The supply of much-needed coal from South Africa to the nation's power plants led to a scandal as deliveries raise too many questions, like why the coal was bought from an intermediary and why the price was so high.

On Nov. 6, President Petro Poroshenko expressed concern over a recent deal by the state energy dealer Ukrinterenergo to buy 1 million tons of coal from South Africa via British-registered intermediary Steel Mont. Already on Nov. 7, the General Prosecutor's Office opened a criminal investigation and began questioning senior official at Ukrinterenergo as well as Energy and Coal Industry minister Yury Prodan.

Officially at issue is the price ' Ukrinterenergo agreed to pay $86 per ton, according to the published contract, which after transport, services and other costs, the final tally came to $110-$112 per ton, depending on the final destination, according to the director of Ukrinterenergo Volodymyr Zinevych, while spot prices for South African coal are running at $77 per ton. Meanwhile, Russian coal costs around $80 per ton, and it's closer.

Therefore, the contract regarding South Aftican coal appears to be poor value for money, even if the contract itself is kosher. Zinevych has since explained the higher price as the premium the South African coal suppliers demanded for shipping to Ukraine as a dangerous war zone.

Steel Mont, outraged about any suggestion of impropriety, on Nov. 11 demanded the Ukrinterenergo make public the contract, which it did, and announced that for the sake of its reputation, it refuses to continue doing business with government agencies. According to Zinevych of Ukrinterenergo, Ukraine will get only half of the planned 1 million tons of coal from South Africa as a result.

Some analysts suspect a cover-up, whether it be corruption or incompetence. Analyst Yuriy Korolchuk of Institute for Energy Strategies said on his Facebook page that the country stands to lose $400 million from this deal and added that keeping the contract details in secret for so long is something quite suspicious.
The coal will be delivered to the Trypillya Power Plant near Kyiv and Zmiyivska PP in Kharkiv Oblast. ' cfts.org.ua

Ukrinterenergo's Zinevych defends the South African contract by saying that factors other than prices went into the decision, such as the unreliability of importing Russian coal in light of its war against Ukraine. "The Prosecutor General's Office is asking if we could do without a trader, and the answer is 'no'," he said. "We asked the Foreign Affairs Ministry through their diplomatic missions to help us to find non-Russian partners, and we received a large number of proposals."

Energy analyst Yevhen Dubogryz leans more towards the incompetence side of the debate. "This coal is of poor quality compared to what one can buy in South Africa, yet it was bought at a price higher than for the best quality with lower ash rate. The price difference is small - about 8%. It looks as though someone was not paying attention," he wrote on his Facebook page on Nov. 13.

In addition, the expert says that South African coal can be cheaper, but the buyer needs to work more effectively with those who are engaged in the delivery and handling, since the prices of their services are often too high. Dubogryz has been called by the Prosecutor as an expert witness in the investigation of the South African coal contract.

Coal creating political division

However, the question arises as to why Poroshenko waited so long to pry the lid of this particular can of worms, when the contract was signed and publicly announced on Aug. 19. To date, over 250,000 tons of South African coal has been offloaded at Ukrainian ports, with another 250,000 on its way.

Public officials and private investigators have suggested that a conflict is underway between the office of the president and the Cabinet over control of coal supplies. Minister Prodan, shortly after his questioning, stated that the investigation came about because someone close to the president has an interest in buying Russian coal and is preparing for a "re-division" of the Ukrainian coal market as government plans to sell all the state-owned mines. He also said that much of this Russian coal is actually Ukrainian coal from rebel-controlled areas, carted across the border, and then sold by Russian traders.

Korolchuk, an analyst, calls the scandal a coal 'Watergate' for the government. Considering the inner closeness of the government, this news could have been kept quiet, he argues, but the fact that the president has called out the prime minister and his cohorts publicly appears to be a deliberate attempt to embarrass him.

Yanukovych's circle involved

And what is more, it looks likely that beneficiaries of the previous regime are trying to get back into the game.

According to the investigative publications Ukrayinska Pravda and The Insider, Serhiy Kuzyara, a former advisor to ex-Energy Minister Eduard Stavytsky during the regime of Yanukovych, is lobbying his interests with the Presidential Administration on behalf of Cyprus-registered Russian coal suppliers. Stavytsky himself took Israeli citizenship and changed his last name to Rosenberg.

Kuzyara has, in fact, admitted to lobbying on behalf of just one Russian-related company called Neocar Contracts, according to Ukrayinska Pravda. During September and October, Neocar made several offers of Russian coal at $80 per ton to the state-controlled power generator Centrenergo, which is also the final destination of most of the South African coal.

It should be noted that Neocar is owned by a company called Fynel, whose past and present directors are associated with a major scandal during the Yanukovych years, whereby the Energy Ministry bought oil rigs for an inflated price that cost the Ukrainian taxpayers an estimated $150 million each.

Kuzyara ran for the recent parliamentary elections on Serhiy Tigipko's Strong Ukraine party list. He lost.

Coal shortage

Ukrainian energy generating companies face shortages of anthracite, a high quality coal, of around one million tons a month, and imports via seaports could cover only around 400,000 tons a month. DTEK, the energy arm of oligarch Rinat Akhmetov, will buy around 2.6 million tons of coal from Russia this year for $70-73 per ton, though the logistics cost raises price to $91, according to DTEK general director Maksym Tymchenko.

Ukraine's thermal electric power stations consume 3.2 million tons of coal per month, while Ukraine will be able to extract no more than 10 million tons during the five-month heating season.

Eighty percent of Ukrainian coal mines are located in rebel enclaves and total coal output has declined by 23 percent to 40 million tons in the 10 months of the year, the State Statistics Service announced. However, production rates have dropped precipitously in recent months  59 percent in October year-on-year.