quarter 1.3 15.8
ANNEX 14
Page 1 of 1
UKRAINECOAL PILOT PROJECT
SUPERVISION PLAN
Being a pilot project, supervision is expected to require a more intensive input than normal.About 20 staff-weeks per fiscal year during the first two years of implementation and 10 staff-weeksin the third year are required. A formal mid-term review involving senior government officials willbe carried out in mid-1996 to review progress on implementation, including actual stages of theclosure of the three mines.The schedule below indicates supervision plan and required resources in addition to regular reviewrequirements for procurement actions, progress reviews and various correspondence.
Dates Activity Staffimg Staff-weeks
May 1996 Project Startup - Task Manager- Mine Engineer- Social Assessment- Implementation 10- Public Participation
Se.ptember 1996 Supervision - Task Manager- Environmental
Specialist- Social Assessment 10- Disbursement
March 1997 Supervision - Task ManagerMid-term review - Division Chief
- Engineer- Ex-post monitoring 8
September 1997 Supervision - Task Manager- Social Assessment 6
March 1998 Supervision - Task Manager- Social Assessment 4
October 1998 PCR Preparation - Economist- Engineer- Social Assessment 6
ANNEX 15
Pagel of 13
UKRAINE - COAL PILOT PROJECTECONOMIC EVALUATION
SUMMARY OF RESULTS
Krasnyi Oct. Pravda Removsk. TotalNet Present Value (MS)
- of Economic Benefrts 7 17 2 26
- of Fiscal Impact 12 37 9 59
Economic Rate of Return | 65% 93% 20% 55%
Underlying Key Input Value
border price of Russian coal $St 36$/GJ 1. 5
Coal Price at which NPV would become negative
for forEconomic FiscalBenefits Impact
border price of Russian coal $/t 48 63$/GJ 1.9 2.5
Remark: Russian coal price cannot increase to these levels becausecoal from overseas exporters could be landed in Mariupolat 46 $4, or 1.7 $1GJ.
ANNEX 15 UKRAINE: COAL PILOT PROJECTPage 2 of 13 ECONOMIC EVALUATION
EXPLANATIONS
A. Economic Costs and Benefits(t) Production Costs include free coal but no other social costs and no taxes (for tonnages see separate sheets for individual
mines: Costs of Local Coal Production vs. Imports.(2) Materials, energy and services for raw coal production of mines (real increases due to worsening geology and gradual
lifting of input prices to international levels).(3) Economic wages are assumed to represent 50% of actual wages.(4) Costs of cleaning and transporting local coal to domestic consumers (declining due to declining production).(5) Costs for maintenance & operation of social infrastructure carried by the mines.6 Present economic value of closure and mitigation costs at time of producton stop determined by depleted coal reserves.(7) Local coal delivered at domestic consumers at import parity price (based on imports from Russia; assumed to adjust
gradually to international levels; for tonnages see separate sheets for individual mines: Costs of Local Coal Production vs.Imports).
(8) In the first year of project implementation, 60% of the coal is assumed to be still supplied by the closing mines.(9) In the first year of project implementation, 40% of the coal is assumed to be imported.
(10) Costs of sealing-off underground workings, filling the shafts, demolishing surface structure and cleaning the site.( 1) Excluding all severance and other transfer payments.(1 2) Costs of transport (or relocation) of workers who continue to work in other mines (10-40% of workforce, depending
on mine).13) Workers and pensioners not connected to district heating receive 6 tons of free coal per year, valued at import
parity (free coal is included in the production costs of the "without"case).(14) 2 years disbursement, 3 years grace, 10 years repayment in annuities with 2% real interest and 30% failure rate.(15) Costs for maintenance & operation of social infrastructure taken over by the state.(16) Annual operating costs of $ 300,000 assumed, which together with the technical assistance program are equally
distributed to the three mines (if no more mines were closed in fututure, continuation of UCC beyond 2000 would notbe justified).
(17) Wages paid to miners which are transferred to other mines, find new employment outside the coal industry or are self-employed (economic costs are assumed to repesent 50% of previous actual wages, identcal to line (3)).
(18) Following percentage of workforce assumed to be transferred: 40% at Removskaya, 20% at Krasnyi Octyabr, 10% at Pravda.(1 9) Includes ex-mine workers who find new employment outside the coal industry or are becoming self-employed as well as
miners ('future miners') who would have entered the coal industry in the 'Wthout' case as replacement for retiring miners.(20) Same quantity of coal delivered at same economic price as in the "without'case.(21) Economic value created by new employment.(22) For transferred miners, this value assumed to be equal to their wages (no value added).(23) For workers which find employment outside the coal industry or are self-employed, a value added of 25% is assumed.
B. Fiscal Impact
(1) Difference between (financial) costs of local coal producton (incl. cleaning and distribution) and delivery of imported coalto consumers. This difference includes social costs and taxes (for details on individual mines see separate sheets: Costs ofLocal Coal Production vs. Imports).
(2) Present (financial) value of closure and mitigation costs at time of production stop determined by depleted coal reserves.(3) Contributions to state pension fund and other social funds.(4) Taxes charged on the output of mines.(5) Difference between costs of local coal production and imports during the first year of project implementation (mines still
