THE WORLD BANK 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 Michael Haney Maria Shkaratan A joint publication with the Infrastructure and Energy Department, Europe and Central Asia Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized
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THE WORLD BANK
SOCIAL ANALYSIS
Paper No. 42June 2003
Mine Closure and its Impact onthe Community:
Five Years After Mine Closure inRomania, Russia and Ukraine
Michael HaneyMaria Shkaratan
A joint publication with the Infrastructureand Energy Department, Europe andCentral Asia
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Social Development PapersEnvironmentally and Socially Sustainable Development Network
Paper No. 42June 2003
Mine Closure and its Impact onthe Community:
Five Years After Mine Closure in Romania,Russia and Ukraine
Michael HaneyMaria Shkaratan
Mine Closure and its Impact on the Community
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“Social Development Papers” are published informally by the Social Development Department in the Environmentally andSocially Sustainable Development Network of the World Bank. They are aimed at encouraging discussion and comment amongthe development community on key social development issues. SD Papers represent the views of their author(s) and do notnecessarily 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: [email protected].
The research described in this report was carried out by a team consisting of Michael Haney (team leader), MariaShkaratan (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 Shkaratanare the co-authors of this report, which benefited from inestimable contributions from the reports prepared by the researchmanagers in each of the three countries. Lee Travers guided the preparation of the report as sector manager. Specialthanks are owed to Laszlo Lovei for his comments and insights, and to Janis Bernstein and Nora Dudwick for valuablecontributions made during the development phase of the research. David Craig, Jeffrey Davidson, Ashraf Ghani, HeinzHendriks, Chris Jones, Christopher Sheldon and Doina Visa provided invaluable advice and comments. Anis Dani andJeni Klugman were peer reviewers and their thoughtful comments on the concept and the draft report were instrumental inguiding the research and this final report. For more information on social assessment, go towww.worldbank.org/socialanalysis or contact [email protected]. For more information on social develop-ment in the World Bank go to www.worldbank.org/socialdevelopment.
Concept and Structure of the Research.......................................................................................25
Research Findings.........................................................................................................................29
Common Problems and Experiences................................................................................47Romania: Restructuring in a Challenging Macroeconomic Environment.........47Russia: Six Years of Local Development Programs.............................................49Ukraine: Mining Towns Compared to a National Sample.................................55
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 Europeand 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
1. In recent years, Poland, Romania,Russia, and Ukraine have undertakenmajor reforms of their coal sectors, in allcases with financial support and policyadvice from the World Bank and bilateraldonors. While conditions varied fromcountry to country, in general beforerestructuring the coal industries of thesecountries suffered from a number ofserious problems, including: obsoleteequipment and years of inefficient invest-ments; poor sector management; inauspi-cious geological conditions in manybasins; excessive employment, withproductivity levels among the lowest inthe world; wretched health and safetyconditions; and acute levels of accountspayable.
2. Full-blown crises emerged in thecoal sectors of these countries in thegeneral economic dislocation of transi-tion. The initial response of governmentswas to allocate high levels of subsidies tothe industry. In Ukraine, for example,state support for the coal industry in 1993was equivalent to about 4 percent ofGDP. It soon became clear, however, thatsuch levels of subsidization were unsus-tainable in the face of the other demandson the shrinking national budgets. Fromthis recognition followed the decision,taken at the highest levels of government,to embark upon the restructuring of thecoal sector.
3. In order to reduce the burden ofsubsidies on the budget as quickly aspossible, sector restructuring entails theclosure of uneconomic mines and anextensive downsizing of the industryworkforce. Privatization of the healthycore of the industry may also be a part ofthe restructuring program. In view of theconcentration of coal mining in a smallnumber of regions and towns withinregions, coal sector restructuring pro-grams include mitigation strategies tostrengthen the social safety net for laid-off workers and their families, and tocreate jobs in other sectors in the localeconomy.
Concept and structure of the research
4. This report is part of a work inprogress and reflects the results of re-search that was carried out in Romania,Russia and Ukraine with the goals of (i)assessing the impact of mine closure oncommunities in which large-scaledownsizing of the mining workforcebegan at least five years ago, in 1997, (ii)evaluating the effectiveness of the mitiga-tion policies that have been used to date,and (iii) developing policy recommenda-tions to address the problems identifiedby the research.
5. The research was designed prima-rily as a qualitative study in two phasesconsisting of in-depth interviews withnational, regional and local experts (inthe first phase) and impacted groups of
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the population and “response” groupssuch as local entrepreneurs (in the sec-ond phase). The research carried out inUkraine also included a quantitativecomponent in which survey data werecollected on employment and livingconditions in two mining municipalitiesas well as in the rest of the country.
6. Mining municipalities were se-lected on the basis of a high impact ofrestructuring on the share of coal sectoremployment in the overall workforce ofthe municipality, and on the basis of theexistence of alternative economic activityor the possibility of developing it. Thesecriteria were augmented with such quali-tative considerations as the imminence oflocal elections, proximity to other townswith more diversified economies, thedesirability of regional variation in thefinal selection, etc.
Research Findings
7. Following are the most significantareas of the impact of mine closure on thecommunity:
• Employment and Labor Migration• Municipal and Social Services• Community Cohesiveness• Environment
8. Employment and Labor Migration.The problem of employment is one of themost serious and long-lasting conse-quences of mine closure, even five ormore years after the downsizing of thelocal mining workforce. Mining commu-nities in all three countries have in com-mon the problem not just of the quantityof jobs, but of the quality of jobs as well:long-term, stable jobs providing livablewages are scarce. This basic situation onlocal labor markets has led to a worsen-ing of living standards for many; a quali-tative change in the nature of employ-ment, with the emergence of informal,
insecure forms of employment at lowerwages with fewer legal and social safe-guards; and the emergence of groups thatare particularly vulnerable in thesehighly competitive job markets.
9. Two basic types of response to thedramatically worsened local labor mar-ket conditions following mine closureare: (i) local development and job-cre-ation efforts, and (ii) migration.
10. Local development and job-creation.The standard policy response to the highunemployment that follows industrialrestructuring is to foster the diversifica-tion of the local economy and to seek toimprove the match between the availablejobs and workers’ skills through activelabor market policies. Among the com-mon mechanisms used in pursuit of thisgoal are: the provision of micro-credits toindividual entrepreneurs and subsidizedcredits to small and medium enterprises;technical assistance and support forbusiness development; and programsmatching job-seekers with potentialemployers through subsidized on-the-jobtraining or training in another profession.
11. The research suggests the follow-ing general findings in this area:
• There is a long and steep learningcurve of several years before thevarious local development efforts areestablished and begin to make animpact.
• While support to individual entrepre-neurship and the SME sector is animportant part of the policy response,it is equally important to recognizethe limit to the job-creation capacityof these efforts. Even where theseprograms were most established andbest financed, expert respondentscharacterized their impact as positivebut “a drop in the bucket” of the totalneed.
• In addition to the targeted mitigation
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policies, general economic growthplays an important role in absorbingthe larger part of the labor that is shedthrough mine closure.
12. Migration. The commonly encoun-tered view of the immobility of labor inthe transition countries is challenged bythe research findings. In Ukraine, at thetime of the survey, an estimated 37 per-cent of the population was absent for anextended period in connection withemployment elsewhere. Whether or notmigration is permanent or temporary, orsuccessful or not, however, cannot bedetermined on the basis of this research.Cases of return migration are common insome places (notably in Romania), usu-ally for the reason that things did notwork out for the migrant in the otherlocation.
13. The potentially beneficial impactof labor migration on the local employ-ment market suggests that some form ofmigration support or subsidized trans-portation should be an explicit policygoal to help mitigate the employmentproblems caused by mine closure (seePolicy Recommendations). In actualexperience, however, support of migra-tion has been limited. In each countryeconomic conditions have been generallydifficult everywhere, and officially spon-sored migration is a politically andsocially sensitive issue when there are noobvious growth centers that can receivemigrants without displacing the localworkforce and creating social tension.The problem of housing is also a severeconstraint. The costs of migration arehigh, and practical and financial consid-erations would rule out the possibility offully satisfying the likely demand forsuch support.
14. Municipal and Social Services.Municipal budgets suffer a dual impactfrom mine closure: tax revenues contract,while expenditure obligations expand. In
the range of municipal services, respon-dents singled out housing and commu-nal services as priority areas that havebeen severely negatively impacted bymine closure. Education and health arealso important locally-provided socialservices that are affected by mine closure,although the research results indicatethat the provision of these services hasgenerally fared better despite the diffi-cult circumstances.
15. The poor state of the housingstock of most mining towns is a result ofhistorical considerations and of theimpact of mining and mine closure.Subsidence and seepage of the ground-water have damaged residential andother structures, and physical infrastruc-ture that delivers services of social sig-nificance. In some settlements that areimmediately in the environs of closedmines, these services have ceased alto-gether as a result of mine closure. And inall research sites, hot water is generallynot available.
16. Divestiture of housing and socialassets from enterprises to municipalitiestook place in the 1990s in Russia andUkraine, with a particularly harsh impacton the mining towns. The capacity oflocal administrations was overwhelmed,as in many cases the levels of the assetsdivested to the municipalities by theenterprises exceeded by a factor of sev-eral times the pre-divestiture levels forwhich the municipalities were respon-sible. While municipalities throughoutboth countries have had to shoulder extraburdens as a result of divestiture, thesituation in the mining towns in thesecountries is generally worse, both be-cause of the physical impact of mining onhousing and because the enterprise’sshare of the total stock of housing andsocial assets tended to be greater inmining towns than in other municipali-ties. Enterprises facing the prospect ofdivestiture did not maintain assets, so
Mine Closure and its Impact on the Community
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that by the time the divestiture wascompleted assets were severely depreci-ated and in need of high levels of repairfor which no financing was forthcoming.
17. Community Cohesiveness. Inaddition to social consequences of mineclosure that are implicit in the problemsof employment and social infrastructure,the research examined the capacity of thecommunity to absorb the negative shocksof mine closure and to mitigate suchnegative phenomena as social instability,alienation and apathy. From this perspec-tive, on the whole the mining communi-ties appear to be rather fragile or vulner-able, their capacity to respond ad-equately on the community level dimin-ished.
18. The role of civil society in thesetowns is quite limited: while variousorganizations representing civil societywere found in all locations, their impacton the community was characterized byexpert respondents as insignificant, whilemembers of the population generally hadno knowledge of any organizations thatcould be considered representatives ofcivil society.
19. Environment. The environmentalimpact of mine closure is severe andgenerally well known, even if the exactmanifestation of the impact is highly site-specific. Environmental remediation is astandard component of mine closureplans, and usually the single largestcomponent of the overall cost of mineclosure. In the typical conditions oflimited financing, first priority is given topreventing damage resulting from therestoration of the underground waterlevel, while such items as land reclama-tion are often assigned a low priority.
20. Most of the research participantswere not technically qualified to discussthe problems of the environmental im-pact of mine closure. Not surprisingly in
view of the technical complexity of envi-ronmentally-related issues and thedearth of specialists among the respon-dents, on occasion respondents ex-pressed contradictory opinions on mat-ters of relevance to the subject. As resi-dents of the community, they most fre-quently expressed concern about theproblem of flooding, the damage causedto houses by mining, the quality of thedrinking water (particularly in Ukraine),the danger of methane leaks, and miningwaste piles that are not removed.
Policy Recommendations
21. The following policy recommen-dations are tailored to coal sector restruc-turing programs but would also havebroad relevance to other industrial re-structuring programs, particularly thosewhere the patterns of municipal develop-ment are similar to those encountered inthe coal sector.
22. Recognize early on the costs tothe community of sector restructuring,and align benefits more closely with thecosts. Ex-ante analyses of coal sectorrestructuring recognize the great benefitsthat accrue to the economy at large fromrestructuring when the high level ofsubsidization of the sector is eliminatedand when workers released from the coalsector produce greater value in othereconomic activities. At the same time, itis less common for such analyses torecognize the full range and scope of thecosts that are imposed by restructuringon the community, including the nega-tive impact on downstream industriesand on businesses dependent on house-hold purchasing power. More closelyaligning the costs and benefits of sectorrestructuring would help to minimizeadditional costs resulting from the failureto recognize upfront all the costs of sectorrestructuring and from the protraction ofsector restructuring.
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23. This general recommendation hassome important practical policy applica-tions, including: (i) broaden the base ofeligibility for social protection benefits tomitigate the negative employment im-pact of mine closure on dependent in-dustries (possibly using an approachbased on demonstrated proportionaldependence, as in the Russian experi-ence), eligibility for participation inmicro-credit programs, etc. and (ii) recog-nize the role and potential of the munici-pality in mitigating the impact of sectorrestructuring on the entire community,where the costs of restructuring aredisproportionately concentrated.
24. Notionally, the process of coalsector restructuring can be viewed as onein which subsidies that previously wentto support loss-making production atuneconomic mines are shifted, for someperiod and in one form or another, to themitigation of the impact of mine closureon the mining community. The actualform of the assistance is a matter forpolicy, judgment and negotiation. Inview of the inevitable period of adjust-ment and the “learning curve,” it is likelygreater value to the community wouldcome from extending assistance overtime. This review of the situation fiveyears after mine closure in three differentcountries indicates that the coal munici-palities need additional targeted assis-tance before being mainstreamed intonational programs of inter-budgetarysupport; given the long time frames ofthe local response to sector restructuring,additional monitoring over coming yearswould be warranted to gain a morecomplete understanding of the long-termimpact of sector restructuring.
25. Build capacity on the communitylevel. Communities in which mines areclosed are confronted with an array ofnew problems for which the capacity andskills embodied in the various localresponse systems are inadequate. Assur-
ing adequacy of financing is a necessarybut not sufficient condition for the propermanagement of the consequences of mineclosure on the local level; measures tobuild capacity are necessary to ensurethat the limited financing is put to its bestuse. The evidence from Russia’s experi-ence with local development programssuggests that capacity-building is rel-evant for local government and also forthe various non-governmental organiza-tions that constitute civil society and thatcan make an important contribution tothe development of adequate institutionson the local level.
26. Given the long-term nature of theimpact of mine closure and the localresponse to it, it would be appropriate toplan long-term provision of technicalassistance to communities. Because thecapacity and needs of municipalities willdiffer and evolve over time, these pro-grams should include an array of optionsthat can be tailored to individual munici-palities and that are re-visited periodi-cally to confirm their continued rel-evance. In general, there is a high needfor training municipal governments in acomprehensive approach to strategicmunicipal development. Effective andrelatively low-cost technical assistancecan be offered through seminars thatbring together representatives of munici-palities for an exchange of experience.Most important is to recognize the lead-ing role of municipal governments indirecting the response to the dramaticallychanged conditions of the life of thecommunity and to provide them with theknowledge and skills they need formanaging these complex processes.
27. Enhance the private sector devel-opment component of the local develop-ment response. Mitigation strategiessponsored by governments and sup-ported by the World Bank tend to refrainfrom advocating large-scale enterprisedevelopment in the local development
Mine Closure and its Impact on the Community
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response, partly because of well-foundedconcerns that the coal industry couldhighjack this process, and partly becauseof the sheer difficulty of carrying toomany development initiatives at once.But unless restructuring is carried out inan environment of growth that is suffi-cient to absorb the shed labor, most of thejobs that are destroyed through mineclosure will not be re-created throughprograms supporting individual andsmall businesses. Facilitating the growthof jobs at larger enterprises could also beparticularly helpful in re-integrating intothe labor force vulnerable groups whoare least able to compete in these con-tracted labor markets. The focus of theseefforts should be existing larger private/privatized enterprises or, in exceptionalcases, SOEs that have a demonstratedcommitment to restructuring.
28. A private-sector developmentcomponent could consist of provision ofbusiness consulting/technical assistanceto (i) existing larger enterprises that arealready major employers, (ii) mediumenterprises that are seeking to grow, and(iii) local and regional governments thatare seeking to enhance the role of theprivate sector in the economic develop-ment of their respective territories.
29. The provision of assistance toexisting large enterprises has certainpotential pitfalls that should be guardedagainst, notably SOEs that are themselvesin need of restructuring. Given the riskthat a large enterprise could absorb largeamounts of finance without much effect,the type of assistance provided shouldbe non-financial, such as strategic busi-ness planning, competitiveness assess-ments, and so on.
