THEWORLDBANK SOCIAL ANALYSIS Paper No. 42 June 2003 Mine Closure and its Impact on the Community: Five Years After Mine Closure in Romania, Russia and Ukraine A joint publication with the Infrastructure and Energy Department, Europe and Central Asia Michael Haney Maria Shkaratan Social Development Papers Environmentally and Socially Sustainable Development Network Paper No. 42 June 2003 Mine Closure and its Impact on the Community: Five Years After Mine Closure in Romania, Russia and Ukraine Michael Haney Maria Shkaratan Mine Closure and its Impact on the Community "Social Development Papers" are published informally by the Social Development Department in the Environmentally and Socially Sustainable Development Network of the World Bank. They are aimed at encouraging discussion and comment among the development community on key social development issues. SD Papers represent the views of their author(s) and do not necessarily reflect the official policies of the World Bank. For additional copies, contact the Social Development Department, World Bank, 1818 H Street, NW, MSN MC5-507, Washington, DC 20433, USA, Fax: 202-522-3247, E-mail: socialdevelopment@worldbank.org. The research described in this report was carried out by a team consisting of Michael Haney (team leader), Maria Shkaratan (specialist in governance and social issues), Veronika Kabalina (research manager in Russia), Vladimir Paniotto (research manager in Ukraine), and Cosima Rughinis (research manager in Romania). Michael Haney and Maria Shkaratan are the co-authors of this report, which benefited from inestimable contributions from the reports prepared by the research managers in each of the three countries. Lee Travers guided the preparation of the report as sector manager. Special thanks are owed to Laszlo Lovei for his comments and insights, and to Janis Bernstein and Nora Dudwick for valuable contributions made during the development phase of the research. David Craig, Jeffrey Davidson, Ashraf Ghani, Heinz Hendriks, Chris Jones, Christopher Sheldon and Doina Visa provided invaluable advice and comments. Anis Dani and Jeni Klugman were peer reviewers and their thoughtful comments on the concept and the draft report were instrumental in guiding the research and this final report. For more information on social assessment, go to www.worldbank.org/socialanalysis or contact socialanalysis@worldbank.org. For more information on social develop- ment in the World Bank go to www.worldbank.org/socialdevelopment. Printed on Recycled Paper 4 Contents Executive Summary........................................................................................................................7 Introduction...................................................................................................................................15 Coal Sector Restructuring in Eastern Europe and the Former Soviet Union.............................16 The National Context....................................................................................................................19 Romania.............................................................................................................................20 Russia.................................................................................................................................22 Ukraine..............................................................................................................................24 Concept and Structure of the Research.......................................................................................25 Research Findings.........................................................................................................................29 Common Problems and Experiences................................................................................47 Romania: Restructuring in a Challenging Macroeconomic Environment.........47 Russia: Six Years of Local Development Programs.............................................49 Ukraine: Mining Towns Compared to a National Sample.................................55 Policy Recommendations..............................................................................................................59 Parting Thoughts: Looking to the Future.....................................................................................66 Annex 1: Description of the Research Sample............................................................................69 Annex 2: World Bank Lending in Support of Coal Sector Restructuring in Eastern Europe and the Former Soviet Union.......................................................................................................71 Annex 3: Russia: Evaluation Criteria for Local Development Programs...................................73 Annex 4: Cost-Benefit Analysis of Coal Sector Restructuring (World Bank Projects)..............75 Bibliography..................................................................................................................................77 5 Mine Closure and its Impact on the Community 6 Executive Summary Background 3. In order to reduce the burden of subsidies on the budget as quickly as 1. In recent years, Poland, Romania, possible, sector restructuring entails the Russia, and Ukraine have undertaken closure of uneconomic mines and an major reforms of their coal sectors, in all extensive downsizing of the industry cases with financial support and policy workforce. Privatization of the healthy advice from the World Bank and bilateral core of the industry may also be a part of donors. While conditions varied from the restructuring program. In view of the country to country, in general before concentration of coal mining in a small restructuring the coal industries of these number of regions and towns within countries suffered from a number of regions, coal sector restructuring pro- serious problems, including: obsolete grams include mitigation strategies to equipment and years of inefficient invest- strengthen the social safety net for laid- ments; poor sector management; inauspi- off workers and their families, and to cious geological conditions in many create jobs in other sectors in the local basins; excessive employment, with economy. productivity levels among the lowest in the world; wretched health and safety Concept and structure of the research conditions; and acute levels of accounts payable. 4. This report is part of a work in progress and reflects the results of re- 2. Full-blown crises emerged in the search that was carried out in Romania, coal sectors of these countries in the Russia and Ukraine with the goals of (i) general economic dislocation of transi- assessing the impact of mine closure on tion. The initial response of governments communities in which large-scale was to allocate high levels of subsidies to downsizing of the mining workforce the industry. In Ukraine, for example, began at least five years ago, in 1997, (ii) state support for the coal industry in 1993 evaluating the effectiveness of the mitiga- was equivalent to about 4 percent of tion policies that have been used to date, GDP. It soon became clear, however, that and (iii) developing policy recommenda- such levels of subsidization were unsus- tions to address the problems identified tainable in the face of the other demands by the research. on the shrinking national budgets. From this recognition followed the decision, 5. The research was designed prima- taken at the highest levels of government, rily as a qualitative study in two phases to embark upon the restructuring of the consisting of in-depth interviews with coal sector. national, regional and local experts (in the first phase) and impacted groups of 7 Mine Closure and its Impact on the Community the population and "response" groups insecure forms of employment at lower such as local entrepreneurs (in the sec- wages with fewer legal and social safe- ond phase). The research carried out in guards; and the emergence of groups that Ukraine also included a quantitative are particularly vulnerable in these component in which survey data were highly competitive job markets. collected on employment and living conditions in two mining municipalities 9. Two basic types of response to the as well as in the rest of the country. dramatically worsened local labor mar- ket conditions following mine closure 6. Mining municipalities were se- are: (i) local development and job-cre- lected on the basis of a high impact of ation efforts, and (ii) migration. restructuring on the share of coal sector employment in the overall workforce of 10. Local development and job-creation. the municipality, and on the basis of the The standard policy response to the high existence of alternative economic activity unemployment that follows industrial or the possibility of developing it. These restructuring is to foster the diversifica- criteria were augmented with such quali- tion of the local economy and to seek to tative considerations as the imminence of improve the match between the available local elections, proximity to other towns jobs and workers' skills through active with more diversified economies, the labor market policies. Among the com- desirability of regional variation in the mon mechanisms used in pursuit of this final selection, etc. goal are: the provision of micro-credits to individual entrepreneurs and subsidized Research Findings credits to small and medium enterprises; technical assistance and support for 7. Following are the most significant business development; and programs areas of the impact of mine closure on the matching job-seekers with potential community: employers through subsidized on-the-job training or training in another profession. · Employment and Labor Migration · Municipal and Social Services 11. The research suggests the follow- · Community Cohesiveness ing general findings in this area: · Environment · There is a long and steep learning curve of several years before the 8. Employment and Labor Migration. various local development efforts are The problem of employment is one of the established and begin to make an most serious and long-lasting conse- impact. quences of mine closure, even five or · While support to individual entrepre- more years after the downsizing of the neurship and the SME sector is an local mining workforce. Mining commu- important part of the policy response, nities in all three countries have in com- it is equally important to recognize mon the problem not just of the quantity the limit to the job-creation capacity of jobs, but of the quality of jobs as well: of these efforts. Even where these long-term, stable jobs providing livable programs were most established and wages are scarce. This basic situation on best financed, expert respondents local labor markets has led to a worsen- characterized their impact as positive ing of living standards for many; a quali- but "a drop in the bucket" of the total tative change in the nature of employ- need. ment, with the emergence of informal, · In addition to the targeted mitigation 8 policies, general economic growth the range of municipal services, respon- plays an important role in absorbing dents singled out housing and commu- the larger part of the labor that is shed nal services as priority areas that have through mine closure. been severely negatively impacted by mine closure. Education and health are 12. Migration. The commonly encoun- also important locally-provided social tered view of the immobility of labor in services that are affected by mine closure, the transition countries is challenged by although the research results indicate the research findings. In Ukraine, at the that the provision of these services has time of the survey, an estimated 37 per- generally fared better despite the diffi- cent of the population was absent for an cult circumstances. extended period in connection with employment elsewhere. Whether or not 15. The poor state of the housing migration is permanent or temporary, or stock of most mining towns is a result of successful or not, however, cannot be historical considerations and of the determined on the basis of this research. impact of mining and mine closure. Cases of return migration are common in Subsidence and seepage of the ground- some places (notably in Romania), usu- water have damaged residential and ally for the reason that things did not other structures, and physical infrastruc- work out for the migrant in the other ture that delivers services of social sig- location. nificance. In some settlements that are immediately in the environs of closed 13. The potentially beneficial impact mines, these services have ceased alto- of labor migration on the local employ- gether as a result of mine closure. And in ment market suggests that some form of all research sites, hot water is generally migration support or subsidized trans- not available. portation should be an explicit policy goal to help mitigate the employment 16. Divestiture of housing and social problems caused by mine closure (see assets from enterprises to municipalities Policy Recommendations). In actual took place in the 1990s in Russia and experience, however, support of migra- Ukraine, with a particularly harsh impact tion has been limited. In each country on the mining towns. The capacity of economic conditions have been generally local administrations was overwhelmed, difficult everywhere, and officially spon- as in many cases the levels of the assets sored migration is a politically and divested to the municipalities by the socially sensitive issue when there are no enterprises exceeded by a factor of sev- obvious growth centers that can receive eral times the pre-divestiture levels for migrants without displacing the local which the municipalities were respon- workforce and creating social tension. sible. While municipalities throughout The problem of housing is also a severe both countries have had to shoulder extra constraint. The costs of migration are burdens as a result of divestiture, the high, and practical and financial consid- situation in the mining towns in these erations would rule out the possibility of countries is generally worse, both be- fully satisfying the likely demand for cause of the physical impact of mining on such support. housing and because the enterprise's share of the total stock of housing and 14. Municipal and Social Services. social assets tended to be greater in Municipal budgets suffer a dual impact mining towns than in other municipali- from mine closure: tax revenues contract, ties. Enterprises facing the prospect of while expenditure obligations expand. In divestiture did not maintain assets, so 9 Mine Closure and its Impact on the Community that by the time the divestiture was view of the technical complexity of envi- completed assets were severely depreci- ronmentally-related issues and the ated and in need of high levels of repair dearth of specialists among the respon- for which no financing was forthcoming. dents, on occasion respondents ex- pressed contradictory opinions on mat- 17. Community Cohesiveness. In ters of relevance to the subject. As resi- addition to social consequences of mine dents of the community, they most fre- closure that are implicit in the problems quently expressed concern about the of employment and social infrastructure, problem of flooding, the damage caused the research examined the capacity of the to houses by mining, the quality of the community to absorb the negative shocks drinking water (particularly in Ukraine), of mine closure and to mitigate such the danger of methane leaks, and mining negative phenomena as social instability, waste piles that are not removed. alienation and apathy. From this perspec- tive, on the whole the mining communi- Policy Recommendations ties appear to be rather fragile or vulner- able, their capacity to respond ad- 21. The following policy recommen- equately on the community level dimin- dations are tailored to coal sector restruc- ished. turing programs but would also have broad relevance to other industrial re- 18. The role of civil society in these structuring programs, particularly those towns is quite limited: while various where the patterns of municipal develop- organizations representing civil society ment are similar to those encountered in were found in all locations, their impact the coal sector. on the community was characterized by expert respondents as insignificant, while 22. Recognize early on the costs to members of the population generally had the community of sector restructuring, no knowledge of any organizations that and align benefits more closely with the could be considered representatives of costs. Ex-ante analyses of coal sector civil society. restructuring recognize the great benefits that accrue to the economy at large from 19. Environment. The environmental restructuring when the high level of impact of mine closure is severe and subsidization of the sector is eliminated generally well known, even if the exact and when workers released from the coal manifestation of the impact is highly site- sector produce greater value in other specific. Environmental remediation is a economic activities. At the same time, it standard component of mine closure is less common for such analyses to plans, and usually the single largest recognize the full range and scope of the component of the overall cost of mine costs that are imposed by restructuring closure. In the typical conditions of on the community, including the nega- limited financing, first priority is given to tive impact on downstream industries preventing damage resulting from the and on businesses dependent on house- restoration of the underground water hold purchasing power. More closely level, while such items as land reclama- aligning the costs and benefits of sector tion are often assigned a low priority. restructuring would help to minimize additional costs resulting from the failure 20. Most of the research participants to recognize upfront all the costs of sector were not technically qualified to discuss restructuring and from the protraction of the problems of the environmental im- sector restructuring. pact of mine closure. Not surprisingly in 10 23. This general recommendation has ing adequacy of financing is a necessary some important practical policy applica- but not sufficient condition for the proper tions, including: (i) broaden the base of management of the consequences of mine eligibility for social protection benefits to closure on the local level; measures to mitigate the negative employment im- build capacity are necessary to ensure pact of mine closure on dependent in- that the limited financing is put to its best dustries (possibly using an approach use. The evidence from Russia's experi- based on demonstrated proportional ence with local development programs dependence, as in the Russian experi- suggests that capacity-building is rel- ence), eligibility for participation in evant for local government and also for micro-credit programs, etc. and (ii) recog- the various non-governmental organiza- nize the role and potential of the munici- tions that constitute civil society and that pality in mitigating the impact of sector can make an important contribution to restructuring on the entire community, the development of adequate institutions where the costs of restructuring are on the local level. disproportionately concentrated. 26. Given the long-term nature of the 24. Notionally, the process of coal impact of mine closure and the local sector restructuring can be viewed as one response to it, it would be appropriate to in which subsidies that previously went plan long-term provision of technical to support loss-making production at assistance to communities. Because the uneconomic mines are shifted, for some capacity and needs of municipalities will period and in one form or another, to the differ and evolve over time, these pro- mitigation of the impact of mine closure grams should include an array of options on the mining community. The actual that can be tailored to individual munici- form of the assistance is a matter for palities and that are re-visited periodi- policy, judgment and negotiation. In cally to confirm their continued rel- view of the inevitable period of adjust- evance. In general, there is a high need ment and the "learning curve," it is likely for training municipal governments in a greater value to the community would comprehensive approach to strategic come from extending assistance over municipal development. Effective and time. This review of the situation five relatively low-cost technical assistance years after mine closure in three different can be offered through seminars that countries indicates that the coal munici- bring together representatives of munici- palities need additional targeted assis- palities for an exchange of experience. tance before being mainstreamed into Most important is to recognize the lead- national programs of inter-budgetary ing role of municipal governments in support; given the long time frames of directing the response to the dramatically the local response to sector restructuring, changed conditions of the life of the additional monitoring over coming years community and to provide them with the would be warranted to gain a more knowledge and skills they need for complete understanding of the long-term managing these complex processes. impact of sector restructuring. 27. Enhance the private sector devel- 25. Build capacity on the community opment component of the local develop- level. Communities in which mines are ment response. Mitigation strategies closed are confronted with an array of sponsored by governments and sup- new problems for which the capacity and ported by the World Bank tend to refrain skills embodied in the various local from advocating large-scale enterprise response systems are inadequate. Assur- development in the local development 11 Mine Closure and its Impact on the Community response, partly because of well-founded ing and other municipal network-borne concerns that the coal industry could services and so on. When long-term highjack this process, and partly because strategic development plans include of the sheer difficulty of carrying too infrastructure-intensive projects, the scale many development initiatives at once. of required investments is beyond the But unless restructuring is carried out in capacity of any level of government and an environment of growth that is suffi- underscores the relevance of a sustained cient to absorb the shed labor, most of the effort to strengthen the capacity of mu- jobs that are destroyed through mine nicipalities and regions to attract inves- closure will not be re-created through tors, to work with creditors, etc. programs supporting individual and small businesses. Facilitating the growth 31. Deepen efforts to rationalize the of jobs at larger enterprises could also be housing stock and social assets and particularly helpful in re-integrating into infrastructure. In the typical mining town the labor force vulnerable groups who in which mines are being closed, the are least able to compete in these con- population is aging and contracting. tracted labor markets. The focus of these Consequently, the need for certain types efforts should be existing larger private/ of social assets and infrastructure also privatized enterprises or, in exceptional declines. In recent years, most munici- cases, SOEs that have a demonstrated palities have understood the need to commitment to restructuring. rationalize expenditures through closing kindergartens, consolidating schools and 28. A private-sector development so on. The rationalization of the housing component could consist of provision of stock, while of greater significance given business consulting/technical assistance its impact on the municipal budget, is a to (i) existing larger enterprises that are considerably greater challenge than the already major employers, (ii) medium rationalization of public buildings, enterprises that are seeking to grow, and however, for three major reasons. First, (iii) local and regional governments that ownership of housing is sometimes are seeking to enhance the role of the legally ambiguous on the building level. private sector in the economic develop- Second, reliable information on building ment of their respective territories. occupancy is typically lacking. Third, efforts to rationalize the housing stock 29. The provision of assistance to are complicated by the partial occupancy existing large enterprises has certain of many buildings. potential pitfalls that should be guarded against, notably SOEs that are themselves 32. Capturing the gains from the in need of restructuring. Given the risk rationalization of the municipal housing that a large enterprise could absorb large stock is not an easy task. At the same amounts of finance without much effect, time, most municipalities cannot afford the type of assistance provided should to disregard the huge potential of re- be non-financial, such as strategic busi- forms in this area. In order to help ensure ness planning, competitiveness assess- the successful continuation of efforts in ments, and so on. this area, municipalities should strengthen their information base of the 30. Local and regional governments housing stock by working closely with can benefit from policy advice directed at neighborhood groups or (where they strengthening the investment climate, exist) building-level associations to increasing local/regional business com- identify unoccupied apartments. If fi- petitiveness, private provision of hous- nancing is available, a program of mu- 12 nicipal "buy outs" of unoccupied apart- ments could benefit the municipality as well as the seller. Reducing the number of unoccupied apartments would also be a positive step towards the reduction of non-payments for utility services that were reported in towns that have experi- enced high levels of migration. Enhance migration or transportation support to households. It is unlikely that direct financial support for migration could be made available in the volume required to match the demand that exists for such support in many communities in which mines have been closed. At the same time, recognizing that in many cases labor migration is a desirable phenomenon to help achieve a better balance between demand and supply on the local labor markets, there are social and economic gains to be had through strengthening local capacity to provide migration support to interested house- holds. In cases of short-term, temporary or seasonal labor migration, municipali- ties and civil society groups can help protect the interests of the people living in the mining towns by coordinating information on employment prospects and confirming the legitimacy of employ- ment offers that are extended from other locations. Efforts should be strengthened to remove barriers to migration, for example, housing or transportation. When families have decided to migrate permanently, or are considering perma- nent migration, municipalities can cap- ture gains through better tracking of the housing stock and apartments that are potentially abandoned, and possibly acquiring apartments from families wishing to migrate. In view of the trans- portation constraints that exist in many areas, a less radical solution to balancing the local labor market would be to pro- vide subsidized transportation for work- ers willing to travel to other cities for employment. 