producing 60% of their previous annual output).(6) Present financial value of the mine closure and mitigation costs at the time of production stop due to depletion.(7) Includes most essential social services previously provided by mines.(e) Equivalent to total economic costs of social mitigation (see Economic Costs and Benefits Sheet).(9) Disability payments taken over by the state in same amount as initially provided by the mines in the "without' case (but no
increase due to addition of further incidents).(10) Costs for maintenance & operation of social infrastructure taken over by the state initially in the same amount as provided
by the mines in the "without" case. Phasing out of state support assumed over a period of 10 years.(1 1) Same administrative costs assumed as in economic analysis (see note (14) of economic analysis).(12) Assumed to be 70% lower than in the "without case".(11) Assumed to be 80% lower than in the "without case".
UKRAINE - COAL PILOT PROJECT ANNEX 16ECONOMIC EVALUATION Page 3 of 13
Economic Costs and Benefits (1996 USS million)THREE MINES (KRASNYI OCTYABR, PRAVDA. REMOVSKAYA)
Prosent Project Period Post - Project PeriodValue 1996 1997 1996 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
A. WITHOUT PROJECT (i=10%)
Costs 150 20.6 21.0 21.3 21.7 22.1 22.4 27.7 16.8 17.0 21.8 11.8 12.0 12.2 12.4 20.0(1) Coal production 20.6 21.0 21.3 21.7 22.1 22.4 22.8 16.8 17.0 17.3 11.8 12.0 12.2 12.4 12.6(2) the -supplies a8seavs 13.8 14.1 14.4 14.7 15.0 15.3 15.6 11.4 11.6 11.9 8.1 8.2 8.4 8.5 8.7(3.) -wag" 3.2 3.2 3.3 3.4 3.4 3.5 3.8 2.8 2.7 2.7 1.9 1.9 1.9 2.0 2.0(4) - cou dsing & diibubo 2.0 2.0 1.9 1.9 1.9 1.8 1.8 1.4 1.3 1.3 0.8 0.8 0.8 0a8 0.7(5) -mninbn.&pwe dosacilintasr. 1.6 1.6 1.7 1.7 1.7 1.8 1.8 1.4 1.4 1.4 10 11 11 1.1 1.1(6) Mine closure & mitigation 4.9 4.4 7.4
Benefits | 9.54 | 14.7 14.7 14.6 14.6 14.6 14.5 14.4 10.9 10.8 10.7 7.2 7.2 7.2 7.3 7.3(79 Coal divered to consumers 14.7 14.7 14.6 14.6 14.6 14.5 14.4 10.9 10.8 10.7 7.2 7.2 7.2 7.3 7.3
Net Benefits 4.9 6.3 6.7 -7.1 -7.6 -7.9 -13.3 -5.9 6.2 -11.0 4.6 -4.8 46.0 4.1 -12.7
B. WITH PROJECTCosts F 151.3 28.2 27.0 22.9 21.6 21.1 20.9 20.6 16.8 15.8 16.7 10.6 10.7 10.9 11.0 11.1
(8) Coal productlon 12.4(9) Coal imports 5.9 14.7 14.6 14.6 14.6 14.5 14.4 10.9 10.8 10.7 7.2 7.2 7.2 7.3 7.3
(10) Mine cloure & environmental mitigation 4.9 4.2(11) Mitgationf social impact 0.6 2.3 2.4 1.2 1.1 1.1 0.8 0.9 1.0 0.8 0.6 0.6 0.6 0.6 0.7(12) ffdv -vmuAwdminnwerww asf 0.3 0.3 0.3 0.3 0.3 0.3 0.2 0.2 0.2 0.1 0.1 0.1 ai1 0.1(13) -e cow 0.8 0.9 0.9 0.9 0.9 1.0 0.8 as as . 0.5 0.5 0.8 a.s(14) -mincardib 1.2 1.2 40.19 0.19 40.49 -0.12 -0.12 -0.32 -0.08 -0.06 -0.06 -0.08(15) Mainten.&oper.osociallnfastructure 0.6 1.6 1.7 1.7 1.7 1.8 1.8 1.4 1.4 1.4 1.0 1.1 1.1 1.1 1.1(16) Admin. cots for UCC (incl. TA) 0.6 0.9 0.9 0.6 0.3(17) Wages 3.2 3.2 3.3 3.4 3.4 3.5 3.6 2.6 2.7 2.7 1.9 1.9 1.9 2.0 2.0(18) owed ransfewidminewa*u 0as 0.6 0.7 0.7 0.7 0.7 0.7 o.s a.s a.S 0.2 0.2 0.2 0.2 0.2(19) -oaUrx-&futwemkw wr 2.5 2.8 2.7 2.7 2.8 2.8 29 2.1 2.2 2.2 1.7 1.7 1.8 1.8 1.8
Benefits F 122.61 18.6 18.6 18.6 18.6 18.7 18.7 18.7 14.0 14.0 14.0 9.5 9. 9.6 9.7 9.8(20) Coaldeiveredtoconsumers 14.7 14.7 14.6 14.6 14.6 14.5 14.4 10.9 10.8 10.7 7.2 7.2 7.2 7.3 7.3J21) Value of output from re-employed miners 3.8 3.9 4.0 4.1 4.1 4.2 4.3 3.2 3.2 3.3 2.3 2.3 2.4 2.4 2.5(22) trAd -kannaterdmmaw wrk o.e as 0.7 0.7 a? 0 07 0.5 0.5 0.5 0.2 0.2 0.2 2 0.2(23) -dhwnr-6AlAumine wokr 3.2 3.2 3.3 3.4 3.4 3.5 3. 2.6 2.7 27 2.1 2.1 2.2 2.2 2.3
Net Benefits 41.6 8.4 4.3 -2.8 -2.4 -2.2 -1.9 -1.8 -1.8 1.7 -1.2 -1.2 -1.2 1.3 1.4
C. INCREMENTAL NET BENEFITS 3263 4.7 -2.1 2.4 4.3 6.1 5.8 11.3 4.1 4.4 9.4 3.4 3.6 3.7 3.9 11.3
Economic ate of reum 55%
ANNEX 15Page 4 of 13
UKRAINE - COAL PILOT PROJECTECONOMIC EVALUATION
Fiscal Impact (1996 USS million)THREE MINES (KRASNYI OCTYABR. PRAVDA. REMOVSKAYA)
Present Project Period Post - Project PeriodVa/ue 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
A. WITHOUT PROJECT 0=10%)
Budget Costs 134. 17.0 17.6 18.2 18.8 19.5 20.1 26.3 15.1 15.6 21.1 11.1 11.4 11.7 12.1 21.1(1) PaymentstoCoallndustry 17.0 17.6 18.2 18.8 19.5 20.1 20.8 15.1 15.6 16.2 11.1 11.4 11.7 12.1 12.4(2) Mine closure & mitigation 5.4 5.0 8.7
Budget Revenues 41.3 5.8 5.9 6.1 6.2 6.3 6.4 6.6 4.8 4.9 5.0 3.4 3.5 3.6 3.6 3.7(3) Contributionstosocialfunds 3.7 3.8 3.9 4.0 4.0 4.1 4.2 3.1 3.2 3.2 2.2 2.2 2.3 2.3 2.4(4) Taxes 2.1 2.1 2.2 2.2 2.3 2.3 2.3 1.7 1.8 1.8 1.2 1.2 1.3 1.3 1.3
Net Impact on Budget -11.2 -11.7 -12.2 -12.7 -13.2 -13.7 -19.7 -10.2 -10.7 -16.1 -7.7 -7.9 -8.2 -8.4 -17.4
B. VWITH PROJECTBudget Costs 48.8 19.0 11.2 6.7 6.0 4.3 3.8 3.7 2.7 2.6 2.1 1.3 1.3 1.3 1.3 1.3
(5) Payments to Coal lndustiy 10.2
(8) Mine closure & environmental mitigation 4.9 4.2
(79 Mitigation of social impact 3.3 6.1 5.8 4.4 4.0 3.8 3.7 2.7 2.5 2.1 1.3 1.3 1.3 1.3 1.3(8) HWF -unhf. hfee cosl 3 miaA-aCedit 0.8 2.3 24 1.2 11 11 0.8 0.9 1.0 08 0.8 08 0.8 0.6 0.7(9) -disabiliy paymets 2.1 2.1 2.0 1.9 1.8 18 1.7 1.2 1.2 11 0.7 07 0.7 0.7 0.8
(10) *maintnnce & opr6on of social infrsaJctwe 0.7 1.8 1.5 1.3 11 1.0 1.2 0.8 0.4 0.2
(11) Admin. costs for UCC (incl. TA) 0.6 0.9 0.9 0.6 0.3
Budget Revenues 12.2 1.7 1.8 1.8 1.8 1.9 1.9 1.9 1.4 1.5 1.5 1.0 1.0 1.1 1.1 1.1(12) contributionstosocialfunds 1.3 1.3 1.4 1.4 1.4 1.4 1.5 1.1 1.1 1.1 0.8 0.8 0.8 0.8 0.8(13) taxes 0.4 0.4 0.4 0.4 0.5 0.5 0.5 0.3 0.4 0.4 0.2 0.2 0.3 0.3 0.3
Net Impact on Budget -17.3 -9.4 -4.9 -3.2 -2.5 -1.9 -1.8 -1.3 -1.1 -0.6 -0.3 -0.3 -0.2 -0.2 -0.2
C. INCREMENTAL NET IMPACT ON BUDGET 56.5 -6.1 2.2 7.2 9.5 10.7 11.8 17.9 8.9 9.6 16.5 7.4 7.7 7.9 8.2 17.1|
UKRAINE - COAL PILOT PROJECT ANNEX 15ECONOMIC EVALUATION Page 5 of 13
Economic Costs and Benefits (1996 USS million)KRASNYI OCTYABR
(deplbd in 2002)
Present Project Period Post - Project PeriodVa/ue 1996 1997 1998 1999 2000 2001 2002
A. WITHOUT PROJECT (i=10%)
