Sergey Grigoriev, Deputy CEO of SUEK, on the company's response to COVID-19 and other challenges of the time.
Siberian Coal Energy Company (SUEK) is not inclined to dramatize the COVID-19 situation, continues to develop in line with ESG principles and seeks to prove that coal can be 'green'.
– COVID-19 has become another black swan in a series of global challenges associated with population growth and environmental degradation. How did the epidemic affect the economic and social activity of the company, including in the regions of operations?
– The pandemic had an impact on supply volumes, but there were no material changes to the economic, social or other strategies and policies adopted by the company.
The coronavirus epidemic is temporary, and we do not really want to dramatise the situation. Besides, international coal market prices are influenced by things other than COVID-related problems. Much more important is the supply and demand balance, changes in the needs of various countries and companies. For example, in Europe, due to the european regulatory policy, a warm winter and partly quarantine, coal consumption has decreased, while in Asia, on the contrary, there has been a slight recovery in demand.
As for our social activity, no economic crisis, even a serious one, has ever affected SUEK's social policy. This is a firm belief of Andrey Melnichenko, SUEK's principal shareholder, and the company's management. The sustainable long-term development of the company requires confidence in the availability of professional personnel for many years to come. Therefore, the trust of employees and stability in the regions where we operate, along with the ongoing improvement in the quality of life, are important to us.
In turn, the quality of life, which SUEK is always trying to enhance, is not only new sports facilities or hospitals. This is also people's interest in the future of their families in the cities and towns where they live, in self-development. Both true patriotism and social stability are rooted in these aspects.
– Has the epidemic become a trigger for rethinking your mission, goals, principles and programmes in the field of ESG? If so, how will they change? If not, why?
– The epidemic once again emphasised the importance of a coordinated social policy in the territories of SUEK's operations. We strive to meet all ESG criteria and the UN Sustainable Development Goals, as this ensures that our company is perceived at all levels as a socially responsible business that meets public expectations.
We solve major environmental problems, preserve endangered animal species, support environmental activism and introduce energy and resource-saving technologies. We adhere to strict standards in the field of industrial safety and invest a lot in staff development. For us, the social and economic development of our regions and focus on the needs of company employees, members of their families and local residents are extremely important. All of this, of course, requires the use of best corporate governance practices. This is an integrated approach. I think that is why SUEK is among the top 25 companies in the annual ESG-ranking compiled by RAEX-Europe agency.
COVID-19 has not changed our approaches to sustainable development. Only some forms changed and new tasks emerged that needed to be quickly solved. Since mid-March, we have been working closely with regional and local administrations, with medical institutions in our regions, trying to render all necessary assistance. We bought and handed over to them large quantities of personal protective and medical equipment and paid for gasoline for ambulances. We paid special attention to supporting veterans and large, low-income families hit by the coronavirus outbreak harder than other people.
We just did what everyone really needed at a particular moment. Sometimes we found original improvised solutions. For example, we used special machinery for suppressing coal dust in warehouses to disinfect streets. Our road trains were highly praised by experts. We started to produce UV disinfectants for indoor air, set up groups of volunteers who joined the #WeTogether initiative.
– The environmental situation in Russian coal-mining regions often affects the health of local residents and makes the regions unappealing to investors in non-coal assets. How is SUEK engaged in solving environmental and social problems in the mining regions?
– Associating environmental degradation in the regions with the operation of large energy companies is a glaring anachronism based on stereotypes. Each specific case of violating environmental standards is linked to a particular person or organisation, and they need to be addressed on a case-by-case basis. Of course, such violations are noticed straight away, whereas positive examples are unpopular, although there are many of them. In addition, when touching on coal mining regions, we must say that the harmful emissions are vastly represented by substances of the lowest hazard class.
As for SUEK, through the introduction of the best available and innovative technology, we have become more efficient and careful users of natural resources and minimised the negative impact on the environment. By 2023, in full accordance with our environmental strategy, we will fully comply with all BAT [best available technologies] requirements.
In 2019 alone, SUEK invested in environmental protection over 3.1 billion roubles [$48m]. We are one of the first Russian companies ensuring the full treatment of industrial and household wastewater. The water returned to the environment is of a higher quality than before the intake. Over the past year, we reclaimed and rehabilitated to condition suitable for further use in production processes 552 hectares of land involved in coal mining.
We invested in the upgrade of our generating facilities and contributed to improving the environmental situation in the regions of our operations. We are engaged in the installation of new treatment facilities and transfer from environment-damaging boilers to our thermal power plants equipped with the most advanced filters. All this makes a big contribution towards improving the environmental situation. In Krasnoyarsk alone, the modernisation of power plants will soon reduce energy-related emissions by 37% compared to 2018. Relatively low CHPP stacks are now being replaced with taller, 275-metre ones, which ensure that the dispersion of emissions is safe for people. The best electrostatic precipitators at our power plants capture 99.5% of ash and other harmful substances. We produce smokeless briquettes for private homes (this is a product of deep coal processing).