13 Mine Closure and its Impact on the Community 14 Mine Closure and its Impact on the Community: Five Years After Mine Closure in Romania, Russia and Ukraine INTRODUCTION rationale for a government's active role in supporting efforts to mitigate the social World experience in coal sector restruc- impacts of sector restructuring and to turing has shown that the process has create new jobs for laid-off workers. high up-front costs, is usually accompa- Historically, the settlements that grew up nied by various forms of protest as well around coal mines did so primarily to as longer-term distress in the affected serve the labor needs of the mines. Even regions, and is so politically contentious in countries with viable coal industries, that its implementation is often delayed advances in coal mining technology have or protracted over years. In the typical led to a high degree of mechanization in case of a State-owned industry, by the the industry, resulting in the steady time restructuring is recognized as inevi- downsizing of the labor force. The less table, the industry is heavily loss-making fortunate variant of sector restructuring is and unable to function without signifi- mine closure due to the exhaustion of cant, often unsustainable support from reserves that can be economically recov- the general budget. The imperative for ered, in which case all the labor is shed, the government in such a case is to con- usually over a short period. In either tain costs as quickly as possible. case, coal sector restructuring has an immediate negative impact on the local Restructuring of the coal sector labor market and economy. In addition to generally is a major policy initiative for the workers laid-off directly from the any government, not only because of the mines, jobs are lost in the auxiliary in- State ownership of the sector and the dustries that serve the coal mines and in lifeline provided to the industry through local service industries used by house- subsidies, but also for compelling politi- holds. The closing of mines also means cal and social reasons. In the "social the loss of enterprise and personal taxes contracts" between the State and coal for the local budget, which has obvious trade unions, the State generally assumes detrimental effects on the provision of a level of responsibility vis-à-vis the municipal services. sector that exceeds that reflected in its relations with other industries. It is striking that even in highly developed economies, the long-term The geographic concentration of coal impact of sector restructuring persists mining is another important aspect of the decades after its implementation.1 In the 1 Neil (1992) is particularly useful in providing an international comparison of how mining towns have coped with closure in several OECD countries. While the general experience of these countries differs in obvious ways from the experience of countries of Eastern Europe, from the point of view of the problems that face communities in which mines have been closed, the similarities are striking. 15 Mine Closure and its Impact on the Community United States, a country with a long Consistent with the front-end bias of tradition of labor mobility, the historic the costs to the budget of coal sector coal regions are plagued with endemic restructuring, most of the monitoring and poverty. In Appalachia, despite decades evaluation carried out to assess the of labor force downsizing due primarily impact of restructuring and the effective- to mechanization, coal remains the life- ness of the mitigation efforts tends to blood of the local economy in counties focus on the short term, when workers historically dominated by the industry in are being laid-off, and when the risk of the absence of other significant forms of social disruption and related political economic activity. The technological action is perceived to be at its highest. transformation of the industry has led to The research described in this report was a relatively small number of skilled, undertaken in an attempt to look beyond well-paid workers, while considerably the short-term effects of coal sector re- greater numbers of people, whose fami- structuring and the relatively narrow lies worked the mines over generations, confines of the sector and its workers to live in a state of chronic unemployment, the broader affected communities several or under-employment in the informal years after mine closure in three coun- economy, without developing market- tries in Eastern Europe and the Former able labor skills.2 Decades of Federal and Soviet Union (EE/FSU). other types of assistance, as well as the overall growth of the U.S. economy, have COAL SECTOR RESTRUCTURING IN done little to change the status of the EASTERN EUROPE AND THE FORMER Appalachian coal communities as one of SOVIET UNION the country's greatest development challenges. The countries of EE/FSU that have sig- In formal restructuring programs, nificant coal industries are no exception most of the financial costs of the social to the generalized description above of aspects of restructuring are incurred the impetus behind governments' deci- early on in the process. Severance pay- sions to engage in sector restructuring. In ments tend to be the single most costly addition, these countries possess some item as they are made to all workers unique features, or more extreme mani- separated from the industry, although festations of similar attributes, that dis- the magnitude of these payments varies tinguish their experience with coal sector depending on the conditions of restructuring from that of other coal- downsizing package and specific at- producing countries And while the tributes of the workforce. Some level of formerly socialist economies know many counseling and retraining is also usually other examples of "one-company towns," provided. Governments also usually the coal industry and the communities provide funds for temporary public dependent on it, nonetheless, possess a works programs in order to mitigate the number of characteristics that distinguish short-term negative employment impact them from other small and medium- of coal sector restructuring, providing sized towns dominated by a single in- some income to the workers and neces- dustry.3 sary services to the community. First, the coal sector has been in something of the avant-garde of indus- 2 Duncan (1992), particularly pp. 114-125 on the effects of coal industry downsizing on the regional labor market. 3 Expert Institute (2000) provides a thorough review and analysis of "one-company towns" in Russia. 16 trial restructuring in transition econo- activity. A coal mine cannot be refitted to mies, and governments in the region produce another product, while a factory have borrowed from the World Bank and conceivably can. Finally, extractive in- other international lenders to finance the dustries takes a particularly severe toll restructuring of the coal industry.4 While on the environment and physical infra- this may appear at first to be a formal structure of the community, to say noth- rather than substantive indication of ing of the health of those who work in the significance, in fact it reflects the priority industry or live in the area. that governments have accorded to coal sector restructuring in the general context Four countries in the region ­ Rus- of economic transition, and suggests that sia, Poland, Ukraine, and Romania (in the lessons of coal sector restructuring order of their prominence as producers) ­ that can be derived today may be of have undertaken major reforms of their broader relevance to restructuring pro- coal sectors in recent years. The backdrop grams yet to be undertaken. A second to these reforms has been the historic (related) factor distinguishing the coal transformation from the centrally sector and communities dependent on it planned economy to a market-based from other industries is that in all coun- system. For most countries (Poland is an tries the coal sector was (in some cases, exception to some of what follows, and is continues to be) unique among industrial also the one major coal-producing coun- sectors of the economy in the levels of try in which the research was not carried subsidization received from the national out5), the transition has been character- budget (indeed, it is ultimately this factor ized by the collapse of traditional manu- that drives the decision to embark upon factured output and the steady contrac- restructuring). Third, the industry was tion of the formal economy, raising for generally a major employer even in the some the disturbing prospect of de- national context prior to restructuring. In industrialization; high inflation in the Ukraine, for example, the entire coal early years that wiped out the savings of industry employment was estimated at many and that, in the former Soviet 4.3 percent of the country's labor force in Union, was brought under control 1994. Fourth, certain attributes of the through monetary policies so tight that labor and the labor force (underground liquidity left the system and pervasive work in brigades often carried out by non-cash settlements took root; contract- men who have worked only in the coal ing state budgets and chronic budget industry) complicate efforts at labor deficits; economic output that is not redeployment after workers are sepa- competitive in world markets; and gen- rated from the industry. Fifth, communi- eral social and economic dislocation. In ties dependent on coal (or extractive addition, the socialist legacy of the re- industries in general) are arguably more gion meant that mining enterprises not vulnerable than communities dominated only mined coal, but also provided by other types of industry given the housing and some social services to the volatility of energy commodity prices communities. Part of the impact of sector and, most fundamentally, the non-renew- restructuring arises from the transfer of able nature of the principal economic social assets to other agencies that at least 4 Annex 2 lists World Bank loans to Poland, Romania, Russia and Ukraine in support of coal sector restructuring. 5 Budget constraints limited the research to three countries; in view of the sustained positive economic growth in Poland, it was decided to focus on Romania, Russia, and Ukraine, which commenced their coal sector restructuring in the more typical and challenging conditions of economic contraction. 17 Mine Closure and its Impact on the Community Table 1: Coal Sector Restructuring in Four Countries Poland Romania Russia Ukraine (i) Year restructuring policy adopted 1998 1997 1993 1996 (ii) Number of coal extraction workers at commencement of restructuring 243,000 113,000 373,000 410,000 (iii) Number of coal extraction workers at end 2001 145,000 46,000 178,000 300,000 (iv) Projected number of coal extraction workers remaining at end of 133,000 18,000 160,000 150,000 restructuring* (v) Total reduction in mining workforce planned over period of restructuring 110,000 95,000 213,000 260,000 [(ii)-(iv)] Forecasted percent of workforce reduction over period of restructuring 45 84 57 63 [(v)/(ii)] Percent of forecasted workforce reduction completed by end-2001 89 71 92 42 [(ii-iii)/(v)] * World Bank estimates initially do not have the capacity or the prices were liberalized in the coal mar- resources to manage those assets. ket, subsidies in 1994 rose to the equiva- lent of US$ 2.76 billion, or more than 1 Coal-sector-specific issues that percent of GDP; the analogous propor- presaged the major restructuring pro- tion held in Romania in 1996. While the grams included: inauspicious geological privileged position of the coal sector conditions in many basins; obsolete (proclaimed by early socialist planners equipment and years of inefficient invest- the backbone of the industrial economy, ments; poor sector management; steadily and an important vehicle for transform- decreasing production; productivity ing the peasantry into the proletariat) and levels among the lowest in the world; the socialist legacy of self-reliance helped cross-subsidization from the most profit- perpetuate the belief that the sector was able to the most severely loss-making somehow absolved from the need to be mines; wretched health and safety condi- competitive, it soon became clear that tions; acute levels of non-cash payments such levels of subsidization were unsus- from customers, particularly the power tainable in the face of the other demands sector; and consequently, high levels of on the shrinking national budgets. From accounts payable to creditors, tax arrears, this recognition followed the decision, and months of wage arrears to workers. taken at the highest levels of government, to embark upon the restructuring of the Confronted with this inventory of coal sector. coal sector woes that erupted under the conditions of the early transition period, Table 1 provides an overview of the the initial response of governments coal extraction workforce in Poland, throughout the region was to allocate Romania, Russia and Ukraine before even higher levels of subsidies to the restructuring was launched, and the industry. In Ukraine, state support for the forecasted need for the downsizing of the coal industry in 1993 was equivalent to coal extraction workforce in each country. about 4 percent of GDP. In Russia, after As can be seen, coal sector restructuring 18 involves a substantial reduction of the introduction of incentive packages de- pre-restructuring mining workforce in all signed to reduce the labor force. In countries. In Poland, the least severe Ukraine, for example, the total coal sector case, the pre-restructuring coal extraction employment in 1994 was about 925,000 workforce is projected to be reduced by people (or, as noted earlier, about 4.3 slightly less than half. Restructuring in percent of the country's labor force.) Russia is the most advanced from the From 1994 to 1996 ­ that is, before the point of view of downsizing achieved by restructuring policy was adopted ­ this the end of 2001 relative to the total fore- number declined by 26 percent, to about casted need for downsizing, and least 685,000 (of whom 410,000 were classified advanced in Ukraine from this perspec- as extraction workers, as indicated in tive. Table 1). In sum, while the reduction in the mining workforce is an important In addition to the large numbers of indicator of the scope and impact of miners who are separated from the in- restructuring, it should be stressed that dustry through formal restructuring coal sector restructuring has impacted programs, the crisis conditions prevail- many more workers both in the coal ing in the industry typically lead to the industry itself and in downstream and large-scale departure of other workers. dependent industries. In these countries, These are both the various categories of sector restructuring has had a direct workers associated with mining but not adverse impact on several million people actually engaged in extracting coal at the living in a relatively limited total terri- face or new development work, and tory.6 Severance and other social mitiga- workers employed at auxiliary enter- tion benefits are typically made available prises and in other non-core activities (for only to the minority of those directly example, social services) that were previ- impacted by sector restructuring, the ously on the balance sheets of the coal miners who are separated from the in- enterprises. In Russia, for example, over dustry through formal mine closure or the period 1993-2001, some 354,000 non- downsizing programs. From this per- miners left the coal industry, which spective there is a disjoint between the exceeds by far the number of miners who sectoral parameters of restructuring left the industry. Finally, the mass programs and the actual social impact of downsizing of the coal industry inevita- restructuring. bly has a negative downstream impact on jobs in industries that supply the coal THE NATIONAL CONTEXT sector and in consumer-oriented indus- tries that suffer as a result of the decline While the impetus behind the decision to in household purchasing power. embark upon coal sector restructuring and the goals that are pursued in doing Furthermore, in some cases high so are broadly the same everywhere, wage arrears drove workers out of the individual countries possess unique industry before the adoption of formal attributes that influence the course of sector restructuring policies and the 6 A related indicator is the total population living in towns considered to be mining towns. While this is not an official statistical designation, it nonetheless has a working meaning in most countries due the existence of formal restructuring programs. In Russia, for example, at the end of 2001 the total population living in towns that are members of the Association of Coal Mining Cities was some 5.6 million, or slightly under 4 percent of the total population. In Ukraine, an estimated 5.7 percent of the total population in 2001 lived in municipalities considered to be mining towns on the criterion of the existence of at least one mine in the town, excluding Donetsk and Lugansk. 19 Mine Closure and its Impact on the Community sector restructuring and the long-term extensively developed under the previ- impact of industry downsizing on im- ous regime's drive for economic self- pacted communities and consequently sufficiency. The emphasis on increasing exhibit a wide variety of experience. This production irrespective of costs resulted diversity is the result of many factors, in a larger industry than was economi- including differing natural endowments, cally justified and which consequently the history of the exploitation of the coal required extensive budget support. As fields, patterns of economic and social the industry expanded, its relatively high development, the political economy of wages attracted large numbers of work- coal sector restructuring in the country, ers from all over the country. and the overall macroeconomic condi- tions that prevail in the country. This Romania is by far the smallest pro- section provides an overview of the ducer of coal of the countries examined salient aspects of coal sector restructur- here, and the mining towns are generally ing as it has taken place in Romania, considerably smaller on average than the Russia and Ukraine, including a descrip- analogous towns in Russia and Ukraine. tion of the mining towns in which the Nonetheless, the coal sector has been of research was carried out.7 significance on the national level in view of the all-Romanian character of its Romania workforce, the high levels of subsidiza- tion provided to the industry, and more Of the three countries in which research recently, as a result of the scope of the was conducted, Romania differs from the Government's sector restructuring pro- other two for the obvious reason that it gram and the attendant resistance to was not part of the former Soviet Union further layoffs by the unions and general and, indeed, occupied a unique position social unrest that has accompanied among the Eastern European socialist phases of the restructuring program. bloc during the regime of Nicolae Ceausescu. From the point of view of its The year 1997 marks the beginning experience with coal sector restructuring, of the Government's effort to restructure Romania is also unique for having the coal industry through a voluntary launched sector restructuring through a program rather than the involuntary voluntary downsizing program. And in method of mine closure. A generous the context of the World Bank's support separation package consisting of up to 20 to governments' coal sector restructuring months of wages as severance was of- programs in the countries of EE/FSU, the fered to workers in the coal and other case of Romania is of interest because it extractive industries constituting is the only country in which the Bank has Romania's mining sector. The resulting supported a major mine closure program rush to accept the package, which was through an investment loan as opposed two to three times the size of what other to sectoral adjustment loans.8 industrial workers were being offered, far exceeded the expectations of the Despite inherently poor conditions, Government and the trade unions. By the Romanian coal sector, like other December 1998, about 83,000 miners (out extractive industries in the country, was of a total of about 173,000 workers total 7 For more recent work on coal mining restructuring in these countries, see also Cernea and Kudat (1997). For Russia, see also VCIOM (1998) and VCIOM (1999). 8 The Ukraine Coal Pilot Project (3 mines) was also an investment loan. While the modality of World Bank support can have potentially important implications for those engaged in carrying out industrial restructur- ing programs, a detailed examination of this technical observation is beyond the scope of this report. 20 for coal and other mining industries) left lignite and brown coal mines) and re- the industry, including about 70,000 who lated social mitigation measures. In had accepted the voluntary redundancy addition to the mine closure program package (the others retired). that is being financed by the World Bank, the Government is financing the closure The Government also expected that a of mines with its own budgetary re- large portion of those accepting the sources; about 60 mines have been closed separation package would return to their under this program. native regions. This expectation, too, proved to be inaccurate. The separation The elements of the social mitigation of so many workers from the industry strategy supported under the World and the low level of successful out- Bank loan that are directed at longer term migration precipitated a sharp decline in aspects of alternative economic develop- general economic activity in the mining ment include the establishment of micro- regions as the redundancies triggered credit funds; employment and training further unemployment in local service incentive schemes (employers are given industries, which was not adequately an incentive to hire unemployed mining compensated for by labor redeployment sector workers); and workspace centers efforts. to promote enterprise development and support start-up enterprises through By January 1999, after the severance business incubators at former mine payments of the first large group of buildings. However, the Government has workers to accept the separation package been slow to implement most aspects of were largely consumed and it became this strategy for fostering local develop- clear that employment options in the coal ment and absorbing the labor shed in the regions were extremely limited, the process of mining industry downsizing. uptake of the separation package de- clined dramatically and mining unions Uniquely in the case of Romania, the went on strike in protest against contin- research was carried out in three mining ued high unemployment and the poor cities (in addition to the capital and results of efforts to create jobs in the regional centers): Anina (Caras-Severin mining regions. Social unrest emanated County), Motru (Gorj County) and from the Jiu Valley (which has suffered Uricani (Jiu Valley). As can be seen in from a particular dependence on the coal Table 2 (following para. 45), these are industry but also enjoyed the highest relatively small towns, particularly visibility and political weight of Anina and Uricani, that are highly depen- Romania's mining regions), and trade dent on the coal industry. Motru is a unions led a march on Bucharest. The young city, having been established in Government managed to contain the 1966 as a mining town. Motru is also unrest through a negotiated settlement noteworthy for the facts that its workforce with the striking miners and the restruc- is mostly native to the region and that its turing program has gone forward al- land is good for agricultural use. Uricani though employment opportunities in the is located on the periphery of the mining regions remain limited. conurbation of the Jiu Valley. While agriculture is not an option in Uricani (or The World Bank's support to the anywhere in the Valley), the town has Government's restructuring program derived some benefit from the political began later in 1999, with the provision of visibility of the Jiu Valley and the related a loan targeted for the physical closure of financial support that has flowed to that 29 loss-making mines (20 of which are region. Anina, in contrast, was included 21 Mine Closure and its Impact on the Community in the research project precisely because linked to the successes in removing loss- of its isolated situation and the absence making mines from production. of its political influence. Although lo- cated only 34 kilometers from the larger Aspects of the social mitigation city of Resita, Anina is particularly response in Russia are of note. Concern- crippled by problems of public transpor- ing statutory payments made to affected tation: the train that connects Anina to individuals, as in other countries, the Resita takes six hours to cover the short social protection policy in Russia at the distance. The road that connects the two beginning of sector restructuring was towns makes it possible to make the trip limited to miners laid off from closing in considerably less time by car or bus, mines. Over time, this policy was ex- but these forms of transportation are panded to include workers laid-off from generally out of the reach of many resi- continuing mines and, eventually, work- dents of Anina. ers of auxiliary enterprises that were demonstrably directly impacted by mine Russia closure. The extension of eligibility for severance and other payments to this Of countries that have undertaken coal latter group was late in coming, however, sector restructuring anywhere in the having been approved by Government in world, Russia is noteworthy for a num- October 1999, and the problem of lack of ber of reasons. Even after the closure of financing for wage arrears and severance 183 heavily loss-making mines over a for workers laid-off from auxiliary enter- few years, Russia remains one of the prises remains acute in some areas. As largest producers of coal in the world. for programs directed at the community, The downsizing of the workforce has also the long period of coal sector restructur- been significant: the overall industry ing in Russia has allowed for a relatively workforce (including workers involved long-term focus on local development in extraction, on the surface, in adminis- and job-creation programs, which are tration and social assets, etc.) has de- examined in detail later in this report. clined from about 900,000 in 1992 to 328,000 by the end of 2001. The restruc- Russia has also borrowed more from turing of the coal industry has been in international lenders for coal sector progress for almost a decade in Russia: restructuring than Romania, Ukraine and de facto restructuring began in 1993, when Poland combined: over the years 1996- the price of coal was liberalized. 