Costs 31.3 5.6 6.7 5.8 5.9 6.1 6.2 11.2(1) Coal production 5.6 5.7 5.8 5.9 6.1 6.2 6.3(2) dwef -supplies &sevices 3.9 4.0 4.1 4.1 4.2 4.3 4.4(3) -wageS 0.9 0o9 0.9 0.9 1.0 1.0 1.0(4) -colcAmning&dfsfibutbon 0.4 0.4 0.4 04 0.4 0.4 0.4(5) -minlen. oper d scial infrasr. 0.4 0.4 0.4 0.4 0.4 0.5 0.5(6) Mine closure 6 mitigation 4.9
Benefits 1C.2 3.2 3.3 3.3 3.4 3.4 3.4 3.6(7) Coal delivered to consumers 3.2 3.3 3.3 3.4 3.4 3.4 3.5
Net Benefits -2.4 -2.5 -2.6 -2.6 -2.7 -2.7 -7.7
B. WITH PROJECT
Costs 29.8 8.1 7.3 6.6 5.2 6.1 5.1 4.8(8) Coal production 3.4
(o) Coal imports 1.3 3.3 3.3 3.4 3.4 3.4 3.5(10) Mine closure & environmental mitigation 2.0 1.8(11) Mitigationofsocialimpact 0.2 0.7 0.7 0.3 0.2 0.2 -0.1(12) twah. *hrdsfwcfminewu*. 0.2 0.1 0.1 0.1 0.1 0.1 0.1(13) -ueecost 0.2 0.2 0.2 0.2 0.2 0.2(14) - mb.crdiis 0.4 0.4 40.06 -0.08 o0.37
(15) Mainten.& oper. of social Infrastructure 0.2 0.4 0.4 0.4 0.4 0.5 0.5(16) Admin. costs fbr UCC (ncl. TA) 0.2 0.3 0.3 0.2 0.1(17) Wages 0.9 0.9 0.9 0.9 1.0 1.0 1.0(18) thdw. -onsd dne wie 0.2 0.2 0.2 0.2 0.2 0.2 0.2(19) -offw .x-&futwe mine walrk 0.7 0.7 0.7 0.8 0.8 0.8 0.8
Benefts 21.7 4.3 4.4 4.4 4.6 4.6 4.6 4.7p0) Coal dlivered to consumers 3.2 3.3 3.3 3.4 3.4 3.4 3.5(21) Valueofoutputfrom re-employed miners 1.1 1.1 1.1 1.1 1.2 1.2 1.2(22 away. -hns,ahre mine * 0.2 0.2 0.2 0.2 0.2 0.2 0.2(23) -h wex-I a uba mine warus 0.9 0.9 0.9 0.9 1.0 1.0 1.0
Net Benefits -3.9 -3.0 -1.2 -0.7 -0.6 40.6 -0.2
C. INCREMENTAL NET BENEFITS I .0 -1.4 4.5 1.3 1.9 2.1 2.3 7.5
Econaic rate of retum 65%
ANNEX 16Page 6 of 13
UKRAINE - COAL PILOT PROJECTECONOMIC EVALUATION
Fiscal Impact (1998 USS million)KRASNYI OCTYABR
(depleted In 2002)
Present Project Period Post - Project PeriodVslue 1996 J197 1998 1999 2000 2001 2002
A. WITHOUT PROJECT (1=10%)Budget Costs 31.2 6.5 6.6 5.7 5.9 6.0 6.2 11.7
(1) Payments to Coal Industry 5.5 5.6 5.7 5.9 6.0 6.2 6.3f2 Mine closure & mitigation 5.4
Budget Revenues 1.6 1.7 1.7 1.7 1.8 1.8 1.8(3) Contributions to social funds 1.0 1.1 1.1 1.1 1.1 1.2 1.2(4) Taxes 0.6 0.6 0.6 0.6 0.6 0.6 0.7
Net Impact on Budget .3.9 -4.0 4.1 -4.2 -4.3 -4.4 -9.9
B. WITH PROJECTBudget Costs 12.9 6.4 3.8 1.9 1.3 1.1 1.0 0.8
(5) Payments to Coal Industry 3.3
(a) Mine closure & environmental mitigation 2.0 1.8
(7) Mitigation of social impact 0.9 1.7 1.6 1.1 1.0 1.0 0.8(8) wof. -bans(wss. ha o60/ w mnico-cadit 0.2 0.7 0.7 0.3 0.2 0.2 0.1(9) -disability pyenfts 0.6 0.6 0.5 0.5 0.5 0.5 0.5
(10) -mainunance&opwutionofsocial infresfuctem 0.2 0.4 0.4 0.3 0.3 0.3 0.4(ii) Admin. costs for UCC (incl. TA) 0.2 0.3 0.3 0.2 0.1
Budget Revenues | 2-.5| 0.5 0.5 0.6 0.5 0.5 0.6 0.5(12) contributions to social funds 0.4 0.4 0.4 0.4 0.4 0.4 0.4(13) taxes 0.1 0.1 0.1 0.1 0.1 0.1 0.1
Net Impact on Budget -6.0 3.3 41.4 40.8 40.6 40.4 40.3
C. INCREMENTAL NET IMPACT ON BUDGET |12 .2.1 0.7 2.7 3.3 3.7 3.9 9.7
UKRAINE - COAL PILOT PROJECT ANNEX 16ECONOMIC EVALUATION Page 7 of 13
Costs of Local Coal Production vs. Imports (in financial 1996 terms)KRASNYI OCTYABR
actual projected1995 1996 1997 1998 1999 2000 2001 2002
A. Local Coalworkers no. 1470 1470 1470 1470 1470 1470 1470 1470raw coal sold kt 92 91 89 88 86 85 84 82free coal to workers kt I5 5 5 5 5 5 55 5raw coal produced (geology worsens) |1.5% kt 7 96 94 93 91 90 89 87base operating costs S/t 76recurring investments S/t 3.8social infrastructure mainten. & oper. Snt 4.1sub-total Sit 83.9ex-mine costs (input prices increase) |2.0%1 MS 8.1 8.3 8.5 8.6 8.8 9.0 9.2 9.4
thereof supplies MS 3.8 3.9 4 0 4.1 4.1 4.2 4.3 4.4wages MS 1.7 1.8 1.8 1.9 1.9 19 20 2.0contnb. tosocialfunds MS 1.0 1.0 111 11 1.1 11 1t 2 1.2disability payments MS 0.6 0.6 0.6 0.6 0.6 0.6 0.6 0.7social infrastnrctuce costs MS 0.4 0.4 0o4 0.4 0.4 0o4 0.5 0.5taxes MS 0.6 0.6 0.6 0.6 0.6 0.6 0.6 0.7
raw coal ash content % |31%|raw coal calorific value GJtt 19.7transport fixed charge st 2.5 2.6 2.6 2.7 2.7 2.8 2.8 2.8transport variable charge cUtkm t!BA 1.8 1.9 1.9 1.9 2.0 2.0 2.0transport distance raw coal km 20costrawcoalintocleaningplant S/t 91.4 94.6 98.0 101.6 105.2 109.0 112.8 116.8cleaning cost Stt 1.6 1.6 1.7 1.7 1.7 1.8 1.8 1.8clean coal ash content % 19Xlclean coal calorific value GJA 23.7clean coal recovery % 86%clean coal shipped tonnage id 79 78 77 75 74 73 72 71
energy PJ 1.9 1.8 1.8 1.8 1.8 1.7 1.7 1.7costcleanedcoal SVI 108.1 111.9 115.9 120.1 124.3 128.8 133.3 138.0transport distance cleaned coal km [5 |costoflocalcoalatconsumer Sit 111.5 115.4 119.5 123.7 128.0 132.5 137.1 141.8
YIGJ 4.7 4.9 5.0 5.2 5.4 5.6 5.8 6.0MS 8.6 | 8.7 8.9 9.1 9.2 9A 9.6 9.8
B. Imocrted Coalquantity tonnage kt 75 74 72 71 70 69 68
energy PJ 1.8 1.8 1.8 1.8 1.7 1.7 1.7ash content % [16calorific value GJnt 24.7present border price Sit 36after border price increase |3.0% l St 37.1 38.2 39.3 40.5 41.7 43.0 44.3costs of import at border MS 2.8 2.8 2.8 2.9 2.9 3.0 3.0inland transport distance km [ 2I00]inband transport costs MS 0.5 0.5 0.5 0.5 0.5 0.5 0.5cost of imported coal at consumer S/GJ 1.7 1.8 1.8 1.9 2.0 2.0 2.1
MS 3.2 3.3 3.3 3A 3A 3A 3.5
| no-.| key input data
UKRAINE - COAL PILOT PROJECT ANNEX 15ECONOMIC EVALUATION Page 8 d 13
Economic Costs and Benefits (1996 USS million)PRAVDA
Ideplad In 2010)
Present Project Period Post - Project Periodvalue 1996 1997 1998 99 2000 2001 2002 2003 2 0 2005 2007 2008 20L 2010
A. WITHOUT PROJECT (i-1O%)
Costs 84.3 9.9 10.0 10.2 10.4 10.6 10.8 11.0 11.2 11.4 11.6 11.8 12.0 12.2 12.4 20.0('i Coalproduction 9.9 10.0 10.2 10.4 10.6 10.8 11.0 11.2 11.4 11.6 11.8 12.0 12.2 12.4 12.6(2) H:mo. -suppeies 6 vices 6.6 6.7 6.9 7.0 7.2 7.3 7.4 7.6 7.7 7.9 8.1 8.2 8.4 8.5 8.7(3- wwages 1.5 1.6 1.8 1.6 1.7 1.7 1.7 1.8 1.8 1.8 1.9 1.9 1.9 2.0 2.0(4) - cod cdening 6 dishibution 0.9 0.9 0.9 0.9 0.9 0.8 0.8 0.8 0.8 0.8 0.8 0.8 0.8 0.8 0.7(5) -manen.6Apwr.dosocialinrmsr. 0.9 0.9 0.9 0.9 0.9 0.9 1.0 1.0 1.0 1.0 1.0 1.1 1.1 1.1 1.1(6) Mine closure & mitigation 7.4