30. Local and regional governmentscan benefit from policy advice directed atstrengthening the investment climate,increasing local/regional business com-petitiveness, private provision of hous-
ing and other municipal network-borneservices and so on. When long-termstrategic development plans includeinfrastructure-intensive projects, the scaleof required investments is beyond thecapacity of any level of government andunderscores the relevance of a sustainedeffort to strengthen the capacity of mu-nicipalities and regions to attract inves-tors, to work with creditors, etc.
31. Deepen efforts to rationalize thehousing stock and social assets andinfrastructure. In the typical mining townin which mines are being closed, thepopulation is aging and contracting.Consequently, the need for certain typesof social assets and infrastructure alsodeclines. In recent years, most munici-palities have understood the need torationalize expenditures through closingkindergartens, consolidating schools andso on. The rationalization of the housingstock, while of greater significance givenits impact on the municipal budget, is aconsiderably greater challenge than therationalization of public buildings,however, for three major reasons. First,ownership of housing is sometimeslegally ambiguous on the building level.Second, reliable information on buildingoccupancy is typically lacking. Third,efforts to rationalize the housing stockare complicated by the partial occupancyof many buildings.
32. Capturing the gains from therationalization of the municipal housingstock is not an easy task. At the sametime, most municipalities cannot affordto disregard the huge potential of re-forms in this area. In order to help ensurethe successful continuation of efforts inthis area, municipalities shouldstrengthen their information base of thehousing stock by working closely withneighborhood groups or (where theyexist) building-level associations toidentify unoccupied apartments. If fi-nancing is available, a program of mu-
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nicipal “buy outs” of unoccupied apart-ments could benefit the municipality aswell as the seller. Reducing the numberof unoccupied apartments would also bea positive step towards the reduction ofnon-payments for utility services thatwere reported in towns that have experi-enced high levels of migration.
Enhance migration or transportationsupport to households. It is unlikely thatdirect financial support for migrationcould be made available in the volumerequired to match the demand that existsfor such support in many communities inwhich mines have been closed. At thesame time, recognizing that in manycases labor migration is a desirablephenomenon to help achieve a betterbalance between demand and supply onthe local labor markets, there are socialand economic gains to be had throughstrengthening local capacity to providemigration support to interested house-holds. In cases of short-term, temporaryor seasonal labor migration, municipali-ties and civil society groups can helpprotect the interests of the people livingin the mining towns by coordinatinginformation on employment prospectsand confirming the legitimacy of employ-ment offers that are extended from otherlocations. Efforts should be strengthenedto remove barriers to migration, forexample, housing or transportation.When families have decided to migratepermanently, or are considering perma-nent migration, municipalities can cap-ture gains through better tracking of thehousing stock and apartments that arepotentially abandoned, and possiblyacquiring apartments from familieswishing to migrate. In view of the trans-portation constraints that exist in manyareas, a less radical solution to balancingthe local labor market would be to pro-vide subsidized transportation for work-ers willing to travel to other cities foremployment.
Mine Closure and its Impact on the Community
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Mine Closure and its Impact on theCommunity: Five Years After Mine Closure inRomania, Russia and Ukraine
INTRODUCTION
World experience in coal sector restruc-turing has shown that the process hashigh up-front costs, is usually accompa-nied by various forms of protest as wellas longer-term distress in the affectedregions, and is so politically contentiousthat its implementation is often delayedor protracted over years. In the typicalcase of a State-owned industry, by thetime restructuring is recognized as inevi-table, the industry is heavily loss-makingand unable to function without signifi-cant, often unsustainable support fromthe general budget. The imperative forthe government in such a case is to con-tain costs as quickly as possible.
Restructuring of the coal sectorgenerally is a major policy initiative forany government, not only because of theState ownership of the sector and thelifeline provided to the industry throughsubsidies, but also for compelling politi-cal and social reasons. In the “socialcontracts” between the State and coaltrade unions, the State generally assumesa level of responsibility vis-à-vis thesector that exceeds that reflected in itsrelations with other industries.
The geographic concentration of coalmining is another important aspect of the
rationale for a government’s active role insupporting efforts to mitigate the socialimpacts of sector restructuring and tocreate new jobs for laid-off workers.Historically, the settlements that grew uparound coal mines did so primarily toserve the labor needs of the mines. Evenin countries with viable coal industries,advances in coal mining technology haveled to a high degree of mechanization inthe industry, resulting in the steadydownsizing of the labor force. The lessfortunate variant of sector restructuring ismine closure due to the exhaustion ofreserves that can be economically recov-ered, in which case all the labor is shed,usually over a short period. In eithercase, coal sector restructuring has animmediate negative impact on the locallabor market and economy. In addition tothe workers laid-off directly from themines, jobs are lost in the auxiliary in-dustries that serve the coal mines and inlocal service industries used by house-holds. The closing of mines also meansthe loss of enterprise and personal taxesfor the local budget, which has obviousdetrimental effects on the provision ofmunicipal services.
It is striking that even in highlydeveloped economies, the long-termimpact of sector restructuring persistsdecades after its implementation.1 In the
1 Neil (1992) is particularly useful in providing an international comparison of how mining towns havecoped with closure in several OECD countries. While the general experience of these countries differs inobvious ways from the experience of countries of Eastern Europe, from the point of view of the problems thatface communities in which mines have been closed, the similarities are striking.
Mine Closure and its Impact on the Community
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United States, a country with a longtradition of labor mobility, the historiccoal regions are plagued with endemicpoverty. In Appalachia, despite decadesof labor force downsizing due primarilyto mechanization, coal remains the life-blood of the local economy in countieshistorically dominated by the industry inthe absence of other significant forms ofeconomic activity. The technologicaltransformation of the industry has led toa relatively small number of skilled,well-paid workers, while considerablygreater numbers of people, whose fami-lies worked the mines over generations,live in a state of chronic unemployment,or under-employment in the informaleconomy, without developing market-able labor skills.2 Decades of Federal andother types of assistance, as well as theoverall growth of the U.S. economy, havedone little to change the status of theAppalachian coal communities as one ofthe country’s greatest developmentchallenges.
In formal restructuring programs,most of the financial costs of the socialaspects of restructuring are incurredearly on in the process. Severance pay-ments tend to be the single most costlyitem as they are made to all workersseparated from the industry, althoughthe magnitude of these payments variesdepending on the conditions ofdownsizing package and specific at-tributes of the workforce. Some level ofcounseling and retraining is also usuallyprovided. Governments also usuallyprovide funds for temporary publicworks programs in order to mitigate theshort-term negative employment impactof coal sector restructuring, providingsome income to the workers and neces-sary services to the community.
Consistent with the front-end bias ofthe costs to the budget of coal sectorrestructuring, most of the monitoring andevaluation carried out to assess theimpact of restructuring and the effective-ness of the mitigation efforts tends tofocus on the short term, when workersare being laid-off, and when the risk ofsocial disruption and related politicalaction is perceived to be at its highest.The research described in this report wasundertaken in an attempt to look beyondthe short-term effects of coal sector re-structuring and the relatively narrowconfines of the sector and its workers tothe broader affected communities severalyears after mine closure in three coun-tries in Eastern Europe and the FormerSoviet Union (EE/FSU).
COAL SECTOR RESTRUCTURING IN
EASTERN EUROPE AND THE FORMER
SOVIET UNION
The countries of EE/FSU that have sig-nificant coal industries are no exceptionto the generalized description above ofthe impetus behind governments’ deci-sions to engage in sector restructuring. Inaddition, these countries possess someunique features, or more extreme mani-festations of similar attributes, that dis-tinguish their experience with coal sectorrestructuring from that of other coal-producing countries And while theformerly socialist economies know manyother examples of “one-company towns,”the coal industry and the communitiesdependent on it, nonetheless, possess anumber of characteristics that distinguishthem from other small and medium-sized towns dominated by a single in-dustry.3
First, the coal sector has been insomething of the avant-garde of indus-
2 Duncan (1992), particularly pp. 114-125 on the effects of coal industry downsizing on the regional labormarket.3 Expert Institute (2000) provides a thorough review and analysis of “one-company towns” in Russia.
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trial restructuring in transition econo-mies, and governments in the regionhave borrowed from the World Bank andother international lenders to finance therestructuring of the coal industry.4 Whilethis may appear at first to be a formalrather than substantive indication ofsignificance, in fact it reflects the prioritythat governments have accorded to coalsector restructuring in the general contextof economic transition, and suggests thatthe lessons of coal sector restructuringthat can be derived today may be ofbroader relevance to restructuring pro-grams yet to be undertaken. A second(related) factor distinguishing the coalsector and communities dependent on itfrom other industries is that in all coun-tries the coal sector was (in some cases,continues to be) unique among industrialsectors of the economy in the levels ofsubsidization received from the nationalbudget (indeed, it is ultimately this factorthat drives the decision to embark uponrestructuring). Third, the industry wasgenerally a major employer even in thenational context prior to restructuring. InUkraine, for example, the entire coalindustry employment was estimated at4.3 percent of the country’s labor force in1994. Fourth, certain attributes of thelabor and the labor force (undergroundwork in brigades often carried out bymen who have worked only in the coalindustry) complicate efforts at laborredeployment after workers are sepa-rated from the industry. Fifth, communi-ties dependent on coal (or extractiveindustries in general) are arguably morevulnerable than communities dominatedby other types of industry given thevolatility of energy commodity pricesand, most fundamentally, the non-renew-able nature of the principal economic
activity. A coal mine cannot be refitted toproduce another product, while a factoryconceivably can. Finally, extractive in-dustries takes a particularly severe tollon the environment and physical infra-structure of the community, to say noth-ing of the health of those who work in theindustry or live in the area.
Four countries in the region – Rus-sia, Poland, Ukraine, and Romania (inorder of their prominence as producers) –have undertaken major reforms of theircoal sectors in recent years. The backdropto these reforms has been the historictransformation from the centrallyplanned economy to a market-basedsystem. For most countries (Poland is anexception to some of what follows, and isalso the one major coal-producing coun-try in which the research was not carriedout5 ), the transition has been character-ized by the collapse of traditional manu-factured output and the steady contrac-tion of the formal economy, raising forsome the disturbing prospect of de-industrialization; high inflation in theearly years that wiped out the savings ofmany and that, in the former SovietUnion, was brought under controlthrough monetary policies so tight thatliquidity left the system and pervasivenon-cash settlements took root; contract-ing state budgets and chronic budgetdeficits; economic output that is notcompetitive in world markets; and gen-eral social and economic dislocation. Inaddition, the socialist legacy of the re-gion meant that mining enterprises notonly mined coal, but also providedhousing and some social services to thecommunities. Part of the impact of sectorrestructuring arises from the transfer ofsocial assets to other agencies that at least
4 Annex 2 lists World Bank loans to Poland, Romania, Russia and Ukraine in support of coal sectorrestructuring.5 Budget constraints limited the research to three countries; in view of the sustained positive economicgrowth in Poland, it was decided to focus on Romania, Russia, and Ukraine, which commenced their coalsector restructuring in the more typical and challenging conditions of economic contraction.
Mine Closure and its Impact on the Community
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initially do not have the capacity or theresources to manage those assets.
Coal-sector-specific issues thatpresaged the major restructuring pro-grams included: inauspicious geologicalconditions in many basins; obsoleteequipment and years of inefficient invest-ments; poor sector management; steadilydecreasing production; productivitylevels among the lowest in the world;cross-subsidization from the most profit-able to the most severely loss-makingmines; wretched health and safety condi-tions; acute levels of non-cash paymentsfrom customers, particularly the powersector; and consequently, high levels ofaccounts payable to creditors, tax arrears,and months of wage arrears to workers.
Confronted with this inventory ofcoal sector woes that erupted under theconditions of the early transition period,the initial response of governmentsthroughout the region was to allocateeven higher levels of subsidies to theindustry. In Ukraine, state support for thecoal industry in 1993 was equivalent toabout 4 percent of GDP. In Russia, after
prices were liberalized in the coal mar-ket, subsidies in 1994 rose to the equiva-lent of US$ 2.76 billion, or more than 1percent of GDP; the analogous propor-tion held in Romania in 1996. While theprivileged position of the coal sector(proclaimed by early socialist plannersthe backbone of the industrial economy,and an important vehicle for transform-ing the peasantry into the proletariat) andthe socialist legacy of self-reliance helpedperpetuate the belief that the sector wassomehow absolved from the need to becompetitive, it soon became clear thatsuch levels of subsidization were unsus-tainable in the face of the other demandson the shrinking national budgets. Fromthis recognition followed the decision,taken at the highest levels of government,to embark upon the restructuring of thecoal sector.
Table 1 provides an overview of thecoal extraction workforce in Poland,Romania, Russia and Ukraine beforerestructuring was launched, and theforecasted need for the downsizing of thecoal extraction workforce in each country.As can be seen, coal sector restructuring
involves a substantial reduction of thepre-restructuring mining workforce in allcountries. In Poland, the least severecase, the pre-restructuring coal extractionworkforce is projected to be reduced byslightly less than half. Restructuring inRussia is the most advanced from thepoint of view of downsizing achieved bythe end of 2001 relative to the total fore-casted need for downsizing, and leastadvanced in Ukraine from this perspec-tive.
In addition to the large numbers ofminers who are separated from the in-dustry through formal restructuringprograms, the crisis conditions prevail-ing in the industry typically lead to thelarge-scale departure of other workers.These are both the various categories ofworkers associated with mining but notactually engaged in extracting coal at theface or new development work, andworkers employed at auxiliary enter-prises and in other non-core activities (forexample, social services) that were previ-ously on the balance sheets of the coalenterprises. In Russia, for example, overthe period 1993-2001, some 354,000 non-miners left the coal industry, whichexceeds by far the number of miners wholeft the industry. Finally, the massdownsizing of the coal industry inevita-bly has a negative downstream impact onjobs in industries that supply the coalsector and in consumer-oriented indus-tries that suffer as a result of the declinein household purchasing power.
Furthermore, in some cases highwage arrears drove workers out of theindustry before the adoption of formalsector restructuring policies and the
introduction of incentive packages de-signed to reduce the labor force. InUkraine, for example, the total coal sectoremployment in 1994 was about 925,000people (or, as noted earlier, about 4.3percent of the country’s labor force.)From 1994 to 1996 – that is, before therestructuring policy was adopted – thisnumber declined by 26 percent, to about685,000 (of whom 410,000 were classifiedas extraction workers, as indicated inTable 1). In sum, while the reduction inthe mining workforce is an importantindicator of the scope and impact ofrestructuring, it should be stressed thatcoal sector restructuring has impactedmany more workers both in the coalindustry itself and in downstream anddependent industries. In these countries,sector restructuring has had a directadverse impact on several million peopleliving in a relatively limited total terri-tory.6 Severance and other social mitiga-tion benefits are typically made availableonly to the minority of those directlyimpacted by sector restructuring, theminers who are separated from the in-dustry through formal mine closure ordownsizing programs. From this per-spective there is a disjoint between thesectoral parameters of restructuringprograms and the actual social impact ofrestructuring.
THE NATIONAL CONTEXT
While the impetus behind the decision toembark upon coal sector restructuringand the goals that are pursued in doingso are broadly the same everywhere,individual countries possess uniqueattributes that influence the course of
6 A related indicator is the total population living in towns considered to be mining towns. While this is notan official statistical designation, it nonetheless has a working meaning in most countries due the existenceof formal restructuring programs. In Russia, for example, at the end of 2001 the total population living intowns that are members of the Association of Coal Mining Cities was some 5.6 million, or slightly under 4percent of the total population. In Ukraine, an estimated 5.7 percent of the total population in 2001 lived inmunicipalities considered to be mining towns on the criterion of the existence of at least one mine in thetown, excluding Donetsk and Lugansk.
Mine Closure and its Impact on the Community
20
sector restructuring and the long-termimpact of industry downsizing on im-pacted communities and consequentlyexhibit a wide variety of experience. Thisdiversity is the result of many factors,including differing natural endowments,the history of the exploitation of the coalfields, patterns of economic and socialdevelopment, the political economy ofcoal sector restructuring in the country,and the overall macroeconomic condi-tions that prevail in the country. Thissection provides an overview of thesalient aspects of coal sector restructur-ing as it has taken place in Romania,Russia and Ukraine, including a descrip-tion of the mining towns in which theresearch was carried out.7
Romania
Of the three countries in which researchwas conducted, Romania differs from theother two for the obvious reason that itwas not part of the former Soviet Unionand, indeed, occupied a unique positionamong the Eastern European socialistbloc during the regime of NicolaeCeausescu. From the point of view of itsexperience with coal sector restructuring,Romania is also unique for havinglaunched sector restructuring through avoluntary downsizing program. And inthe context of the World Bank’s supportto governments’ coal sector restructuringprograms in the countries of EE/FSU, thecase of Romania is of interest because itis the only country in which the Bank hassupported a major mine closure programthrough an investment loan as opposedto sectoral adjustment loans.8
Despite inherently poor conditions,the Romanian coal sector, like otherextractive industries in the country, was
extensively developed under the previ-ous regime’s drive for economic self-sufficiency. The emphasis on increasingproduction irrespective of costs resultedin a larger industry than was economi-cally justified and which consequentlyrequired extensive budget support. Asthe industry expanded, its relatively highwages attracted large numbers of work-ers from all over the country.