2001, the World Bank disbursed $1.3 billion to Russia in the form of adjust- Of the countries under review here, ment financing, and the Japan Bank for Russia has progressed farthest in imple- International Cooperation matched $800 menting coal sector restructuring, which million of these disbursements, for a total in addition to the program of closure of of $2.1 billion. The World Bank also loss-making mines and related social extended a $25 million technical assis- protection and mitigation programs has tance loan to assist the Government of included notably the privatization of the Russia in the implementation of its coal sector. Of note, too, is the elimination of sector restructuring program. The operating loss subsidies at the end of country's own budget funds devoted to 2001, which is an achievement of enor- the restructuring program over the years mous significance that not all coal-pro- 1998-2001 (corresponding to the period of ducing countries can claim even after the World Bank's second coal sector decades of restructuring, and is directly adjustment loan for $800 million, which 22 was matched with the funds of the JBIC) significance in the overall production of were equivalent to about $773 million.9 the Kuzbass peaked in the 1950s, and the town's coal industry has been in steady The remaining challenges in coal decline since the mid-1980s. The center of sector restructuring in Russia can be the industry has shifted to the south of classified into those that pertain to the the oblast, a few hundred kilometers impacted communities and individuals, away, and it is clear that Anzhero- which is the subject of this report, and Sudzhensk's significance as a coal town those that pertain to the industry itself, will continue to wane: two major mines which will not be examined here. The have been closed in recent years and one achievements of restructuring notwith- remains in operation.11 At the same time, standing, the challenges to the viable part the coal industry continues to provide of the industry are also formidable.10 about 30 percent of Anzhero-Sudzhensk's budget revenues. Anzhero-Sudzhensk is Underlying Russia's impressive home to three major employers outside experience with coal sector restructuring the coal industry: a machine-building is a great range of experience on the factory, a pharmaceutical factory, and a regional and local level. In some regions, glass factory. Anzhero-Sudzhensk also such as the Kuzbass, a major coal basin has some important infrastructure advan- in Western Siberia, the coal industry has tages: it is located on the Transsib rail- good future prospects, and the remaining way, and the fiber optic cable running core of the industry has been able to from Japan to Europe passes through the absorb much of the labor shed in the town. course of mine closure. Other regions, such as the Moscow basin in Tula Oblast, Novoshakhtinsk is located in Rostov or parts of the Eastern Donbass region Oblast, in the Eastern Donbass coal basin (which geologically is part of the on the border of the Ukrainian Donbass, Donbass, Ukraine's major coal basin), with which it shares a common history, have been severely impacted by mine economic and geological conditions and closure, and remain depressed regions. extremely limited prospects for the coal Still other coal regions, notably those in industry. Novoshakhtinsk has been hard- the Far North and the Far East, face the hit by mine closure under the restructur- problem of providing for the relocation ing program, having seen the closure of of thousands of workers and their fami- five mines in recent years and probably lies back to "mainland" Russia from facing the prospect of more closure in the these remote territories with inhospitable months to come. At the same time, thanks climates that were developed extensively to the particularly dynamic efforts of the during the Soviet era. city government, Novoshakhtinsk enjoys a good reputation for having established Anzhero-Sudzhensk, in the north of an effective infrastructure for the devel- Kemerovo Oblast, is the oldest coal town opment and support of small business. of the Kuzbass. Anzhero-Sudzhensk's The city was one of the municipalities 9 The restructuring program consists of the social protection, physical closure and local development programs. In addition to these subsidy categories, the Government disbursed subsidies that are not consid- ered as part of the restructuring program in this context (for loss-making production, investments, safety etc.) 10 A recent and fairly extensive treatment of the challenges to the viable, mostly privatized part of the coal industry can be found in Artemiev and Haney (2002). 11 Data on unemployment underscore the severity of impact of mine closure on Anzhero-Sudzhensk. In 1998, some 83 percent of the officially registered unemployed in the city were former coal industry workers. 23 Mine Closure and its Impact on the Community selected for participation in the European financing and the exact mechanism are at Union's TACIS-MERIT program.12 present unknown. The significance of Anzhero- Ukraine Sudzhensk and Novoshakhtinsk as mining towns that have suffered from Ukraine possesses a large and old coal mine closure is illustrated by their status industry that is now for the most part as recipients for subsidies for local devel- uneconomic with a particularly poor opment programs. Of the several dozen productivity and safety record. In 1996, municipalities which received subsidies the Government adopted a restructuring from the Federal budget to finance local policy consisting of a program of closure development programs (the number of of about 20 uneconomic mines per year, municipalities averages around 65, improvement of the operation of the varying from year to year depending on mines with the best long-term prospects, the mine closure program), both cities and provision of production subsidies to were among the top five recipients in mines which have no future but which 1999, each having received on the order the Government had decided against of $1.2-1.3 million. In 2000, Anzhero- closing immediately for social and politi- Sudzhensk received about half the cal reasons. In the same year, the World amount of the previous year, while Bank extended two loans to the Govern- Novoshakhtinsk again received a little ment in support of coal sector restructur- over $1 million, reflecting the greater ing. The Coal Pilot Project helped initiate impact of mine closure in that town. the restructuring program through the closure of three mines, and was followed In mid-2002, coal sector restructuring by an adjustment loan in support of coal in Russia is at an advanced stage. Some sector restructuring. To date, about 90 of the program's major goals have been mines, mostly in the Donbass, have been achieved, such as the privatization of the taken out of production and about 190 industry and the elimination of the subsi- mines are still in operation. dization of loss-making production, and the fundamental performance indicators In September 2001 the Government of the industry itself in recent years have adopted a program called Ukraine Coal been encouraging. With the exception of 2001-2010 that, in essence, reverses its one major company in Rostov Oblast, it earlier commitment to carrying out a is unlikely that more layoffs will be comprehensive reform of the coal indus- effected in connection with mine closure. try, and reverts to the earlier policy of These and other factors indicate that 2002 supporting increased production may become the final year of formal through high levels of subsidization of implementation of coal sector restructur- the industry. The motivation behind the ing in Russia as it has been known in change in policy probably has many recent years. At the same time, it is likely facets, including: the influence of the that the Government will continue to vested interests that benefit from the finance efforts to make good certain subsidies that are presently being chan- critical liabilities, such as environmental neled to the industry; the continuing damage, social infrastructure and hous- poor general economic condition of the ing and relocation, although the level of country and concerns over exacerbating the difficult socio-economic situation of 12 TACIS-MERIT provided assistance to five mining municipalities in Russia to help them formulate and implement an integrated strategy for municipal development focusing on improving the diversification of the local economy, strengthening the private sector, and enhancing local business development. 24 the coal regions; the energy security development and reconstruction of light argument, according to which coal, as an industry (particularly textiles, a pattern indigenous energy source, deserves that has followed mine closure in other special protection from the Government, countries). In Gorlovka, one of the larger including not holding the industry to the cities of Donetsk Oblast with a popula- strict parameter of profitability; and the tion of just under 300,000, three mines failure to date of municipalities heavily have been closed. The city is home to a dependent on the coal industry to diver- large pharmaceutical factory employing sify their economies. It is also reasonable more than 5,000 workers as well as a to expect that the specific experience of number of other industrial enterprises. the first significant wave of mine clo- sures, which had a particularly harsh CONCEPT AND STRUCTURE OF THE RE - impact on some municipalities, would be SEARCH an influential factor in recent pressures to abandon the earlier policy of setting the The research described in this report was industry on the path to self-financing carried out with the goals of assessing through closure of heavily loss-making the longer term impact of mine closure mines, among other means. on the entire community, evaluating the effectiveness of the mitigation policies The two municipalities selected for that have been used to date, and devel- the research in Ukraine, Gorlovka and oping policy recommendations to ad- Stakhanov, are both located in the dress the problems identified by the Donbass, the traditional center of coal research. While it is premature to speak mining in Ukraine and home to some of of the truly long-term impact of mine the oldest mines in the entire region (the closure on the community, the subject of Donbass was industrialized in the early the research was communities in which part of the 19th century.) Gorlovka is large-scale downsizing of the mining located in Donetsk Oblast, which is one workforce began at least five years ago, of the most significant industrial regions in 1997 (although in many cases mines of Ukraine, indeed, of the former Soviet were also closed subsequently). In order Union. Neighboring Lugansk Oblast, to capture insights on current phenom- where Stakhanov is located, is also ena and trends that are poorly reflected heavily industrialized and densely in statistics, the research was designed populated. The long history of the settle- primarily as a qualitative study in two ment and development of the Donbass phases consisting of in-depth interviews has resulted in a high density of popula- with national, regional and local experts tion and a pattern of urban development and key informants (in the first phase) in which coal municipalities often run and impacted groups of the population together seamlessly, without apparent and "response" groups such as local borders between municipalities. entrepreneurs (in the second phase). The first phase of the fieldwork for the quali- Stakhanov has been particularly tative research was carried out over the hard-hit by the closure of uneconomic period September-December 2001, and mines, with all four of the mines operat- the second phase fieldwork was carried ing in the city having been closed almost out in February-March 2002. at the same time. Given the scope and timing of the mine closure, the down- In addition, the research carried out stream impact on other industries was in Ukraine included a quantitative com- particularly severe. Alternative economic ponent in which survey data were col- activity in the city includes notably the lected on employment and living condi- 25 Mine Closure and its Impact on the Community tions in the mining municipalities as well household coping strategies; (v) environ- as in municipalities in the rest of the mental impact of mine closure; (vi) mu- country. The survey fieldwork was nicipal, social and utility services; and carried out in Ukraine in January-Febru- (vii) civil society (awareness, participa- ary 2002. Also reported here are the tion). Questions on any given issue were findings of a recent evaluation of the formulated with respect to the compe- viability of jobs created under local tence and concerns of the given sample development programs in Russia that group; thus, for example, local adminis- was financed by the World Bank loan tration officials were interviewed on their providing technical assistance to the vision for developing an alternative Russian Government's coal sector re- economic base, while local entrepreneurs structuring program and carried out by were asked to evaluate the climate for independent Russian consultants. business and the effectiveness of policies to facilitate the development of economic The main areas of investigation activity outside the coal sector. were: (i) the overall economic and social impact of restructuring; (ii) employment Selection of research sites. Contrary impact of mine closure; (iii) development to the popular image of the mining town of an alternative economic base; (iv) and the tendency in common parlance to social consequences of mine closure, generalize experience, coal mining towns Table 2: Research Sites: Population, Mine Closure and Coal-Sector Employment Coal-mining workforce as Country, Population Number of percentage of total workforce municipality (year) mines closed Pre-restructuring Current Romaniaa Anina 10,695 (1997) 10,575 (1999) Five 40 (1997) 28 (2000) Motru 26,869 (1997) 26,472 (2000) Four 50 (1997) 27 (2000) Uricani 13,078 (1997) 11,845 (2000) Five 74 (1997) 37 (2000) Russia Anzhero-Sudzhenskb 106,300 (1996) 99,500 (2001) Two 27 (1994) 14 (2000) Novoshakhtinsk 121,300 (1996) 117,400 (2000) Five 22 (1996) 14 (2000) Ukraine Gorlovkab 338,100 (1995) 293,800 (2000) Three n.a. 9 (2000) Stakhanov 112,700 (1995) 99,000 (2001) Four (all) 19 (1996) 0.3 (2000) a) Redundancies in the mining sector in Romania were due not to mine closure, but to voluntary downsizing primarily in 1997 and, to a lesser extent, in 1998. b) Mining workforce as percentage of employed. 26 and settlements display a great diversity coal production were also excluded as when considered from the point of view potential research sites even if several of such basic indicators as the composi- mines had been closed, as the continued tion of their populations, the local dominance of the coal sector in the local economy's dependence on the mining economy would be the determining sector, the nature of other existing forms factor in the local labor market dynamics of economic activity and the prospects and in local strategic planning, thereby for developing them, and so on. The rendering these locations of limited selection of the mining municipalities as relevance to the given research. participants in the research was based on a combination of quantitative and quali- As a final stage in the selection tative factors. The first phase of selection process, the quantitative criteria were was based on two quantitative factors: (i) augmented with such qualitative consid- a high pre-restructuring share of coal erations as the imminence of local elec- sector employment in the overall tions, proximity to other towns with workforce of the municipality; and (ii) a more diversified economies, the desir- high impact of coal sector restructuring ability of regional variation in the final as measured by a substantial reduction selection, etc. By design, two municipali- in coal sector employment as a share of ties were selected in each country; in the total employment in the municipality. case of Romania, circumstances allowed This seemingly straightforward selection for the inclusion of a third municipality task was complicated by difficulties in in the research, which made possible the collecting comparable data on the selection of a greater range of municipali- sectoral structure of municipal employ- ties. ment, although this problem was gener- ally overcome through various means.13 Table 2 provides an overview of the seven municipalities selected as research The second stage of the selection of sites, with data on the population, num- municipalities was based on the exist- ber of mines closed in the restructuring ence of alternative economic activity or period, and data on the dynamic of the the possibility of developing it. Truly coal mining workforce as a share of isolated mining communities that were overall municipal workforce. The coal developed with the sole purpose of municipalities in Romania are of note mining coal and in which no other mean- both because they are smaller, by far, ingful economic base was developed than the research sites in the other two (such as the mining towns in Russia's Far countries (where, indeed, few coal mu- North) were excluded from consideration nicipalities are as small as their Roma- as research sites in view of the limitations nian counterparts), and for the consider- their isolation places on the options ably greater share of the coal sector available to these communities for future employed in the overall municipal development. Such communities, how- workforce in the municipalities in Roma- ever, constitute a small part of the total of nia. These two factors reflect certain coal municipalities. For similar reasons, historical peculiarities of the develop- the relatively small number of mining ment of the Romanian coal industry as towns with good future prospects for noted earlier, when the industry under- 13 In the Soviet Union, data on coal sector employment were maintained without regard to the municipality, as this as such was not part of the sector. While such data have gradually become more available in the post-Soviet area, inconsistencies in their collection remain, as well as discrepancies between data reported by various agencies in the same location (municipal governments versus local branches of the national employmentoffice,forexample.) 27 Mine Closure and its Impact on the Community went a great expansion and labor was of the population impacted by mine attracted from around the country to the closure and response groups such as coal regions under the previous regime's local entrepreneurs. Seven groups were drive for self-sufficiency. The coal towns identified: in the two former Soviet republics, in contrast, were established as mining · presently unemployed or underem- centers in the more distant past and are at ployed coal miners who were laid-off a more mature stage of their develop- in connection with mine closure in ment, with significant in-migration hav- 1997 (or left voluntarily, in the case of ing abated long ago and greater diversifi- Romania); cation having been introduced in the · wives of unemployed (underem- local economies. At the same time, it is ployed) miners; possible that methodological differences · coal sector workers laid-off in 1997 in data collection also account for some and presently employed in any capac- of the cross-country difference in the ity; figures for coal sector employment pro- · unemployed young people (not vided below.14 former miners); · former miners who received training Selection of research participants. in another profession; Annex 1 provides a detailed description · local individual entrepreneurs who of the research sample. In each country, used the services of local business the first phase of the research consisted of incubators and/or received micro- in-depth interviews with national, re- credit to open their own businesses gional and local experts and key infor- (where such programs exist); mants, the majority on the local level. In · local entrepreneurs with 10 or more Romania, the first phase consisted of a employees. total of 80 interviews (for three research sites and the related regional capitals and The findings of Phase 1 indicated the Bucharest); in Russia, 44 interviews; and relevance of a primary focus on the in Ukraine, 49 interviews. The Phase 1 employment impact of mine closure and sample consisted of national-level offi- locally-implemented policy responses to cials working at the national level as well the changed circumstances of the local as at the local level (local representatives labor market and the structure of the of the employment office, etc.); national- local economy. This, in turn, resulted in a level non-governmental (civil society) de-emphasis on specifically defined groups, including trade unions; local socially vulnerable groups (although it officials; other local experts and repre- was recognized that some of these sentatives of civil society groups; and groups could be captured in the Phase 2 independent experts (national and/or sample groups as described above), and local). in a limitation of the Phase 2 selection to working age respondents who are actual The preliminary findings of the first or likely participants in the labor market. phase were used to guide the design of Other factors underpinning this articula- the Phase 2 sample, which consisted of tion of the Phase 2 sample included the in-depth interviews with various groups recognition that (i) members of socially 14 For example, in the Russian mining city of Kiselevsk (not a research site), in the assessment of the deputy mayor for economic affairs (who is herself a veteran of the coal industry), although the official employment statistics indicated a 35 percent share of the coal sector in total municipal employment (2000), when coal sector employed who for various reasons are classified under other sectors are considered, coal sector employment increases to 48 percent of total municipal employment. 28 vulnerable groups are generally recipi- future employment and in some cases ents of some sort of benefits through social stature, and municipalities which nationally defined programs (pensions, have lost revenues and gained increased disability, child support, etc.) and would expenditure and other sorts of responsi- consequently be less directly impacted bilities and problems. by mine closure than individuals com- peting on the local job market; and (ii) Before the review of the substantive particular aspects of social vulnerability findings, an observation on the differing or manifestations of relatively new prob- quality of the research results depending lems such as the migration of the work- on the level of the respondent will help ing-age population, or the emergence of establish a general framework for inter- drug abuse as a local problem were preting the results. National-level ex- captured during the Phase 1 interviews perts, whether in the Government or and (in Ukraine) the quantitative survey. independent, tend to have a broader view of the entire coal sector restructur- RESEARCH FINDINGS ing process and a greater appreciation of its rationale in the context of national Common Problems and Experiences policy. To the extent that they identify personally with the articulation and The most important findings that were implementation of the coal sector restruc- common to all three countries are pre- turing policy or, more generally, with a sented here, together with the experi- centrist view, they may be inclined to ences of individual countries when they defend the Government's policy as a have broad application to the other principal. A particular view sometimes countries or to industrial restructuring encountered among these respondents is programs in general. This presentation of that the coal industry and coal munici- general results is followed by selected palities have been relatively privileged issues that are particularly well illus- vis-à-vis the rest of the country in that a trated by the experiences of individual special program of restructuring has countries. As coal sector restructuring been implemented only for the coal was commenced in different years and its industry and the coal municipalities have course has run differently in each coun- as a result enjoyed a level of support, try, the inevitable disclaimer concerning even patronage, that sets them apart, the difficulties of generalization must be although the entire country is going made. through difficult times. The positive assessments of coal sector restructuring The findings presented here do not that were articulated in the course of the purport to constitute an assessment of all research were generally given by respon- aspects of the programs of coal sector dents on this level. restructuring that are being implemented in Romania, Russia and Ukraine. The Local experts and members of the scope of this inquiry was limited to the population of the impacted communities, impact of the rapid and large-scale con- in contrast, view the term "restructuring" traction of coal sector employment in as synonymous with "mine closure," and communities dominated by the coal often expressed the view that the process sector. Thus, by design, most (but not all) was chaotic, unplanned and carried out of the sample is composed of those who in haste without regard for the long-term have lost something as a result of coal consequences that the affected communi- sector restructuring: individuals who ties and individuals have been suffering. have lost employment and prospects for Too many mines were closed too 29 Mine Closure and its Impact on the Community quickly, and (some believe) sometimes ties, most notably by the national govern- even the wrong decisions were made ment in the form of reduced subsidiza- about mine closure. For respondents on tion and sometimes revenue from the this level, the closure of mines was a privatization of viable enterprises, while severe blow to the life of the community, the negative impact is concentrated and the human price has been high.15 The locally.16 One implication of this discrep- distress and dislocation caused by mine ancy between where the benefits and closure are all the greater when con- costs of sector restructuring accrue is the trasted to the industry's once privileged likelihood that the costs of coal sector status and the high wages that were paid restructuring may be underestimated in the coal industry; many individuals go during the initial period of analysis and through a difficult process of psychologi- preparation for implementation of the cal and social adaptation to their changed reform program, particularly as concerns circumstances. the impact (cost) of restructuring on workers and others outside the coal The view that the social aspects of sector.17 A related implication of the coal sector restructuring and specifically inherent alienation between the different the various social mitigation policies and levels of stakeholders is that long and job-creation programs were given short difficult periods of transition and adapta- shrift or were late in the implementation tion are probably inevitable in cases of was voiced by respondents on all levels industrial restructuring. Mitigation in all countries. The disjunction between policies are necessary, but it is also the sectoral limitation of the benefits important to recognize their limited provided and the actual broader social potential and the time lag between the impact was raised as a matter of concern imposition of the social and environmen- (indeed, in some cases benefits have been tal impacts of mine closure and their limited even within the coal sector, with eventual mitigation. miners the most privileged, while other workers have not been eligible for sepa- The research findings have been ration benefits). grouped into the following broad areas of impact which are discussed in detail The point of this distinction between below: the various levels of respondents is to underscore the extreme degree of alien- · Employment and Labor Migration ation of basic positions, which is a condi- · Municipal and Social Services tion resulting from the very nature of · Community Cohesiveness sector restructuring. The gains of coal · Environment sector restructuring are generally cap- tured outside of the impacted communi- 15 A notable (but limited) exception to this typical local view was made in reference to the particularly severe levels of wage arrears that prevailed in Russia and Ukraine in the early and mid-1990s. Workers received direct gains from mine closure when their separation from the industry was associated with repayment of their wage arrears (which in the average case in Russia were much greater than the severance that was also paid). 16 To the extent that restructuring succeeds in putting the industry on a more stable footing, workers retained in the industry are, arguably, local "winners" of the restructuring process. At the same time, the interviews with the current coal sector workers revealed a general sense of insecurity about the prospects of sustained, long-term employment in the industry, which is not surprising given that in most cases, restruc- turing is far from complete. 