Benefits 53.3 6.8 6.8 6.9 6.9 7.0 7.0 7.0 7.1 7.1 7.1 7.2 7.2 7.2 7.3 7.3(7) Coal delered to consumers 6.8 6.8 6.9 6.9 7.0 7.0 7.0 7.1 7.1 7.1 7.2 7.2 7.2 7.3 7.3
Net Benefib -3.1 -3.2 -3.3 -3.5 -3.6 -3.8 3.9 .4.1 -4.2 -4.4 -4.6 -4.8 6.0 C.1 -12.7
B. WITH PROJECT
Costs F 83.0 1 12.8 12.1 10.6 10.2 10.1 10.1 10.2 10.3 10.4 10.5 10.6 10.7 10.9 11.0 11.1(e) Coal production 5.9(9) Coal imports 2.7 6.8 6.9 6.9 7.0 7.0 7.0 7.1 7.1 7.1 7.2 7.2 7.2 7.3 7.3
(10) Mine closure & environmental mitigation 1.9 1.6(11) Mitigation of social impact 0.2 0.9 0.9 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.6 0.6 0.6 0.6 0.7(12y med: -FensAfrdmmneworen 0.2 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1(13) -freecoul 0.4 0.4 0.4 0.4 0.4 0.4 0.5 0.5 0.5 0.5 0.5 0.5 0.6 0.8(14) -miaawud its 0.4 0.4 4.08 40.06 40.06 40.06 40.06 .0.08 40.06 -0.08 40.06 -0.08(15) Mainten.& oper.ofsocial infrastructure 0.3 0.9 0.9 0.9 0.9 0.9 1.0 1.0 1.0 1.0 1.0 1.1 1.1 1.1 1.1(1e) Admin. cots for UCC (imd. TA) 0.2 0.3 0.3 0.2 0.1(17) Wages 1.5 1.6 1.6 1.6 1.7 1.7 1.7 1.8 1.5 1.8 1.9 1.9 1.9 2.0 2.0(18) bhro -bunsafwd mine wlrkwa 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2(19) -otw S-£awhmnminewoers 1.4 1.4 1.4 1.5 1.5 1.5 1.6 1.6 1.8 1.7 1.7 1.7 1.8 1.8 1.8
6enerits 69.2 1 8.7 8.8 8.8 8.9 9.0 9.1 9.2 9.2 9.3 9.4 9.5 9.6 9.6 9.7 9.8(20) Coal delivred to consumers 6.8 6.8 6.9 6.9 7.0 7.0 7.0 7.1 7.1 7.1 7.2 7.2 7.2 7.3 7.3(21) Valueofoutputfrom re-employed miners 1.9 1.9 2.0 2.0 2.0 2.1 2.1 2.2 2.2 2.3 2.3 2.3 2.4 2.4 2.5(22) Ysrd: - rnstnad mine workers 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2(23) -ott erx-£futumminewowiers 1.7 1.8 1.8 1.8 1.9 1.9 1.9 2.0 2.0 2.1 2.1 2.1 2.2 2.2 2.3
Net Benefits 4.1 -3.3 -1.7 -1.3 -1.1 -1.0 -1.1 1 -1.1 -1.2 -1.2 -1.2 -1.2 -1.3 -1.4
C. INCREMENTAL NET BENEFITS 173 -1.1 -0.1 1.6 2.2 2.5 2.7 2.8 3.0 3.1 3.3 3.4 3.6 3.7 3.9 11.3
Economic rate of retum 93%
UKRAINE - COAL PILOT PROJECT ANNEX 15ECONOMIC EVALUATION Page 9 of 13
Fiscal Impact (1996 USS million)PRAVDA
(depleted In 2010)
Present Project Period Post - Project PeriodValue 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
A. WTHOUT PROJECT (i=10%)
BudgetCosts 76.7 8.4 8.7 8.9 9.2 9.4 9.7 9.9 10.2 10.5 10.8 11.1 11.4 11.7 12.1 21.1
(1) Payments to Coal Industry 8.4 8.7 8.9 9.2 9.4 9.7 9.9 10.2 10.5 10.8 11.1 11.4 11.7 12.1 12.4
(2) Mine closure & mitigation 8.7
Budget Revenues 23.8 2.8 2.9 2.9 3.0 3.0 3.1 3.2 3.2 3.3 3.4 3.4 3.5 3.6 3.6 3.7
(3) Contributions to social funds 1.8 1.8 1.9 1.9 2.0 2.0 2.0 2.1 2.1 2.2 2.2 2.2 2.3 2.3 2.4
(4) Taxes 1.0 1.0 1.0 1.1 1.1 1.1 1.1 1.2 1.2 1.2 1.2 1.2 1.3 1.3 1.3
Net Impact on Budget -5.6 -5.8 -6.0 4.2 -6.4 4.6 46.8 -7.0 -7.2 -7.5 -7.7 -7.9 -8.2 -8.4 -17.4
B. VWTH PROJECT
Budget Costs r 22.6 8.7 4.7 2.9 2.3 2.1 1.9 1.7 1.6 1.5 1.4 1.3 1.3 1.3 1.3 1.3
(5) Payments to Coal Industry 5.0
(6) Mine closure & environmental mitigation 1.9 1.6
(7) Mitigation of social impact 1.6 2.8 2.6 2.1 2.0 1.9 1.7 1.6 1.5 1.4 1.3 1.3 1.3 1.3 1.3(8) thereof - transfers, fee coal & micro-credit 0.2 0.9 0.9 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.6 06 0.6 0.6 0.7(9) -disability payments 1.0 1.0 09 09 0.9 0.9 0.8 0.8 0.8 08 0.7 0.7 0.7 0.7 0.6
(10) - maintenance & operation of social infrastructure 0.3 0.9 0.8 0.7 0.6 0.5 0.4 0.3 0.2 01
p 1) Admin. costs for UCC (incl. TA) 0.2 0.3 0.3 0.2 0.1
Budget Revenues | 7.1 | 0.8 0.8 0.9 0.9 0.9 0.9 0.9 1.0 1.0 1.0 1.0 1.0 1.1 1.1 1.1
(12) contrbutions to social funds 0.6 0.6 0.7 0.7 0.7 0.7 0.7 0.7 0.7 0.8 0.8 0.8 0.8 0.8 0.8
(13) taxes 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.3 0.3 0.3
Net Impact on Budget -7.9 -3.8 -2.1 -1.4 -1.2 -0.9 -0.8 -0.7 -0.6 -0.4 -0.3 -0.3 -0.2 -0.2 -0.2
C. INCREMENTAL NET IMPACT ON BUDGET 37.3 -2.3 1.9 3.9 4.7 5.2 5.6 6.0 6.3 6.7 7.0 7.4 7.7 7.9 8.2 17.1
UKRAINE -COAL PILOT PROJECT ANNEX 15ECONOMIC EVALUATION Page 10 of 13
Costs of Local Coal Production vs. Imports (in financial 1996 terms)PRAVDA
actual projected1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
A. Local Coalworkers no. 1800 1800 1800 1800 1800 1800 1800 1800 1800 1800 1800 1800 1800 1800 1800 1800raw coal sold kt 197 193 189 185 181 177 173 169 166 162 159 155 152 149 145 142freecoaltoworkers kt 1296| 13 13 13 13 13 13 13 13 13 13 13 13 13 13 13rawcoalproduced(geologyworsens) |2.0%| kt 210| 206 202 198 194 190 186 182 179 175 172 168 165 161 158 155base operating costs St 60|recurring investments S/t 3.0social infrastructure mainten. & oper. S/t 4.0sub-total Sh 67.0ex-minecosts(inputpricesincrease) |2.0% | M$ 14.1 14.4 14.6 14.9 15.2 15.5 15.8 16.2 16.5 16.8 17.2 17.5 17.8 18.2 18.6 18.9
thereof: supplies & services MS 65 66 67 69 70 72 73 74 76 77 79 81 82 8.4 8.5 8.7
waegs MS 30 31 31 32 33 33 34 35 35 36 37 3.7 38 3.9 4.0 4.1
contnb. to social funds MS 18 18 18 19 19 20 20 20 21 21 22 2.2 22 23 23 24
disabilitypayments MS 10 10 1.0 10 11 11 11 11 12 12 12 12 12 13 13 1.3
social nfrastnrcture costs MS 08 09 09 09 09 09 09 10 10 10 10 10 11 11 11 11
taxes MS 10 10 10 10 11 11 11 11 12 12 12 12 12 13 13 1.3
raw coal ash content % 32%raw coal calorific value GJIt 19.4transport fixed charge $S1 2.5 2.6 2.6 2.7 2.7 2.8 2.8 2.8 2.8 2.8 2.8 2.8 2.8 2.8 2.8 2.8transport variable charge Ct/tkm 1.8 1.8 1.9 1.9 1.9 2.0 2.0 2.0 2.0 2.0 2.0 2.0 2.0 2.0 2.0 2.0transport distance raw coal km 15cost raw coal into cleaning plant S/t 74.2 77.2 80.4 83.8 87.3 90.9 94.6 98.5 102.5 106.8 111.2 115.8 120.6 125.6 130.8 136.3cleaning cost S/t E16l 1.6 1.7 1.7 1.7 1.8 1.8 1.8 1.9 1.9 2.0 2.0 2.0 2.1 2.1 2.2clean coal ash content % 19%clean coal calorific value GJRt 23.7clean coal recovery % 85%clean coa tonnage kt 167 164 160 157 154 150 147 144 141 138 135 132 129 126 124 121