Romania is by far the smallest pro-ducer of coal of the countries examinedhere, and the mining towns are generallyconsiderably smaller on average than theanalogous towns in Russia and Ukraine.Nonetheless, the coal sector has been ofsignificance on the national level in viewof the all-Romanian character of itsworkforce, the high levels of subsidiza-tion provided to the industry, and morerecently, as a result of the scope of theGovernment’s sector restructuring pro-gram and the attendant resistance tofurther layoffs by the unions and generalsocial unrest that has accompaniedphases of the restructuring program.
The year 1997 marks the beginningof the Government’s effort to restructurethe coal industry through a voluntaryprogram rather than the involuntarymethod of mine closure. A generousseparation package consisting of up to 20months of wages as severance was of-fered to workers in the coal and otherextractive industries constitutingRomania’s mining sector. The resultingrush to accept the package, which wastwo to three times the size of what otherindustrial workers were being offered,far exceeded the expectations of theGovernment and the trade unions. ByDecember 1998, about 83,000 miners (outof 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 Banksupport 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.
21
for coal and other mining industries) leftthe industry, including about 70,000 whohad accepted the voluntary redundancypackage (the others retired).
The Government also expected that alarge portion of those accepting theseparation package would return to theirnative regions. This expectation, too,proved to be inaccurate. The separationof so many workers from the industryand the low level of successful out-migration precipitated a sharp decline ingeneral economic activity in the miningregions as the redundancies triggeredfurther unemployment in local serviceindustries, which was not adequatelycompensated for by labor redeploymentefforts.
By January 1999, after the severancepayments of the first large group ofworkers to accept the separation packagewere largely consumed and it becameclear that employment options in the coalregions were extremely limited, theuptake of the separation package de-clined dramatically and mining unionswent on strike in protest against contin-ued high unemployment and the poorresults of efforts to create jobs in themining regions. Social unrest emanatedfrom the Jiu Valley (which has sufferedfrom a particular dependence on the coalindustry but also enjoyed the highestvisibility and political weight ofRomania’s mining regions), and tradeunions led a march on Bucharest. TheGovernment managed to contain theunrest through a negotiated settlementwith the striking miners and the restruc-turing program has gone forward al-though employment opportunities in themining regions remain limited.
The World Bank’s support to theGovernment’s restructuring programbegan later in 1999, with the provision ofa loan targeted for the physical closure of29 loss-making mines (20 of which are
lignite and brown coal mines) and re-lated social mitigation measures. Inaddition to the mine closure programthat is being financed by the World Bank,the Government is financing the closureof mines with its own budgetary re-sources; about 60 mines have been closedunder this program.
The elements of the social mitigationstrategy supported under the WorldBank loan that are directed at longer termaspects of alternative economic develop-ment include the establishment of micro-credit funds; employment and trainingincentive schemes (employers are givenan incentive to hire unemployed miningsector workers); and workspace centersto promote enterprise development andsupport start-up enterprises throughbusiness incubators at former minebuildings. However, the Government hasbeen slow to implement most aspects ofthis strategy for fostering local develop-ment and absorbing the labor shed in theprocess of mining industry downsizing.
Uniquely in the case of Romania, theresearch was carried out in three miningcities (in addition to the capital andregional centers): Anina (Caras-SeverinCounty), Motru (Gorj County) andUricani (Jiu Valley). As can be seen inTable 2 (following para. 45), these arerelatively small towns, particularlyAnina and Uricani, that are highly depen-dent on the coal industry. Motru is ayoung city, having been established in1966 as a mining town. Motru is alsonoteworthy for the facts that its workforceis mostly native to the region and that itsland is good for agricultural use. Uricaniis located on the periphery of theconurbation of the Jiu Valley. Whileagriculture is not an option in Uricani (oranywhere in the Valley), the town hasderived some benefit from the politicalvisibility of the Jiu Valley and the relatedfinancial support that has flowed to thatregion. Anina, in contrast, was included
Mine Closure and its Impact on the Community
22
in the research project precisely becauseof its isolated situation and the absenceof its political influence. Although lo-cated only 34 kilometers from the largercity of Resita, Anina is particularlycrippled by problems of public transpor-tation: the train that connects Anina toResita takes six hours to cover the shortdistance. The road that connects the twotowns makes it possible to make the tripin considerably less time by car or bus,but these forms of transportation aregenerally out of the reach of many resi-dents of Anina.
Russia
Of countries that have undertaken coalsector restructuring anywhere in theworld, Russia is noteworthy for a num-ber of reasons. Even after the closure of183 heavily loss-making mines over afew years, Russia remains one of thelargest producers of coal in the world.The downsizing of the workforce has alsobeen significant: the overall industryworkforce (including workers involvedin extraction, on the surface, in adminis-tration and social assets, etc.) has de-clined from about 900,000 in 1992 to328,000 by the end of 2001. The restruc-turing of the coal industry has been inprogress for almost a decade in Russia:de facto restructuring began in 1993, whenthe price of coal was liberalized.
Of the countries under review here,Russia has progressed farthest in imple-menting coal sector restructuring, whichin addition to the program of closure ofloss-making mines and related socialprotection and mitigation programs hasincluded notably the privatization of thesector. Of note, too, is the elimination ofoperating loss subsidies at the end of2001, which is an achievement of enor-mous significance that not all coal-pro-ducing countries can claim even afterdecades of restructuring, and is directly
linked to the successes in removing loss-making mines from production.
Aspects of the social mitigationresponse in Russia are of note. Concern-ing statutory payments made to affectedindividuals, as in other countries, thesocial protection policy in Russia at thebeginning of sector restructuring waslimited to miners laid off from closingmines. Over time, this policy was ex-panded to include workers laid-off fromcontinuing mines and, eventually, work-ers of auxiliary enterprises that weredemonstrably directly impacted by mineclosure. The extension of eligibility forseverance and other payments to thislatter group was late in coming, however,having been approved by Government inOctober 1999, and the problem of lack offinancing for wage arrears and severancefor workers laid-off from auxiliary enter-prises remains acute in some areas. Asfor programs directed at the community,the long period of coal sector restructur-ing in Russia has allowed for a relativelylong-term focus on local developmentand job-creation programs, which areexamined in detail later in this report.
Russia has also borrowed more frominternational lenders for coal sectorrestructuring than Romania, Ukraine andPoland combined: over the years 1996-2001, the World Bank disbursed $1.3billion to Russia in the form of adjust-ment financing, and the Japan Bank forInternational Cooperation matched $800million of these disbursements, for a totalof $2.1 billion. The World Bank alsoextended a $25 million technical assis-tance loan to assist the Government ofRussia in the implementation of its coalsector restructuring program. Thecountry’s own budget funds devoted tothe restructuring program over the years1998-2001 (corresponding to the period ofthe World Bank’s second coal sectoradjustment loan for $800 million, which
23
was matched with the funds of the JBIC)were equivalent to about $773 million.9
The remaining challenges in coalsector restructuring in Russia can beclassified into those that pertain to theimpacted communities and individuals,which is the subject of this report, andthose that pertain to the industry itself,which will not be examined here. Theachievements of restructuring notwith-standing, the challenges to the viable partof the industry are also formidable.10
Underlying Russia’s impressiveexperience with coal sector restructuringis a great range of experience on theregional and local level. In some regions,such as the Kuzbass, a major coal basinin Western Siberia, the coal industry hasgood future prospects, and the remainingcore of the industry has been able toabsorb much of the labor shed in thecourse of mine closure. Other regions,such as the Moscow basin in Tula Oblast,or parts of the Eastern Donbass region(which geologically is part of theDonbass, Ukraine’s major coal basin),have been severely impacted by mineclosure, and remain depressed regions.Still other coal regions, notably those inthe Far North and the Far East, face theproblem of providing for the relocationof thousands of workers and their fami-lies back to “mainland” Russia fromthese remote territories with inhospitableclimates that were developed extensivelyduring the Soviet era.
Anzhero-Sudzhensk, in the north ofKemerovo Oblast, is the oldest coal townof the Kuzbass. Anzhero-Sudzhensk’s
significance in the overall production ofthe Kuzbass peaked in the 1950s, and thetown’s coal industry has been in steadydecline since the mid-1980s. The center ofthe industry has shifted to the south ofthe oblast, a few hundred kilometersaway, and it is clear that Anzhero-Sudzhensk’s significance as a coal townwill continue to wane: two major mineshave been closed in recent years and oneremains in operation.11 At the same time,the coal industry continues to provideabout 30 percent of Anzhero-Sudzhensk’sbudget revenues. Anzhero-Sudzhensk ishome to three major employers outsidethe coal industry: a machine-buildingfactory, a pharmaceutical factory, and aglass factory. Anzhero-Sudzhensk alsohas some important infrastructure advan-tages: it is located on the Transsib rail-way, and the fiber optic cable runningfrom Japan to Europe passes through thetown.
Novoshakhtinsk is located in RostovOblast, in the Eastern Donbass coal basinon the border of the Ukrainian Donbass,with which it shares a common history,economic and geological conditions andextremely limited prospects for the coalindustry. Novoshakhtinsk has been hard-hit by mine closure under the restructur-ing program, having seen the closure offive mines in recent years and probablyfacing the prospect of more closure in themonths to come. At the same time, thanksto the particularly dynamic efforts of thecity government, Novoshakhtinsk enjoysa good reputation for having establishedan effective infrastructure for the devel-opment and support of small business.The city was one of the municipalities
9 The restructuring program consists of the social protection, physical closure and local developmentprograms. 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, safetyetc.)10 A recent and fairly extensive treatment of the challenges to the viable, mostly privatized part of the coalindustry can be found in Artemiev and Haney (2002).11 Data on unemployment underscore the severity of impact of mine closure on Anzhero-Sudzhensk. In1998, some 83 percent of the officially registered unemployed in the city were former coal industry workers.
Mine Closure and its Impact on the Community
24
selected for participation in the EuropeanUnion’s TACIS-MERIT program.12
The significance of Anzhero-Sudzhensk and Novoshakhtinsk asmining towns that have suffered frommine closure is illustrated by their statusas recipients for subsidies for local devel-opment programs. Of the several dozenmunicipalities which received subsidiesfrom the Federal budget to finance localdevelopment programs (the number ofmunicipalities averages around 65,varying from year to year depending onthe mine closure program), both citieswere among the top five recipients in1999, each having received on the orderof $1.2-1.3 million. In 2000, Anzhero-Sudzhensk received about half theamount of the previous year, whileNovoshakhtinsk again received a littleover $1 million, reflecting the greaterimpact of mine closure in that town.
In mid-2002, coal sector restructuringin Russia is at an advanced stage. Someof the program’s major goals have beenachieved, such as the privatization of theindustry and the elimination of the subsi-dization of loss-making production, andthe fundamental performance indicatorsof the industry itself in recent years havebeen encouraging. With the exception ofone major company in Rostov Oblast, itis unlikely that more layoffs will beeffected in connection with mine closure.These and other factors indicate that 2002may become the final year of formalimplementation of coal sector restructur-ing in Russia as it has been known inrecent years. At the same time, it is likelythat the Government will continue tofinance efforts to make good certaincritical liabilities, such as environmentaldamage, social infrastructure and hous-ing and relocation, although the level of
financing and the exact mechanism are atpresent unknown.
Ukraine
Ukraine possesses a large and old coalindustry that is now for the most partuneconomic with a particularly poorproductivity and safety record. In 1996,the Government adopted a restructuringpolicy consisting of a program of closureof about 20 uneconomic mines per year,improvement of the operation of themines with the best long-term prospects,and provision of production subsidies tomines which have no future but whichthe Government had decided againstclosing immediately for social and politi-cal reasons. In the same year, the WorldBank extended two loans to the Govern-ment in support of coal sector restructur-ing. The Coal Pilot Project helped initiatethe restructuring program through theclosure of three mines, and was followedby an adjustment loan in support of coalsector restructuring. To date, about 90mines, mostly in the Donbass, have beentaken out of production and about 190mines are still in operation.
In September 2001 the Governmentadopted a program called Ukraine Coal2001-2010 that, in essence, reverses itsearlier commitment to carrying out acomprehensive reform of the coal indus-try, and reverts to the earlier policy ofsupporting increased productionthrough high levels of subsidization ofthe industry. The motivation behind thechange in policy probably has manyfacets, including: the influence of thevested interests that benefit from thesubsidies that are presently being chan-neled to the industry; the continuingpoor general economic condition of thecountry and concerns over exacerbatingthe difficult socio-economic situation of
12 TACIS-MERIT provided assistance to five mining municipalities in Russia to help them formulate andimplement an integrated strategy for municipal development focusing on improving the diversification ofthe local economy, strengthening the private sector, and enhancing local business development.
25
the coal regions; the energy securityargument, according to which coal, as anindigenous energy source, deservesspecial protection from the Government,including not holding the industry to thestrict parameter of profitability; and thefailure to date of municipalities heavilydependent on the coal industry to diver-sify their economies. It is also reasonableto expect that the specific experience ofthe first significant wave of mine clo-sures, which had a particularly harshimpact on some municipalities, would bean influential factor in recent pressures toabandon the earlier policy of setting theindustry on the path to self-financingthrough closure of heavily loss-makingmines, among other means.
The two municipalities selected forthe research in Ukraine, Gorlovka andStakhanov, are both located in theDonbass, the traditional center of coalmining in Ukraine and home to some ofthe oldest mines in the entire region (theDonbass was industrialized in the earlypart of the 19th century.) Gorlovka islocated in Donetsk Oblast, which is oneof the most significant industrial regionsof Ukraine, indeed, of the former SovietUnion. Neighboring Lugansk Oblast,where Stakhanov is located, is alsoheavily industrialized and denselypopulated. The long history of the settle-ment and development of the Donbasshas resulted in a high density of popula-tion and a pattern of urban developmentin which coal municipalities often runtogether seamlessly, without apparentborders between municipalities.
Stakhanov has been particularlyhard-hit by the closure of uneconomicmines, with all four of the mines operat-ing in the city having been closed almostat the same time. Given the scope andtiming of the mine closure, the down-stream impact on other industries wasparticularly severe. Alternative economicactivity in the city includes notably the
development and reconstruction of lightindustry (particularly textiles, a patternthat has followed mine closure in othercountries). In Gorlovka, one of the largercities of Donetsk Oblast with a popula-tion of just under 300,000, three mineshave been closed. The city is home to alarge pharmaceutical factory employingmore than 5,000 workers as well as anumber of other industrial enterprises.
CONCEPT AND STRUCTURE OF THE RE-SEARCH
The research described in this report wascarried out with the goals of assessingthe longer term impact of mine closureon the entire community, evaluating theeffectiveness of the mitigation policiesthat have been used to date, and devel-oping policy recommendations to ad-dress the problems identified by theresearch. While it is premature to speakof the truly long-term impact of mineclosure on the community, the subject ofthe research was communities in whichlarge-scale downsizing of the miningworkforce began at least five years ago,in 1997 (although in many cases mineswere also closed subsequently). In orderto capture insights on current phenom-ena and trends that are poorly reflectedin statistics, the research was designedprimarily as a qualitative study in twophases consisting of in-depth interviewswith national, regional and local expertsand key informants (in the first phase)and impacted groups of the populationand “response” groups such as localentrepreneurs (in the second phase). Thefirst phase of the fieldwork for the quali-tative research was carried out over theperiod September-December 2001, andthe second phase fieldwork was carriedout in February-March 2002.
In addition, the research carried outin Ukraine included a quantitative com-ponent in which survey data were col-lected on employment and living condi-
Mine Closure and its Impact on the Community
26
tions in the mining municipalities as wellas in municipalities in the rest of thecountry. The survey fieldwork wascarried out in Ukraine in January-Febru-ary 2002. Also reported here are thefindings of a recent evaluation of theviability of jobs created under localdevelopment programs in Russia thatwas financed by the World Bank loanproviding technical assistance to theRussian Government’s coal sector re-structuring program and carried out byindependent Russian consultants.