Our principle is to be proactive and not to create environmental and social problems that we will have to solve later. We run a number of projects aimed at improving the environment, promoting respect for nature, planting trees, preserving biodiversity and reproducing aquatic biological resources. Such examples of caring for the environment are numerous and hard to name in one interview.
With regard to social issues, as I have already said, SUEK constantly works on improving the quality of life, which helps people believe in their future in the territories where they live and develop them in order to make more attractive for their children and for residents of other regions. If not for the social programmes implemented by mining companies, several regions would have been on the verge of a social explosion. By the way, we already went through this after the so-called coal industry restructuring in the 1990s. Later, following the arrival of new owners, the companies learnt, in close cooperation with local authorities and social activists, to solve the most pressing social problems, without replacing the state.
Every year, SUEK alone spends at least 1.5 billion roubles [$23m] on the social development of its territories. This does not include the activities of numerous volunteers, assistance in construction, logistics, expert support for regional programmes. That extraordinary approval for the incumbent president in the 2018 elections, more than 80% in Kuzbass, resulted from the real changes in people's lives over the past two decades. Is it right to put an end to their hopes and expectations?
The state knows that, despite changes in the life of our coal-mining regions and working conditions, miners always remain highly organised and conscious. Do you know which region beyond the Urals shows the lowest COVID-19 rates? Kuzbass, right. For this, we should also thank the team of Sergey Tsivilev, the Governor of Kuzbass, who timely introduced quarantine measures, and company managers for organising work in a safe way. Most importantly, people meet all the requirements, keep their distance and undergo testing. This is very important for energy companies responsible for maintaining a normal life in difficult times.
– Do you think that Russia needs low-carbon development and the related economic policy, given that not every economic growth guarantees the welfare of the state and society in the long run?
– You know, due to the fall in industrial production and energy prices in the 1990s, our country almost took the low-carbon development path. For us, this was fraught with the loss of state sovereignty. Did you like that?
Obviously, not every economic growth is capable of contributing to the country's well-being. However, even a passing glance at the history of both Russia and the USSR is enough to see that, in the last 50-60 years, industries not related to energy production or carbon-containing gas emissions could not really benefit the Treasury or show revenue growth. In fact, any industrial production generates carbon emissions. Moreover, agriculture and animal husbandry may not fit into the low-carbon agenda one day, because cows produce rather high greenhouse gas emissions. Russian agriculture is more than 130 Mt of CO2 equivalent, or 5% of all greenhouse gas emissions in our country. The global share of agriculture in emissions is even higher.
We are all here, in the Russian Federation, children of the carbon era. We owe carbon much of what is around us now, much of what has improved our quality of life and well-being. Those countries that are now urging us to shift to low-carbon development have achieved their well-being through carbon. They have already solved the problems that we are currently facing and which we are working on, i.e. improving living standards and the environment and developing infrastructure. Rich countries managed to do all that before us.
Therefore, when it comes to the so-called low-carbon development, two simple truths must be understood.
Firstly, we are dealing with an idea, and not an elaborated plan how to do this without harming the economy. This would require a system restructuring with catastrophically high costs, a loss of income and unclear outcome. Just to illustrate, according to academic Boris Porfiryev, this will result in an exponential growth in our energy costs, with almost 47% of GDP spent on it. As estimated by the Institute of Economic Forecasting, RAS, the country will lose 8% of its annual GDP in connection with switching to the low-carbon scenario until 2040.
Secondly, we must understand that low-carbon development means an inevitable decline in our exports, and this is not only a fall in some abstract revenues for some abstract state Treasury. A reduction in income, additional taxes and levies will affect every resident of Russia. Concealing it would be dishonest, especially in a crisis period.
You cannot disregard the social and political component. Curtailing production in single-industry towns, not only mining, but also founded by oil and gas companies, will cause major social upheavals, as a whole army of the unemployed will emerge due to the traditionally low mobility of the local population. Let us take the coal industry as an example. It directly employs around 150,000 people. In addition, coal provides jobs for approximately half a million people in rail transportation, in ports, engineering and services. Considering the average Russian household size, 650,000 people employed in coal mining and related industries mean 1,700,000 Russian citizens directly connected with the industry.
Therefore, I am absolutely convinced that Russia needs a development strategy that will maximise our benefits. Indeed, Russia has tremendous potential to reduce carbon emissions and increase the absorption capacity of forests, but using cost-effective methods and not the expensive methods they are trying to impose.
– Recently, reports have been published saying that coal generation in many regions is uncompetitive, and in a few years it will be uncompetitive everywhere. The reason is that new power plants, based on renewable energy sources, are becoming cheaper than new coal-fired power plants. What do you think of it?
– In all predictions about the coming eclipse of coal generation, there is too much politics. Otherwise, it would be impossible to explain why 385 GW of new coal-fired power plants are being designed and constructed globally. China and India are building 634 new large coal-fired power plants.