17 Annex 4 provides an overview of the various cost-benefit analyses carried out in the context of World Bank investment loans in support of coal/mining sector restructuring in Romania and Ukraine. 30 Employment and Labor Migration coal municipalities do not exist in a vacuum, separated from the rest of the By all accounts and in all research sites, country. But the general economic diffi- the problem of employment is one of the culties of most transition economies are most serious and long-lasting conse- intensified in the mining towns by the quences of mine closure, even five or destruction over a short period of a large more years after the mass contraction of number of jobs in the industry that is the mining workforce.18 And while the dominant in the local economy and the overall economic and employment situa- downstream destruction of jobs. tions differ dramatically between the research sites, mining communities in all Viewed broadly, there are two basic three countries have in common not just types of response to the dramatically the problem of the quantity of jobs but worsened local labor market conditions the quality as well. The scarcity of long- following mine closure: (i) local develop- term, stable jobs providing livable wages ment and job-creation efforts, and (ii) is a problem everywhere, including migration. Both types of response are places where research respondents re- considered here. ported an improvement in labor market and general economic conditions in Local development and job-cre- recent years. The long-term unemploy- ation. A standard policy response to the ment and under-employment that is high unemployment that can arise from endemic in the mining towns has led to a industrial restructuring is to foster the worsening of living standards for many diversification of the local economy who remain, and the impoverishment of through creation of jobs outside of the some; a qualitative change in the nature impacted sector and to seek to improve of employment, with the emergence of the match between the available jobs and informal, insecure forms of employment workers' skills through various active at lower wages with fewer legal and labor market policies. In Romania, Rus- social safeguards, including the loss of sia and Ukraine, among the common accumulation of service in the formal mechanisms used in pursuit of these employment system (some employers goals are: the provision of micro-credits wish to avoid paying the social taxes (sometimes grants) to individual entre- associated with formal employment), and preneurs and subsidized credits to small sometimes outright fraud of workers and medium enterprises; technical assis- when they are not paid for labor in the tance and support for business develop- informal sector; to significantly changed ment through business incubators and perceptions of future employment and workspace centers; and programs match- life prospects among young people; and ing job-seekers with potential employers to the emergence of groups that are through subsidized on-the-job training or particularly vulnerable in these highly training in another profession, in addi- competitive job markets where the de- tion to the more traditional local employ- mand for jobs has consistently out- ment offices that provide information on stripped the supply of jobs over several vacancies to job-seekers. Public work years. To be sure, these problems are not programs are also a common and impor- unique to the coal municipalities, and the tant policy response to mass unemploy- 18 Quantitative surveys and analysis of official statistics have also found a more difficult employment situation in mining regions after the implementation of sector restructuring. See, for example, the analysis of the survey carried out in Ukraine later on in this report and NAD (2001), which found that the decline in employment in mining regions in Romania was more dramatic than the decline at the national level. 31 Mine Closure and its Impact on the Community ment, although these are generally transi- strategy for dealing with the severe tional programs that do not seek to create employment problem of the mining permanent jobs. Sometimes these locally- regions are not yet in place. These re- focused programs are complemented search findings are consistent with stud- with efforts to attract new investments by ies of active labor market programs, even conferring upon the region a special in countries where they have been car- status (e.g. "disadvantaged region") that ried out for years and where more re- provides such enticements as tax holi- sources have generally been available to days. In regions in which mine closure facilitate program implementation and to has taken place, it is also common to monitor and evaluate programs than has promote the use of the industrial space been the case in the countries in which and surface buildings of the closed mines research was carried out.19 for alternative industrial purposes. The case of Russia (which also expe- Severance payments to laid-off rienced a long learning curve with lost workers are also sometimes considered opportunities along the way) is worthy of by policymakers as a form of seed capital mention in view of the relatively long that workers will use to start businesses, period of the consistent and well-fi- and/or to migrate. In the countries under nanced implementation of the review here, this expectation was most Government's coal sector restructuring prevalent in Romania, where the terms of program and specifically the local devel- the severance package were more gener- opment programs that were launched in ous than in the other two countries. 1996 and are still receiving financing. An evaluation of these programs was re- Among the general observations that cently carried out, and the results of this can be made on the basis of the research evaluation are described in the country results from all locations is that there is a section below. long and steep "learning curve" of sev- eral years before the various local devel- The second general observation is opment efforts and active labor market that while support to individual and policies are established and begin to small businesses is an important compo- have a positive impact. There is a dis- nent of the policy response to the em- crepancy between the swiftness of the ployment problem that arises from mine emergence of the problem (large-scale closure, and one whose potential has not unemployment following industry been fully realized in most locations, it is downsizing) and the capacity of response equally important to recognize the limit systems on all levels to react, even under to the job-creation and economic diversi- the best of circumstances (which nor- fication capacity of policies supporting mally do not prevail). Romania is argu- micro-credits, loans to small businesses, ably at one extreme in this regard, having etc. The research found several examples stimulated a mass downsizing of the of such support programs that respon- industry in 1997 through a voluntary dents characterized as successful and separation package without having in useful but "a drop in the bucket" of the place any mechanisms to absorb the shed total need. Moreover, the development of labor or to otherwise foster job-creation. small businesses, which are overwhelm- Since then, the Government has been ingly oriented to local markets and slow to implement its strategy for local household consumption, is constrained development, and critical elements of the by the limited household purchasing 19 See, for example, Dar (1999). 32 power in communities impacted by mine the role of general economic growth in closure. There is a qualitative limit to absorbing the labor that is shed through these programs as well: the skills and mine closure. A Russian labor expert appetite for risk that are required to who participated in the research identi- survive as a small entrepreneur, or even fied three distinct phases of the employ- as an employee of a small entrepreneur, ment impact of mine closure and the are particular, and this research is consis- capacity of local and regional labor tent with the findings of many social markets to absorb the shed labor against surveys that indicate that only a small the background of general economic portion of the population considers the developments in Russia in recent years: small business sector as a viable option for themselves. And while the small (i) the initial period of mass layoffs business sector is beginning to make an through mine closure, when the appreciable contribution to revenues economic situation in the country collected by municipal budgets, that was not very good, with the result contribution is still relatively small (at of high unemployment and difficult highest around 15 percent of total rev- social consequences (one may recall enues in the cases reviewed here). the "rail wars" of 1998 when miners occupied the country's major rail Here, too, Russia's experience may arteries). At this initial stage local be informative. The financing made development programs were not in available to coal municipalities for local place; that is, the policy response development in the years 1998-2001 was was inadequate. sufficient in the sense that the munici- (ii) the subsequent period of the begin- palities themselves acknowledged that ning of the adaptation, characterized they had reached their absorptive capac- by the establishment of the local ity to assimilate these funds. Even under development programs in their conditions of relatively efficient imple- present form in 1998 and the mentation of the funds allocated to local operationalization of other policy development programs (that is, not responses; and counting the first two years of implemen- (iii) the latest period, beginning approxi- tation, 1996-97), the number of jobs cre- mately two years ago, characterized ated over the reference period was by a dramatic drop in unemploy- equivalent to only about 18 percent of ment against the backdrop of eco- those who entered the job market as a nomic growth in Russia. result of mine closure. In the course of the research, the mayor of one of the cities that has been one of the largest The remainder of this section consid- recipients of funds for local development ers selected issues of relevance to local programs expressed the view that the development efforts and the local labor development of the small business sec- market. tor, while one of the uncontested achieve- ments of recent years, had probably Temporary public works programs. reached its limit. Public work programs are commonly implemented in response to the condi- A final general observation which tions of high unemployment that follow follows from the second observation, and the downsizing of the industry through also is suggested by the Polish experi- closure or voluntary separation pro- ence (and inversely by the Romanian grams. Although typically offering low experience), concerns the importance of wages and temporary by design (and 33 Mine Closure and its Impact on the Community hence, not an effective means for address- difficulties in carrying out systematic ex ing the longer-term problems of job- post evaluation of the programs after creation and economic diversification), some appropriate period of implementa- public work programs can nonetheless tion.20 be an important part of the initial policy response to mine closure in that they A particularly important and rela- help relieve social tension, provide some tively low-cost aspect of ensuring the level of income to workers, and are success of these programs is the estab- focused on projects of social value (re- lishment of an infrastructure to support pair of social infrastructure, maintenance small business, e.g., business incubators, of the housing stock, and so on). Public workspace centers and other facilities works programs are also amenable to where individuals can receive assistance targeting assistance to more disadvan- in preparing business plans, successfully taged groups, such as older workers or navigating the bureaucratic requirements women. Priority should be given to of starting a new business (including establishing these programs early on in simply assistance in properly completing the restructuring process, before initiat- forms), courses in the fundamentals of ing the downsizing of the industry. business, marketing, management, sales Eligibility for participation in public and advertising, and so on. The experi- works programs should be open to all ence of Novoshakhtinsk is noteworthy in who are interested (and willing to work this regard, and is described below in for relatively low wages), that is, not Box 1. In a number of locations, Euro- limited to the coal sector. pean Union programs were singled out as effective examples of this kind of Micro-credits, small and medium busi- technical assistance, although respon- ness development. Policies that promote the dents regretted the small volumes of development of individual entrepreneur- these programs and the fact that they ship and the SME sector are a standard were typically under implementation for component of the response to industrial only a couple of years. restructuring. Even if the demand for this kind of assistance is limited, as is the Experts respondents in several potential of small business to contribute locations noted that their experience to the resolution of the employment demonstrates the relative desirability of problem, at least in the assessment of expanding jobs at existing enterprises municipal officials who participated in compared to starting a new enterprise. the research, the launching of micro- The cost-per-job at an expanding enter- credit and small business programs early prise is generally lower than at a new on in the post-closure period can send a enterprise, and established, existing positive message in an otherwise highly enterprises have good potential for depressed environment. At the same absorbing labor. Also, those enterprises time, the basic challenge of ensuring an that market their product not only locally acceptable return to these public invest- (where purchasing power is limited) but ments in job-creation should be noted, also outside the region tend to be more and this challenge is compounded by the successful. 20 In Russia, where coal municipalities have received targeted Federal funding to implement such pro- grams for several years, expert respondents on both the local and national levels cited the positive role played by these programs in reducing social tension and helping to create jobs. In Russia's case, as de- scribed later on in this report, the first extensive evaluation of the local development programs took place only after almost six years of implementation. 34 On the subject of barriers to estab- sector into the informal economy to lishing and expanding small businesses, avoid paying taxes. the comments of entrepreneurs who participated in the research echoed the Professional retraining. Professional results of general studies of the invest- retraining in one form or another has ment climate and the development of the been offered in all three countries. The SME sector. Obtaining credit from banks general experience is that the demand for is one of the biggest problems, particu- these programs has been limited (for a larly for the smaller entrepreneurs, who variety of reasons that could be termed have little to offer by way of collateral objective and subjective), and the experi- that is acceptable to the banks. This is ence of those who received training in part of a much larger, economy-wide another profession has been that actually problem that is unlikely to change for the finding and retaining a job in the new better soon, and the general problem of profession has been difficult, even when the access to credit underscores the the training itself has been of a high important role that has been and can still quality. Many interviews with laid-off be played by credit programs offered by miners off revealed a deeply skeptical governments and international donors. attitude about the value of learning a new profession. It is of note that this In all countries, entrepreneurs com- attitude can be found both in locations plained of the excessive bureaucracy that where the local employment situation attends the creation of a new business as has begun to improve, sometimes thanks well as its perpetuation over time. Re- to positive developments in the coal solving these obstacles can be a time- industry itself (as in Russia's Kuzbass), consuming and sometimes costly matter and in locations where the employment for a small business. Romania has re- situation is particularly poor, often cently focused on the problem of reduc- because of recent mine closure. In places ing the administrative barriers to estab- where the coal industry is hiring, laid-off lishing new businesses, requiring, for miners often prefer to seek re-employ- example, that new businesses be regis- ment in the coal industry. And where, on tered within 30 days of the submission of the contrary, the industry is not hiring the application. At the moment, the and unemployment is high, unemployed implementation of this new initiative is mining workers are often cautious and weak, but with time and experience it doubtful of the value of retraining that is may yield creative solutions to this not likely to lead to viable employment problem. prospects. The explicit linking of retrain- ing with job placement, including the A related problem is the tax burden provision of some level of incentive to on small businesses, which entrepre- the new employer, as in Romania, would neurs usually consider excessive and, appear to be the most sound approach to what is perhaps worse, unpredictable. the administration of these programs, Entrepreneurs spoke of the disincentive although there are challenges to getting to produce and expand business that the incentive right and overcoming the results from high taxes, and of the in- negative image of former miners as creased bureaucratic power that inconsis- workers in other fields that is often en- tent application of taxes gives to local countered among potential employers, authorities. Two obvious and detrimen- including some of the research partici- tal consequences of this situation are the pants. creation of the potential for corruption, and the retreat of some part of the SME Disadvantaged region status. This idea 35 Mine Closure and its Impact on the Community has received its most extensive develop- vantaged regions in order to receive the ment in Romania, although in other benefits without actually producing countries it has also been advocated by anything and without creating jobs. The regional and municipal groups as a way government has recently taken steps to of attracting investments. Of the total of improve the impact of this policy by 27 regions that have been granted this strengthening enforcement, limiting the status in Romania, 23 are mining regions eligible activities, and stiffening require- that received the status in 1998-1999 for a ments for the minimum number of jobs period of 10 years under criteria that to be created (increased from 1 to 10).21 have since been made more stringent. Under the original criteria, this status Severance as seed capital. It is some- was granted to regions (i) in which regis- times considered that the severance tered unemployment was 25 percent payments made to workers upon separa- greater than the national unemployment tion from employment can serve as seed rate, (ii) considered mining regions in capital to be invested in new small busi- which mass layoffs had taken place, or nesses and/or to facilitate migration to a (iii) in which more than 25 percent of the place where the individual could start a workforce had been declared redundant business. This expectation existed in as a result of mass layoffs. The revised Romania at the time of the mass and stricter criteria require that the regis- downsizing of the industry in 1997. tered unemployment in a region be at Despite the fact that severance payments least three times greater than the national were generous (both by national stan- average. Most expert respondents in dards and in comparison to the experi- Romania agreed that this policy has not ence in Russia and Ukraine), the view of resulted in the anticipated increase in the vast majority of those interviewed is investments and new jobs. One of the that the severance payments failed to reasons for this is the poorly targeted result in an appreciable level of eco- nature of the original criteria used to nomic development activity; new busi- determine eligibility for this status, nesses were not created. The idea of which reduced its effectiveness and tends severance as seed capital also found to cancel out whatever benefit might application in Russia, where by way of accrue to disadvantaged regions. The an experiment the Government offered result is that the competition for limited some 570 laid-off miners in two coal investment funds has been decided by towns in Rostov Oblast grants in the usual factors that are of significance amounts equivalent to 2-3 times the to investors: regions with superior infra- average severance to be used to establish structure and a more qualified and flex- individual businesses. An evaluation ible workforce and generally better project, financed through technical assis- investment climates win out over the tance from the World Bank, has recently most disadvantaged regions. Another been launched to review the experience reason for the lack of success of this using a 100 percent sample of grant policy is the existence of other legislation recipients. While the evaluation was just such as the law on SMEs that in part getting under way as this report was duplicates the provisions of the legisla- being finalized, the indications from tion on disadvantaged regions. Enforce- expert respondents familiar with the ment has also been difficult: some inves- project in Rostov Oblast were negative, tors have registered businesses in disad- the main criticism being that funds were offered indiscriminately to many people, 21 World Bank (2001a) treats regional development policy with particular reference to Ukraine. 36 relatively few of whom were likely to stances, but also in the normative sense have the requisite business skills to as a desirable outcome that can help successfully grow and manage a small achieve equilibrium on the local labor business, and no support systems were market (recognizing that those departing in place to assist recipients with such may be more likely to possess good basic tasks as preparing business plans. skills and to be more productive work- (Novoshakhtinsk, which has established ers). a model small business support infra- structure, was not one of the towns which The foregoing suggests that some participated in this experiment.) form of migration support (not necessar- ily financial) should also be an explicit The experience of Romania and policy in response to the employment Russia (based on preliminary assess- problems caused by mine closure. In ments) indicates that the use of severance actual experience, however, policy di- (or grants in lieu of severance) as seed rected at supporting migration or other- capital is generally not good policy. In wise stimulating labor mobility has been most cases there will be a disjunction limited in the cases under review, for a between the basic attributes of the sever- number of reasons. First, in each country ance policy (a payment made upon economic conditions have been generally separation from employment to all sepa- difficult everywhere, and officially spon- rated employees) and the needs of a sored migration is a politically and successful small business development socially sensitive issue when there are no program, which requires a support obvious growth centers that can receive infrastructure and some kind of filtering migrants without displacing the local process that targets individuals likely to workforce and creating social tension. succeed as small business people. At the The problem of disposing of housing in same time, one could imagine this idea the mining town and of the availability of working more effectively if linked to affordable housing in the new location is specific conditions, such as the small also a severe constraint. The costs of business support infrastructure being in migration are high, and in cases where place and a more targeted individual demand for such support is high, practi- selection process, with the recipient cal and financial considerations would agreeing to receive training in the funda- rule out the possibility of supporting mentals of business, etc. migration of the presumed scope. And while one can speak of a theoretically Migration. The logical complement optimal population size and composition of the local development response to the for any given municipality that would dramatically worsened local labor mar- help bring about a (theoretical) equilib- ket conditions following mine closure is rium on the local labor market, govern- migration. Migration is directly linked to ments might not wish to undertake the the local labor market in two important analytical challenge of quantifying these ways: (i) it arises as a response to the lack variables and determining the related of employment (or employment accept- required scope of migration support for a able to the migrating individual); and (ii) variety of social and political reasons. it relieves the pressure on the local labor There need not be a contradiction be- market for those who do not migrate. tween supporting policy directed at Seen from this perspective, migration can preserving and developing the local be considered not only in the positive economy and policy directed at helping sense as a common response by indi- people leave a place, but in practice it is viduals and families to difficult circum- difficult to combine these two policies 37 Mine Closure and its Impact on the Community into an integrated approach to mitigating by mine closure is taking place, and in the effects of mine closure. the majority of cases without official support. The commonly encountered Another potential problem in the view of the immobility of labor in the implementation of migration support transition countries is challenged by the programs could be a disinclination on research findings in some of the loca- the part of local officials to support tions, notably in Ukraine, where the migration, to the extent that these pro- quantitative component of the research grams are based on discretionary funds. found evidence of a very high level of This can be seen in the experience of migration of the working-age population Russia's local development programs, (see the detailed treatment of this topic in where particularly isolated municipali- the Ukraine country section below).22 ties with poor future prospects have been This finding is consistent with recent given the choice of using their funds research by the World Bank on the social either to support the migration of fami- impact of enterprise restructuring in lies back to "mainland" Russia or to Russia, which found that labor mobility carry out local development programs. appears to be much higher than captured Municipal officials in such cases are by official statistics, challenging the faced with the difficult task of finding the standard argument that the lack of a right balance for the use of the limited developed housing market has impeded funds they receive, and in the first years labor mobility in this country. The study of the administration of these programs found that labor migration on a shift/ tended to spend most of the funds on semi-permanent basis has developed unrealistic local development programs into a significant feature in today's Rus- rather than on facilitating migration. sia; bread-winners leave their families at Novoshakhtinsk in Russia is an interest- the original place of residence and find ing exception to this general statement, jobs, often informally, in major "centers having managed to combine a successful of gravity."23 At the same time, it is local development effort based on facili- important to stress that the nature of the tating the growth of the small business migration (permanent or temporary) sector while at the same time helping its cannot be determined on the basis of this residents find work outside of the city research, and cases of return migration through an agency that was established are also common in some locations, for this purpose. The agency, which usually for the reason that things did not continues to function, assists people work out for the migrant in the other considering accepting job offers in other location. Social impact monitoring car- places (often temporary or seasonal) ried out in Romania in 2000 found that it primarily through verifying the legiti- was not unusual for those who migrated macy of the employer, which is an impor- from the mining regions to return within tant service as cases of deception of labor a year, usually for the reason that the migrants are widely reported. "promised work" never materialized or was of a lower quality or level of pay Despite the difficulties that face the than expected. migrant or would-be migrant, the re- search findings as well as other evidence There are several barriers to study- indicate that to one degree or another, ing labor migration that takes place migration from communities impacted outside of the context of formal programs 22 See, for example, Friebel and Guriev (1999). 