The main areas of investigationwere: (i) the overall economic and socialimpact of restructuring; (ii) employmentimpact of mine closure; (iii) developmentof an alternative economic base; (iv)social consequences of mine closure,
household coping strategies; (v) environ-mental impact of mine closure; (vi) mu-nicipal, social and utility services; and(vii) civil society (awareness, participa-tion). Questions on any given issue wereformulated with respect to the compe-tence and concerns of the given samplegroup; thus, for example, local adminis-tration officials were interviewed on theirvision for developing an alternativeeconomic base, while local entrepreneurswere asked to evaluate the climate forbusiness and the effectiveness of policiesto facilitate the development of economicactivity outside the coal sector.
Selection of research sites. Contraryto the popular image of the mining townand the tendency in common parlance togeneralize experience, coal mining towns
and settlements display a great diversitywhen considered from the point of viewof such basic indicators as the composi-tion of their populations, the localeconomy’s dependence on the miningsector, the nature of other existing formsof economic activity and the prospectsfor developing them, and so on. Theselection of the mining municipalities asparticipants in the research was based ona combination of quantitative and quali-tative factors. The first phase of selectionwas based on two quantitative factors: (i)a high pre-restructuring share of coalsector employment in the overallworkforce of the municipality; and (ii) ahigh impact of coal sector restructuringas measured by a substantial reductionin coal sector employment as a share oftotal employment in the municipality.This seemingly straightforward selectiontask was complicated by difficulties incollecting comparable data on thesectoral structure of municipal employ-ment, although this problem was gener-ally overcome through various means.13
The second stage of the selection ofmunicipalities was based on the exist-ence of alternative economic activity orthe possibility of developing it. Trulyisolated mining communities that weredeveloped with the sole purpose ofmining coal and in which no other mean-ingful economic base was developed(such as the mining towns in Russia’s FarNorth) were excluded from considerationas research sites in view of the limitationstheir isolation places on the optionsavailable to these communities for futuredevelopment. Such communities, how-ever, constitute a small part of the total ofcoal municipalities. For similar reasons,the relatively small number of miningtowns with good future prospects for
coal production were also excluded aspotential research sites even if severalmines had been closed, as the continueddominance of the coal sector in the localeconomy would be the determiningfactor in the local labor market dynamicsand in local strategic planning, therebyrendering these locations of limitedrelevance to the given research.
As a final stage in the selectionprocess, the quantitative criteria wereaugmented with such qualitative consid-erations as the imminence of local elec-tions, proximity to other towns withmore diversified economies, the desir-ability of regional variation in the finalselection, etc. By design, two municipali-ties were selected in each country; in thecase of Romania, circumstances allowedfor the inclusion of a third municipalityin the research, which made possible theselection of a greater range of municipali-ties.
Table 2 provides an overview of theseven municipalities selected as researchsites, with data on the population, num-ber of mines closed in the restructuringperiod, and data on the dynamic of thecoal mining workforce as a share ofoverall municipal workforce. The coalmunicipalities in Romania are of noteboth because they are smaller, by far,than the research sites in the other twocountries (where, indeed, few coal mu-nicipalities are as small as their Roma-nian counterparts), and for the consider-ably greater share of the coal sectoremployed in the overall municipalworkforce in the municipalities in Roma-nia. These two factors reflect certainhistorical peculiarities of the develop-ment of the Romanian coal industry asnoted 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 thepost-Soviet area, inconsistencies in their collection remain, as well as discrepancies between data reportedby various agencies in the same location (municipal governments versus local branches of the nationalemployment office, for example.)
Mine Closure and its Impact on the Community
28
went a great expansion and labor wasattracted from around the country to thecoal regions under the previous regime’sdrive for self-sufficiency. The coal townsin the two former Soviet republics, incontrast, were established as miningcenters in the more distant past and are ata more mature stage of their develop-ment, with significant in-migration hav-ing abated long ago and greater diversifi-cation having been introduced in thelocal economies. At the same time, it ispossible that methodological differencesin data collection also account for someof the cross-country difference in thefigures for coal sector employment pro-vided below.14
Selection of research participants.Annex 1 provides a detailed descriptionof the research sample. In each country,the first phase of the research consisted ofin-depth interviews with national, re-gional and local experts and key infor-mants, the majority on the local level. InRomania, the first phase consisted of atotal of 80 interviews (for three researchsites and the related regional capitals andBucharest); in Russia, 44 interviews; andin Ukraine, 49 interviews. The Phase 1sample consisted of national-level offi-cials working at the national level as wellas at the local level (local representativesof the employment office, etc.); national-level non-governmental (civil society)groups, including trade unions; localofficials; other local experts and repre-sentatives of civil society groups; andindependent experts (national and/orlocal).
The preliminary findings of the firstphase were used to guide the design ofthe Phase 2 sample, which consisted ofin-depth interviews with various groups
of the population impacted by mineclosure and response groups such aslocal entrepreneurs. Seven groups wereidentified:
• presently unemployed or underem-ployed coal miners who were laid-offin connection with mine closure in1997 (or left voluntarily, in the case ofRomania);
• wives of unemployed (underem-ployed) miners;
• coal sector workers laid-off in 1997and presently employed in any capac-ity;
• unemployed young people (notformer miners);
• former miners who received trainingin another profession;
• local individual entrepreneurs whoused the services of local businessincubators and/or received micro-credit to open their own businesses(where such programs exist);
• local entrepreneurs with 10 or moreemployees.
The findings of Phase 1 indicated therelevance of a primary focus on theemployment impact of mine closure andlocally-implemented policy responses tothe changed circumstances of the locallabor market and the structure of thelocal economy. This, in turn, resulted in ade-emphasis on specifically definedsocially vulnerable groups (although itwas recognized that some of thesegroups could be captured in the Phase 2sample groups as described above), andin a limitation of the Phase 2 selection toworking age respondents who are actualor likely participants in the labor market.Other factors underpinning this articula-tion of the Phase 2 sample included therecognition that (i) members of socially
14 For example, in the Russian mining city of Kiselevsk (not a research site), in the assessment of the deputymayor for economic affairs (who is herself a veteran of the coal industry), although the official employmentstatistics indicated a 35 percent share of the coal sector in total municipal employment (2000), when coalsector employed who for various reasons are classified under other sectors are considered, coal sectoremployment increases to 48 percent of total municipal employment.
29
vulnerable groups are generally recipi-ents of some sort of benefits throughnationally defined programs (pensions,disability, child support, etc.) and wouldconsequently be less directly impactedby mine closure than individuals com-peting on the local job market; and (ii)particular aspects of social vulnerabilityor manifestations of relatively new prob-lems such as the migration of the work-ing-age population, or the emergence ofdrug abuse as a local problem werecaptured during the Phase 1 interviewsand (in Ukraine) the quantitative survey.
RESEARCH FINDINGS
Common Problems and Experiences
The most important findings that werecommon to all three countries are pre-sented here, together with the experi-ences of individual countries when theyhave broad application to the othercountries or to industrial restructuringprograms in general. This presentation ofgeneral results is followed by selectedissues that are particularly well illus-trated by the experiences of individualcountries. As coal sector restructuringwas commenced in different years and itscourse has run differently in each coun-try, the inevitable disclaimer concerningthe difficulties of generalization must bemade.
The findings presented here do notpurport to constitute an assessment of allaspects of the programs of coal sectorrestructuring that are being implementedin Romania, Russia and Ukraine. Thescope of this inquiry was limited to theimpact of the rapid and large-scale con-traction of coal sector employment incommunities dominated by the coalsector. Thus, by design, most (but not all)of the sample is composed of those whohave lost something as a result of coalsector restructuring: individuals whohave lost employment and prospects for
future employment and in some casessocial stature, and municipalities whichhave lost revenues and gained increasedexpenditure and other sorts of responsi-bilities and problems.
Before the review of the substantivefindings, an observation on the differingquality of the research results dependingon the level of the respondent will helpestablish a general framework for inter-preting the results. National-level ex-perts, whether in the Government orindependent, tend to have a broaderview of the entire coal sector restructur-ing process and a greater appreciation ofits rationale in the context of nationalpolicy. To the extent that they identifypersonally with the articulation andimplementation of the coal sector restruc-turing policy or, more generally, with acentrist view, they may be inclined todefend the Government’s policy as aprincipal. A particular view sometimesencountered among these respondents isthat the coal industry and coal munici-palities have been relatively privilegedvis-à-vis the rest of the country in that aspecial program of restructuring hasbeen implemented only for the coalindustry and the coal municipalities haveas a result enjoyed a level of support,even patronage, that sets them apart,although the entire country is goingthrough difficult times. The positiveassessments of coal sector restructuringthat were articulated in the course of theresearch were generally given by respon-dents on this level.
Local experts and members of thepopulation of the impacted communities,in contrast, view the term “restructuring”as synonymous with “mine closure,” andoften expressed the view that the processwas chaotic, unplanned and carried outin haste without regard for the long-termconsequences that the affected communi-ties and individuals have been suffering.Too many mines were closed too
Mine Closure and its Impact on the Community
30
quickly, and (some believe) sometimeseven the wrong decisions were madeabout mine closure. For respondents onthis level, the closure of mines was asevere blow to the life of the community,and the human price has been high.15 Thedistress and dislocation caused by mineclosure are all the greater when con-trasted to the industry’s once privilegedstatus and the high wages that were paidin the coal industry; many individuals gothrough a difficult process of psychologi-cal and social adaptation to their changedcircumstances.
The view that the social aspects ofcoal sector restructuring and specificallythe various social mitigation policies andjob-creation programs were given shortshrift or were late in the implementationwas voiced by respondents on all levelsin all countries. The disjunction betweenthe sectoral limitation of the benefitsprovided and the actual broader socialimpact was raised as a matter of concern(indeed, in some cases benefits have beenlimited even within the coal sector, withminers the most privileged, while otherworkers have not been eligible for sepa-ration benefits).
The point of this distinction betweenthe various levels of respondents is tounderscore the extreme degree of alien-ation of basic positions, which is a condi-tion resulting from the very nature ofsector restructuring. The gains of coalsector restructuring are generally cap-tured outside of the impacted communi-
ties, most notably by the national govern-ment in the form of reduced subsidiza-tion and sometimes revenue from theprivatization of viable enterprises, whilethe negative impact is concentratedlocally.16 One implication of this discrep-ancy between where the benefits andcosts of sector restructuring accrue is thelikelihood that the costs of coal sectorrestructuring may be underestimatedduring the initial period of analysis andpreparation for implementation of thereform program, particularly as concernsthe impact (cost) of restructuring onworkers and others outside the coalsector.17 A related implication of theinherent alienation between the differentlevels of stakeholders is that long anddifficult periods of transition and adapta-tion are probably inevitable in cases ofindustrial restructuring. Mitigationpolicies are necessary, but it is alsoimportant to recognize their limitedpotential and the time lag between theimposition of the social and environmen-tal impacts of mine closure and theireventual mitigation.
The research findings have beengrouped into the following broad areasof impact which are discussed in detailbelow:
• Employment and Labor Migration• Municipal and Social Services• Community Cohesiveness• Environment
15 A notable (but limited) exception to this typical local view was made in reference to the particularlysevere levels of wage arrears that prevailed in Russia and Ukraine in the early and mid-1990s. Workersreceived direct gains from mine closure when their separation from the industry was associated withrepayment of their wage arrears (which in the average case in Russia were much greater than the severancethat was also paid).16 To the extent that restructuring succeeds in putting the industry on a more stable footing, workersretained in the industry are, arguably, local “winners” of the restructuring process. At the same time, theinterviews with the current coal sector workers revealed a general sense of insecurity about the prospects ofsustained, 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 WorldBank investment loans in support of coal/mining sector restructuring in Romania and Ukraine.
31
Employment and Labor Migration
By all accounts and in all research sites,the problem of employment is one of themost serious and long-lasting conse-quences of mine closure, even five ormore years after the mass contraction ofthe mining workforce.18 And while theoverall economic and employment situa-tions differ dramatically between theresearch sites, mining communities in allthree countries have in common not justthe problem of the quantity of jobs butthe quality as well. The scarcity of long-term, stable jobs providing livable wagesis a problem everywhere, includingplaces where research respondents re-ported an improvement in labor marketand general economic conditions inrecent years. The long-term unemploy-ment and under-employment that isendemic in the mining towns has led to aworsening of living standards for manywho remain, and the impoverishment ofsome; a qualitative change in the natureof employment, with the emergence ofinformal, insecure forms of employmentat lower wages with fewer legal andsocial safeguards, including the loss ofaccumulation of service in the formalemployment system (some employerswish to avoid paying the social taxesassociated with formal employment), andsometimes outright fraud of workerswhen they are not paid for labor in theinformal sector; to significantly changedperceptions of future employment andlife prospects among young people; andto the emergence of groups that areparticularly vulnerable in these highlycompetitive job markets where the de-mand for jobs has consistently out-stripped the supply of jobs over severalyears. To be sure, these problems are notunique to the coal municipalities, and the
coal municipalities do not exist in avacuum, separated from the rest of thecountry. But the general economic diffi-culties of most transition economies areintensified in the mining towns by thedestruction over a short period of a largenumber of jobs in the industry that isdominant in the local economy and thedownstream destruction of jobs.
Viewed broadly, there are two basictypes of response to the dramaticallyworsened local labor market conditionsfollowing mine closure: (i) local develop-ment and job-creation efforts, and (ii)migration. Both types of response areconsidered here.
Local development and job-cre-ation. A standard policy response to thehigh unemployment that can arise fromindustrial restructuring is to foster thediversification of the local economythrough creation of jobs outside of theimpacted sector and to seek to improvethe match between the available jobs andworkers’ skills through various activelabor market policies. In Romania, Rus-sia and Ukraine, among the commonmechanisms used in pursuit of thesegoals are: the provision of micro-credits(sometimes grants) to individual entre-preneurs and subsidized credits to smalland medium enterprises; technical assis-tance and support for business develop-ment through business incubators andworkspace centers; and programs match-ing job-seekers with potential employersthrough subsidized on-the-job training ortraining in another profession, in addi-tion to the more traditional local employ-ment offices that provide information onvacancies to job-seekers. Public workprograms are also a common and impor-tant policy response to mass unemploy-
18 Quantitative surveys and analysis of official statistics have also found a more difficult employmentsituation in mining regions after the implementation of sector restructuring. See, for example, the analysis ofthe survey carried out in Ukraine later on in this report and NAD (2001), which found that the decline inemployment in mining regions in Romania was more dramatic than the decline at the national level.
Mine Closure and its Impact on the Community
32
ment, although these are generally transi-tional programs that do not seek to createpermanent jobs. Sometimes these locally-focused programs are complementedwith efforts to attract new investments byconferring upon the region a specialstatus (e.g. “disadvantaged region”) thatprovides such enticements as tax holi-days. In regions in which mine closurehas taken place, it is also common topromote the use of the industrial spaceand surface buildings of the closed minesfor alternative industrial purposes.
Severance payments to laid-offworkers are also sometimes consideredby policymakers as a form of seed capitalthat workers will use to start businesses,and/or to migrate. In the countries underreview here, this expectation was mostprevalent in Romania, where the terms ofthe severance package were more gener-ous than in the other two countries.
Among the general observations thatcan be made on the basis of the researchresults from all locations is that there is along and steep “learning curve” of sev-eral years before the various local devel-opment efforts and active labor marketpolicies are established and begin tohave a positive impact. There is a dis-crepancy between the swiftness of theemergence of the problem (large-scaleunemployment following industrydownsizing) and the capacity of responsesystems on all levels to react, even underthe best of circumstances (which nor-mally do not prevail). Romania is argu-ably at one extreme in this regard, havingstimulated a mass downsizing of theindustry in 1997 through a voluntaryseparation package without having inplace any mechanisms to absorb the shedlabor or to otherwise foster job-creation.Since then, the Government has beenslow to implement its strategy for localdevelopment, and critical elements of the
strategy for dealing with the severeemployment problem of the miningregions are not yet in place. These re-search findings are consistent with stud-ies of active labor market programs, evenin countries where they have been car-ried out for years and where more re-sources have generally been available tofacilitate program implementation and tomonitor and evaluate programs than hasbeen the case in the countries in whichresearch was carried out.19
The case of Russia (which also expe-rienced a long learning curve with lostopportunities along the way) is worthy ofmention in view of the relatively longperiod of the consistent and well-fi-nanced implementation of theGovernment’s coal sector restructuringprogram and specifically the local devel-opment programs that were launched in1996 and are still receiving financing. Anevaluation of these programs was re-cently carried out, and the results of thisevaluation are described in the countrysection below.
