Resavica coal mines never break even despite massive subsidies

The energy transition implies a massive uptake of renewables and abandoning coal alongside a just transition for those affected. It triggers tectonic changes but also offers an opportunity. Serbia’s underground coal mining public utility Resavica is a case in point. It receives EUR 40 million in state aid every year, but regularly ends up reporting a loss.

In Resavica, the state could demonstrate the intention to stop wasting taxpayers’ money, to phase out coal, and secure clean air for citizens, but also to take care of the miners that face uncertainty, by helping them find a new job.

Resavica sells coal to EPS, but also to the industry, heating plants, citizens, schools

PEU Resavica produces 500,000 to 600,000 tons of coal per year. Primarily it is lignite, brown and hard coal, of which more than half is hauled to power plants Nikola Tesla A and B, and Morava, run by state-owned Elektroprivreda Srbije (EPS). The rest is sold to the industry, heating plants, citizens and schools.

“The company operates with an annual loss of about EUR 15 million, despite generous annual grants from the national budget, about EUR 40 million. Subsidies make up as much as two thirds of all revenues and it is clear that Resavica cannot operate independently in the current circumstances”, reads the Fiscal Council’s opinion on the fiscal strategy for 2021 with projections for 2022 and 2023.

The state has allocated more than EUR 260 million to Resavica from 2013 to 2019, and EUR 80 million in total is planned for 2020 and 2021.

Providing state aid sends the wrong signal that coal-fired energy production is cheap

The subsidies to Resavica were the largest portion of the state aid that Serbia provided to the coal sector in recent years. The overall sum was the largest in the Western Balkans, according to a study by the Secretariat of the Energy Community. It recently called on countries in the region to review the compliance of the subsidies with the European Union’s state aid rules.

However, the termination of subsidies is primarily necessary because they send the wrong signal that the production of electricity from coal is cheap or cheaper than from wind, the sun or hydropower. It’s not, which is clear to see when the subsidies and costs attributed to pollution are taken into account. It is necessary to abolish them also because they stimulate the use of fossil fuels, which is harmful to human health and contribute to climate change.

The EU has made it clear that coal has no future

If you look at EU policy, Resavica’s future is bleak. The European Union has announced a coal phaseout and most member countries have set a date. The EU has defined its stance in the European Green Deal and vowed to become climate neutral by 2050.

Governments of countries outside of the EU do not have to follow the bloc’s policy, but then they will have to pay a CO2 tax on all goods that they ship there.

It applies to Serbia, too. The new mining and energy minister Zorana Mihajlović has announced that she would make energy cleaner, but time will tell whether that is enough.

A just transition solution for Resavica

Slobodan Minić, a special adviser at the Fiscal Council, told Balkan Green Energy News that EU climate policy, the coal phaseout, and environmental protection are additional reasons to solve the Resavica problem immediately.

The main problem is that budget funds are thrown to the wind because the firm has very poor basic economic indicators, he said.

Regular revenue is low, about EUR 15 million a year, compared to EUR 44 million in labor costs.

According to Minić, it is a social issue, an attempt by the government to prevent the loss of 4,000 jobs.

Without subsidies, Resavica would not be able to operate, he added.

Although the inevitable coal phaseout, dictated by climate and environmental reasons, further complicates the situation in Resavica, it may as well bring the solution. The EU insists on a just transition, which is why it established the Just Transition Fund, in order to help everyone affected by the transition. There are mines and miners all over Europe and the EU wants to make it possible for them to get other jobs.

Subsidies of EUR 40 million now prolong the agony, but they could give hope

The Platform Initiative in Support of Coal Regions in Transition in the Western Balkans and Ukraine was officially launched in December.

For Resavica it could mean that a part of the subsidies is used to provide employees with training and support for starting their own business.

Slobodan Minić also has no dilemma that the EUR 40 million could be used better.

“This way the problems are not solved, they are just postponed. We are talking about EUR 350 million in state aid, a huge amount, which could be used wisely,” he said.