energy PJ 4.0 3.9 3.8 3.7 3.6 3.6 3.5 3.4 3.3 3.3 3.2 3.1 3.1 3.0 2.9 2.9costcleanedcoal SRt 89.1 92.8 96.6 100.6 104.7 109.0 113.4 118.0 122.8 127.9 133.1 138.6 144.3 150.2 156.4 162.9transport distance cleaned coal km |costoflocalcoalatconsumer sR 92.5 96.3 100.1 104.2 108.4 112.8 117.2 121.8 126.6 131.6 136.9 142.3 148.0 153.9 160.1 166.6
S/GJ 3.9 4.1 4.2 4.4 4.6 4.7 4.9 5.1 5.3 5.5 5.8 6.0 6.2 6.5 6.7 7.0MS 14.9 15.2 15.5 15.8 16.1 16.4 16.7 17.0 17.3 17.6 17.9 18.3 18.6 19.0 19.3 19.7
B. Imported Coalquantity tonnage kt 157 154 151 147 144 141 138 135 132 129 127 124 121 119 116
energy PJ 3.9 3.8 3.7 3.6 3.6 3.5 3.4 3.3 3.3 3.2 3.1 3.1 3.0 2.9 2.9ash content % [6%calorific value GJ/t 2.7
present border price SRt 36after border price increase | 3.0% |SR 37.1 38.2 39.3 40.5 41.7 43.0 44.3 45.6 47.0 48.4 49.8 51.3 52.9 54.5 56.1costs of import at border MS 5.8 5.9 5.9 6.0 6.0 6.1 6.1 6.2 6.2 6.3 6.3 6.4 6.4 6.5 6.5inland transport distance km | 200|inland transport costs MS 1.0 1.0 1.0 1.0 1.0 1.0 0.9 0.9 0.9 0.9 0.9 0.8 0.8 0.8 0.8cost of Imported coal at consumer S/GJ 1.7 1.8 1.8 1.9 2.0 2.0 2.1 2.1 2.2 2.2 2.3 2.3 2.4 2.5 2.5
MS | 6.8 6.8 6.9 6.9 7.0 7.0 7.0 7.1 7.1 7.1 7.2 7.2 7.2 7.3 7.3
|no. key input data
UKRAINE - COAL PILOT PROJECT ANNEX 15ECONOMIC EVALUATION Page 11 of 13
Economic Costs and Benefits (1996 US$ million)REMOVSKAYA
(depletd In 2005)
Present Project Period Post - Project PeriodValue 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
A. WITHOUT PROJECT (=-10%)
Costs 34.8 5.1 5.2 5.3 5.3 5.4 5.5 5.6 5.6 6.7 10.2(I) Coal production 5.1 5.2 5.3 5.3 5.4 5.5 5.5 5.6 5.7 5.8(2) thereo: supplies 6 servces 3.3 3.4 3.5 3.5 3.6 3.7 3.8 3.8 3.9 4.0(3) . wages 0.8 0.8 0.8 0.8 0.8 0.8 0.9 0.9 0.9 0.9(4) -cool cbening bdis5ribution 0.7 0.7 0.7 0.e 0. 0.6 0.8 0.5 0.5 0.5(5) -mainten.6oper. of social infrssfr. 0.3 0.3 0.4 0.4 0.4 0.4 0.4 0.4 0.4 0.4(6) Mine closure & mitigation 4.4
Benefits 25.9 4.7 4.6 4.4 4.3 4.2 4.1 3.9 3.8 3.7 3.6M Coal delivered to consumers 4.7 4.6 4.4 4.3 4.2 4.1 3.9 3.8 3.7 3.6
Net Benefits 40.5 40.6 40.8 -1.0 -1.2 -1.4 -1.6 -1.8 -2.0 -6.6
B. WITH PROJECT
Costs 38.5 7.2 7.6 6.7 6.1 5.8 5.7 5.6 5.5 5.4 5.1(8) Coal production 3.1(9) Coal imports 1.9 4.6 4.4 4.3 4.2 4.1 3.9 3.8 3.7 3.6
(10) Mine closure & environmental mitigation 1.0 0.8(11) Mitigation of social impact 0.2 0.8 0.8 0.4 0.4 0.4 0.4 0.4 0.4 0.2(12) tha,of -bunsafrwofmineworkers 0.2 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1(13) - fee coal 0.3 0.3 0.3 0.3 0.3 0.4 0.4 0.4 0.4(14) -micr-credits 0.4 0.4 .0.08 -0.06 40.06 40.06 -0.08 -0.26(15) Mainten.& oper. of social infrastructure 0.1 0.3 0.4 0.4 0.4 0.4 0.4 0.4 0.4 0.4(16) Admin. costs for UCC (incl. TA) 0.2 0.3 0.3 0.2 0.1(179 Wages 0.8 0.8 0.8 0.8 0.8 0.8 0.9 0.9 0.9 0.9(18) tiweof -bansferfed mine workes 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.4 0.4(19) -otherex-&futuremine workers 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5
Benefits 531.7 .6 6.4 5.3 5.2 5.1 5.0 4.9 4.8 4.7 4.6(20) Coal delivered to consumers 4.7 4.6 4.4 4.3 4.2 4.1 3.9 3.8 3.7 3.6(21) Value of output from re-employed miners 0.9 0.9 0.9 0.9 0.9 1.0 1.0 1.0 1.0 1.0(22) thweof - ansfemed mine workers 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.4 0.4(23) -other ex-Sfuture mine workers 0.6 0.6 0.6 0.e 0.6 0.6 0.6 0.7 0.7 0.7
Net Benefits -1.7 -2.1 -1.4 -0.9 -0.7 -0.6 -0.6 -0.7 -0.7 -0.5
C. INCREMENTAL NET BENEFITS -1.2 -1.5 -0.5 0.2 0.6 0.8 1.0 1.1 1.3 6.1
Economic rate of return 20%
ANNEX 15Page 12 of 13
ECONOMIC EVALUATION
Fiscal Impact (1996 US$ million)REMOVSKAYA
(depleted In 2005)
Pnesent Project Period Post - Project PeriodValue 1996 1997 1998 1999 2000 2001 2002 2003 2004 2006
A. VWTHOUT PROJECT (rI10%)
Budget Costs F 26.5| 3.1 3.3 3.6 3.8 4.1 4.3 4.6 4.8 5.1 10.3
(1) Payments to Coal Industry 3.1 3.3 3.6 3.8 4.1 4.3 4.6 4.8 5.1 5.3
y2) Mine closure & mitigation 5.0
Budget Revenues | 9.2 | 1.4 1.4 1.4 1.5 1.5 1.5 1.6 1.6 1.6 1.7
(3) Contributions to social funds 0.9 0.9 0.9 0.9 1.0 1.0 1.0 1.0 1.0 1.1
(4) Taxes 0.5 0.5 0.5 0.5 0.5 0.5 0.6 0.6 0.6 0.6
Net Impact on Budget -1.7 -1.9 -2.1 -2.4 -2.6 -2.8 -3.0 3.2 -3.6 -8.7
B. WITH PROJECT
Budget Costs |113 3.9 2.7 1.9 1.3 1.1 1.0 1.2 1.1 1.0 0.7
(5) Payments to Coal Industry 1.8
(a) Mine closure & environmental mItigation 1.0 0.8
(72 Mitigation of social impact 0.8 1.6 1.6 1.1 1.0 1.0 1.2 1.1 1.0 0.7(0) d:wea - bnsAw. he coal 3 miacreo.dif 0.2 0.8 0.8 0.4 0.4 0.4 0.4 0.4 0.4 0.2(9) - disabilify paymets 0.5 0.5 0.5 0.4 0.4 0.4 0.4 0.4 0.4 0.4
(10) -mainMnce & opefatin d social in6fshctue 0.1 0.3 0.3 0.3 0.2 0.2 0.4 0.3 0.2 0.1
(ii) Admin. costs fbr UCC (ncl. TA) 0.2 0.3 0.3 0.2 0.1
BudgetRevenues 2.7 0.4 0.4 0.4 0.4 0.4 0.5 0.5 0.5 0.5 0.5
(y2) contributions to social funds 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.4 0.4 0.4
(13) taxes 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1
Net Impact on Budget -3.5 -2.3 -1.5 0.9 S 0.7 -0.6 -0.7 -0.6 -0.5 -0.2
C. INCREMENTAL NET IMPACT ON BUDGET -1.8 -0.4 0.7 1.4 1.9 2.2 2.3 2.6 2.9 8.4
UKRAINE - COAL PILOT PROJECT ANNEX 15ECONOMIC EVALUATION Page 13 of 13
Costs of Local Coal Production vs. Imports (in financial 1996 terms)REMOVSKAYA
actual projected1995 1996 1997 1996 1999 2000 2001 2002 2003 2004 2005
A. Local Coalworkers no. | 1420 1 1420 1420 1420 1420 1420 1420 1420 1420 1420 1420raw coal sold kt 181 171 162 153 145 137 129 122 115 109 102free coal to workers kt 15 15 15 15 15 15 15 15 15 15 15rawcoalproduced(geologyworsens) F5.% A kt 196 186 177 168 160 152 144 137 130 124 117base operating costs S/t 32recurfing investments SR/ 1.6social infrastructure mainten. & oper. S/t 1.7sub-total SRt 35.3ex-mine costs (input prices increase) |2.0% MS 6.9 7.1 7.2 7.3 7.5 7.6 7.8 7.9 8.1 8.3 8.4