The second general observation isthat while support to individual andsmall businesses is an important compo-nent of the policy response to the em-ployment problem that arises from mineclosure, and one whose potential has notbeen fully realized in most locations, it isequally important to recognize the limitto the job-creation and economic diversi-fication capacity of policies supportingmicro-credits, loans to small businesses,etc. The research found several examplesof such support programs that respon-dents characterized as successful anduseful but “a drop in the bucket” of thetotal need. Moreover, the development ofsmall businesses, which are overwhelm-ingly oriented to local markets andhousehold consumption, is constrainedby the limited household purchasing
19 See, for example, Dar (1999).
33
power in communities impacted by mineclosure. There is a qualitative limit tothese programs as well: the skills andappetite for risk that are required tosurvive as a small entrepreneur, or evenas an employee of a small entrepreneur,are particular, and this research is consis-tent with the findings of many socialsurveys that indicate that only a smallportion of the population considers thesmall business sector as a viable optionfor themselves. And while the smallbusiness sector is beginning to make anappreciable contribution to revenuescollected by municipal budgets, thatcontribution is still relatively small (athighest around 15 percent of total rev-enues in the cases reviewed here).
Here, too, Russia’s experience maybe informative. The financing madeavailable to coal municipalities for localdevelopment in the years 1998-2001 wassufficient in the sense that the munici-palities themselves acknowledged thatthey had reached their absorptive capac-ity to assimilate these funds. Even underconditions of relatively efficient imple-mentation of the funds allocated to localdevelopment programs (that is, notcounting the first two years of implemen-tation, 1996-97), the number of jobs cre-ated over the reference period wasequivalent to only about 18 percent ofthose who entered the job market as aresult of mine closure. In the course ofthe research, the mayor of one of thecities that has been one of the largestrecipients of funds for local developmentprograms expressed the view that thedevelopment of the small business sec-tor, while one of the uncontested achieve-ments of recent years, had probablyreached its limit.
A final general observation whichfollows from the second observation, andalso is suggested by the Polish experi-ence (and inversely by the Romanianexperience), concerns the importance of
the role of general economic growth inabsorbing the labor that is shed throughmine closure. A Russian labor expertwho participated in the research identi-fied three distinct phases of the employ-ment impact of mine closure and thecapacity of local and regional labormarkets to absorb the shed labor againstthe background of general economicdevelopments in Russia in recent years:
(i) the initial period of mass layoffsthrough mine closure, when theeconomic situation in the countrywas not very good, with the resultof high unemployment and difficultsocial consequences (one may recallthe “rail wars” of 1998 when minersoccupied the country’s major railarteries). At this initial stage localdevelopment programs were not inplace; that is, the policy responsewas inadequate.
(ii) the subsequent period of the begin-ning of the adaptation, characterizedby the establishment of the localdevelopment programs in theirpresent form in 1998 and theoperationalization of other policyresponses; and
(iii) the latest period, beginning approxi-mately two years ago, characterizedby a dramatic drop in unemploy-ment against the backdrop of eco-nomic growth in Russia.
The remainder of this section consid-ers selected issues of relevance to localdevelopment efforts and the local labormarket.
Temporary public works programs.Public work programs are commonlyimplemented in response to the condi-tions of high unemployment that followthe downsizing of the industry throughclosure or voluntary separation pro-grams. Although typically offering lowwages and temporary by design (and
Mine Closure and its Impact on the Community
34
hence, not an effective means for address-ing the longer-term problems of job-creation and economic diversification),public work programs can nonethelessbe an important part of the initial policyresponse to mine closure in that theyhelp relieve social tension, provide somelevel of income to workers, and arefocused on projects of social value (re-pair of social infrastructure, maintenanceof the housing stock, and so on). Publicworks programs are also amenable totargeting assistance to more disadvan-taged groups, such as older workers orwomen. Priority should be given toestablishing these programs early on inthe restructuring process, before initiat-ing the downsizing of the industry.Eligibility for participation in publicworks programs should be open to allwho are interested (and willing to workfor relatively low wages), that is, notlimited to the coal sector.
Micro-credits, small and medium busi-ness development. Policies that promote thedevelopment of individual entrepreneur-ship and the SME sector are a standardcomponent of the response to industrialrestructuring. Even if the demand for thiskind of assistance is limited, as is thepotential of small business to contributeto the resolution of the employmentproblem, at least in the assessment ofmunicipal officials who participated inthe research, the launching of micro-credit and small business programs earlyon in the post-closure period can send apositive message in an otherwise highlydepressed environment. At the sametime, the basic challenge of ensuring anacceptable return to these public invest-ments in job-creation should be noted,and this challenge is compounded by the
difficulties in carrying out systematic expost evaluation of the programs aftersome appropriate period of implementa-tion.20
A particularly important and rela-tively low-cost aspect of ensuring thesuccess of these programs is the estab-lishment of an infrastructure to supportsmall business, e.g., business incubators,workspace centers and other facilitieswhere individuals can receive assistancein preparing business plans, successfullynavigating the bureaucratic requirementsof starting a new business (includingsimply assistance in properly completingforms), courses in the fundamentals ofbusiness, marketing, management, salesand advertising, and so on. The experi-ence of Novoshakhtinsk is noteworthy inthis regard, and is described below inBox 1. In a number of locations, Euro-pean Union programs were singled outas effective examples of this kind oftechnical assistance, although respon-dents regretted the small volumes ofthese programs and the fact that theywere typically under implementation foronly a couple of years.
Experts respondents in severallocations noted that their experiencedemonstrates the relative desirability ofexpanding jobs at existing enterprisescompared to starting a new enterprise.The cost-per-job at an expanding enter-prise is generally lower than at a newenterprise, and established, existingenterprises have good potential forabsorbing labor. Also, those enterprisesthat market their product not only locally(where purchasing power is limited) butalso outside the region tend to be moresuccessful.
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 roleplayed 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 placeonly after almost six years of implementation.
35
On the subject of barriers to estab-lishing and expanding small businesses,the comments of entrepreneurs whoparticipated in the research echoed theresults of general studies of the invest-ment climate and the development of theSME sector. Obtaining credit from banksis one of the biggest problems, particu-larly for the smaller entrepreneurs, whohave little to offer by way of collateralthat is acceptable to the banks. This ispart of a much larger, economy-wideproblem that is unlikely to change for thebetter soon, and the general problem ofthe access to credit underscores theimportant role that has been and can stillbe played by credit programs offered bygovernments and international donors.
In all countries, entrepreneurs com-plained of the excessive bureaucracy thatattends the creation of a new business aswell as its perpetuation over time. Re-solving these obstacles can be a time-consuming and sometimes costly matterfor a small business. Romania has re-cently focused on the problem of reduc-ing the administrative barriers to estab-lishing new businesses, requiring, forexample, that new businesses be regis-tered within 30 days of the submission ofthe application. At the moment, theimplementation of this new initiative isweak, but with time and experience itmay yield creative solutions to thisproblem.
A related problem is the tax burdenon small businesses, which entrepre-neurs usually consider excessive and,what is perhaps worse, unpredictable.Entrepreneurs spoke of the disincentiveto produce and expand business thatresults from high taxes, and of the in-creased bureaucratic power that inconsis-tent application of taxes gives to localauthorities. Two obvious and detrimen-tal consequences of this situation are thecreation of the potential for corruption,and the retreat of some part of the SME
sector into the informal economy toavoid paying taxes.
Professional retraining. Professionalretraining in one form or another hasbeen offered in all three countries. Thegeneral experience is that the demand forthese programs has been limited (for avariety of reasons that could be termedobjective and subjective), and the experi-ence of those who received training inanother profession has been that actuallyfinding and retaining a job in the newprofession has been difficult, even whenthe training itself has been of a highquality. Many interviews with laid-offminers off revealed a deeply skepticalattitude about the value of learning anew profession. It is of note that thisattitude can be found both in locationswhere the local employment situationhas begun to improve, sometimes thanksto positive developments in the coalindustry itself (as in Russia’s Kuzbass),and in locations where the employmentsituation is particularly poor, oftenbecause of recent mine closure. In placeswhere the coal industry is hiring, laid-offminers often prefer to seek re-employ-ment in the coal industry. And where, onthe contrary, the industry is not hiringand unemployment is high, unemployedmining workers are often cautious anddoubtful of the value of retraining that isnot likely to lead to viable employmentprospects. The explicit linking of retrain-ing with job placement, including theprovision of some level of incentive tothe new employer, as in Romania, wouldappear to be the most sound approach tothe administration of these programs,although there are challenges to gettingthe incentive right and overcoming thenegative image of former miners asworkers in other fields that is often en-countered among potential employers,including some of the research partici-pants.
Disadvantaged region status. This idea
Mine Closure and its Impact on the Community
36
has received its most extensive develop-ment in Romania, although in othercountries it has also been advocated byregional and municipal groups as a wayof attracting investments. Of the total of27 regions that have been granted thisstatus in Romania, 23 are mining regionsthat received the status in 1998-1999 for aperiod of 10 years under criteria thathave since been made more stringent.Under the original criteria, this statuswas granted to regions (i) in which regis-tered unemployment was 25 percentgreater than the national unemploymentrate, (ii) considered mining regions inwhich mass layoffs had taken place, or(iii) in which more than 25 percent of theworkforce had been declared redundantas a result of mass layoffs. The revisedand stricter criteria require that the regis-tered unemployment in a region be atleast three times greater than the nationalaverage. Most expert respondents inRomania agreed that this policy has notresulted in the anticipated increase ininvestments and new jobs. One of thereasons for this is the poorly targetednature of the original criteria used todetermine eligibility for this status,which reduced its effectiveness and tendsto cancel out whatever benefit mightaccrue to disadvantaged regions. Theresult is that the competition for limitedinvestment funds has been decided bythe usual factors that are of significanceto investors: regions with superior infra-structure and a more qualified and flex-ible workforce and generally betterinvestment climates win out over themost disadvantaged regions. Anotherreason for the lack of success of thispolicy is the existence of other legislationsuch as the law on SMEs that in partduplicates the provisions of the legisla-tion on disadvantaged regions. Enforce-ment has also been difficult: some inves-tors have registered businesses in disad-
vantaged regions in order to receive thebenefits without actually producinganything and without creating jobs. Thegovernment has recently taken steps toimprove the impact of this policy bystrengthening enforcement, limiting theeligible activities, and stiffening require-ments for the minimum number of jobsto be created (increased from 1 to 10).21
Severance as seed capital. It is some-times considered that the severancepayments made to workers upon separa-tion from employment can serve as seedcapital to be invested in new small busi-nesses and/or to facilitate migration to aplace where the individual could start abusiness. This expectation existed inRomania at the time of the massdownsizing of the industry in 1997.Despite the fact that severance paymentswere generous (both by national stan-dards and in comparison to the experi-ence in Russia and Ukraine), the view ofthe vast majority of those interviewed isthat the severance payments failed toresult in an appreciable level of eco-nomic development activity; new busi-nesses were not created. The idea ofseverance as seed capital also foundapplication in Russia, where by way ofan experiment the Government offeredsome 570 laid-off miners in two coaltowns in Rostov Oblast grants inamounts equivalent to 2-3 times theaverage severance to be used to establishindividual businesses. An evaluationproject, financed through technical assis-tance from the World Bank, has recentlybeen launched to review the experienceusing a 100 percent sample of grantrecipients. While the evaluation was justgetting under way as this report wasbeing finalized, the indications fromexpert respondents familiar with theproject in Rostov Oblast were negative,the main criticism being that funds wereoffered indiscriminately to many people,
21 World Bank (2001a) treats regional development policy with particular reference to Ukraine.
37
relatively few of whom were likely tohave the requisite business skills tosuccessfully grow and manage a smallbusiness, and no support systems werein place to assist recipients with suchbasic tasks as preparing business plans.(Novoshakhtinsk, which has establisheda model small business support infra-structure, was not one of the towns whichparticipated in this experiment.)
The experience of Romania andRussia (based on preliminary assess-ments) indicates that the use of severance(or grants in lieu of severance) as seedcapital is generally not good policy. Inmost cases there will be a disjunctionbetween the basic attributes of the sever-ance policy (a payment made uponseparation from employment to all sepa-rated employees) and the needs of asuccessful small business developmentprogram, which requires a supportinfrastructure and some kind of filteringprocess that targets individuals likely tosucceed as small business people. At thesame time, one could imagine this ideaworking more effectively if linked tospecific conditions, such as the smallbusiness support infrastructure being inplace and a more targeted individualselection process, with the recipientagreeing to receive training in the funda-mentals of business, etc.
Migration. The logical complementof the local development response to thedramatically worsened local labor mar-ket conditions following mine closure ismigration. Migration is directly linked tothe local labor market in two importantways: (i) it arises as a response to the lackof employment (or employment accept-able to the migrating individual); and (ii)it relieves the pressure on the local labormarket for those who do not migrate.Seen from this perspective, migration canbe considered not only in the positivesense as a common response by indi-viduals and families to difficult circum-
stances, but also in the normative senseas a desirable outcome that can helpachieve equilibrium on the local labormarket (recognizing that those departingmay be more likely to possess goodskills and to be more productive work-ers).
The foregoing suggests that someform of migration support (not necessar-ily financial) should also be an explicitpolicy in response to the employmentproblems caused by mine closure. Inactual experience, however, policy di-rected at supporting migration or other-wise stimulating labor mobility has beenlimited in the cases under review, for anumber of reasons. First, in each countryeconomic conditions have been generallydifficult everywhere, and officially spon-sored migration is a politically andsocially sensitive issue when there are noobvious growth centers that can receivemigrants without displacing the localworkforce and creating social tension.The problem of disposing of housing inthe mining town and of the availability ofaffordable housing in the new location isalso a severe constraint. The costs ofmigration are high, and in cases wheredemand for such support is high, practi-cal and financial considerations wouldrule out the possibility of supportingmigration of the presumed scope. Andwhile one can speak of a theoreticallyoptimal population size and compositionfor any given municipality that wouldhelp bring about a (theoretical) equilib-rium on the local labor market, govern-ments might not wish to undertake theanalytical challenge of quantifying thesevariables and determining the relatedrequired scope of migration support for avariety of social and political reasons.There need not be a contradiction be-tween supporting policy directed atpreserving and developing the localeconomy and policy directed at helpingpeople leave a place, but in practice it isdifficult to combine these two policies
Mine Closure and its Impact on the Community
38
into an integrated approach to mitigatingthe effects of mine closure.
Another potential problem in theimplementation of migration supportprograms could be a disinclination onthe part of local officials to supportmigration, to the extent that these pro-grams are based on discretionary funds.This can be seen in the experience ofRussia’s local development programs,where particularly isolated municipali-ties with poor future prospects have beengiven the choice of using their fundseither to support the migration of fami-lies back to “mainland” Russia or tocarry out local development programs.Municipal officials in such cases arefaced with the difficult task of finding theright balance for the use of the limitedfunds they receive, and in the first yearsof the administration of these programstended to spend most of the funds onunrealistic local development programsrather than on facilitating migration.Novoshakhtinsk in Russia is an interest-ing exception to this general statement,having managed to combine a successfullocal development effort based on facili-tating the growth of the small businesssector while at the same time helping itsresidents find work outside of the citythrough an agency that was establishedfor this purpose. The agency, whichcontinues to function, assists peopleconsidering accepting job offers in otherplaces (often temporary or seasonal)primarily through verifying the legiti-macy of the employer, which is an impor-tant service as cases of deception of labormigrants are widely reported.
Despite the difficulties that face themigrant or would-be migrant, the re-search findings as well as other evidenceindicate that to one degree or another,migration from communities impacted
by mine closure is taking place, and inthe majority of cases without officialsupport. The commonly encounteredview of the immobility of labor in thetransition countries is challenged by theresearch findings in some of the loca-tions, notably in Ukraine, where thequantitative component of the researchfound evidence of a very high level ofmigration of the working-age population(see the detailed treatment of this topic inthe Ukraine country section below).22
This finding is consistent with recentresearch by the World Bank on the socialimpact of enterprise restructuring inRussia, which found that labor mobilityappears to be much higher than capturedby official statistics, challenging thestandard argument that the lack of adeveloped housing market has impededlabor mobility in this country. The studyfound that labor migration on a shift/semi-permanent basis has developedinto a significant feature in today’s Rus-sia; bread-winners leave their families atthe original place of residence and findjobs, often informally, in major “centersof gravity.”23 At the same time, it isimportant to stress that the nature of themigration (permanent or temporary)cannot be determined on the basis of thisresearch, and cases of return migrationare also common in some locations,usually for the reason that things did notwork out for the migrant in the otherlocation. Social impact monitoring car-ried out in Romania in 2000 found that itwas not unusual for those who migratedfrom the mining regions to return withina year, usually for the reason that the“promised work” never materialized orwas of a lower quality or level of paythan expected.