23 World Bank (2001b). 38 to assist migrants: the fact of the migra- Moscow has also served as a magnet for tion is usually poorly reflected in official workers from the mining communities of statistics and other available data (for the Donbass, who also find opportunities example, a family may continue to own in other cities in Ukraine and southern its house or apartment in the town it has Russia. migrated from); the nature and duration of the migration are unpredictable; and Of the countries in which research individuals who migrate disperse to was carried out, migration figured most other locations and are not easily identi- prominently in the expectations of fied in the "magnet" locations. Also, policymakers in Romania, and Romania bearing in mind the focus of the research is also unique in having introduced a on communities where mine closure or modest level of support of labor mobil- mass downsizing took place several ity. Many families in the Romanian coal years ago, it is likely that a wave of mining regions originally came from migration would have happened earlier, other parts of the country, and it was as those possessing the inclination and expected that large numbers would financial and other resources required to return to their native villages, using their migrate successfully would have left in severance payment to facilitate the transi- search of better opportunities. tion and in some cases taking up agricul- ture. In the event, this expectation proved Given the need for "pull" factors in to be a miscalculation. Although many addition to the obvious "push" factor, families did attempt to return to their the actual experience with migration of native localities, for many the transition individual mining communities is highly proved to be unaffordable given their sensitive to a number of factors, includ- limited resources and the often equally ing the proximity of growth centers. For poor employment prospects of their new example, even though the coal communi- location (even generous severance pay- ties of Russia's Tula Oblast (which was ments were not sufficient to cover mov- not part of this research but well known ing expenses or to start up a new busi- to the researchers) have been very hard- ness in the new location), or too difficult hit by mine closure, many laid-off miners for other reasons related to the adapta- have found employment in Moscow, tion to a very different lifestyle. Research which is about four hours away by car. respondents said that most of those who Typically, workers travel to Moscow for attempted to migrate had returned, and several weeks or months at a time and lived under conditions that were inferior work in construction, with their families even to the poor conditions that had remaining behind in Tula Oblast. As prompted the family to migrate in the such, the employment is not permanent first place (they had spent their severance and much fault could probably be found on the failed move, had sold their apart- with the work conditions; but given the ment in the mining town, etc.). absence of alternative employment closer to home, Moscow as a labor market has The experience of Romania is also of been important for many families in the interest from the point of view of official coal communities of Tula Oblast.24 As efforts to stimulate labor mobility the dominant growth center in the region, through subsidizing transportation 24 The dramatic improvement in overall economic conditions in Tula Oblast is reflected in World Bank (2001b), which relates the views of the head of a raion in Tula oblast that was among the hardest hit by mine closure. This research respondent described 1997 as "hell" and 2001 as "heaven," noting that if three years ago there were typically 50 people in his waiting room seeking assistance, today the number has shrunk to 2-3 people. 39 Mine Closure and its Impact on the Community expenses. Under a law passed this year, (or prospective employment), although unemployed people who accept a job this problem is more amenable to solu- situated more than 50 kilometers from tions offered by the private sector, and their home will receive a grant equal to often one of the first sectors to develop two minimum wages. In cases where the successfully in the context of local devel- unemployed worker changes his domi- opment programs. Under social services, cile in order to accept a job at a distance education and health are considered greater than 50 kilometers from his home, here. the value of the grant is calculated as seven minimum wages. The law does Housing and communal services. One of not, however, apply to workers who the enduring aspects of the common travel distances under 50 kilometers in image of mining towns is the poor qual- order to get to work, despite the fact that ity of housing in these communities, and transportation expenses may nonetheless the research as well as ample field expe- be considerable and transportation itself rience confirm that, in this regard, there is a serious constraint to mobility (as in the unfortunately little variation between case of Anina). locations. The present generally poor state of the housing stock is a result both Municipal and Social Services of historical factors--some residential buildings still in use in mining towns Mine closure has a negative impact on were built as temporary shelter and services to the population that are pro- never intended for long-term occupa- vided locally and associated with the tion--and of the legacy of mining and municipal budget. The process of mine mine closure, which have inflicted dam- closure has had a dual negative impact age on residential and other structures on municipal budgets: the revenue side through subsidence and seepage of contracts through the loss of enterprise ground water. The longer the history of and personal income taxes, and the underground mining in a given area and obligations on the expenditure side the more extensive the underground expand, generally as a result of the works, the greater the likelihood that greater need for assistance that follows housing has either already suffered mass unemployment and specifically as damage directly linked to mining, or a result of the assumption by the munici- could be in the future. For the same pality of services and assets formerly reasons, physical infrastructure that associated with the mining enterprise. In delivers services of social significance addition, mine closure could also impact (water and heating systems, telecommu- on local delivery of services if it results nications) has also suffered great damage in the migration of qualified profession- in the typical mining town. In some als who provide the services, such as mining settlements (districts of munici- teachers and doctors. In the broad range palities in the environs of the mines) of municipal services, housing and these services have ceased altogether as a communal services were singled out by result of mine closure. And in mining respondents as priority areas that have communities in all three countries, there been severely negatively impacted by is a severe problem of access to water, mine closure. Depending on the location, and hot water is generally not available. transportation was also sometimes cited as a priority problem that has a direct Divestiture of housing and social link to the employment market as most assets from enterprises to municipalities people are dependent on mass transpor- took place in the 1990s in Russia and tation to get to their place of employment Ukraine, with a particularly harsh impact 40 on the mining towns. The capacity of a residual basis. In Russia, for example, local administrations was overwhelmed, although the mine closure program as a as the levels of the divested assets ex- whole has been relatively well-financed, ceeded by a factor of several times the the overarching objective of the first pre-divestiture levels. In Russia, for several years of its implementation was example, the housing stock managed by to remove from production almost 200 local administrations in mining towns heavily loss-making mines, with priority increased almost 10-fold as a result of given to the completing the technical divestiture, while the stock of other types closure of the mine itself. The other major of social assets increased by 15 percent- priority has been the mitigation of such 40 percent. In contrast, social infrastruc- life- and property-threatening risks as ture (boilers, gas and water distribution flooding, underground fires, and meth- systems, telephone systems, etc.) usually ane leaks. As a result, the housing, social remained on the balance sheets of mines assets and social infrastructure compo- until closure, at which point a number of nents of the mine closure plans, and things could happen: the assets could be long-term aspects of the environmental transferred to the municipalities; the damage mitigation component such as agencies responsible for carrying out the land reclamation, have received little liquidation works could hold on to these financing relative to the total need. assets; and/or the assets could suffer from being abandoned or vandalized, In Ukraine, the Coal Pilot Project that with no clear delineation of the owner- was supported by the World Bank estab- ship and responsibility for the asset. lished an approach to the various social While municipalities throughout both problems arising from mine closure that countries have had to shoulder extra had a strong focus on housing and social burdens as a result of divestiture, the assets, among other dimensions of the situation in the mining towns in these problem. Unfortunately, implementation countries is generally worse, both for the difficulties on the ground and the persis- reason already noted (the physical im- tent ambivalence about coal sector re- pact of mining on housing) and because, structuring in Ukraine have prevented as a general rule, the enterprise's share of the replication of this model. the total stock of housing and social assets tended to be greater in mining In Romania, the role of the mining towns than in other municipalities. Enter- enterprise in the provision of housing prises facing the prospect of divestiture and other assets was not as great as in the had no incentive to continue the mainte- former Soviet republics, but some por- nance of the assets, so that by the time the tion of the housing stock is the responsi- divestiture was completed, assets were bility of the municipality, although this is in need of high levels of repair for which generally not considered a priority or no financing was forthcoming. even a concern for the local authorities. The problem of damage to housing, In Russia and Ukraine, the damage social assets and social infrastructure to housing, social assets and social infra- also appears to be less urgent in Roma- structure as a result of mining works and nia, at least for the moment, which may mine closure is formally acknowledged be attributable to the fact that the mass through the inclusion of financing lines downsizing of the industry took place for the mitigation of this damage in the well in advance of the implementation of approved mine closure plans. The expe- the mine closure program, and it could rience of the last several years, however, be that in most localities even those local has been that these items are financed on mines slated for eventual closure con- 41 Mine Closure and its Impact on the Community tinue to supply these services. extent as in the past, and fee-based edu- cation and health services are increas- Payment arrears for housing and ingly common. At the same time, aspects communal services are high in some of the past system are maintained, such locations, particularly in Ukraine, where as subsidized kindergartens, and there is respondents spoke of the unaffordability generally excess demand for these subsi- of basic services and most significantly dized services. While the research results heat. In the choice between such essential are somewhat different for the two kinds expenditures food and medical care and of basic services examined here, they had expenditures on housing and communal in common the suggestion of increasing services, respondents give priority to the social stratification and the differing former, allowing large arrears to accumu- qualities of access to these services de- late for the latter. Municipal authorities pending on one's ability to pay. These reported working constantly with the results are broadly consistent with the population to reduce arrears, but it results of studies devoted to these issues seems likely that part of the problem, in in the transition countries. As these are addition to the real burden that the high broad, country-wide issues, it would be cost of heating services in particular appropriate to view the problems of the place on the population, is a degree of provision of education and health ser- tolerance of non-payments for these vices as part of the overall problem of services on the part of the authorities. economic transition that are aggravated by the relatively more depressed condi- These findings of the in-depth inter- tions of the mining towns. views with experts on various levels and members of the population are consistent Education. In all three countries, the with the results of the comparative sur- broad consensus among respondents was vey carried out in Ukraine. Respondents that education services were generally in the sample of the two mining towns available to the population, if somewhat reported generally worse conditions of more expensive than in the past, and that access to basic utility services compared despite the difficulties of recent times, to respondents in the national sample of the quality of the services was being like-sized municipalities. Considerably maintained. Municipalities are aided in more respondents in the mining sample, their efforts to maintain kindergartens for example, reported having no hot and primary schools by the demographic water in their apartments than in the trends of recent years: populations across national urban sample (79 percent vs. 43 the region are aging, and in mining percent, respectively). Additional survey towns this trend tends to be even more results are reported below in the section pronounced than in the rest of the coun- on Ukraine. try. In some mining settlements, it was reported that there are very few children, Education and health services. Among which has made it possible for munici- the most important human development palities to rationalize resources by clos- achievements of socialism, as viewed by ing kindergartens and schools for which the socialist system itself, was the provi- there is no longer demand. In Stakhanov, sion of education and health services to in Ukraine, the rationalization of the the entire population at no charge or for a number of schools has been accompanied nominal charge. Throughout the transi- by a program of installation of individual tion economies, governments have found boilers in public buildings, leading to that they can no longer afford to continue even greater savings for the municipality to subsidize these services to the same and to better quality heat for the children 42 and other users of the buildings. Respondents in all three countries spoke of increased difficulties in finding At the same time, some experts qualified teachers, whose salaries are low sounded notes of caution when consider- and who, like others, have also sought ing the future of education services in the better working and life conditions in mining towns, and sometimes even more other cities. generally. In Romania, a national-level expert saw an education crisis looming in Generally, the higher the level of all areas of the country afflicted by pov- education, the greater the problems of erty and unemployment, expressing affordability and in some cases, the concern that children growing up in an greater the problem of diversifying environment dominated by the chronic curricula to equip pupils with knowl- unemployment and perception of failure edge and skills that will help them find on the part of their parents would suffer jobs in the future. In all three research from diminished expectations and goals sites in Romania, secondary schools and in life, seeing little point in pursuing vocational schools still train pupils for education. A Russian expert in Anzhero- careers in the mining industry. Some Sudzhensk echoed this observation, families send their teenage children away noting that the higher charges for kinder- to high schools in other towns for this garten and the resulting decrease in reason, but most families cannot afford attendance have led to a situation where this. In Ukraine and Russia, in contrast, half of the children in the first grade respondents reported that young people experience difficulties with their studies. were interested in obtaining higher education, and despite the great costs, In general, the most worrisome could still find relatively affordable results were reported from Romania, education at state universities.26 where the reduction in families' incomes seems to have had a greater impact on Health services. Expert respondents in their ability to pay for their children's all three countries reported that access to education, and where problems with the good-quality healthcare is a problem for attendance rates and attention spans of most of the population of the mining children from poorer families have been towns. While the health infrastructure is noted. In Motru, attendance at the all-day still generally in place, it is being kindergartens has dropped by 50 per- steadily eroded by persistent financial cent, because a daily fee of 20,000 ROL problems. The low salaries of medical (about US 60 cents) is charged for the all- personnel in mining towns lead them to day kindergarten, whereas the half-day migrate in search of better prospects (in session is free of charge but over- Anina, in Romania, three doctors remain crowded.25 Respondents in Russia also at the hospital, which is in danger of noted that the subsidized, free schools being shut down). Hospitals struggle to were also overcrowded. maintain medical equipment, which was reported to be heavily depreciated in 25 At the same time, the particularly good quality of education in Motru was singled out by respondents from that town, who noted that high school children from Motru regularly compete in national education Olympics and have a good record of entering university. 26 This relatively more optimistic assessment of young people's attitude to higher education in Russia and Ukraine was not reflected in the interviews with young people who were part of the sample and who, by design, did not include students or young people with higher education. It could be that the expert respon- dents were projecting their own values or reflecting the values of the young people with whom they have more social contact. 43 Mine Closure and its Impact on the Community some locations. And people find it in- mitigation through the standard policy creasingly difficult to afford even basic approach employed in the context of medical services, to say nothing of spe- industrial restructuring. These could cialized services. include problems of a more psychologi- cal or behavioral nature, including vari- The research in Ukraine revealed ous manifestations of socially undesir- two interesting aspects of the problem of able or self-injurious behavior such as health care services in that country. First, substance abuse. The evolution of these the comparative survey results showed social indicators over the last decade in that the assessment of the quality of the transition economies has been well health services available in the two documented. mining towns was essentially identical to the assessments given in like-sized towns While specific manifestations of in the rest of the country, underscoring socially undesirable behavior, such as the national character of the problem.27 drug abuse and prostitution, or the Second, cooperative group insurance emergence of troubling indicators of pools have been established in both social disruption such as the problem of Gorlovka and Stakhanov. These group abandoned children, were mentioned as insurance schemes, which are based on concerns by some respondents, these individual memberships and cover individual phenomena will not be exam- hospitalization fees, have not been in ined here as the research results either existence for very long (and accordingly, indicated that some communities did have not been not assessed in any mean- not, in fact, appear to be suffering par- ingful way), but are apparently popular; ticularly from these phenomena, or in Gorlovka, the cooperative has report- results were somewhat contradictory and edly more than 15,000 members in little do not allow for meaningful generaliza- over a year of operation. tion.28 Community Cohesiveness Communities in which mines are closed face various response options, Certain consequences of mine closure of ranging from an activist stance of resis- an obvious social import, such as wide- tance (expressed through various forms spread employment problems and hous- of protest) to a proactive or constructive ing and social infrastructure deteriora- approach to the changed conditions of tion, are addressed in governments' coal life, with probably the most common sector reform programs through mitiga- response being a form of retreat of the tion policies that are generally under individual from the broader community implementation (with varying levels of and, in some cases, even from his or her financing and varying degrees of effec- own family in the face of the difficulties tiveness). Other dimensions of the social of getting by. Of course, different mem- consequences of mine closure can be bers of the same community can and do equally important but less commonly exhibit widely varying reactions to the treated as such, or less amenable to same set of external circumstances and to 27 These services were assessed as "bad" by about 37-40 percent of respondents in the two samples, as "good" by about 13-17 percent of respondents, and as "neither good nor bad" by about one-third of respon- dents. 