therof: supplies MS 3.3 3.3 3.4 3.5 3.5 3.6 3.7 3.8 3.8 3.9 4.0wges MS 1.5 1.5 1.5 1.6 1.6 1.6 1.7 17 1.7 1.8 18contrib. tosocialfunds MS 0.9 0.9 0.9 0.9 0.9 10 1.0 1.0 1.0 1.0 1.1disabilty payments MS 0.5 0.5 0.5 0.5 05 05 0.5 06 06 0.6 0.6social infrastructure costs MS 0.3 0.3 0.3 0.4 0.4 0.4 0.4 0.4 0.4 0.4 0.4taxes MS 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.6 0.6 0.6 0.6
raw coal ash content % |51%raw coal calorific value GJA 13.0transport fixed charge S 2.5 2.6 2.6 2.7 2.7 2.8 2.8 2.8 2.8 2.8 2.8transport variable charge ctRkm 1.8M 1.8 1.9 1.9 1.9 2.0 2.0 2.0 2.0 2.0 2.0transport distance raw coal km 0cost raw coal into cleaning plant S/t 40.7 43.8 47.0 50.6 54.5 58.6 63.1 67.9 73.2 78.9 85.1cleaningcost Sll ETCj 1.6 1.7 1.7 1.7 1.8 1.8 1.8 1.9 1.9 2.0clean coal ash content % 19Xclean coal calorific value GJA 23.7clean coal recovery % 66%clean coal shipped tonnage kt 119 113 107 101 95 90 85 80 76 72 68
energy PJ 2.8 2.7 2.5 2.4 2.3 2.1 2.0 1.9 1.8 1.7 1.6costcleanedcoal SR 64.1 68.8 73.8 79.2 85.1 91.5 98.3 105.7 113.7 122.5 131.9transport distance cleaned coal km 0cost of local coal at consumer SA 67.5 72.2 77.3 82.9 88.8 95.3 102.1 109.5 117.5 126.2 135.7
S/GJ 2.8 3.0 3.3 3.5 3.7 4.0 4.3 4.6 4.9 5.3 5.7M$ 7.7 | 7.8 7.9 8.0 8.1 8.3 8A 8.5 8.6 8.8 8.9
B. Imported Coalquantity tonnage kt 108 103 97 92 87 82 77 73 69 65
energy PJ 2.7 2.5 2.4 2.3 2.1 2.0 1.9 1.8 1.7 1.6ash content % 16%calorific value GJ/t 5present border price S't 36after border price increase |3.0% | S/t 37.1 38.2 39.3 40.5 41.7 43.0 44.3 45.6 47.0 48.4costs of import at border MS 4.0 3.9 3.8 3.7 3.6 3.5 3.4 3.3 3.2 3.1inland transport distance km 200inland transport costs MS 0.7 0.6 0.6 0.6 0.6 0.6 0.5 0.5 0.5 0.4cost of Imported coal at consumer S/GJ 1.7 1.8 1.8 1.9 2.0 2.0 2.1 2.1 2.2 2.2
MS 4.7 4.6 4.4 4.3 4.2 4.1 3.9 3.8 3.7 3.6
|-no. key input data
UkraineCoal Pilot Project
|World Bank|
,@E
UkraineMCIMOF implementation Oblast
Agreement
c,2/ \\ ~Project I
Poj ect City 2
Grant Agreement (GA): UDKR - Donetsk Oblast - Project City 1UDKR - Donetsk Oblast - Project City 2UDKR - Donetsk Oblast - Project City 3
UKRAINE COAL PILOT PROJECT
Role of UDKR, Donetsk Oblast and Municipalities
<~~ Di~sbursement
- Technical/Physical - DivestitureClosure of Social Assets
- Labor Component Special Account
- Technical Assistance / O3Special Account
tJkrainian State Companyfor Restructuring Coal
Industry Enterprises (UDKR)
Municipal Administrations
n\annas\ukrcoal\flow .ppt
ANNEX 17
Page 1 of 6
UKRAINECOAL PILOT PROJECT
Terms of ReferenceSocial Impact Monitoring and Evaluation of Coal Pilot Project
1. Background: The following draft terms of reference on scope of work for the design andimplementation of a social impact monitoring program shall be reviewed and revised as necessary bya designated Government of Ukraine Monitoring and Evaluation (M&E) team or staff members. Dueto its important administrative role in the social mitigation program of the pilot project, the UkrainianState Company for Restructuring Coal Industry Enterprises (UDKR) will assume the majorresponsibility for the social monitoring program, in close consultation with the Bank and otherUkrainian specialists. Periodic social assessment research and participatory discussions andworkshops with the mining communities during the course of the project will build upon theinformation based collected by the UDKR. The technical assistance anticipated from the UK Know-How Fund to build capacity at the UDKR will focus, among other things, on a detailed manual of"operations and procedures" which will guide the UDKR's role in the social monitoring program.
2. The small, pilot nature of the Bank's first investment in Ukraine's ongoing coal restructuringeffort offers a valuable opportunity to learn first hand about the direct and indirect social impacts ofmine closures, as well as the effectiveness of various social protection measures, social assettransfers, and employment-creation measures. The social monitoring and evaluation of the pilotmines will help guide the design and implementation of the Government's restructuring program andhelp to shape Bank assistance to the sector (i.e. a larger investment project and sector adjustmentloan).
3. Obiectives: The general objectives the Pilot Project's social impact monitoring program aremultiple: (i) to ensure that workers are informed of the mine closure schedule and their rights toinformation, consultation, benefits, and options on a timely basis per existing regulations or law; (ii)to ensure that individual and household benefits under Ukraine law are distributed on time to alleligible workers under the project by various responsible line agencies; (iii) with the transfer of socialassets from the mines to the municipal governments, to ensure the delivery of services to eligibleworkers and their families, including free coal subsidy, housing, education, health, etc; (iv) to ensurethat full assistance through public information, job counselling, and retraining is offered to interested,redundant workers regarding new employment possibilities (i.e. in adjacent mines, in private firms, inmicroenterprise, or public works; (v) to document the process of affected party consultation andparticipation in decision-making about options and outcomes of the intended social mitigation plan atthe mines; (vi) to establish a functional mechanism for handling any grievances in the program,possibly through a Petitions Department at UDKR; (vii) to identify constraints in quality andfunctioning of the elements in the system and make necessary changes; (viii) to build up capacity inthe UDKR as an institution that can administer, coordinate, and monitor benefits and service deliveryto affected workers under the project; (ix) to evaluate the actual social impacts of restructuringthrough the Mine Closure Plans and compare them to the relative impacts of non-Bank assisted coaland other sector reform programs ongoing in Ukraine.