There are several barriers to study-ing labor migration that takes placeoutside of the context of formal programs
22 See, for example, Friebel and Guriev (1999).23 World Bank (2001b).
39
to assist migrants: the fact of the migra-tion is usually poorly reflected in officialstatistics and other available data (forexample, a family may continue to ownits house or apartment in the town it hasmigrated from); the nature and durationof the migration are unpredictable; andindividuals who migrate disperse toother locations and are not easily identi-fied in the “magnet” locations. Also,bearing in mind the focus of the researchon communities where mine closure ormass downsizing took place severalyears ago, it is likely that a wave ofmigration would have happened earlier,as those possessing the inclination andfinancial and other resources required tomigrate successfully would have left insearch of better opportunities.
Given the need for “pull” factors inaddition to the obvious “push” factor,the actual experience with migration ofindividual mining communities is highlysensitive to a number of factors, includ-ing the proximity of growth centers. Forexample, even though the coal communi-ties of Russia’s Tula Oblast (which wasnot part of this research but well knownto the researchers) have been very hard-hit by mine closure, many laid-off minershave found employment in Moscow,which is about four hours away by car.Typically, workers travel to Moscow forseveral weeks or months at a time andwork in construction, with their familiesremaining behind in Tula Oblast. Assuch, the employment is not permanentand much fault could probably be foundwith the work conditions; but given theabsence of alternative employment closerto home, Moscow as a labor market hasbeen important for many families in thecoal communities of Tula Oblast.24 Asthe dominant growth center in the region,
Moscow has also served as a magnet forworkers from the mining communities ofthe Donbass, who also find opportunitiesin other cities in Ukraine and southernRussia.
Of the countries in which researchwas carried out, migration figured mostprominently in the expectations ofpolicymakers in Romania, and Romaniais also unique in having introduced amodest level of support of labor mobil-ity. Many families in the Romanian coalmining regions originally came fromother parts of the country, and it wasexpected that large numbers wouldreturn to their native villages, using theirseverance payment to facilitate the transi-tion and in some cases taking up agricul-ture. In the event, this expectation provedto be a miscalculation. Although manyfamilies did attempt to return to theirnative localities, for many the transitionproved to be unaffordable given theirlimited resources and the often equallypoor employment prospects of their newlocation (even generous severance pay-ments were not sufficient to cover mov-ing expenses or to start up a new busi-ness in the new location), or too difficultfor other reasons related to the adapta-tion to a very different lifestyle. Researchrespondents said that most of those whoattempted to migrate had returned, andlived under conditions that were inferioreven to the poor conditions that hadprompted the family to migrate in thefirst place (they had spent their severanceon the failed move, had sold their apart-ment in the mining town, etc.).
The experience of Romania is also ofinterest from the point of view of officialefforts to stimulate labor mobilitythrough 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 bymine closure. This research respondent described 1997 as “hell” and 2001 as “heaven,” noting that if threeyears ago there were typically 50 people in his waiting room seeking assistance, today the number hasshrunk to 2-3 people.
Mine Closure and its Impact on the Community
40
expenses. Under a law passed this year,unemployed people who accept a jobsituated more than 50 kilometers fromtheir home will receive a grant equal totwo minimum wages. In cases where theunemployed worker changes his domi-cile in order to accept a job at a distancegreater than 50 kilometers from his home,the value of the grant is calculated asseven minimum wages. The law doesnot, however, apply to workers whotravel distances under 50 kilometers inorder to get to work, despite the fact thattransportation expenses may nonethelessbe considerable and transportation itselfa serious constraint to mobility (as in thecase of Anina).
Municipal and Social Services
Mine closure has a negative impact onservices to the population that are pro-vided locally and associated with themunicipal budget. The process of mineclosure has had a dual negative impacton municipal budgets: the revenue sidecontracts through the loss of enterpriseand personal income taxes, and theobligations on the expenditure sideexpand, generally as a result of thegreater need for assistance that followsmass unemployment and specifically asa result of the assumption by the munici-pality of services and assets formerlyassociated with the mining enterprise. Inaddition, mine closure could also impacton local delivery of services if it resultsin the migration of qualified profession-als who provide the services, such asteachers and doctors. In the broad rangeof municipal services, housing andcommunal services were singled out byrespondents as priority areas that havebeen severely negatively impacted bymine closure. Depending on the location,transportation was also sometimes citedas a priority problem that has a directlink to the employment market as mostpeople are dependent on mass transpor-tation to get to their place of employment
(or prospective employment), althoughthis problem is more amenable to solu-tions offered by the private sector, andoften one of the first sectors to developsuccessfully in the context of local devel-opment programs. Under social services,education and health are consideredhere.
Housing and communal services. One ofthe enduring aspects of the commonimage of mining towns is the poor qual-ity of housing in these communities, andthe research as well as ample field expe-rience confirm that, in this regard, there isunfortunately little variation betweenlocations. The present generally poorstate of the housing stock is a result bothof historical factors—some residentialbuildings still in use in mining townswere built as temporary shelter andnever intended for long-term occupa-tion—and of the legacy of mining andmine closure, which have inflicted dam-age on residential and other structuresthrough subsidence and seepage ofground water. The longer the history ofunderground mining in a given area andthe more extensive the undergroundworks, the greater the likelihood thathousing has either already suffereddamage directly linked to mining, orcould be in the future. For the samereasons, physical infrastructure thatdelivers services of social significance(water and heating systems, telecommu-nications) has also suffered great damagein the typical mining town. In somemining settlements (districts of munici-palities in the environs of the mines)these services have ceased altogether as aresult of mine closure. And in miningcommunities in all three countries, thereis a severe problem of access to water,and hot water is generally not available.
Divestiture of housing and socialassets from enterprises to municipalitiestook place in the 1990s in Russia andUkraine, with a particularly harsh impact
41
on the mining towns. The capacity oflocal administrations was overwhelmed,as the levels of the divested assets ex-ceeded by a factor of several times thepre-divestiture levels. In Russia, forexample, the housing stock managed bylocal administrations in mining townsincreased almost 10-fold as a result ofdivestiture, while the stock of other typesof social assets increased by 15 percent-40 percent. In contrast, social infrastruc-ture (boilers, gas and water distributionsystems, telephone systems, etc.) usuallyremained on the balance sheets of minesuntil closure, at which point a number ofthings could happen: the assets could betransferred to the municipalities; theagencies responsible for carrying out theliquidation works could hold on to theseassets; and/or the assets could sufferfrom being abandoned or vandalized,with no clear delineation of the owner-ship and responsibility for the asset.While municipalities throughout bothcountries have had to shoulder extraburdens as a result of divestiture, thesituation in the mining towns in thesecountries is generally worse, both for thereason already noted (the physical im-pact of mining on housing) and because,as a general rule, the enterprise’s share ofthe total stock of housing and socialassets tended to be greater in miningtowns than in other municipalities. Enter-prises facing the prospect of divestiturehad no incentive to continue the mainte-nance of the assets, so that by the time thedivestiture was completed, assets werein need of high levels of repair for whichno financing was forthcoming.
In Russia and Ukraine, the damageto housing, social assets and social infra-structure as a result of mining works andmine closure is formally acknowledgedthrough the inclusion of financing linesfor the mitigation of this damage in theapproved mine closure plans. The expe-rience of the last several years, however,has been that these items are financed on
a residual basis. In Russia, for example,although the mine closure program as awhole has been relatively well-financed,the overarching objective of the firstseveral years of its implementation wasto remove from production almost 200heavily loss-making mines, with prioritygiven to the completing the technicalclosure of the mine itself. The other majorpriority has been the mitigation of suchlife- and property-threatening risks asflooding, underground fires, and meth-ane leaks. As a result, the housing, socialassets and social infrastructure compo-nents of the mine closure plans, andlong-term aspects of the environmentaldamage mitigation component such asland reclamation, have received littlefinancing relative to the total need.
In Ukraine, the Coal Pilot Project thatwas supported by the World Bank estab-lished an approach to the various socialproblems arising from mine closure thathad a strong focus on housing and socialassets, among other dimensions of theproblem. Unfortunately, implementationdifficulties on the ground and the persis-tent ambivalence about coal sector re-structuring in Ukraine have preventedthe replication of this model.
In Romania, the role of the miningenterprise in the provision of housingand other assets was not as great as in theformer Soviet republics, but some por-tion of the housing stock is the responsi-bility of the municipality, although this isgenerally not considered a priority oreven a concern for the local authorities.The problem of damage to housing,social assets and social infrastructurealso appears to be less urgent in Roma-nia, at least for the moment, which maybe attributable to the fact that the massdownsizing of the industry took placewell in advance of the implementation ofthe mine closure program, and it couldbe that in most localities even those localmines slated for eventual closure con-
Mine Closure and its Impact on the Community
42
tinue to supply these services.
Payment arrears for housing andcommunal services are high in somelocations, particularly in Ukraine, whererespondents spoke of the unaffordabilityof basic services and most significantlyheat. In the choice between such essentialexpenditures food and medical care andexpenditures on housing and communalservices, respondents give priority to theformer, allowing large arrears to accumu-late for the latter. Municipal authoritiesreported working constantly with thepopulation to reduce arrears, but itseems likely that part of the problem, inaddition to the real burden that the highcost of heating services in particularplace on the population, is a degree oftolerance of non-payments for theseservices on the part of the authorities.
These findings of the in-depth inter-views with experts on various levels andmembers of the population are consistentwith the results of the comparative sur-vey carried out in Ukraine. Respondentsin the sample of the two mining townsreported generally worse conditions ofaccess to basic utility services comparedto respondents in the national sample oflike-sized municipalities. Considerablymore respondents in the mining sample,for example, reported having no hotwater in their apartments than in thenational urban sample (79 percent vs. 43percent, respectively). Additional surveyresults are reported below in the sectionon Ukraine.
Education and health services. Amongthe most important human developmentachievements of socialism, as viewed bythe socialist system itself, was the provi-sion of education and health services tothe entire population at no charge or for anominal charge. Throughout the transi-tion economies, governments have foundthat they can no longer afford to continueto subsidize these services to the same
extent as in the past, and fee-based edu-cation and health services are increas-ingly common. At the same time, aspectsof the past system are maintained, suchas subsidized kindergartens, and there isgenerally excess demand for these subsi-dized services. While the research resultsare somewhat different for the two kindsof basic services examined here, they hadin common the suggestion of increasingsocial stratification and the differingqualities of access to these services de-pending on one’s ability to pay. Theseresults are broadly consistent with theresults of studies devoted to these issuesin the transition countries. As these arebroad, country-wide issues, it would beappropriate to view the problems of theprovision of education and health ser-vices as part of the overall problem ofeconomic transition that are aggravatedby the relatively more depressed condi-tions of the mining towns.
Education. In all three countries, thebroad consensus among respondents wasthat education services were generallyavailable to the population, if somewhatmore expensive than in the past, and thatdespite the difficulties of recent times,the quality of the services was beingmaintained. Municipalities are aided intheir efforts to maintain kindergartensand primary schools by the demographictrends of recent years: populations acrossthe region are aging, and in miningtowns this trend tends to be even morepronounced than in the rest of the coun-try. In some mining settlements, it wasreported that there are very few children,which has made it possible for munici-palities to rationalize resources by clos-ing kindergartens and schools for whichthere is no longer demand. In Stakhanov,in Ukraine, the rationalization of thenumber of schools has been accompaniedby a program of installation of individualboilers in public buildings, leading toeven greater savings for the municipalityand to better quality heat for the children
43
and other users of the buildings.
At the same time, some expertssounded notes of caution when consider-ing the future of education services in themining towns, and sometimes even moregenerally. In Romania, a national-levelexpert saw an education crisis looming inall areas of the country afflicted by pov-erty and unemployment, expressingconcern that children growing up in anenvironment dominated by the chronicunemployment and perception of failureon the part of their parents would sufferfrom diminished expectations and goalsin life, seeing little point in pursuingeducation. A Russian expert in Anzhero-Sudzhensk echoed this observation,noting that the higher charges for kinder-garten and the resulting decrease inattendance have led to a situation wherehalf of the children in the first gradeexperience difficulties with their studies.
In general, the most worrisomeresults were reported from Romania,where the reduction in families’ incomesseems to have had a greater impact ontheir ability to pay for their children’seducation, and where problems with theattendance rates and attention spans ofchildren from poorer families have beennoted. In Motru, attendance at the all-daykindergartens has dropped by 50 per-cent, because a daily fee of 20,000 ROL(about US 60 cents) is charged for the all-day kindergarten, whereas the half-daysession is free of charge but over-crowded.25 Respondents in Russia alsonoted that the subsidized, free schoolswere also overcrowded.
Respondents in all three countriesspoke of increased difficulties in findingqualified teachers, whose salaries are lowand who, like others, have also soughtbetter working and life conditions inother cities.
Generally, the higher the level ofeducation, the greater the problems ofaffordability and in some cases, thegreater the problem of diversifyingcurricula to equip pupils with knowl-edge and skills that will help them findjobs in the future. In all three researchsites in Romania, secondary schools andvocational schools still train pupils forcareers in the mining industry. Somefamilies send their teenage children awayto high schools in other towns for thisreason, but most families cannot affordthis. In Ukraine and Russia, in contrast,respondents reported that young peoplewere interested in obtaining highereducation, and despite the great costs,could still find relatively affordableeducation at state universities.26
Health services. Expert respondents inall three countries reported that access togood-quality healthcare is a problem formost of the population of the miningtowns. While the health infrastructure isstill generally in place, it is beingsteadily eroded by persistent financialproblems. The low salaries of medicalpersonnel in mining towns lead them tomigrate in search of better prospects (inAnina, in Romania, three doctors remainat the hospital, which is in danger ofbeing shut down). Hospitals struggle tomaintain medical equipment, which wasreported to be heavily depreciated in
25 At the same time, the particularly good quality of education in Motru was singled out by respondentsfrom that town, who noted that high school children from Motru regularly compete in national educationOlympics and have a good record of entering university.26 This relatively more optimistic assessment of young people’s attitude to higher education in Russia andUkraine was not reflected in the interviews with young people who were part of the sample and who, bydesign, 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 havemore social contact.
Mine Closure and its Impact on the Community
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some locations. And people find it in-creasingly difficult to afford even basicmedical services, to say nothing of spe-cialized services.
The research in Ukraine revealedtwo interesting aspects of the problem ofhealth care services in that country. First,the comparative survey results showedthat the assessment of the quality ofhealth services available in the twomining towns was essentially identical tothe assessments given in like-sized townsin the rest of the country, underscoringthe national character of the problem.27
Second, cooperative group insurancepools have been established in bothGorlovka and Stakhanov. These groupinsurance schemes, which are based onindividual memberships and coverhospitalization fees, have not been inexistence for very long (and accordingly,have not been not assessed in any mean-ingful way), but are apparently popular;in Gorlovka, the cooperative has report-edly more than 15,000 members in littleover a year of operation.
Community Cohesiveness
Certain consequences of mine closure ofan obvious social import, such as wide-spread employment problems and hous-ing and social infrastructure deteriora-tion, are addressed in governments’ coalsector reform programs through mitiga-tion policies that are generally underimplementation (with varying levels offinancing and varying degrees of effec-tiveness). Other dimensions of the socialconsequences of mine closure can beequally important but less commonlytreated as such, or less amenable to
mitigation through the standard policyapproach employed in the context ofindustrial restructuring. These couldinclude problems of a more psychologi-cal or behavioral nature, including vari-ous manifestations of socially undesir-able or self-injurious behavior such assubstance abuse. The evolution of thesesocial indicators over the last decade inthe transition economies has been welldocumented.