28 It is noteworthy that as concerns alcohol consumption, some respondents felt that it had increased in reaction to the more difficult circumstances of life, while others felt that it had decreased in reaction to the considerably more competitive labor market (workers are less inclined to come to work drunk for fear of losing their jobs.) 44 changing circumstances over time, and viduals react to the labor market condi- this reaction will depend, in addition to tions they face) as well as more generally personal attributes, on the severity of the for how the individual relates to his employment problem, the quality of the society. national and local political leadership, and the resilience of the community of The loss of community space. This which the individual is a member. These problem consists of a physical dimension factors will play important roles in deter- and an abstract dimension. The most mining the nature of the social tension important aspects of the physical dimen- that is experienced in communities in sion in this context include the deteriora- response to mine closure and the extent tion or destruction of such infrastructure to which this social tension in turn serves as telephone systems, roads, and so on, as a form of feedback that influences that makes it possible for the individual local and national implementation of the and family to interact with others in the coal sector restructuring policy, includ- community and the world at large. Par- ing the continuation of a program of ticularly in cases where mining settle- closure of loss-making mines. ments exist within the larger mining town (that is, the parts of municipalities From the point of view of commu- in the immediate environs of a closed nity cohesiveness and the capacity of the mine), the sense of isolation is profound, community to absorb the negative shocks not only because there are no alternative of mine closure and to mitigate such employment options in the area, but phenomena as social instability, alien- because the closure of the mine and the ation and apathy that take a toll on indi- damage to infrastructure resulting from viduals and the community at large, the mine closure and sometimes vandalism research found that, on the whole, the often lead to the complete termination of mining communities appear to be rather these services. Respondents living under fragile or vulnerable, their capacity to these circumstances described a sense of respond adequately on the community being cut off from civilization. level diminished. The role of civil society in these towns is quite limited: while Cultural centers and youth clubs are various organizations representing civil examples of physical infrastructure of a society were found in all locations, their significance for the entire community that impact on the community was generally have often fallen into disrepair in recent characterized by research respondents as years. As a result of social assets divesti- insignificant. Members of the population ture, in many cases they were essentially who participated in the research typically abandoned and municipalities have had no knowledge of any organizations lacked the financing required to maintain that could be considered representatives them. In such cases, members of the of civil society. community have lost the opportunity to socialize and to organize activities for Two broad types of social conse- children that were frequent in the past. In quences are noteworthy in this context: (i) Russia, some respondents reported the the loss or destruction of "community recent reversal of this negative trend: space," including the various forms of clubs and other types of activities for infrastructure linking the individual/ children are being recreated under the family to the community, social networks sponsorship of local enterprises (thus, to and family relations, and (ii) the loss of some extent reversing the impact of social status, which has implications of a divestiture). microeconomic nature (e.g. how indi- 45 Mine Closure and its Impact on the Community More abstract but no less significant the work force, where a lack of experi- aspects of community space include the ence and competitive skills often rel- general atmosphere of a lack of commu- egates them to low-paying work. Several nity cohesion and a lack of a shared sense women who participated in the research of identity or a worthwhile future. As related difficulties in finding work if they families struggle to make ends meet, were above the age of 35. Older miners in such previously common aspects of life particular suffer from a loss of self- such as socializing with friends and identity when they lose their jobs at the neighbors and vacationing are among the mines and find it difficult or impossible first to be dispensed with as unaffordable to secure stable, "respectable" employ- luxuries. Not surprisingly, respondents ment in other lines of work. often complained of a growing antago- nism among different groups of the The practical implication of these population and reported that people observations is that the post-closure communicate less with one another than adaptation period for miners and mem- previously, before mine closure (al- bers of their families can be more diffi- though it should be noted that these cult than for workers laid-off in other processes have been observed through- situations, as the actual and perceived out the transition economies). The con- losses are greater and the initial period of stant factor of migration (actual or unreal- (usually unrealistic) hopes of a rapid ized) underscores the erosion of the restoration of the former status is pro- identity of the community. Those who tracted. Laid-off miners often find unac- migrate successfully from the mining ceptable the labor conditions of jobs that towns are more likely to be young and are offered to them, while potential male, which leads to an imbalance in the employers (including the entrepreneurs demographic structure of the commu- who participated in the research) and job- nity. Labor migration of one or more placement specialists often remark that members of the family, while helping they have had bad experiences with resolve the fundamental problem of former miners as employees, precisely earning income, often leads to the unfor- because of the problem of unrealistic tunate consequences of greater tension expectations on the part of the workers. between spouses, and greater numbers of For the same basic reason, many former children who are not being raised by miners (and particularly miners older their parents. than around 40) are disinclined to pursue such active job-search strategies as pro- The loss of social status. Before restruc- fessional requalification, labor migration turing, coal miners enjoyed a high status or holding multiple jobs. in their communities, indeed on the national level. This status was reflected Environment in wages that were among the highest for industrial workers and in various perqui- The environmental impact of mine clo- sites, and buoyed by a social prestige sure is severe and generally well under- accorded by the socialist system to the stood by specialists, even if the exact miner as a significant agent of the indus- manifestation of the impact is highly site- trialization of the economy. The sudden specific, depending on the configuration loss of this status has typically led to and depth of the mine, attributes of the difficult periods of adaptation for miners groundwater system, subsidence pat- and members of their families. For min- terns, the presence of near-by continuing ers' wives, the loss of the husband's mines, the pattern of human settlement income can serve as the impetus to enter on the surface relative to the mining 46 territory, and so on. Environmental Romania: Restructuring in a Challeng- remediation is a standard component of ing Macroeconomic Environment mine closure plans and usually the single largest component of the overall Economic transition in Romania has had cost of mine closure, although the vari- a difficult and erratic history over the last ous specific environmental problems decade. The government that took office caused by mine closure vary consider- in 1992 adopted a cautious and gradual- ably in the extent to which they pose a ist approach to economic reform, which threat to life and property. In conditions failed to produce sustainable gains in of limited financing, first priority is given either economic or social conditions. to preventing damage resulting from the Three years of contraction of the GDP restoration of the underground water were followed by two years of real level, while such items as land reclama- growth, 1995 and 1996, and then three tion are often assigned a low priority. more years of economic contraction. Positive real growth was recorded in In view of the limitations of this 2000 and 2001. Poverty has increased research to provide technical assessments sharply, with the share of the population of the environmental situation that pre- living below the national poverty line vails in each research site, detailed re- doubling in the second half of the 1990s, search results will not be presented here. from 20 percent to 41 percent. Most of the research participants were not technically qualified to discuss the Coal sector restructuring was problems of the environmental impact of launched in Romania in 1997, which was mine closure. Not surprisingly in view of a particularly bad year for the country's the technical complexity of environmen- economy overall, and the first year in one tally-related issues and the dearth of of the three-year spirals of negative specialists among the respondents, on growth. As described earlier in this occasion respondents expressed contra- report, the Government stimulated the dictory opinions on matters of relevance mass downsizing of the industry in 1997 to the environment. As residents of the through its offer of a generous voluntary community, they most frequently ex- separation package without having in pressed concern over the problem of place measures for the restoration of the flooding, the damage caused to housing incomes of the workers separated from by mining, the quality of the drinking the industry. Since then, with support of water (particularly in Ukraine), the dan- the World Bank and the UK Department ger of methane leaks, and the mining For International Development (DFID) waste piles that are not removed. under the Mine Closure and Social Miti- gation Project, the Government has SELECTED ISSUES AND NDIVIDUAL I articulated a social mitigation strategy COUNTRY EXPERIENCE consisting of the following components: (i) micro-credit schemes; (ii) workspace This section presents selected issues centers using facilities at closed mines; from each of the three countries in which (iii) an enterprise support program; (iv) the research was carried out. The selec- an employment and training incentive tion of the issues was based on unique scheme; and (v) a public information and aspects of the research design (as in the social dialogue. As noted earlier, the case of the survey carried out in Ukraine) Government has been slow to implement and the individual country experience. most aspects of this mitigation strategy for the mining regions. The best progress to date has been had with the establish- 47 Mine Closure and its Impact on the Community Table 3: Local Development Programs, Financing by Component, 1998-2001 1998 (%) 1999 (%) 2000 (%) 2001 (%) Total (000 rubles) 293,000 100 828,591 100 938,372 100 1,024,520 100 Pre-redundancy consultations 1,910 1 1,871 0 2,296 0 335 0 Professional retraining 10,274 4 16,177 2 5,807 1 3,177 0 Temporary public works 119,956 41 141,609 17 138,426 15 87,208 9 Small business support 16,778 6 87,548 11 77,105 8 71,583 7 Job-creation programs 131,377 45 269,563 33 402,887 43 493,349 48 Relocation 12,706 4 311,822 38 311,851 33 368,869 36 Total ($million)* 22.6 32.8 33.4 27.2 * based on monthly disbursement data and average monthly rate of exchange ment of the employment and training The point of the foregoing is that incentive scheme and, most recently, Romania has faced an exceptional chal- with movement towards establishing the lenge in launching mining sector restruc- micro-credit schemes. turing in an environment of economic contraction and macroeconomic instabil- In addition to the programs focused ity. The same basic economic conditions on the mining regions, other national- that led to the decision to adopt the level programs sponsored by the Roma- restructuring policy also determined the nian Government seek to stimulate very limited capacity of the economy to employment in depressed regions, in- absorb the labor shed from the mining cluding the mining regions. These pro- industry. Under such difficult circum- grams include subsidized credits and stances, it is almost inevitable that temporary work programs. The latter "things get worse before they get better," constitute one part of the support pro- as illustrated by Russia's experience with vided by the World Bank under the coal sector restructuring in the late 1990s. Employment and Social Protection Conditions at present are more promis- Project. It is noteworthy that these tempo- ing than they have been in the past: the rary public works programs, which economy overall appears to be on a provide employment up to six months, stable growth trend, and good progress are the best known and, indeed, in many has recently been made to removing the cases the only Government-sponsored various obstacles to operationalizing the employment programs known to re- social mitigation component of the search participants. Such a situation is Government's mining industry restruc- typical for the initial phase following turing program. mine closure or mass downsizing, and it underscores that probably a few more The research results for the three years are necessary before the other, mining town in Romania reveal indi- longer-term mitigation policies begin to vidual differences that are more pro- have the intended effect. nounced than in the other two countries. Of the three, Motru has fared best, thanks 48 in part to the availability of small agricul- ized by poor administration, a lack of ture as a subsistence solution; agricul- accountability for subsidies received and tural products are a constant part of the disbursed (which was a system-wide household income in a significant num- problem affecting all categories of subsi- ber of cases. Social services in Motru are dies), and a tendency by regional admin- also relatively good (some respondents istrations to absorb these targeted funds believe they are very good, especially into the general regional budget. Flaws education), and the state of the housing in the design of the programs, such as the blocks, including water and heating lack of competitive bidding in the provision, is also relatively good. awards process and the fact that funds were offered as grants, not credits to be In contrast to Motru, which is rela- paid back, contributed to the poor record tively isolated from large cities, Uricani of the LDP in 1996-97. And while the is integrated into the conurbation of Jiu funds were intended to compensate for Valley. Local social services are poor. the job destruction resulting from mine The city has derived some benefits from closure and to promote the diversifica- the political visibility of the Jiu Valley, tion of local economies, powerful re- for example, like the other towns, Uricani gional coal companies attempted to has benefited from the Solidarity Fund, a channel the funds into investment program of social assistance that is used projects of benefit to the coal companies primarily in the Jiu Valley. In Uricani, as themselves. in the entire Jiu Valley, agriculture is not an option. The housing blocks, especially In late 1997, during negotiations the older ones, are in particularly bad between the Russian Government and condition. the World Bank for the provision of the second coal sector adjustment loan, it Anina is in the worst situation: a was agreed that starting in 1998, LDP small town, quite isolated from the larger subsidies would be disbursed directly to city of Resita, it has no agricultural op- municipalities, which would be respon- portunities, and no political visibility. sible for determining the use of the The forest is the main subsistence source subsidies within established parameters, for chronically unemployed people, for carrying out the competitive tenders especially because heating in all blocks that would now be required for certain of flats is based on wood. The state of categories of use of the funds, and so on. housing blocks is rather poor, and sig- As detailed in Table 3, there are six nificantly more apartments are in public categories of use of LDP funds, and they property. In Anina, more than anywhere are designed to mitigate different phases else, respondents expressed the feeling and aspects of the local employment of being at a dead end and having no problems that arise from mine closure. future. Each municipality determines the alloca- tion of the subsidies it receives across the Russia: Six Years of Local Development various categories; the use of the funds Programs for relocation support is allowed only in Since 1996, the Russian Government has a small number of municipalities consid- financed Local Development Programs ered to be "non-viable" due to their (LDP) in coal municipalities impacted by isolated location and lack of alternative mine closure. The first two years of the economic development options. implementation of the LDP through Local public oversight, participation regional administrations were character- and transparency have been facilitated 49 Mine Closure and its Impact on the Community Box 1: Novoshakhtinsk: Best Practice in Development of a Business Support Infrastructure Of the several dozen mining towns in Russia that have received state support for local development in recent years, Novoshakhtinsk in Rostov Oblast is unique for having pur- sued a strategy based on cultivating an extensive small enterprise sector, from which it is expected some enterprises will grow into medium and even large enterprises. In order to achieve its strategic goals, as a first priority the town used LDP subsidies to establish a multi-faceted small business support infrastructure which was then in place to facilitate the implementation of job-creation projects. In most other cities, job-creation programs were implemented before an adequate support infrastructure was established, which led to implementation problems. An unusual degree of political stability on the local level has contributed to the success of the implementation of Novoshakhtinsk's strategic vision: the mayor has been the town's executive for the last 11 years, and has put in place a team dedicated to the town's strate- gic development. An important factor underlying the strategic vision was the realization that the coal sector, which dominated the local economy until five mines were closed, had left Novoshakhtinsk with a legacy of poor local managerial and entrepreneurial skills. The emphasis on the support of the small business sector was a conscious effort to develop a broad base of business skills among local entrepreneurs, thereby increasing the success of job-creation efforts financed by the LDP and increasing the local economy's overall competitiveness through helping educate "tomorrow's business leaders". Two municipal agencies form the core of the business support infrastructure in Novoshakhtinsk: the Novoshakhtinsk Business Incubator (NBI), which was the first to be created in 1996 with LDP subsidies and which provided various business support services to all types of entrepreneurs and enterprises until the creation in 1998 of the Municipal Foundation for the Support of Small Enterprises, which allowed the NBI to specialize in providing loans, technical assistance and other forms of business consultations to medium and large enterprises. A showcase project for NBI is the assistance provided to facilitate the conversion of a former military factory, which now produces various mechanical parts and where the number of jobs was doubled from 400 to 800. A business park created on the territory of a closed mine serves as the site for many of the training and consulting activities provided to small entrepreneurs. In addition, industrial space at the business park is rented out at subsidized rents to beginning small entrepre- neurs for up to 3 years. The business park also provides the entrepreneurs with Internet access, security and other common office facilities. Despite the success of Novoshakhtinsk's strategic focus on small business development, local experts caution that the employment and tax-base potential of the small business sector is not enough to solve the city's problems. Experts voiced the opinion that stabiliza- tion of the local employment situation and the related social problems would take place when 3-4 additional large enterprises have been established. A second generation of investment projects is now being financed with funds that have been paid back. At the same time, local experts stressed the continuing significance of the annual replenishments of the LDP subsidies: the city is preparing for the closure of an- other mine later in 2002. 50 through a reliance on Local Oversight ing; the total for the four years shown is Councils consisting of representatives of about $116 million. These funds have the local administration, the local em- been disbursed to a universe of some 78 ployment service, the trade unions, and coal municipalities that have been im- other governmental and non-governmen- pacted by mine closure, but each year tal entities operating in the municipality. about 12-15 coal municipalities have Although Local Oversight Councils have accounted for about half of total LDP no official status, they are active in coal financing (the actual number of recipient municipalities throughout Russia and by municipalities varies from year to year local consensus typically function as the depending on the mine closure program, decision-making authority over the use where new mine closure takes place, of LDP funds. etc.). The data in Table 3 reflect the devel- Of note is the extremely small vol- opment of local priorities over time, ume of financing that municipalities have which is a function both of the increased allocated to professional re-training experience with the administration of programs. While these are a common these programs (including the compli- policy prescription in cases of large-scale cated processes of project evaluation and industrial downsizing, the actual experi- competitive tenders), and of the changing ence on the ground in Russia indicates needs of the local employment markets. that this policy tool has not been used. In the first year shown here, 1998, coal The interviews conducted with local municipalities in the aggregate assigned experts and with recipients of the train- an importance to temporary public ing indicate that the major problem with works (which received 41 percent of the professional re-training, even when the financing made available through the training is of a high quality, is the lack of LDP) that was roughly equal to the relevance of the professions in which importance accorded to job-creation training is provided to the needs of the programs (45 percent of the total). By local job market. This experience is 2001, coal municipalities in the aggregate consistent with that of other countries. disbursed only 9 percent of their LDP Another view encountered in some of the funds on temporary work programs, and interviews is the more complex question job-creation programs were by far the of demand for such services among laid- largest expenditure category. Removing off miners. One frequently encountered relocation (as a special category used by point of view is that the miner's mental- a small number of isolated municipali- ity is such that he is not inclined to seek ties), the overall weight of job-creation employment in other professions, and programs in the LDP grows to 75 percent hence not interested in retraining. A more in 2001. The decline in the share of fi- prosaic explanation in the case of Russia nancing allocated to temporary work could be that in recent years, jobs have programs from 1998 to 2001 reflects the again become available in the coal indus- more pronounced social tension in coal try in some regions, and miners reason- municipalities in 1998 (one of the peak ably prefer to seek employment in the years for mine closures), and the im- profession they know best and in which provement of the overall employment they can make relatively better wages. A situation in the coal municipalities in comparative study of social assessments recent years. carried out in 1996 and 2000 found that in 2000, interest among miners who had Over the last four years the LDP been laid-off in connection with mine have received large amounts of financ- closure in seeking re-employment in the 51 Mine Closure and its Impact on the Community industry had increased, while interest in followed a more inclusive policy that is re-training had decreased relative to the closer to the intention of the programs. 1996 survey.29 Of particular relevance to this re- The small business support category search is the job-creation category of the (which may be used for provision of LDP. These funds are provided as co- micro-credits and to establish a support financing of investment projects on a infrastructure) has received a relatively competitive, returnable basis both for the small share of each year's allocation, but expansion of existing small enterprises in absolute terms increased appreciably and the creation of new small enterprises from the first year to subsequent years. outside of the coal sector.30 Municipali- Box 1 recounts the interesting experience ties have used increasingly greater shares of the city of Novoshakhtinsk in relation of LDP financing for job-creation, but to the small business support category of until recently there was no reliable mea- LDP. sure of the long-term viability of the jobs created, and no rigorous approach to One of the more hotly debated calculating the actual costs job-creation. issues in the administration of the LDP The absence of reliable data on these two has been the question of whether former indicators of the overall effectiveness of miners and non-miners alike, or only job-creation programs became an increas- former miners, were the intended benefi- ingly serious management problem for ciaries of these funds (either as workers the program administrators on the fed- in temporary public work programs, or eral level and for the municipalities as entrepreneurs competing for invest- themselves, as they lacked the informa- ment funds, or as employees in enter- tion to establish meaningful performance prises creating jobs with the help of the criteria for individual projects, cost-per- subsidies.) In fact, from the start, the job guidelines by sector, as well as more philosophy of the LDP as formulated on generally to assess the effectiveness of the national level and as supported by the job-creation programs under their the World Bank has been to ensure maxi- administration. mum access to LDP funds to benefit the entire community. The rationale for this In late 2001, the first comprehensive position was the recognition that mine evaluation of the jobs created with LDP closure has an impact on the entire com- financing was carried out by indepen- munity and also that the entire commu- dent Russian consultants with financing nity benefits from successful efforts to from the World Bank.31 The first stage of create new jobs and to diversify the local the study entailed the analysis of existing economy. In practice, however, different data on the 410 businesses that had municipalities have employed various received co-financing for projects from interpretations, with some insisting that the job-creation component of the LDP the LDP funds are "money for the coal over the years 1998-2000 and that had miners" and should be used to alleviate used these funds to create 19,115 jobs the situation of miners and their families. outside the coal sector. The second stage Most municipalities, however, have of the study consisted of developing 29 Corning (2001). 30 Under Russian legislation, small enterprises are those in the manufacturing, construction and transport sectors with no more than 100 employees, and smaller numbers of employees in other sectors as specified by law. 31 The results of this evaluation of the LDP are excerpted here from Reformugol (2001) in view of their relevance to the subject of this report. 52 evaluation criteria, collecting and sys- tions and clarify their overall business tematizing detailed data on selected strategy. A part of the enterprises that enterprises in five regions, and carrying were rated less positively had com- out interviews at the enterprises and in menced their operations in the year the concerned municipalities with the preceding the survey, which probably goal of evaluating the long-term viability contributed to their relatively lower of the created jobs. On the basis of their rating. findings, the consultants prepared gen- eral recommendations for various levels The analysis of the cost-per-job of management (from individual enter- underscored the great variation of this prises to the Federal level) for improving factor across sectors. Table 4 shows the the efficiency the job-creation component sectoral structure of the jobs created at of the LDP. In all, 42 enterprises were the 410 enterprises that received LDP selected for the detailed analysis. Of subsidies through the job-creation com- these, two-thirds (28) had been created ponent over the years 1998-2000. In the with the help of LDP subsidies, and the assessment of the analysts who carried remainder (14) were existing small enter- out this study, the average cost of job- prises that had used LDP funds to ex- creation under the LDP is significantly pand their businesses. lower than the comparable average cost of the creation of a job in the various Enterprises were evaluated on the sectors of the Russian economy that are basis of five criteria: (i) financial poten- indicated below. tial; (ii) productive potential; (iii) market- ing assessment; (iv) socio-economic Despite the relatively positive as- assessment; and (v) investment potential. sessment of the performance of the LDP Each criterion, in turn, was the composite in more recent years, it is important to of five separate factors (see Annex 3). In keep in mind the small scale of job- computing an overall rating for each creation relative to the loss of jobs due to enterprise, the analysts gave greater mine closure. Over the years 1997-1999 weight to the investment potential and sector employment decreased by about the marketing assessment of the enter- 156,000. Assuming on the basis of general prise on the reasoning that these factors experience that about one-third of this more strongly influence the long-term number retired, about 104,000 workers viability of enterprises and jobs. would have entered the job market; thus, the jobs created under the LDP provided The analysis found that some two- employment for about 18 percent of thirds of the surveyed enterprises had those who entered the job market as a good or very good potential for long- result of mine closure.32 term viability, meaning that they were likely not only to survive, but to grow, in Russia's experience with the LDP the process creating more jobs. The suggest some general conclusions: remaining third of the enterprises that were rated less positively also have the · Programs such as the LDP that receive chance to fare well, but will need to sustained financial support and that are improve various aspects of their opera- augmented by training and other forms of technical assistance can become a 32 This is a simple calculation to illustrate the order of magnitude of the difference between jobs created and jobs lost. The reference period for the downsizing of industry employment, 1997-99, is one year earlier than the reference period for the job creation programs to reflect the normal lag between an individual's loss of employment and the beginning of the individual's job search. 