ANNEX 17
Page 2 of 6
4. Social Protection Plan: An important component of the Pilot Project's social mitigationprogram relies on the Ukrainian legal social protection system. For specific monitoring of its variousbenefits, it was agreed that the Ministry of Coal Industry and/or the Project Steering Committeewould intervene if necessary to ensure the monthly flow of records from appropriate line agencies toUDKR. The designated M&E staff or team of UDKR will assume the responsibility of confirmingeligibility, information collection and management, and systematic communication of socialmonitoring information to the Bank team. For the first 4 months of the project, to ensure that thebasic social safety benefits are being delivered on time to all those eligible, information should becollected and communicated to the GOU-Bank team every month. If the system is functioning wellafter the first 4 month period, quarterly monitoring can resume. As an example, the followinginformation on social safety protection will be documented and sent by the responsible institution tothe UDKR, and conveyed to the GOU-Bank project team:
(i) Severance payments: UDKR will be the "temporary" employer of the three pilotmines at closure, and is responsible for directly delivering the one-time severancepayment of 3 months average salary to each worker at the time of redundancy.Workers who are transferred to other mines do not qualify.
(ii) Pensions: The local branches of the Ministry of Social Protection provide monthlypension payments. The Ministry branch offices will provide monthly accounts ofbeneficiaries to UDKR.
(iii) Disability: These benefits are paid by two sources. The local Ministry of SocialProtection is responsible for payments and records to UDKR on those eligible fromgenetic or non-work related disabilities. The Mining Associations were previouslyresponsible for disability transfers to those injured on the job. This responsibility willnow be transferred to UDKR. The source of revenue for this benefit, formerly raisedby coal production at the mine, will need to be derived by neighboring, open mines inthe Association or by an alternative source.
(iv) Unemployment: The local Employment Fund office is responsible for theadministration and distribution of funds to those eligible for unemployment benefitsafter the 3rd month of severance is completed (and for as long as a year or more).This office will provide monthly records to UDKR to monitor payments to eligible,redundant workers. Pensioners in the mining sector do not qualify.
5. Coal Subsidy and Employment Creation: A second major component of the Pilot's mitigationprogram that requires social monitoring involves Bank financing of free coal subsidies to eligibleredundant workers and households, and investment in employment creation options, including: i)reemployment support; ii) microcredit fund; and iii) public works program. Responsibility forquarterly coal purchase and distribution to eligible households lies with the UDKR. Monitoring ofthis benefit will be undertaken by the Ministry of Coal and the Bank. UDKR will receive funds forthe administration and monitoring of the reemployment support program, which involves benefits of$600 in installments to private employers that hire and sustain the employment of ex-mine workers,or benefits of $600 directly to those mine workers who can prove they have initiated their own privatebusiness. In the case of the private employer, funds of $300 will be paid 3 or 6 months after payroll
ANNEX 17
Page 3 of 6
records and field verification prove employment is valid; the second $300 installment will follow at12 months. For the self-employed, a 3-month record, supported by field verification, of successfulself-employment will justify the $600 payment. Administration, supervision and monitoring of themicrocredit funds to individuals will be undertaken by the selected financial intermediary. Fullinformation about availability, criteria, applicants, types of businesses, needs for technical assistance,repayment records, program constraints, and success cases will be collected for UDKR and the Bank.The small public works program will be administered by each municipality. Criteria and proposalsfor job creation in environmental amelioration and for the equitable selection of ex-mine workers willneed to be transparent and sensitive to gender equality. In collaboration with municipal officials, theUDKR will monitor the employment records, productivity, and sustainability of activities.
6. Social Assets and Services: A third component to be monitored involves the transfer of socialassets and services from the mining enterprise to the municipal governments. The assets will beimmediately owned by the municipality at the time the mines designated for closure are transferred toUDKR. The municipality will work closely with the UDKR to ensure the smooth acquisition ofassets such as housing and kindergartens, and to ensure the timely delivery of services to individuals,households, and community.
7. Technical Services: The fourth component involves specific technical service activities whichhave been identified as essential to support the project's social objectives. These include: (i) periodicsocial assessments which help generate and inform monitorable indicators; (ii) local participationprograms with stakeholders, especially affected workers, mine management, and municipalities; and(iii) a public information program at local, regional and national levels. Finally, the quality andreliability of the social monitoring program itself should, if possible, be annually monitored by anoutside Ukrainian research institution with no prior affiliation to the project.
8. Preliminary Monitoring Indicators: Indicators will be further defined and modified during theongoing process of social assessment and participation by affected parties in the mining communitiesand other stakeholders. Where appropriate, all monitoring should include gender disaggregations.Measurements on the effectiveness of implementation will need to be taken at appropriate levels ofindividuals, households/families, communities, or regions. The following is a preliminary list ofindicators. The indicators are either linked closely, or related to, the variety of social mitigationmeasures under the Pilot Project.
o access to timely information on mine closures, redundancy, and worker employmentand other alternative income options (project and non-project supported);
o access to adequate, timely compensation by social protection plan per existing laws(severance, disability, pension, unemployment benefits);
o access to mechanism for grievance and/or legal recourse;
o adequacy of cooperation and support from line agencies at local, regional, nationallevels;
ANNEX 17
Page 4 of 6
o access to employment information, job counselling, training/retraining, andtransportation support;
o access to availability and support ($600) for reemployment with private firm or self-employment opportunity;
o access to information, technical guidance, financial support (up to $5000), andsupervision for microcredit;
o access to information and availability of municipal public works jobs in environmentalamelioration (or other sector);
o timely receipt of payment transfers to municipal governments to support acquisitionand management of new social assets and services;
o access to and affordability of basic social services before and after transfer tomunicipalities, including: housing and communal services; sport and cultural facilities;health/profilactoria; kindergartens;
o availability and timeliness of quarterly delivery of coal subsidies by municipalities tothose eligible;
o ability to restore level of individual and household income, and maintain standards ofliving re: housing, utilities, and services after mine closures;
o numbers of redundant workers re-employed, income levels pre and post closure,service level changes, attitudes;
o numbers of redundant workers remaining unemployed, income levels pre and postclosure, attitudes, coping strategies;
o impacts of mine closures on individual, family, community health, and environmentalhealth (physical, accident, psychological);
o impacts of mine closures on mine and non-mine businesses, new business startups andexpansions, retraining rates, credit access;
o utility and adequacy of periodic social assessments to support project objectives, andinform mid-course adjustments;
o efficacy and representativeness of local participation program, including participationpanels/committees as mechanisms for project decision-making and M&E;
o utility of public information program to generate constituency support for projectimplementation.
ANNEX 17
Page 5 of 6
9. Methodology: There will be a variety of inputs from primary and secondary research, andparticipatory processes, that will inform the social impact monitoring effort. Ukrainian studies andothers conducted by a variety of local institutions will be gathered, analyzed and built upon. Ascurrently planned, the next phase of the joint GOU-Bank social assessment will entail rapid multi-disciplinary appraisals of social conditions at each pilot mining community. This qualitative workwill guide the design of a statistical household survey which will be conducted this summer toestablish baseline date for future monitoring at each mining community. A related study will entaillongitudinal, in-depth case interviews of vulnerable groups and other affected workers who have bothvoluntarily departed and who have been made redundant by the pilot mine closures. Theseindividuals will be tracked and interviewed every 6 months for 3 years. Another component of theanalysis will involve matching pairs, to compare project-affected mine workers with those who havedeparted voluntarily with no special mitigation package and those who continue to work atneighboring mines. Comparisons across the different mining communities will be important tohighlight contextual differences and adequacy of social mitigation responses. Data sets will bedisaggregated by gender based on indications that women workers, and possibly their children, maybe among the most vulnerable of those affected by the mine closures. The participatory workshopsand participation panels at each mine will provide valuable, systematic grass roots information onproject design and implementation. Involvement of a locally based NGO in Donetsk is underconsideration by the team to assist with the participation program, and to play a neutral monitoringand evaluation role.