While specific manifestations ofsocially undesirable behavior, such asdrug abuse and prostitution, or theemergence of troubling indicators ofsocial disruption such as the problem ofabandoned children, were mentioned asconcerns by some respondents, theseindividual phenomena will not be exam-ined here as the research results eitherindicated that some communities didnot, in fact, appear to be suffering par-ticularly from these phenomena, orresults were somewhat contradictory anddo not allow for meaningful generaliza-tion.28
Communities in which mines areclosed face various response options,ranging from an activist stance of resis-tance (expressed through various formsof protest) to a proactive or constructiveapproach to the changed conditions oflife, with probably the most commonresponse being a form of retreat of theindividual from the broader communityand, in some cases, even from his or herown family in the face of the difficultiesof getting by. Of course, different mem-bers of the same community can and doexhibit widely varying reactions to thesame 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 inreaction to the more difficult circumstances of life, while others felt that it had decreased in reaction to theconsiderably more competitive labor market (workers are less inclined to come to work drunk for fear oflosing their jobs.)
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changing circumstances over time, andthis reaction will depend, in addition topersonal attributes, on the severity of theemployment problem, the quality of thenational and local political leadership,and the resilience of the community ofwhich the individual is a member. Thesefactors will play important roles in deter-mining the nature of the social tensionthat is experienced in communities inresponse to mine closure and the extentto which this social tension in turn servesas a form of feedback that influenceslocal and national implementation of thecoal sector restructuring policy, includ-ing the continuation of a program ofclosure of loss-making mines.
From the point of view of commu-nity cohesiveness and the capacity of thecommunity to absorb the negative shocksof mine closure and to mitigate suchphenomena as social instability, alien-ation and apathy that take a toll on indi-viduals and the community at large, theresearch found that, on the whole, themining communities appear to be ratherfragile or vulnerable, their capacity torespond adequately on the communitylevel diminished. The role of civil societyin these towns is quite limited: whilevarious organizations representing civilsociety were found in all locations, theirimpact on the community was generallycharacterized by research respondents asinsignificant. Members of the populationwho participated in the research typicallyhad no knowledge of any organizationsthat could be considered representativesof civil society.
Two broad types of social conse-quences are noteworthy in this context: (i)the loss or destruction of “communityspace,” including the various forms ofinfrastructure linking the individual/family to the community, social networksand family relations, and (ii) the loss ofsocial status, which has implications of amicroeconomic nature (e.g. how indi-
viduals react to the labor market condi-tions they face) as well as more generallyfor how the individual relates to hissociety.
The loss of community space. Thisproblem consists of a physical dimensionand an abstract dimension. The mostimportant aspects of the physical dimen-sion in this context include the deteriora-tion or destruction of such infrastructureas telephone systems, roads, and so on,that makes it possible for the individualand family to interact with others in thecommunity and the world at large. Par-ticularly in cases where mining settle-ments exist within the larger miningtown (that is, the parts of municipalitiesin the immediate environs of a closedmine), the sense of isolation is profound,not only because there are no alternativeemployment options in the area, butbecause the closure of the mine and thedamage to infrastructure resulting frommine closure and sometimes vandalismoften lead to the complete termination ofthese services. Respondents living underthese circumstances described a sense ofbeing cut off from civilization.
Cultural centers and youth clubs areexamples of physical infrastructure of asignificance for the entire community thathave often fallen into disrepair in recentyears. As a result of social assets divesti-ture, in many cases they were essentiallyabandoned and municipalities havelacked the financing required to maintainthem. In such cases, members of thecommunity have lost the opportunity tosocialize and to organize activities forchildren that were frequent in the past. InRussia, some respondents reported therecent reversal of this negative trend:clubs and other types of activities forchildren are being recreated under thesponsorship of local enterprises (thus, tosome extent reversing the impact ofdivestiture).
Mine Closure and its Impact on the Community
46
More abstract but no less significantaspects of community space include thegeneral atmosphere of a lack of commu-nity cohesion and a lack of a shared senseof identity or a worthwhile future. Asfamilies struggle to make ends meet,such previously common aspects of lifesuch as socializing with friends andneighbors and vacationing are among thefirst to be dispensed with as unaffordableluxuries. Not surprisingly, respondentsoften complained of a growing antago-nism among different groups of thepopulation and reported that peoplecommunicate less with one another thanpreviously, before mine closure (al-though it should be noted that theseprocesses have been observed through-out the transition economies). The con-stant factor of migration (actual or unreal-ized) underscores the erosion of theidentity of the community. Those whomigrate successfully from the miningtowns are more likely to be young andmale, which leads to an imbalance in thedemographic structure of the commu-nity. Labor migration of one or moremembers of the family, while helpingresolve the fundamental problem ofearning income, often leads to the unfor-tunate consequences of greater tensionbetween spouses, and greater numbers ofchildren who are not being raised bytheir parents.
The loss of social status. Before restruc-turing, coal miners enjoyed a high statusin their communities, indeed on thenational level. This status was reflectedin wages that were among the highest forindustrial workers and in various perqui-sites, and buoyed by a social prestigeaccorded by the socialist system to theminer as a significant agent of the indus-trialization of the economy. The suddenloss of this status has typically led todifficult periods of adaptation for minersand members of their families. For min-ers’ wives, the loss of the husband’sincome can serve as the impetus to enter
the work force, where a lack of experi-ence and competitive skills often rel-egates them to low-paying work. Severalwomen who participated in the researchrelated difficulties in finding work if theywere above the age of 35. Older miners inparticular suffer from a loss of self-identity when they lose their jobs at themines and find it difficult or impossibleto secure stable, “respectable” employ-ment in other lines of work.
The practical implication of theseobservations is that the post-closureadaptation period for miners and mem-bers of their families can be more diffi-cult than for workers laid-off in othersituations, as the actual and perceivedlosses are greater and the initial period of(usually unrealistic) hopes of a rapidrestoration of the former status is pro-tracted. Laid-off miners often find unac-ceptable the labor conditions of jobs thatare offered to them, while potentialemployers (including the entrepreneurswho participated in the research) and job-placement specialists often remark thatthey have had bad experiences withformer miners as employees, preciselybecause of the problem of unrealisticexpectations on the part of the workers.For the same basic reason, many formerminers (and particularly miners olderthan around 40) are disinclined to pursuesuch active job-search strategies as pro-fessional requalification, labor migrationor holding multiple jobs.
Environment
The environmental impact of mine clo-sure is severe and generally well under-stood by specialists, even if the exactmanifestation of the impact is highly site-specific, depending on the configurationand depth of the mine, attributes of thegroundwater system, subsidence pat-terns, the presence of near-by continuingmines, the pattern of human settlementon the surface relative to the mining
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territory, and so on. Environmentalremediation is a standard component ofmine closure plans and usually thesingle largest component of the overallcost of mine closure, although the vari-ous specific environmental problemscaused by mine closure vary consider-ably in the extent to which they pose athreat to life and property. In conditionsof limited financing, first priority is givento preventing damage resulting from therestoration of the underground waterlevel, while such items as land reclama-tion are often assigned a low priority.
In view of the limitations of thisresearch to provide technical assessmentsof the environmental situation that pre-vails in each research site, detailed re-search results will not be presented here.Most of the research participants werenot technically qualified to discuss theproblems of the environmental impact ofmine closure. Not surprisingly in view ofthe technical complexity of environmen-tally-related issues and the dearth ofspecialists among the respondents, onoccasion respondents expressed contra-dictory opinions on matters of relevanceto the environment. As residents of thecommunity, they most frequently ex-pressed concern over the problem offlooding, the damage caused to housingby mining, the quality of the drinkingwater (particularly in Ukraine), the dan-ger of methane leaks, and the miningwaste piles that are not removed.
SELECTED ISSUES AND INDIVIDUAL
COUNTRY EXPERIENCE
This section presents selected issuesfrom each of the three countries in whichthe research was carried out. The selec-tion of the issues was based on uniqueaspects of the research design (as in thecase of the survey carried out in Ukraine)and the individual country experience.
Romania: Restructuring in a Challeng-ing Macroeconomic Environment
Economic transition in Romania has hada difficult and erratic history over the lastdecade. The government that took officein 1992 adopted a cautious and gradual-ist approach to economic reform, whichfailed to produce sustainable gains ineither economic or social conditions.Three years of contraction of the GDPwere followed by two years of realgrowth, 1995 and 1996, and then threemore years of economic contraction.Positive real growth was recorded in2000 and 2001. Poverty has increasedsharply, with the share of the populationliving below the national poverty linedoubling in the second half of the 1990s,from 20 percent to 41 percent.
Coal sector restructuring waslaunched in Romania in 1997, which wasa particularly bad year for the country’seconomy overall, and the first year in oneof the three-year spirals of negativegrowth. As described earlier in thisreport, the Government stimulated themass downsizing of the industry in 1997through its offer of a generous voluntaryseparation package without having inplace measures for the restoration of theincomes of the workers separated fromthe industry. Since then, with support ofthe World Bank and the UK DepartmentFor International Development (DFID)under the Mine Closure and Social Miti-gation Project, the Government hasarticulated a social mitigation strategyconsisting of the following components:(i) micro-credit schemes; (ii) workspacecenters using facilities at closed mines;(iii) an enterprise support program; (iv)an employment and training incentivescheme; and (v) a public information andsocial dialogue. As noted earlier, theGovernment has been slow to implementmost aspects of this mitigation strategyfor the mining regions. The best progressto date has been had with the establish-
Mine Closure and its Impact on the Community
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ment of the employment and trainingincentive scheme and, most recently,with movement towards establishing themicro-credit schemes.
In addition to the programs focusedon the mining regions, other national-level programs sponsored by the Roma-nian Government seek to stimulateemployment in depressed regions, in-cluding the mining regions. These pro-grams include subsidized credits andtemporary work programs. The latterconstitute one part of the support pro-vided by the World Bank under theEmployment and Social ProtectionProject. It is noteworthy that these tempo-rary public works programs, whichprovide employment up to six months,are the best known and, indeed, in manycases the only Government-sponsoredemployment programs known to re-search participants. Such a situation istypical for the initial phase followingmine closure or mass downsizing, and itunderscores that probably a few moreyears are necessary before the other,longer-term mitigation policies begin tohave the intended effect.
The point of the foregoing is thatRomania has faced an exceptional chal-lenge in launching mining sector restruc-turing in an environment of economiccontraction and macroeconomic instabil-ity. The same basic economic conditionsthat led to the decision to adopt therestructuring policy also determined thevery limited capacity of the economy toabsorb the labor shed from the miningindustry. Under such difficult circum-stances, it is almost inevitable that“things get worse before they get better,”as illustrated by Russia’s experience withcoal sector restructuring in the late 1990s.Conditions at present are more promis-ing than they have been in the past: theeconomy overall appears to be on astable growth trend, and good progresshas recently been made to removing thevarious obstacles to operationalizing thesocial mitigation component of theGovernment’s mining industry restruc-turing program.
The research results for the threemining town in Romania reveal indi-vidual differences that are more pro-nounced than in the other two countries.Of the three, Motru has fared best, thanks
in part to the availability of small agricul-ture as a subsistence solution; agricul-tural products are a constant part of thehousehold income in a significant num-ber of cases. Social services in Motru arealso relatively good (some respondentsbelieve they are very good, especiallyeducation), and the state of the housingblocks, including water and heatingprovision, is also relatively good.
In contrast to Motru, which is rela-tively isolated from large cities, Uricaniis integrated into the conurbation of JiuValley. Local social services are poor.The city has derived some benefits fromthe political visibility of the Jiu Valley,for example, like the other towns, Uricanihas benefited from the Solidarity Fund, aprogram of social assistance that is usedprimarily in the Jiu Valley. In Uricani, asin the entire Jiu Valley, agriculture is notan option. The housing blocks, especiallythe older ones, are in particularly badcondition.
Anina is in the worst situation: asmall town, quite isolated from the largercity of Resita, it has no agricultural op-portunities, and no political visibility.The forest is the main subsistence sourcefor chronically unemployed people,especially because heating in all blocksof flats is based on wood. The state ofhousing blocks is rather poor, and sig-nificantly more apartments are in publicproperty. In Anina, more than anywhereelse, respondents expressed the feelingof being at a dead end and having nofuture.
Russia: Six Years of Local DevelopmentPrograms
Since 1996, the Russian Government hasfinanced Local Development Programs(LDP) in coal municipalities impacted bymine closure. The first two years of theimplementation of the LDP throughregional administrations were character-
ized by poor administration, a lack ofaccountability for subsidies received anddisbursed (which was a system-wideproblem affecting all categories of subsi-dies), and a tendency by regional admin-istrations to absorb these targeted fundsinto the general regional budget. Flawsin the design of the programs, such as thelack of competitive bidding in theawards process and the fact that fundswere offered as grants, not credits to bepaid back, contributed to the poor recordof the LDP in 1996-97. And while thefunds were intended to compensate forthe job destruction resulting from mineclosure and to promote the diversifica-tion of local economies, powerful re-gional coal companies attempted tochannel the funds into investmentprojects of benefit to the coal companiesthemselves.
In late 1997, during negotiationsbetween the Russian Government andthe World Bank for the provision of thesecond coal sector adjustment loan, itwas agreed that starting in 1998, LDPsubsidies would be disbursed directly tomunicipalities, which would be respon-sible for determining the use of thesubsidies within established parameters,for carrying out the competitive tendersthat would now be required for certaincategories of use of the funds, and so on.As detailed in Table 3, there are sixcategories of use of LDP funds, and theyare designed to mitigate different phasesand aspects of the local employmentproblems that arise from mine closure.Each municipality determines the alloca-tion of the subsidies it receives across thevarious categories; the use of the fundsfor relocation support is allowed only ina small number of municipalities consid-ered to be “non-viable” due to theirisolated location and lack of alternativeeconomic development options.
Local public oversight, participationand transparency have been facilitated
Mine Closure and its Impact on the Community
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Box 1: Novoshakhtinsk: Best Practice in Developmentof a Business Support Infrastructure
Of the several dozen mining towns in Russia that have received state support for localdevelopment 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 isexpected some enterprises will grow into medium and even large enterprises. In order toachieve its strategic goals, as a first priority the town used LDP subsidies to establish amulti-faceted small business support infrastructure which was then in place to facilitatethe implementation of job-creation projects. In most other cities, job-creation programswere implemented before an adequate support infrastructure was established, which ledto implementation problems.
An unusual degree of political stability on the local level has contributed to the success ofthe implementation of Novoshakhtinsk’s strategic vision: the mayor has been the town’sexecutive 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 realizationthat the coal sector, which dominated the local economy until five mines were closed, hadleft 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 developa broad base of business skills among local entrepreneurs, thereby increasing the successof job-creation efforts financed by the LDP and increasing the local economy’s overallcompetitiveness through helping educate “tomorrow’s business leaders”.
Two municipal agencies form the core of the business support infrastructure inNovoshakhtinsk: the Novoshakhtinsk Business Incubator (NBI), which was the first to becreated in 1996 with LDP subsidies and which provided various business support servicesto all types of entrepreneurs and enterprises until the creation in 1998 of the MunicipalFoundation for the Support of Small Enterprises, which allowed the NBI to specialize inproviding loans, technical assistance and other forms of business consultations to mediumand large enterprises. A showcase project for NBI is the assistance provided to facilitatethe conversion of a former military factory, which now produces various mechanicalparts 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 thetraining and consulting activities provided to small entrepreneurs. In addition, industrialspace 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 Internetaccess, 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 businesssector 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 placewhen 3-4 additional large enterprises have been established.
A second generation of investment projects is now being financed with funds that havebeen paid back. At the same time, local experts stressed the continuing significance of theannual replenishments of the LDP subsidies: the city is preparing for the closure of an-other mine later in 2002.
51
through a reliance on Local OversightCouncils consisting of representatives ofthe local administration, the local em-ployment service, the trade unions, andother governmental and non-governmen-tal entities operating in the municipality.Although Local Oversight Councils haveno official status, they are active in coalmunicipalities throughout Russia and bylocal consensus typically function as thedecision-making authority over the useof LDP funds.
The data in Table 3 reflect the devel-opment of local priorities over time,which is a function both of the increasedexperience with the administration ofthese programs (including the compli-cated processes of project evaluation andcompetitive tenders), and of the changingneeds of the local employment markets.In the first year shown here, 1998, coalmunicipalities in the aggregate assignedan importance to temporary publicworks (which received 41 percent of thefinancing made available through theLDP) that was roughly equal to theimportance accorded to job-creationprograms (45 percent of the total). By2001, coal municipalities in the aggregatedisbursed only 9 percent of their LDPfunds on temporary work programs, andjob-creation programs were by far thelargest expenditure category. Removingrelocation (as a special category used bya small number of isolated municipali-ties), the overall weight of job-creationprograms in the LDP grows to 75 percentin 2001. The decline in the share of fi-nancing allocated to temporary workprograms from 1998 to 2001 reflects themore pronounced social tension in coalmunicipalities in 1998 (one of the peakyears for mine closures), and the im-provement of the overall employmentsituation in the coal municipalities inrecent years.