53 Mine Closure and its Impact on the Community Table 4: Local Development Programs: New Jobs by Sector, 1998-2000 Number of Percent of Average Cost Per Jobs Created Total Job (R000) Food processing 3,225 17 112.7 Construction materials 2,977 16 180.8 Wood, timber, pulp and paper 2,521 13 131.6 Machine building and metal working 2,017 11 99.6 Light industry 1,909 10 148.9 Chemical and petrochemical 1,795 9 182.7 Agriculture 1,079 6 96.3 Consumer services 1,025 5 113.0 Medical industry 481 3 91.1 Communications 326 2 97.6 Trade and public catering 320 2 117.6 Transport 141 1 102.9 Printing 37 0 101.3 Electro-technical 20 0 60.0 Other industries 1,242 6 -- Total: 19,115 100 -- * Total cost from all sources of financing. powerful tool for municipal capacity- ated is small compared to the number building and for job-creation in the of jobs destroyed through mine clo- small and medium enterprise sector. sure. · Coal municipalities throughout Russia · The programs had a long "learning acknowledge the important role played curve," as local governments and other by LDP in reducing social tension and engaged local bodies grappled for the fostering the development of jobs out- first time with such complex tasks as side the coal industry.33 optimizing the use of financing, carry- · At the same time, the success of such ing out project evaluation and competi- programs also makes it possible to tive tendering, etc. Training seminars speak of an upper limit of their job-cre- and conferences for sharing experience ation potential: the number of jobs cre- have been effective tools. 33 In a recent letter to the World Bank, the Association of Mining Cities noted that "the joint efforts of the Russian Government and the World Bank in implementation of Local Development Programs ... have made it possible to significantly decrease social tension related to redundancy at the closing coal mines, and have assisted in the formation and development of new directions in the economy of coal communities." 54 · Ideally, the institutional and regulatory was included in the research with the framework for such programs should objective of comparing employment and be in place before large-scale layoffs living conditions in the mining munici- take place. In Russia, precious years palities with those in like-sized munici- were lost between the beginning of the palities across the country. Following is a mass program of mine closure in the brief description of the survey design mid-1990s and the establishment of the and its chief findings. A detailed descrip- LDP in their present form in 1998. The tion of the survey and the analysis of the regulatory documents that govern the results is given in Shkaratan (2002). LDP have undergone a fairly constant process of revision, and at the time of The same questionnaire was admin- the writing of this report another set of istered to respondents drawn from two major revisions was under ministerial samples: (i) a representative sample of review in Moscow. the population of the two mining munici- · Close supervision and support from palities, Gorlovka and Stakhanov, in the national project administrator and which the qualitative research was car- a working system of feedback between ried out (sample size ­ 514 individuals), the municipalities and the project ad- and (ii) a representative national sample ministrator in the capital are important of urban Ukraine. Respondents living in factors for success. rural areas and large cities (those with populations over 500,000) were excluded At the time of this writing in mid- from the analysis in order to enhance the 2002, it is not known whether the LDP comparability with Gorlovka and will receive Federal financing beyond Stakhanov, which resulted in a sample of 2002. Even if financing ceases at the end 705 individuals. of this year, it is encouraging that some degree of sustainability has been built The analysis found significant re- into the system through the mechanism sults in three areas that are presented of the revolving fund: as the first genera- below: (i) labor migration; (ii) employ- tion of loans recipients begins to pay ment conditions; and (iii) housing and back the borrowed funds, municipalities communal services. are recycling them to other businesses for continued investment in job-creation. The Large-scale migration from the mining most effective form of future assistance cities. Even before the interviewing in the from the Government may be to target mining municipalities was completed, the limited resources available to the coal the process of compiling the sample in municipalities that have been most hard- the two towns revealed a high level of hit by sector restructuring. Such assis- unoccupied apartments, or absent family tance could be carried out either in the members in apartments that were occu- existing framework of support to coal pied. At the time of the survey, an esti- mining municipalities or in a broader mated 37 percent of the population of framework of support to municipalities Gorlovka and Stakhanov aged 18 or more negatively impacted by economic re- was absent from the cities for an ex- structuring in general. tended period. Ukraine: Mining Towns Compared to a The methodology used to compile National Sample the sample entailed as a first step record- ing basic demographic information on In Ukraine, in addition to the qualitative the residents of a large number of ran- component, a quantitative component domly selected addresses. Of the total 55 Mine Closure and its Impact on the Community Table 5: Gorlovka and Stakhanov: Comparison of Sample Data to Official Statistics Demographic variable Survey, January- Official statistics as February 2002 (%) of 1 Jan. 2001 (%) Difference (%) GORLOVKA Gender male 40.6 44.8 -4.2 female 59.4 55.2 +4.2 Age 18-29 12.0 21.4 -9.4 30-44 23.9 27.7 -3.8 45-59 22.8 22.6 +0.2 60+ 41.3 28.3 +13.1 Total (population 18+) 1,053 236,011 -- STAKHANOV Gender male 40.6 44.0 -3.4 female 59.4 56.0 +3.4 Age 18-29 14.1 20.6 -6.5 30-44 20.8 28.7 -7.9 45-59 24.5 23.7 +0.8 60+ 40.6 27.1 +13.5 Total (population 18+) 1,083 80,298 -- 1,618 addresses selected in this fashion, registered population in the two cities information received from neighbors was absent for an extended period at the indicated that in 460 cases (or 28 percent time of the survey. of the total), the residents of the selected address had either moved away or were The second estimate of 13 percent is absent for an extended period in connec- consistent with actual survey results. tion with employment elsewhere. In the Around 11 percent of respondents gave a remaining cases, interviewers were able positive response to the question, "In the to record household composition, for a last 12 months, have you or your family total of 2,136 individuals in the two members had to travel in order to earn cities, as indicated in Table 5 below. Of money in other cities or countries (sea- the 671 individuals who were selected sonal work, "shuttle" trading, etc.)?" from this composite list for the sample, 89, or 13 percent, were absent from the Table 5 compares the age and gen- city in connection with employment der structure of the population as re- elsewhere, as reported by other members corded in the course of compiling the of their household. These two separate sample with the official statistics from the observations combined make for the two cities. As can be seen, it is the work- estimate that some 37 percent of the ing-age population, and more likely men 56 than women, who were absent. The lations above 500,000) compared to 47 population actually living in the cities is percent in the mining municipalities considerably older, and more likely to be were employed.34 For the sake of com- female, than indicated by official statis- parison, employment in different sized tics. The tendencies are identical in settlements in Ukraine was analyzed, Gorlovka and Stakhanov. with the following results: the share of the employed working age population is The quality of the migration ­ 61 percent in rural areas, 55 percent in whether temporary or permanent ­ is cities, 68 percent in large cities other than impossible to determine on the basis of Kyiv, and 73 percent in Kyiv. Thus, of all this research. At the same time, the sur- the settlement types considered here, the vey results (as well as the qualitative mining municipalities had the lowest research) indicate that among those who level of current employment. Among remain, migration intentions seem to working age adults, there is no difference have subsided; the overwhelming major- in the level of employment among ity of respondents indicated that they women in the mining municipalities expect to live in the same place 5 years compared to women in urban Ukraine hence, even when the analysis was lim- (46-47 percent) but the difference among ited to the working-age population men is quite large: 48 percent in the (results are the same for the two samples mining municipalities compared to 64 at 77 percent). A concern emerges, how- percent in the Ukraine urban sample.35 ever, when the situation is considered The structure of employment by age not in the static view, as it is here, but reveals lower levels of employment in rather, in the dynamic perspective. While the mining municipalities for all age the survey data cannot shed light on the groups, most significantly for the young- circumstances of the out-migrants and est group (18-29), 36 percent of whom in the likelihood of their return to Gorlovka the mining sample reported being em- and Stakhanov, the qualitative research ployed compared to almost 50 percent in indicated that a new phenomenon of the national sample. return migrants has been noted, prima- rily for negative "push" factors from the Another indication of the relatively place of migration, not for positive more complicated employment situation "pull" factors of more attractive condi- in the mining municipalities was given tions in the two mining municipalities. by the answers to the question about main sources of income (Table 6). For 38 Employment conditions. The survey percent of respondents in the sample of results indicate a somewhat disadvan- mining municipalities and for 57 percent taged employment position of the min- of respondents in the national urban ing municipalities compared to similar sample, a main source of income is sized municipalities in the rest of wages. This striking difference is largely Ukraine. While the difference is not a function of the preponderance of older dramatic, it is reasonable to assert that individuals in the population of the the difference would be much greater if mining municipalities; when age is the observed migration had not taken controlled for and results for the working place. The analysis showed that 55 per- age population only considered, the cent of the working age adults in urban corresponding numbers are 61 percent Ukraine (not including cities with popu- and 72 percent. This difference would be 34 The difference is statistically significant at 5 percent. 35 The difference is statistically significant at 5 percent. 57 Mine Closure and its Impact on the Community Table 6: Main Sources of Income (% of Respondents* ) Wages Social Produce from Second or Own Help from Benefits Gardens Occasional Jobs Business Relatives Working- mining age adults towns 60.7 37.8 15.6 14.1 3.0 8.5 urban Ukraine** 72.2 32.2 26.7 12.9 4.0 16.0 Retired mining towns 13.5 98.4 10.7 0.8 0.0 2.0 urban 3.1 Ukraine** 20.1 97.1 26.7 2.2 0.3 Total mining towns 38.3 66.5 13.2 7.8 1.6 5.4 urban Ukraine** 57.2 50.9 26.7 9.9 2.9 12.3 * Multiple responses possible ** Excluding large cities partially accounted for by lower levels of Job stability including payment employment in the mining towns, and stability is an important characteristic of could also reflect lower average wages in employment conditions. The survey the mining towns than in the other cities shows that the percentage of respondents in the country. reporting wage arrears is higher in the mining municipalities: 28 percent of Relatedly, given the higher unem- employed respondents from this sample ployment in the mining towns (as well a said that their wages were delayed vs. 21 level of occupational diseases that is percent in the national urban sample. In likely to be higher), it is not surprising addition, the average level of wage that a greater percentage of working age arrears is higher in mining municipalities respondents in the mining towns cited (7.3 months compared to 4.2 months in "social benefits" as a main source of the the national urban sample). family's income (38 percent compared to 32 percent in the national urban sample). Concerning past unemployment, the Respondents in the mining sample were same percentage (30 percent) of em- also considerably less likely than respon- ployed respondents in the mining and in dents in the national urban sample to the nation-wide samples said that they name produce from garden plots as a had been unemployed during the last main source of income (13 percent versus five years, but the average length of 27 percent). It is also of note that respon- unemployment among respondents in dents in the national urban sample are the mining sample was 26 months as roughly twice as likely as respondents in opposed to 19 months for respondents in the mining sample to receive help from the national urban sample relatives (12 percent compared to 5 percent), which is consistent with what is Housing and communal services. Resi- known about the history of the settlement dents of the two mining communities are of the mining towns and the more limited considerably more likely to live in apart- nature of the support networks of ex- ments than residents of similarly sized tended families of those remaining in the cities in the rest of the country, and mining towns. consequently are more dependent on communal services for the provision of 58 various essential services such as heat pared to 68 percent in the national urban and water. In the mining sample, 71 sample. percent of the respondents reported living in an apartment as opposed to 45 POLICY RECOMMENDATIONS percent in the comparable urban sample. Respondents in the mining sample Policy recommendations that could help noticeably more often gave negative mitigate the negative impact of coal assessments of their housing conditions sector restructuring programs on com- than respondents in the national sample. munities can be grouped into those of In the mining sample, 46 percent of national or economy-wide relevance and apartment-dwellers said that the condi- those of relevance to the mining sector or tion of their housing was very bad or the mining municipalities. The former even dilapidated, requiring either major group will not be considered in detail repairs or demolition, as opposed to 21 here, both because this would be beyond percent in the national urban sample. the scope of the research, and more Also, considerably more respondents in generally in adherence to the general the mining sample reported having no principal that special regimes should not hot water in their apartments (79 percent be carved out of instruments of national vs. 43 percent). Respondents in the min- economic policy. At the same time, the ing sample were also more likely to have importance to mining regions and mu- no central heating (21 percent in mining nicipalities of reforms that could (and towns vs. 12 percent in the other cities) or should) be part of national-level policy gas for heating (75 percent vs. 63 percent) cannot be overstated. Some of the impor- and less likely to have a telephone (56 tant broad areas of reform in this regard percent in the mining sample did not would include: have telephones vs. 43 percent in the national urban sample). ·the system of inter-governmental relations; For respondents who receive these ·the banking system and access to services, the analysis demonstrated that credit for a wide variety of purposes the functioning of all basic services is (to start businesses, improve real considerably worse in mining towns than estate and infrastructure, etc.); in the rest of the country. Twenty-nine ·housing and communal services; percent of the respondents in the mining · local economic development and towns as compared with 11 percent in the diversification; national urban sample reported that their ·education; and electricity service does not function well. ·social protection. Of those connected to central heating in the mining towns, 69 percent vs. 43 The following policy recommenda- percent in the nation-wide sample said tions are based on the results of the that the service does not work well. Cold research carried out in Romania, Russia water is delivered with interruptions or and Ukraine but would also have broad not delivered at all to those who have relevance to other industrial restructur- water connection in 64 percent of the ing programs, particularly those where cases in mining towns as compared with the patterns of municipal development 35 percent in Ukraine. And almost all and the social aspects of restructuring are respondents (95 percent) in the mining similar to those encountered in the coal sample with connection to hot water sector. In one way or another these rec- reported bad delivery of hot water com- ommendations seek to further a holistic 59 Mine Closure and its Impact on the Community or comprehensive approach, as opposed Notionally, the process of coal sector to the limited sectoral approach, to miti- restructuring can be viewed as one in gating the impact of sector restructuring which subsidies that previously went to on the entire community.36 support loss-making production at uneconomic mines (and, indirectly, Recognize early on the full range of employment in dependent industries) costs to the community of sector restruc- are shifted, for some period and in one turing, and align benefits more closely form or another, to the mitigation of the with the costs. Ex-ante analyses of coal impact of mine closure on the mining sector restructuring recognize the great community. The extent and manner in benefits that accrue to the economy at which these funds are shifted is a matter large from restructuring when the high of policy within the usual budget and level of subsidization is eliminated and other constraints. In practice, the link when workers released from the coal between these two general categories of sector produce greater value in other need is recognized, but usually only in economic activities. At the same time, the context of making a case for postpon- such analyses usually do not recognize ing the initiation of closure at a loss- the full range and nature of the costs that making mine (i.e. the community will are imposed by restructuring on the suffer if another mine is closed, jobs need community, including the negative to be maintained). Implicitly, this argu- employment impact of mine closure on ment seeks to justify subsidization of downstream industries and on services loss-making production as a form of industries dependent on household social protection that guarantees employ- purchasing power. The time frames ment for a certain number of people and required for the implementation of local helps preserve stability in a community. development initiatives and the transi- tion of shed labor to more productive While in some cases it could cer- uses also tend to be underestimated, tainly be advisable to stagger closure of which is another form of unrecognized mines in a given location in order to costs to the extent that these represent mitigate the impact on the affected work- delays in the accrual expected benefits ers and the community, the argument and increased social tension. The recom- referred to in the preceding paragraph mendation to more closely align the costs often amounts to no more than an at- and benefits of sector restructuring seeks tempt to delay the inevitable. Failing to to minimize the additional costs that forestall the inevitable, this position result from failing to recognize upfront results in increased financial and social all the costs of sector restructuring, as costs of mine closure and consumes well as the additional costs of protracting funds that could otherwise be used for sector restructuring, and to more quickly mitigation programs. Far from being move to the implementation of the miti- strengthened, the level of social protec- gation strategy through establishing a tion of workers at uneconomic mines is constructive framework for dialogue that usually eroded under such circum- clearly identifies the various stakehold- stances (bad management, for example, ers and recognizes their respective shares gives rise to wage arrears) while the of the costs of sector restructuring. fundamental economic problem of the loss-making mine remains. The case of 36 The observation in World Bank (2001a) that "regional policy has been developed as a necessary ap- proach to solving a wide range of systemic issues that cannot be resolved by isolated sectoral policies," is of note in this context. 60 Rostovugol in Russia illustrates this nize the role and potential of the munici- well. Having resisted the comprehensive pality in mitigating the impact of sector restructuring that was being carried out restructuring on the entire community. In in the rest of the industry (for several all cases under review here control over years, Rostovugol produced about 1-2 the funds intended for local mitigation percent of total production but received efforts has been an issue in relations up to 25 percent of the total subsidies for between regional and municipal authori- loss-making production), as a result of a ties. While regional authorities can play a recent Government decision the company crucially supportive role, the experience now faces extensive restructuring. Wage at various points in times in various arrears are very high at the loss-making locations has been that funds targeted for mines that were kept functioning and assistance to mining towns have been that are now slated for closure. captured at the regional level and used for other purposes (and here it is worth While a case-by-case approach is recalling that the concentration of the obviously called for in such circum- mining industry is highly localized, and stances, given the high return to the the priorities of the regional government budget of eliminating production subsi- are often different from those of the local dies, a rationale generally exists for administrations of the mining towns). increasing the support directed to com- The funds provided for solving local munities without undermining the over- problems are ultimately more effectively all economic rationale of sector restruc- used if they are allocated directly to the turing. The actual form of the assistance communities, with the important proviso is a matter for policy, judgment and that this be done in the context of appro- negotiation. In view of the inevitable priate policies and procedures exist, and period of adjustment and the "learning that training and capacity-building be curve," it is likely greater value to the made available over time. community would come from extending assistance over time. In the cases under The experience of Russia in the final consideration here, the review of the four years of the existence of production situation five years after mine closure in subsidies illustrates the disparity be- three different countries indicates that the tween the subsidies provided to loss- coal municipalities need additional making mines and the subsidies pro- targeted assistance before being vided to municipalities for local devel- mainstreamed into existing national opment programs, and demonstrates that programs of inter-governmental trans- even in this case of a relatively high level fers. of support to impacted communities, the loss-making mines in the coal industry This general recommendation has received higher levels of support. In some important practical policy applica- 1998, subsidies in support of loss-making tions, including: (i) broaden the base of production exceeded the support to local eligibility for social protection benefits development programs by a factor of 6. (i.e. severance, participation in job- In the following year, this ratio was creation programs, etc.) to mitigate the reduced to about 3. By 2000, the ratio was negative employment impact of mine reduced to about 1.3, and then in 2001, closure on dependent industries (possi- the last year of production subsidies, to bly using an approach based on demon- less than 1. Viewed over the four-year strated proportional dependence, as in period, the subsidies in support of loss- the Russian experience), and (ii) recog- making production were almost exactly 61 Mine Closure and its Impact on the Community double the subsidies devoted to local management of the consequences of mine development programs.37 Viewed over closure on the local level; measures to the entire period of restructuring, the build capacity are necessary to ensure ratio would be far greater than 2:1 in that the limited financing is put to its best favor of loss-making production subsi- use. Capacity-building in this context is dies, as these existed for many more relevant for local government and also years than local development programs for the various non-governmental organi- and subsidies to the sector in the period zations that constitute civil society and 1993-97 exceeded US$10 billion, most of that can make an important contribution which went to subsidizing loss-making to the development of adequate institu- production and inefficient investments. tions on the local level. As has been seen, civil society in the mining communities Because of the sectoral approach that is relatively weak; indeed, the concept of dominates in the process of the develop- civil society and the recognition of its ment of industrial restructuring pro- potential are often poorly developed at grams, it is not common practice to view the local level. Equally important is the two types of State support (subsidiza- supporting the creation of a mechanism tion of a loss-making industry versus that ensures the adequate and meaning- support to the municipalities in which ful interaction of municipal government the industry is located) as constituting a and civil society (as illustrated, to some trade-off. As a general framework, how- extent, by Russia's Local Oversight ever, for an approach to industrial re- Councils.) structuring, this view may help national governments to build support and un- Given the long-term nature of the derstanding for the need to carry out impact of mine closure and the local restructuring and to articulate more response to it, it would be appropriate clearly the high cost to the communities for governments and international lend- themselves of perpetuating the untenable ers and donors engaged in supporting situation of subsidization of loss-making coal sector restructuring to plan long- mines. In this, the government will face term provision of technical assistance to the challenge of the widely varying communities. Because the capacity and attitudes and capacities on the part of needs of municipalities will differ and different players on the regional and evolve over time, these programs should local levels. Public information cam- include an array of options that can be paigns and continuous social dialogue tailored to individual municipalities and are important instruments to help meet that are re-visited periodically to confirm this challenge. their continued relevance. In general, there is a high need for training munici- Build capacity on the community pal governments in a comprehensive level. Communities in which mines are approach to strategic municipal develop- closed are confronted with an array of ment. Effective and relatively low-cost new problems for which the capacity and technical assistance can be offered skills embodied in the various local through seminars that bring together response systems are inadequate. Assur- representatives of municipalities for an ing adequacy of financing is a necessary exchange of experience. Most important but not sufficient condition for the proper is to recognize the leading role of munici- 37 Budget financing of repair of social infrastructure, housing, etc. is not counted here as these are formal liabilities recognized under mine closure plans, as opposed to the local development programs which are mitigation programs, the financing of which is entirely the prerogative of the Government. 