The coal-fired power industry has a great history. Over 150 years of operation of coal-fired TPPs, technologies, infrastructure and personnel have been perfected, constructed and trained. Coal is widespread and provides energy in any climatic conditions, and its share of almost 40% in the global energy balance is justified. In addition, this fuel type is the safest and most reliable. Even gas-fired power plants burning volatile and explosive natural gas are forced to use fuel oil or diesel fuel as a backup fuel, which is fraught with serious environmental problems. Coal needs no backup fuel.
Compared to power plants, based on renewable energy sources, coal-fired TPPs occupy a smaller area and do not need expensive related infrastructure in the form of energy storage facilities and standby capacity; they do not use toxic rare-earth metals with unclear disposal procedures. In terms of environmental impact, I would challenge the superiority of renewable energy generation. Solar panels increase the temperature nearby, while wind farms alter the landscape and generate microvibration harmful to the fauna. Most importantly, renewable energy sources cannot yet replace coal in industry, in metallurgy and the production of building materials, in chemistry and heating.
The impact of various generation types on society and nature requires studying and taking balanced decisions with consideration for the interests of all people, and not only citizens of super-rich countries able to subsidise the replacement of cheap generation with expensive and hardly feasible one.
From an economic perspective, abandoning coal cannot be justified either. In countries with a low share of industrial production in GDP and a high energy efficiency, abandoning coal does not really threaten economic collapse. But what should countries that develop their industries do? Neither China, nor Japan, nor India or Australia are going to exit coal in the near future. There are no alternatives to coal in terms of price/stability/safety.
In politics, everything is much more complicated. It is not difficult to notice that the fight against coal generation intensified along with the expansion of geopolitical confrontation and rivalry between the major powers. Against the backdrop of the crisis of existing economic development models, each party seeks to undermine the competitive advantages of its rivals, using all available resources. For example, coal, as the most affordable energy resource for China's industrialised economy, is now one of the bargaining chips in this confrontation. Exiting coal in Europe will hit the Europeans themselves, but will not lead to the collapse of their economies. In addition, Europeans dream of saving up to 5 trillion dollars in energy imports and are ready to go all-in. This is strongly supported by the United States by exploiting international organisations to take decisions aimed at, inter alia, reducing the competitiveness of other countries' economies.
Basically, the development of technologies, including environmental ones, and the growth of energy consumption in the world leave enough room for the simultaneous development of all generation types. Every type has its advantages; they are complementary and have approximately the same impact on the environment. The life cycle of solar and wind plants includes not only operation, while environmental impact is not limited to emissions. In addition, the International Energy Agency's calculations clearly show that, taking into account the total maintenance costs of renewable energy systems, the economy of traditional generation looks much more advantageous.
– How do you see the future of the global coal industry and SUEK in ten years, given that Europe is gradually abandoning coal and a decrease in demand for coal is expected in Asia?
– We have already factored in the gradual shrinkage of the European coal market. This process will be slowed down by existing contracts, social issues in the mining regions and the regulators' requirements to ensure the reliability of energy supplies. Moreover, I do not exclude the possibility of a European coal generation revival over time if European hopes for American energy resources do not come true and the need for reindustrialisation is again on the agenda.
In many developing countries, demand is now soaring due to population growth and industrial development. Therefore, Asian and African markets will continue to grow, although at a slower pace.
On the other hand, South Africa, the US and Colombia are cutting supplies, and, with consistent demand until 2030, there may be around 200-300 Mt of lacking supplies, which is a potential for growth in Russian exports. This is well understood in the Russian government, which recently adopted the Russia's Coal Industry Development Programme until 2035.
In these conditions, the refusal to develop the national coal industry and deliberate withdrawal from the market defies not only common sense, but also national interests. SUEK acts in line with these trends. Following the wishes of our consumers, we have significantly increased coal washing, and today we only export high-quality, competitive products. We feel quite competitive and remain among the top five global exporters.
– Does the company plan to diversify its activities in the long term and how?
– SUEK is one of the largest Russian companies, a top 25 enterprises in terms of revenue. In the Largest Private Companies List compiled by Forbes, we rank 15th. This is largely the result of a timely business diversification. We are among the top five Russian railcar operators and port owners. SUEK's energy division, SGC, operating power plants in the Far East, Siberia and the Urals, is a major Russian energy producer. SUEK's production units are also developing and introducing new types of products. Therefore, SUEK is already a diversified business. Subject to economic feasibility, we can expand such processing areas as coal chemistry, although this will require additional investment. However, we still have plenty of space for development in the coal industry. We continue the modernisation and construction of washing plants and mining units, improve the standard of living in the mining regions and introduce the best available technology. We want to prove to everyone that coal can also be 'green'.
Over time, the share of green energy in the world will grow, and we understand this. Nevertheless, it should be proportionate to economic development. In order to significantly accelerate this process, very solid reasons are required. Otherwise, a hasty energy transition will do more harm than good.