10. Institutional Framework: A network of Ukrainian social researchers to support the pilotproject social assessment and monitoring, as well as future investments, is currently in an early stageof identification. Valuable experience and contacts were gained by the Bank during the recentfieldwork by Ukrainian institutions on the Poverty Assessment. Considerations include scientists frominstitutions such as Kharkiv University Department of Sociology and the Kiev Institute of Sociology,possibly NGOs, identified social scientist staff from the ministry of Coal, the Donetsk Oblastgovernment, local agencies such as the Regional Information Center, the UDKR, and the participationcommittees at the three pilot mines. These individuals or groups will collaborate with the Bank teamto determine more specific social impact indicators (once more social analysis is complete), tomeasure and record impacts and adjustments, and disseminate results to GOU-Bank projectmanagement. The UDKR will assume the primary role in managing the social monitoring program.The Bank project team will also undertake its standard supervision missions two times annually, witha special view to evaluating the efficacy and adequacy of social mitigation measures in the project.An annual evaluation of the project and the social monitoring program may be conducted by aUkrainian research group that has not been involved in the project.
11. Demonstration: The social monitoring plan in the pilot is part of the project's largerMonitoring and Evaluation program. The pilot should offer important insights for the Government'srestructuring program and for Bank assistance projects. If the social mitigation program is adequateunder the pilot, monitoring should show the following: (i) social protection measures under Ukrainianlaw can be effectively distributed to eligible beneficiaries by government institutions and can helpcushion the economic impacts of unemployment; (ii) local social impacts from coal restructuring arenot more severe, but in fact less so by means of effective social mitigation, than restructuring impactsin other industries (mine-non-mine comparison) (iii) affected ex-mine workers, families and coal
ANNEX 17
Page 6 of 6
communities are better protected from adverse social impacts with the Bank-assisted project thanwithout the Bank's intervention (baseline comparison); (iv) no particular vulnerable group(s), such asolder pensioners, women workers, workers above age 35, children, double mine-income households,or the disabled, nor a particular settlement, is relatively more damaged as a result of the project; (v)effective consultation and participation of stakeholders at the mines translates to influence overdecision-making about the project, and longer-term participatory mechanisms for project inputs,monitoring and evaluation prove effective at each mine; and (vi) adequate public information that istimely and systematically disseminated helps mitigate social disruptions and build support for coalreforms.
12. Budget: The following budget estimates cover various Technical Services activities in supportof the social impact monitoring and evaluation prograrn:
[ l l__ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ __US $
1. Social Assessment -rapid qualitative appraisals at 3 pilotmine communities 30,000-household survey at 3 pilotcommunities 40,000- longitudinal vulnerable case profiles(3 years) 10,000- tracking and comparing ex-miners,voluntary and forced redundancy 20,000
Sub Total 100,000
2. Participation Program - stakeholder meetings, workshops,conference (possibly with NGOassistance) 30,000- Participation Committees 10,000- training if needed 10,000
Sub Total 50,000
3. Public Information Program - assistance from Ukrainian firm 100,000
4. Social Monitoring Program - secondary data collection by UDKR 10,000- additional documentation and studies 20,000as needed (UDKR and others)-publication and dissemination of 10,000results 10,000-independent Ukrainian M$E firm
Sub Total 50,000
Grand Total 300,000
ANNEX 1 7
Coal Project Performance Monitoring Matrix
Social Impacts Indicator Data SourceGENERALFamily Health Infant Mortality
Low BirthweightHigh Blood PressureChildhood ImmunizationWork Related InjuriesIncidence of Alcoholism
Community Health Crime Rate: GeneralIncidence of Violent CrimeCommunity AppearanceOut-Migration Rates
Economic Health Unemployment RateNew Business Starts/r.Business ExpansionsNYr.Job Re-Training RatesSmall Enterprise Credit Availability
Education School Days in Full OperationGraduation RatesBehavioral Problems in School
Environmental Health Per environmental monitoring plan
PROJECT SPECIFICAffected Populations (workers, families, pensioners)
1. How many laid-off workers are employed ?2. What are they earning now (more, less, the same) ?3. Where are they living ?
Assistance to Affected Populations1 Have eligible individuals received:
a. Severance payb. Unemployment compensationc. Pension Payd. Disability Paye. Coal Distributionsf. Others ?
2. Were these payments received on time ?a. If no, how late were they ?
3. Employment Counselorsa. Were you aware of them ?b. Did you consult with them ?c. Did they help you ?
Assistance to Affected Municipalities1. How much did each city receive ?2. Did each city receive all it expected ?3. Were the payments to each city on time ?4. If no, how late were they ?
collect data at 6 month intervals over 3 yearsanalyze all affected population data for gender, age and above/below-ground differentials
ANNEX 18
Page I of 2UKRAINE
COAL PILOT PROJECT
List of Documents Available in the Project File
Preparation Reports
1. Identification Mission Report, May 1995.2. Preparation Mission Report, October 1995.3. Pre-Appraisal Mission Report, December 1995.4. Follow-up Pre-Appraisal Mission Report, February 1996.
General Project Documents
5. Japanese Grant Agreement: TF -029340:March 1, 1996.6. D. Merrick: Current State and Organization of the Ukrainian Coal Industry, June 1995.7. Ukraine. Coal Industry Restructuring Sector Report, World Bank Report No. 15056-UA,
March 1996.8. Transition of Ukrainian Coal Industry to a Market Economy and Restructuring of the
Industrv, TACIS Report/92/EUK 009, November 1995.
Mitigation of Physical Closure Component Reports
Strategy for Closure9. K. Hunt: Seminar on Mine Closures Contribution, November 1995.10. K. Hunt: Strategy Note for Mine Closure in Ukraine, February 1996.
Engineering Analysis11. Information on Mining Associations and Independent Coal Mines of Ukraine, Designing
Institute of the Ministry of the Coal Industry "Donugi": July 1995.12. Proiect for Closure of Uneconomic Mines in Ukraine 1995-1996, Designing Institutes of the
Ministry of the Coal Industry "Dongiproshakht" and"Dneprogiproshakht", July 1995 (inRussian).
13. T.H. Hastelow: Technical Report -- Coal Sector Restructuring Project, October 1995.14. The Technical and Economic Report on the Closing of Khartsizkaya Colliery of the
Production Association "Oktvabrugol", Ministry of Coal Industry, June 1995.15. The Technical and Economic Report on the Liquidation of "Krasniy Octyabr" Mine of
"Ordzhonikidzeugol" Mining Association, Ministry of Coal Industry, June 1995.16. The Technical and Economic Report on the Closure of "Pravda" Mine of "Donetskugol"
Mining Association, Ministry of Coal Industry, June 1995.17. The Technical and Economic Report on the Liquidation of "Removskaya" Mine of
"Torezantrasit" Mining Association, Ministry of Coal Industry, January 1996.
ANNEX 18
Page 2 of 2
Environmental Analysis18. Norwest Mine Services Ltd., Calgary, Canada: Environmental Aspects of the Ukrainian Coal
Sector Restructuring Project, October 1995.19. Norwest Mine Services Ltd., Calgary, Canada: Ukraine Coal Mine Closure -- Environmental
Mitigation Plan, February 1996.
Social Mitigation Component Reports
Labor Issues20. Sedgwick Wharf (report prepared by Bruce Weston): Labor Policy, May 1995.
Job Creation21. Cardiff & Vale Enterprise International: The Prospects for Regional Employment in Mine
Closure Areas, November 1995.
Social Analysis22. Social Portrait of a Miner in the Context of Employment Problems of the Coal Mines in the
Donbass Regio , Agency for Regional Development, Donetsk Information and AnalyticalCenter, November 1995.
23. T.J. Cook: Social Analysis at Three Mines, March 1996.
Social Assets Divestiture and Heating Component Reports and Legal Documents
24. Resolution No. 891 of the Cabinet of Ministers of Ukraine of November 6, 1995 "OnTransfer of Enterprise Housing Stock to Communal Property (in Ukrainian).
25. M.D. Glasser: Local Government Finance Issues, May 1995.26. W.P. McCulloch III: Housing Divestiture, July 1995.27. P. Bodnar, ADB&Associates Ltd.: Social Assets Component, October 1995.28. M.D. Glasser: Local Government Finance and Stakeholder Issues, December 1995.
UDKR Component Reports and Company Legal Documents
29. K. Hunt: Strategic Note on Creation of UDKR, December 1995.30. Order No. 11 of the Minister of the Coal Industry of Ukraine of January 12, 1996, "On
Creating the Ukrainian State Company for restructuring Coal Enterprises" (Appendix: Charterof UDKR, Statement of Expenses for 1995, Staffing Plan).
31. Enactment of the President of Ukraine of February 7, 1996, "On Coal IndustryRestructuring".
32. Enactment No. 448r of the Donetsk City Executive Committee of March 13, 1996 "OnRegistration of the Ukrainian State Company for Restructuring Coal Enterprises".
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