62 pal governments in directing the re- ample, valuable roles as monitors of the sponse to the dramatically changed environmental and social impacts of conditions of the life of the community mine closure. (including critically in such disparate areas as the management of social assets Enhance the private sector develop- and local economic development) and to ment component of the local develop- provide the staff of the municipal gov- ment response. Programs that support ernments with the knowledge and skills the development of the SME sector are a they need for managing these complex staple of the local development policy processes. response. These programs have a signifi- cance that extends beyond their actual Organizations representing civil weight in the local economy because they society are many and varied. Some func- send a powerful and optimistic message tion at a high level of professional com- of the possibility of positive change. At petence, sometimes with the benefit of the same time, policy-makers should donor-financed training. Others, in con- recognize the limited potential of small trast, function on a strictly local level and medium-sized businesses to provide with a local focus and with limited fi- jobs for workers who are made redun- nancing and capacity. Two types of dant as a result of mine closure, at least potential beneficiaries of capacity-build- over the 5-year period that served as the ing measures are of particular note in the basis for this research. present context: (i) groups focused on local business development, and (ii) Mitigation strategies sponsored by groups that carry out social work of governments and supported by the various kinds. The groups that fall into World Bank tend to refrain from advocat- the first category will often be directly ing large-scale enterprise development in involved in the sorts of activities re- the local development response, partly viewed in the discussion of the local because of well-founded concerns that economic development response, such as the coal industry could highjack the the promotion of small business through process, and partly because of the sheer business incubators. But the capacity of difficulty of carrying too many develop- business development groups can also ment initiatives at once. But unless re- be developed in ways that are not as structuring is carried out in an environ- obvious and that have important social ment of growth that is sufficient to absorb dimensions. For example, the TACIS- the shed labor, most of the jobs that are MERIT programs sponsored by the EU in destroyed through mine closure will not Russian coal towns included components be re-created through programs support- dedicated to increasing the representa- ing individual and small businesses. In tion of women and youth among local the contracted, highly competitive labor entrepreneurs. markets that follow mine closure, work- ers less able to compete are likely to While the NGOs and other groups suffer from long periods of unemploy- that provide social services of various ment or under-employment and to be kinds perform a very different function, more vulnerable to abuse of the legal and they too can benefit from basic training in social safeguards that have been estab- how government works, how to write lished to protect workers. Facilitating the grant proposals, and so on. With growth of jobs at larger enterprises could strengthened capacity, some of the also be particularly helpful in re-integrat- groups mentioned in the course of the ing into the labor force vulnerable research could begin to play, for ex- groups, including laid-off workers with 63 Mine Closure and its Impact on the Community employment prospects limited either by services and so on. Where long-term age, skills or other factors, and new strategic development plans give an entrants to the labor force, such as important role to infrastructure-intensive women who did not work before mine projects, such as the development of a closure and youth, who are disadvan- tourism industry (as, for example, is taged by their lack of experience and often proposed for Romania's Jiu Valley), skills. the scale of required investments is clearly beyond the capacity of any level A private sector development com- of government and underscores the ponent could consist of provision of relevance of a sustained effort to work business consulting/technical assistance with municipalities and regions in order to (i) existing large enterprises that are to attract investors, work with banks, etc. already major employers (assuming such exist in the municipality, which is typi- Deepen efforts to rationalize hous- cally the case in Russia and Ukraine and ing stock and social infrastructure. The less so in Romania), (ii) medium enter- intractable problems of housing and prises that are seeking to grow (for ex- social infrastructure are found in munici- ample, through assisting them in identi- palities throughout the transition econo- fying a strategic marketing plan to allow mies, but they assume a particular sig- them to grow beyond the local market), nificance in mining towns, both for the and (iii) local and regional governments historical reasons as described earlier that are seeking to enhance the role of the and because the rate of population de- private sector in the economic develop- cline in these communities is likely to ment of their respective territories. exceed the national average. A significant implication of this is the continued de- The provision of assistance to exist- cline of already highly depressed local ing large enterprises has certain potential housing markets (which in turn consti- pitfalls that should be guarded against, tute a major constraint to individuals and notably SOEs that are themselves in need families considering out-migration.) This of restructuring. In any event, it should condition, in turn, argues against invest- be stressed that the larger, existing enter- ments in the housing stock of mining prises should not be eligible to compete communities beyond what is necessary for the limited investment funds made for basic maintenance and to ensure a available to support individual and basic level of safety. small business through local develop- ment programs. The risk that a large As populations decline and age, the enterprise will absorb large amounts of need for certain types of social infrastruc- finance without creating jobs is great. ture also declines. The research found Rather, the assistance should be stream- that in recent years, many municipalities lined to consist of strategic business have understood the need to rationalize advice, which can be just as relevant to a these expenditures through closing large, established enterprise as to a small kindergartens, consolidating schools and entrepreneur who is just starting out. so on. In the more positive cases, this process of rationalization is accompanied Local and regional governments can by improved maintenance of the remain- benefit from policy advice directed at ing assets. strengthening the investment climate, increasing local/regional business com- The rationalization of the housing petitiveness, private provision of hous- stock, while generally of greater signifi- ing and other municipal network-borne cance from the point of view of the im- 64 pact on the municipal budget, is a con- social and political reasons touched siderably greater challenge than the upon here. At the same time, most mu- rationalization of public buildings, nicipalities cannot afford to disregard the however, for three major reasons. First, huge potential of reforms in this area. In ownership of housing is sometimes order to help ensure the successful con- legally ambiguous, as when there is a tinuation of efforts to rationalize the private ownership at the apartment level housing stock and related social infra- and municipal ownership (by default) at structure, municipalities should the building level. Second, reliable infor- strengthen their information base of the mation on building occupancy is typi- housing stock by working closely with cally lacking. While a large number of neighborhood groups or (where they apartments might be empty for months exist) building-level associations to on end (as indicated by the survey car- identify apartments that are unoccupied. ried out in Ukraine), the municipality If financing can be made available, a usually does not know whether an apart- program of municipal "buy outs" of ment has been abandoned, or whether unoccupied apartments could benefit the the owner/occupant intends to return municipality as well as the seller. Reduc- (indeed, the occupants themselves may ing the number of unoccupied apart- not know this when they leave). Third, ments would also be a positive step efforts to rationalize the housing stock towards the reduction of non-payments are complicated by the partial occupancy for utility services that were reported in of many buildings. Given equal claims towns that have experienced high levels on replacement housing of comparable of migration. quality, municipalities face the difficult question of determining which buildings Enhance migration and transporta- will be demolished and who will be tion support to households. It is unlikely relocated first. that direct financial support for migration could be made available to match the Some mining municipalities have demand that exists for such support in had a positive experience in rationalizing many communities in which mines have the municipal housing stock and related been closed. There are also compelling services, particularly when the munici- social and political reasons why govern- pality includes mining settlements that ments would be disinclined to provide are spread out over a large territory. this support. At the same time, recogniz- Where sponsored migration programs ing that in certain cases labor migration is exist (such as from Russia's Far North), a phenomenon of enormous significance municipalities have a chance to realize to the present and future of a mining gains by closing down the mining settle- town, there are social and economic gains ments, compacting the physical infra- to be had through strengthening local structure that was extended over kilome- capacity to provide migration support to ters to serve the settlements, and provid- interested households (along the lines, ing improved living conditions to those for example, of the support provided in who remain, who are relocated into Novoshakhtinsk.) Efforts should be better quality apartments that have been strengthened to remove barriers to mi- vacated by official migrants. But such gration, for example, housing or trans- clearly defined situations are rare. portation. In cases of short-term, tempo- rary or seasonal labor migration, munici- Capturing the gains from the ratio- palities and civil society groups can help nalization of the municipal housing stock protect the interests of the people living is not an easy task, for the economic, in the mining towns by coordinating 65 Mine Closure and its Impact on the Community information on employment prospects however, most municipal governments (which could lead to a more optimal will come around to dealing with the matching of jobs with job-seekers, e.g. problems that confront their communi- over a smaller geographic territory than ties. If they can be aided in this process is the case when individuals seek to by national and regional governments resolve this problem on their own) and and other concerned groups, such as taking steps to confirm the legitimacy of NGOs, that share a vision of coal sector employment offers that are extended restructuring and implement it consis- from other locations. tently, financial and human costs can be reduced. When families have decided to migrate permanently, or are considering There is an important role to be permanent migration, municipalities can played by makers and implementers of capture gains through better tracking of policy in helping to prepare municipali- the housing stock and apartments that ties for the difficult adaptation that they are potentially abandoned, and possibly face when mines are closed, including purchasing apartments from families first and foremost minimizing the period wishing to migrate, as described in the of the adaptation (which often includes a previous paragraph. In view of the trans- phase of resistance to the restructuring portation constraints that exist in many policy, or a phase of simply not knowing areas, a less radical solution to balancing what to do) so that resources may be the local labor market would be to pro- employed more effectively and the vide subsidized transportation for work- various components of the mitigation ers willing to travel to other cities for strategy put into operation as soon as employment. possible. PARTING THOUGHTS: LOOKING TO THE The town of Stakhanov, one of the FUTURE research sites in Ukraine, is a noteworthy example in this regard. All of the mines in Stakhanov have been closed and, as Mining towns and other towns domi- described earlier, there is evidence of a nated by a single industry are often high level of out-migration from the described as "dying towns" after the town. The local development response closure or significant downsizing of the has been slow to come, protracted, per- dominant industry in the local economy. haps, by the on-going ambivalence to- This term has been avoided throughout wards coal sector restructuring from the this report, as it carries rather negative national level down. At the same time, implications usually without a corre- for the first time in many years, recent sponding analytical basis for this desig- assessments of Stakhanov's future pros- nation. And while it seems that the popu- pects contain a glimmer of encouraging lation of mining towns will continue to news. A comprehensive report on contract (as will populations overall in Stakhanov's economic and socio-cultural EE/FSU, at least in the medium term), it life that was prepared by the city govern- is important to keep in mind the short ment in 2001 details a number of positive "shelf life" of some of the more grim developments, including the resumption prognoses of decline in regions that have of growth of industrial production, suffered large-scale job-destruction as a improved tax collections, the growth in result of industrial restructuring. It is the number of individual and small true that the process of recovery is a long enterprises, a doubling of the average and arduous one. One way or another, monthly number of vacancies in the 66 employment service, and so on. Of par- mine closure, and a short distance away ticular interest is the description of an on the other side of the Ukrainian-Rus- investment project under implementa- sian border. Novoshakhtinsk opened its tion by a domestic investor that is con- first business incubator in 1996 and has verting waste from coal mining into a since gained recognition as one of the marketable product that is sold as fuel to more progressive small towns in Russia power stations. An environmental prob- in this field. Much remains to be done to lem has been turned into a business diversify the local economy and establish opportunity. 38 an economic base that is independent of the coal sector, and in the meantime there The optimism of the local adminis- is, inevitably, some dislocation and tration is echoed in the words of an social cost, as workers leave entrepreneur in Stakhanov who partici- Novoshakhtinsk in search of gainful pated in the research: employment. At the same time, it is reasonable to suppose that the combina- [Business people] are trying to fill all the tion of a realistic vision on the local level niches for the things necessary in life... Just this last year there's been a real and adequate support from above has leap forward... People who, for ex- helped shorten the adaptation period ample, began to work with wood and and to facilitate the town's progression metal now have businesses installing into the constructive phase of response to doors with codes. New kinds of activi- the closure of the mines that were once ties are starting up in the city, people the lifeblood of the town. are beginning to use services... There really is competition here now. People come here from all over the region to have weddings, celebrate birthdays and special occasions. The thing is, the absence of jobs and the closure of the mines really forced people to try to survive. And we all feel this and we know that if we're going to do some- thing, we have to do it right, it's a matter of conscience. And the people who take up [business] are the people who know how to do something. Entrepreneur, cable and satellite TV systems, Stakhanov, Ukraine The report prepared by the Stakhanov city government also noted that a business incubator had been opened in the town in 2001, with the help of a Lugansk Oblast organization dedi- cated to the support of entrepreneurship. One cannot help but note the contrast with Novoshakhtinsk, a coal town of about the same size, equally hard-hit by 38 Stakhanov, Ukraine (2001). 67 Mine Closure and its Impact on the Community 68 Annex 1: Description of Research Sample A. Phase 1 Indicative Sample. The (civil society) groups following indicative sample was used to develop the sample in each country, with 12. Representative of coal trade union variations introduced as appropriate in 13. National association of mining each research location. municipalities (alternatively municipalities in general) I. National-level officials working at national level IV. Local officials Municipal government officials: 1. Deputy minister (Department head) of 14. Mayor Mining/Energy Ministry or Mine 15. Deputy mayor for social issues (social Closure Agency. (More than one official protection, health, education, etc.) is possible depending on nature of 16. Deputy mayor for social assets (if expertise) applicable) 2. Deputy minister (Department head) of 17. Deputy mayor for economics/ the Ministry of Finance economic development 3. Deputy minister (Department head) of the Ministry of Health V. Other local experts and 4. Deputy minister (Department head) of representatives of civil society groups the Ministry of Social Development / Labor 18. Managers of job-creation programs, 5. Government official overseeing business incubators, etc. regional/municipal development 19. Local union representative 6. Member of parliament from coal 20. Local NGOs and other civil mining region organizations 21. Leaders of the informal groups in the II. National-level officials working at community local level 22. Director (deputy director) of large or growing non-coal enterprise that Official from local branches of: employs former miners (or potentially 7. Employment Service could) 8. Health service agency 23. Local religious leader (if appropriate 9. Education agency and significant for community) 10. Social protection agency 11. Environmental agency VI. Independent Experts (national and/ or local) III. National-level non-governmental 69 Mine Closure and its Impact on the Community Experts in the areas of: B. Phase 2 Sample ­ Members of the 24. Education Population 25. Health, including stress-related mental and physical illnesses Following is the description of the Phase 26. Child and youth problems 2 sample for each municipality; in each 27. Social deviations such as crime, drug municipality, approximately 30 abuse and other socially destructive interviews were sampled, for a total of 60 behavior per country (90 in Romania). 28. Family issues No. Description of Sample Group (for Each Municipality) Indicative Quality (±1 okay) Total in Each Municipality 30 1 Coal miners first laid-off in 1997 (1998 latest) and presently unemployed 5 or underemployed. 2 Wives (or widows) of unemployed/underemployed miners. Note: Not 5 wives of respondents from other groups 3 Coal sector workers laid-off in 1997 (1998 at latest) and presently 6 employed in the coal industry in any capacity. Note: Including working pensioners up to the age of 60. If relevant, okay to include one or two "professional migrants" - i.e. coal miners who regularly travel to other coal regions or countries (e.g. from Ukraine to Russia) to work in the coal industry and who are temporarily at home on leave - but only if they really are employed. 4 Unemployed young people (not former miners), age 20-30. Note: do not 4 include students or individuals with higher education. Conceptually the idea is to find individuals who most likely would have found employment in the coal sector in the past, before coal sector restructuring and the general contraction of the economy in the transition period. 5 Former coal miners who received professional retraining in another 3 profession.Note: It is not necessary for these respondents to have found employment in their new profession, the important point is the fact that they received retraining. 6 Local individual entrepreneurs who have used the services of local 5 business incubators and/or received microcredit to open their own businesses.Note: Self-employed or with no more than 3 employees, and not necessarily former coal sector workers. Respondents can include individuals who engage in petty trade but the emphasis should be on those who have plans to develop their business, not those who are engaged in petty trade "simply to survive". 7 Local entrepreneurs with 10 or more employeesNote: Give preference to 2-3 respondents who started their businesses in 1997 or later. 70 Annex 2: World Bank Lending in Support of Coal Sector Restructuring in Eastern Europe and the Former Soviet Union Loan Amount ($million) Loan Approval Date Loan Status Poland Hard Coal SECAL 1 300 June 1999 Closed September 2000 Hard Coal SECAL 2 100 August 2001 Closed December 2001 Romania Mine Closure and Social Mitigation Project 44.5 August 1999 Active (closing June 2005) Note: for coal and other mining industries Russia Coal SECAL 1 500 June 1996 Closed December 1996 Coal SECAL 2 800 December 1997 Closed December 2001 Coal IAP (tech. ass.) 25 June 1996 Active (closing December 2002) Ukraine Coal Pilot Project 15.8 May 1996 Closed December 2000 Coal SECAL 300 December 1996 Closed December 2000 71 Mine Closure and its Impact on the Community 72 Annex 3: Russia: Evaluation Criteria for Local Development Programs Factor (criterion) Weight Rating Value 1. Financial potential Negtive -1 1.1 Profitability of own capital .2 Zero 0 Positive +1 High -1 1.2 Level of borrowed capital .2 Average 0 Low +1 Early +1 1.3 Period of payment of accounts payable .1 On time 0 Late -1 Low -1 1.4 Enterprise ability to pay .3 Optimal 0 High +1 Unstable -1 1.5 Existence of undistributed profit .2 Neutral 0 Stable +1 2. Production potential 1 type -1 2.1 Number of types of activity .2 Less than 3 types 0 3 or more types +1 Falling -1 2.2 Volume of production (dynamic) .1 Stable 0 Growing +1 Less than 0.8 -1 2.3 Load factor .3 0.8 0 More than 0.8 +1 2.4 Norms for expenditure of raw materials Are absent -1 and other materials .1 Often used 0 Are used +1 Negative -1 2.5 Profitability of produced goods .3 Less than 10% 0 More than 10% +1 3. Marketing assessment of enterprise Non-perspective -1 3.1 Potential scope of market .3 Relatively perspective 0 Perspective +1 Small, local -1 3.2 Sales volume .2 Sufficient, local 0 Large, including in +1 other regions 73 Mine Closure and its Impact on the Community Factor (criterion) Weight Rating Value 3. Marketing assessment of enterprise (continued) Very High -1 3.3 Competition .3 Moderate 0 Low +1 No portfolio -1 3.4 Existence of portfolio of orders .1 Current orders portfolio 0 Future orders exist +1 None -1 3.5 Advertising expenses .1 Less than 10% of sales 0 More than 10% of sales +1 4. Socioeconomic assessment Fewer than planned -1 4.1 Number of jobs created .2 As planned 0 More than planned +1 Fewer than planned -1 4.2 Of which, for former miners .2 As planned 0 More than planned +1 Below regional average -1 4.3 Wage level .2 Regional average 0 Above regional average +1 More than planned -1 4.4 Costs per job created .3 As planned 0 Less than planned +1 Low -1 4.5 Qualification of management .1 Average 0 High +1 5. Investment potential None -1 5.1 Assessment of future investment plans .2 Plans exist for current year 0 Plans exist for medium term +1 None -1 5.2 Existence of own sources of investment .2 Less than 50% of need 0 More than 50% +1 Credit inaccessible -1 Credits accessible but only 0 5.3 Access to credit .2 up to half of needed amout Access to any amount of +1 credit Poor -1 5.4 Location (territory) .2 Neutral 0 Advantageous +1 Poor -1 5.5 Environmental factor .2 Neutral 0 Advantageous +1 74 Annex 4: Cost-Benefit Analysis of Coal Sector Restructuring (World Bank Projects) Country, Project Type of analysis Costs (major items) Benefits (major items) Results of analysis Romania, Mine Financial1 Severance, social Savings of labor costs FIRR 16.5% Closure and Social programs, mine and related social Mitigation Project closure costs fund contributions Ukraine, Coal Pilot (i) Economic - Costs of coal Value of coal EIRR 55% Project (3 mines) ex-ante production, mine delivered to (overall; range (appraisal)2 closure, coal consumers, value of from 20% to imports and social output from re- 93%) mitigation (latter employed miners (in two only in "with "with project" project" scenario) scenario) (ii) Economic - (as above) (as above) EIRR 47% ex-post3 (overall) (iii) Fiscal impact Coal industry Contributions to $59 million - ex-ante subsidies, mine social funds, taxes incremental closure, social net impact on mitigation budget Notes: 1. Benefits from microcredit and incentive schemes not quantified for purposes of analysis in view of lack of reliable data. 2. The economic analysis compares (i) costs and benefits of the continued operation of the mines during the project implementation period and during a post-project period limited by coal reserves at each mine, with (ii) the costs and benefits of closing the mines immediately. 3. The driver behind the results is reduction of cost of domestic coal production through mine closure in "with project" scenario. Revisions of analysis at project completion were based on the following factors: (a) the cost of imported coal, which sensitivity analysis in the ex-ante analysis showed to be the most impor- tant factor, did not change. 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Washington, D.C. 20433, USA Fax: 202-522 32 47 Website: www.worldbank.org/socialdevelopment E-mail: socialdevelopment@worldbank.org