Siberia mining towns feel the chill

Production and Markets

Siberia's mining towns were booming earlier this year as steel mills feasted on their coal.

Then came the global financial crisis. In a few short months, demand for the region's raw materials has evaporated and cast into doubt the revival of Russia's coal mining heartland.

The crisis has handed prime minister Vladimir Putin, the former president, the first test of his ability to handle leaner times after building his popularity on a decade of economic growth fuelled by high oil and commodity prices. 

"Half the city isn't working," said Boris Sedov, an out-of-work trader in Mezhdurechensk, a city of just over 100,000 people more than 3,000 km (1,875 miles) east of Moscow. "Employers aren't paying and, if they are, only 50%."

Raspadskaya, a major employer in Mezhdurechensk, will ship only a third of planned volumes in the fourth quarter and said last month steel mills had paid for only 21% of supplies since September.

The company is among several that wrote last month to deputy prime minister Igor Sechin requesting financial assistance and a review of taxes and rail tariffs. Mines are already cutting output and, without such help, many will be forced to close.

Raspadskaya and Mechel, another big local employer, are Russia's two largest coking coal producers. They, along with rivals Sibuglemet and Belon Group, said in the letter they were owed a total Rbs13.6 billion (US$490.4 million).

Marina Borodina, a resident of Mezhdurechensk, said she and her colleagues at a coal processing plant owned by Raspadskaya were on a reduced working week.

"There haven't been any redundancies, thank God. They are trying very hard not to lay off employees," she said.

Raspadskaya, which employs 7,800 people, confirmed it had cut its working week to four days. Monthly production of coking coal concentrate has dropped to 150,000t from peak levels of 650,000t early this year.

"If people have started to work less, of course they will receive lower wages," Galina Kovalchuk, head of Raspadskaya's press service in Mezhdurechensk, said.

"We are not firing people. Today, our main task is to retain our personnel."