About that coal in Kosovo

FISTFUL OF EUROS (SWEDEN), January 30, 2007 by Doug Muir

 

In comments to the post on Kosovo, Alex Harrowell asked the following reasonable question:

 

"How can you have something that's both a "mineral resource grab" and an "economic black hole"?"

 

The short answer: you can, because it's Kosovo.

 

Here's why. There has been no serious investment in those mines since the Yugoslav economy hit the skids in 1986.

 

A modern coal mine is not a hole in the ground full of guys with picks. It's a major industrial installation. You have huge drills, borers, grinders, driers, fans, pumps, you name it. A big coal mine uses as much power as a good-sized town. A big modern coal mine uses cutting-edge, state-of-the-art materials technology and software. It's not guys digging coal any more. It's guys operating and maintaining big, complicated machines that dig coal. In the United States, the majority of coal miners have four-year college degrees, and need them.

 

(Here's another interesting statistic: in the last 50 years, the number of US coal miners has dropped by 68%. However, the US' total coal production has gone up by 83%. You have less than a third as many miners producing nearly twice as much coal; per capita output has gone up nearly sixfold.)

 

Now Kosovo does indeed have a lot of coal. They aren't huge deposits by world standards, but they're pretty big -- the biggest in the region, and (I'm told) fifth or sixth biggest in Europe.

 

Furthermore, it's not bad coal, for lignite. It's got some sulfur, but lignite usually does; it's not particularly dirty, nor is it buried inconviently deep. When you put the whole package together -- size of deposits, quality of deposits, ease of access, environmental issues -- it looks pretty good. Not as fantastic as some partisans claim, no, but still a major coal field that's well worth exploiting.

 

But.

 

There's been no major investment in over twenty years; and twenty years is a long damn time, in that industry. I say "over twenty years" because even back in the 1980s, the Kosovo coal fields were the ugly stepsister of Yugoslav energy. The Albanian-dominated regional government didn't have enough money to make major investments, and the federal government felt it was already throwing enough money at Kosovo. So we're really talking more like thirty years, or even more. The miners today are using equipment and techniques from the 1960s and '70s.

 

And not only was there no investment, but the mines suffered a decade of actual disinvestment in the 1990s. Slobo fired all the Albanians in 1989-90, and there weren't enough Serbs to replace them. Then there was no point in investing in a mine running at just 20% capacity, especially since Serbia was under embargo and the coal couldn't be exported anyway. So, like almost everything else in Kosovo in the 1990s, the mines went to hell. Deferred maintenance; neglect; management by political appointees; massive corruption. Productivity and efficiency, already low, actually went backwards for ten years.

 

Things have improved a bit since 2000 -- UNMIK has sponsored some modest investment, especially in safety equipment -- but not much. The mines are still running with antiquated equipment and at very low levels of productivity and efficiency. Bringing them up to date will require hundreds of millions of euros of investment.

 

Further. Because the mines are using crappy old equipment -- and are grossly overstaffed -- it's costing them way too much to produce coal. Kosovar coal should be very competitive on world markets. Instead, the mines are losing money. It costs them more to mine and process the coal than they can get by selling it.

 

All that said, the mines should be an attractive investment. A billion dollars of investment? That's well within the reach of a large modern mining company. The technology is off the shelf. The workforce is there. And once the investment is made, the mines could be some of the most productive and profitable in all Europe.

 

However.

 

One, who in their right mind would invest a billion dollars in Kosovo right now?

 

Two, the ownership of the mines is disputed. They were, after all, state-owned. The Kosovar state claims them; so does Serbia. Until that issue is settled, nobody's going near them.

 

Three, go back and look again at that productivity statistic. Any investor would want to increase productivity, which is great, except that it will inevitably involve firing large numbers of workers. The province as a whole may benefit, but that's in the long run. In the short run, it means pushing more unemployed workers onto the market in an overpopulated state that already has painfully high unemployment and is politically volatile. Even if a new investor is willing to do this, it's very questionable whether the Kosovar government would allow it. This problem is far from unique -- it's been acted out all over Eastern Europe in the last fifteen years -- but it will be particularly fraught in Kosovo.

 

Four, the Kosovar government has not taken this problem seriously. The Ministry of Energy and Mining? He's a guy named Ethem Ceku. He has a degree in history. His qualifications to be Minister? One, he was in the KLA; and two, he's the younger brother of Prime Minister Agim Ceku.

 

And five, if you really want to make those mines profitable, you have to export most of the coal. Since Kosovo is landlocked, that means railroads. Right now there's one rail line that can carry coal trains, and it runs. north into Serbia. D'oh!

 

So, somebody's going to have to spend a lot of money building a heavy rail line, either south into Macedonia or east over the mountains to Albania. Good luck with that.

 

In sum: Kosovo's coal mines are both a bonanza and a black hole. At the same time.

 

Final point: modern coal mining is not just a simple question of digging out the coal. It's more like a game of Tetris in reverse. Modern coal mines use all sorts of advanced techniques -- computer imaging, complicated software, incredibly advanced drills -- to get the maximum possible coal out. The Kosovar mines aren't using any of that stuff. So not only are they very inefficient, but they're actually wasting coal and damaging the mines.

 

Still: the coal is there, and one day someone will exploit it. But not soon.

 

When? I have no idea. So many variables!

 

But I'll be amazed if it happens within five years, and surprised if it happens within ten.