Over the last four years the LDPhave received large amounts of financ-
ing; the total for the four years shown isabout $116 million. These funds havebeen disbursed to a universe of some 78coal municipalities that have been im-pacted by mine closure, but each yearabout 12-15 coal municipalities haveaccounted for about half of total LDPfinancing (the actual number of recipientmunicipalities varies from year to yeardepending on the mine closure program,where new mine closure takes place,etc.).
Of note is the extremely small vol-ume of financing that municipalities haveallocated to professional re-trainingprograms. While these are a commonpolicy prescription in cases of large-scaleindustrial downsizing, the actual experi-ence on the ground in Russia indicatesthat this policy tool has not been used.The interviews conducted with localexperts and with recipients of the train-ing indicate that the major problem withprofessional re-training, even when thetraining is of a high quality, is the lack ofrelevance of the professions in whichtraining is provided to the needs of thelocal job market. This experience isconsistent with that of other countries.Another view encountered in some of theinterviews is the more complex questionof demand for such services among laid-off miners. One frequently encounteredpoint of view is that the miner’s mental-ity is such that he is not inclined to seekemployment in other professions, andhence not interested in retraining. A moreprosaic explanation in the case of Russiacould be that in recent years, jobs haveagain become available in the coal indus-try in some regions, and miners reason-ably prefer to seek employment in theprofession they know best and in whichthey can make relatively better wages. Acomparative study of social assessmentscarried out in 1996 and 2000 found that in2000, interest among miners who hadbeen laid-off in connection with mineclosure in seeking re-employment in the
Mine Closure and its Impact on the Community
52
industry had increased, while interest inre-training had decreased relative to the1996 survey.29
The small business support category(which may be used for provision ofmicro-credits and to establish a supportinfrastructure) has received a relativelysmall share of each year’s allocation, butin absolute terms increased appreciablyfrom the first year to subsequent years.Box 1 recounts the interesting experienceof the city of Novoshakhtinsk in relationto the small business support category ofLDP.
One of the more hotly debatedissues in the administration of the LDPhas been the question of whether formerminers and non-miners alike, or onlyformer miners, were the intended benefi-ciaries of these funds (either as workersin temporary public work programs, oras entrepreneurs competing for invest-ment funds, or as employees in enter-prises creating jobs with the help of thesubsidies.) In fact, from the start, thephilosophy of the LDP as formulated onthe national level and as supported bythe World Bank has been to ensure maxi-mum access to LDP funds to benefit theentire community. The rationale for thisposition was the recognition that mineclosure has an impact on the entire com-munity and also that the entire commu-nity benefits from successful efforts tocreate new jobs and to diversify the localeconomy. In practice, however, differentmunicipalities have employed variousinterpretations, with some insisting thatthe LDP funds are “money for the coalminers” and should be used to alleviatethe situation of miners and their families.Most municipalities, however, have
followed a more inclusive policy that iscloser to the intention of the programs.
Of particular relevance to this re-search is the job-creation category of theLDP. These funds are provided as co-financing of investment projects on acompetitive, returnable basis both for theexpansion of existing small enterprisesand the creation of new small enterprisesoutside of the coal sector.30 Municipali-ties have used increasingly greater sharesof LDP financing for job-creation, butuntil recently there was no reliable mea-sure of the long-term viability of the jobscreated, and no rigorous approach tocalculating the actual costs job-creation.The absence of reliable data on these twoindicators of the overall effectiveness ofjob-creation programs became an increas-ingly serious management problem forthe program administrators on the fed-eral level and for the municipalitiesthemselves, as they lacked the informa-tion to establish meaningful performancecriteria for individual projects, cost-per-job guidelines by sector, as well as moregenerally to assess the effectiveness ofthe job-creation programs under theiradministration.
In late 2001, the first comprehensiveevaluation of the jobs created with LDPfinancing was carried out by indepen-dent Russian consultants with financingfrom the World Bank.31 The first stage ofthe study entailed the analysis of existingdata on the 410 businesses that hadreceived co-financing for projects fromthe job-creation component of the LDPover the years 1998-2000 and that hadused these funds to create 19,115 jobsoutside the coal sector. The second stageof the study consisted of developing
29 Corning (2001).30 Under Russian legislation, small enterprises are those in the manufacturing, construction and transportsectors with no more than 100 employees, and smaller numbers of employees in other sectors as specified bylaw.31 The results of this evaluation of the LDP are excerpted here from Reformugol (2001) in view of theirrelevance to the subject of this report.
53
evaluation criteria, collecting and sys-tematizing detailed data on selectedenterprises in five regions, and carryingout interviews at the enterprises and inthe concerned municipalities with thegoal of evaluating the long-term viabilityof the created jobs. On the basis of theirfindings, the consultants prepared gen-eral recommendations for various levelsof management (from individual enter-prises to the Federal level) for improvingthe efficiency the job-creation componentof the LDP. In all, 42 enterprises wereselected for the detailed analysis. Ofthese, two-thirds (28) had been createdwith the help of LDP subsidies, and theremainder (14) were existing small enter-prises that had used LDP funds to ex-pand their businesses.
Enterprises were evaluated on thebasis of five criteria: (i) financial poten-tial; (ii) productive potential; (iii) market-ing assessment; (iv) socio-economicassessment; and (v) investment potential.Each criterion, in turn, was the compositeof five separate factors (see Annex 3). Incomputing an overall rating for eachenterprise, the analysts gave greaterweight to the investment potential andthe marketing assessment of the enter-prise on the reasoning that these factorsmore strongly influence the long-termviability of enterprises and jobs.
The analysis found that some two-thirds of the surveyed enterprises hadgood or very good potential for long-term viability, meaning that they werelikely not only to survive, but to grow, inthe process creating more jobs. Theremaining third of the enterprises thatwere rated less positively also have thechance to fare well, but will need toimprove various aspects of their opera-
tions and clarify their overall businessstrategy. A part of the enterprises thatwere rated less positively had com-menced their operations in the yearpreceding the survey, which probablycontributed to their relatively lowerrating.
The analysis of the cost-per-jobunderscored the great variation of thisfactor across sectors. Table 4 shows thesectoral structure of the jobs created atthe 410 enterprises that received LDPsubsidies through the job-creation com-ponent over the years 1998-2000. In theassessment of the analysts who carriedout this study, the average cost of job-creation under the LDP is significantlylower than the comparable average costof the creation of a job in the varioussectors of the Russian economy that areindicated below.
Despite the relatively positive as-sessment of the performance of the LDPin more recent years, it is important tokeep in mind the small scale of job-creation relative to the loss of jobs due tomine closure. Over the years 1997-1999sector employment decreased by about156,000. Assuming on the basis of generalexperience that about one-third of thisnumber retired, about 104,000 workerswould have entered the job market; thus,the jobs created under the LDP providedemployment for about 18 percent ofthose who entered the job market as aresult of mine closure.32
Russia’s experience with the LDPsuggest some general conclusions:
• Programs such as the LDP that receivesustained financial support and that areaugmented by training and other formsof technical assistance can become a
32 This is a simple calculation to illustrate the order of magnitude of the difference between jobs created andjobs lost. The reference period for the downsizing of industry employment, 1997-99, is one year earlier thanthe reference period for the job creation programs to reflect the normal lag between an individual’s loss ofemployment and the beginning of the individual’s job search.
Mine Closure and its Impact on the Community
54
powerful tool for municipal capacity-building and for job-creation in thesmall and medium enterprise sector.
• Coal municipalities throughout Russiaacknowledge the important role playedby LDP in reducing social tension andfostering the development of jobs out-side the coal industry.33
• At the same time, the success of suchprograms also makes it possible tospeak of an upper limit of their job-cre-ation potential: the number of jobs cre-
ated is small compared to the numberof jobs destroyed through mine clo-sure.
• The programs had a long “learningcurve,” as local governments and otherengaged local bodies grappled for thefirst time with such complex tasks asoptimizing the use of financing, carry-ing out project evaluation and competi-tive tendering, etc. Training seminarsand conferences for sharing experiencehave been effective tools.
33 In a recent letter to the World Bank, the Association of Mining Cities noted that “the joint efforts of theRussian Government and the World Bank in implementation of Local Development Programs ... have madeit possible to significantly decrease social tension related to redundancy at the closing coal mines, and haveassisted in the formation and development of new directions in the economy of coal communities.”
55
• Ideally, the institutional and regulatoryframework for such programs shouldbe in place before large-scale layoffstake place. In Russia, precious yearswere lost between the beginning of themass program of mine closure in themid-1990s and the establishment of theLDP in their present form in 1998. Theregulatory documents that govern theLDP have undergone a fairly constantprocess of revision, and at the time ofthe writing of this report another set ofmajor revisions was under ministerialreview in Moscow.
• Close supervision and support fromthe national project administrator anda working system of feedback betweenthe municipalities and the project ad-ministrator in the capital are importantfactors for success.
At the time of this writing in mid-2002, it is not known whether the LDPwill receive Federal financing beyond2002. Even if financing ceases at the endof this year, it is encouraging that somedegree of sustainability has been builtinto the system through the mechanismof the revolving fund: as the first genera-tion of loans recipients begins to payback the borrowed funds, municipalitiesare recycling them to other businesses forcontinued investment in job-creation. Themost effective form of future assistancefrom the Government may be to targetthe limited resources available to the coalmunicipalities that have been most hard-hit by sector restructuring. Such assis-tance could be carried out either in theexisting framework of support to coalmining municipalities or in a broaderframework of support to municipalitiesnegatively impacted by economic re-structuring in general.
Ukraine: Mining Towns Compared to aNational Sample
In Ukraine, in addition to the qualitativecomponent, a quantitative component
was included in the research with theobjective of comparing employment andliving conditions in the mining munici-palities with those in like-sized munici-palities across the country. Following is abrief description of the survey designand its chief findings. A detailed descrip-tion of the survey and the analysis of theresults is given in Shkaratan (2002).
The same questionnaire was admin-istered to respondents drawn from twosamples: (i) a representative sample ofthe population of the two mining munici-palities, Gorlovka and Stakhanov, inwhich the qualitative research was car-ried out (sample size – 514 individuals),and (ii) a representative national sampleof urban Ukraine. Respondents living inrural areas and large cities (those withpopulations over 500,000) were excludedfrom the analysis in order to enhance thecomparability with Gorlovka andStakhanov, which resulted in a sample of705 individuals.
The analysis found significant re-sults in three areas that are presentedbelow: (i) labor migration; (ii) employ-ment conditions; and (iii) housing andcommunal services.
Large-scale migration from the miningcities. Even before the interviewing in themining municipalities was completed,the process of compiling the sample inthe two towns revealed a high level ofunoccupied apartments, or absent familymembers in apartments that were occu-pied. At the time of the survey, an esti-mated 37 percent of the population ofGorlovka and Stakhanov aged 18 or morewas absent from the cities for an ex-tended period.
The methodology used to compilethe sample entailed as a first step record-ing basic demographic information onthe residents of a large number of ran-domly selected addresses. Of the total
Mine Closure and its Impact on the Community
56
1,618 addresses selected in this fashion,information received from neighborsindicated that in 460 cases (or 28 percentof the total), the residents of the selectedaddress had either moved away or wereabsent for an extended period in connec-tion with employment elsewhere. In theremaining cases, interviewers were ableto record household composition, for atotal of 2,136 individuals in the twocities, as indicated in Table 5 below. Ofthe 671 individuals who were selectedfrom this composite list for the sample,89, or 13 percent, were absent from thecity in connection with employmentelsewhere, as reported by other membersof their household. These two separateobservations combined make for theestimate that some 37 percent of the
registered population in the two citieswas absent for an extended period at thetime of the survey.
The second estimate of 13 percent isconsistent with actual survey results.Around 11 percent of respondents gave apositive response to the question, “In thelast 12 months, have you or your familymembers had to travel in order to earnmoney in other cities or countries (sea-sonal work, “shuttle” trading, etc.)?”
Table 5 compares the age and gen-der structure of the population as re-corded in the course of compiling thesample with the official statistics from thetwo cities. As can be seen, it is the work-ing-age population, and more likely men
than women, who were absent. Thepopulation actually living in the cities isconsiderably older, and more likely to befemale, than indicated by official statis-tics. The tendencies are identical inGorlovka and Stakhanov.
The quality of the migration –whether temporary or permanent – isimpossible to determine on the basis ofthis research. At the same time, the sur-vey results (as well as the qualitativeresearch) indicate that among those whoremain, migration intentions seem tohave subsided; the overwhelming major-ity of respondents indicated that theyexpect to live in the same place 5 yearshence, even when the analysis was lim-ited to the working-age population(results are the same for the two samplesat 77 percent). A concern emerges, how-ever, when the situation is considerednot in the static view, as it is here, butrather, in the dynamic perspective. Whilethe survey data cannot shed light on thecircumstances of the out-migrants andthe likelihood of their return to Gorlovkaand Stakhanov, the qualitative researchindicated that a new phenomenon ofreturn migrants has been noted, prima-rily for negative “push” factors from theplace of migration, not for positive“pull” factors of more attractive condi-tions in the two mining municipalities.
Employment conditions. The surveyresults indicate a somewhat disadvan-taged employment position of the min-ing municipalities compared to similarsized municipalities in the rest ofUkraine. While the difference is notdramatic, it is reasonable to assert thatthe difference would be much greater ifthe observed migration had not takenplace. The analysis showed that 55 per-cent of the working age adults in urbanUkraine (not including cities with popu-
lations above 500,000) compared to 47percent in the mining municipalitieswere employed.34 For the sake of com-parison, employment in different sizedsettlements in Ukraine was analyzed,with the following results: the share ofthe employed working age population is61 percent in rural areas, 55 percent incities, 68 percent in large cities other thanKyiv, and 73 percent in Kyiv. Thus, of allthe settlement types considered here, themining municipalities had the lowestlevel of current employment. Amongworking age adults, there is no differencein the level of employment amongwomen in the mining municipalitiescompared to women in urban Ukraine(46-47 percent) but the difference amongmen is quite large: 48 percent in themining municipalities compared to 64percent in the Ukraine urban sample.35
The structure of employment by agereveals lower levels of employment inthe mining municipalities for all agegroups, most significantly for the young-est group (18-29), 36 percent of whom inthe mining sample reported being em-ployed compared to almost 50 percent inthe national sample.
Another indication of the relativelymore complicated employment situationin the mining municipalities was givenby the answers to the question aboutmain sources of income (Table 6). For 38percent of respondents in the sample ofmining municipalities and for 57 percentof respondents in the national urbansample, a main source of income iswages. This striking difference is largelya function of the preponderance of olderindividuals in the population of themining municipalities; when age iscontrolled for and results for the workingage population only considered, thecorresponding numbers are 61 percentand 72 percent. This difference would be
34 The difference is statistically significant at 5 percent.35 The difference is statistically significant at 5 percent.
Mine Closure and its Impact on the Community
58
partially accounted for by lower levels ofemployment in the mining towns, andcould also reflect lower average wages inthe mining towns than in the other citiesin the country.
Relatedly, given the higher unem-ployment in the mining towns (as well alevel of occupational diseases that islikely to be higher), it is not surprisingthat a greater percentage of working agerespondents in the mining towns cited“social benefits” as a main source of thefamily’s income (38 percent compared to32 percent in the national urban sample).Respondents in the mining sample werealso considerably less likely than respon-dents in the national urban sample toname produce from garden plots as amain source of income (13 percent versus27 percent). It is also of note that respon-dents in the national urban sample areroughly twice as likely as respondents inthe mining sample to receive help fromrelatives (12 percent compared to 5percent), which is consistent with what isknown about the history of the settlementof the mining towns and the more limitednature of the support networks of ex-tended families of those remaining in themining towns.
Job stability including paymentstability is an important characteristic ofemployment conditions. The surveyshows that the percentage of respondentsreporting wage arrears is higher in themining municipalities: 28 percent ofemployed respondents from this samplesaid that their wages were delayed vs. 21percent in the national urban sample. Inaddition, the average level of wagearrears is higher in mining municipalities(7.3 months compared to 4.2 months inthe national urban sample).
Concerning past unemployment, thesame percentage (30 percent) of em-ployed respondents in the mining and inthe nation-wide samples said that theyhad been unemployed during the lastfive years, but the average length ofunemployment among respondents inthe mining sample was 26 months asopposed to 19 months for respondents inthe national urban sample
Housing and communal services. Resi-dents of the two mining communities areconsiderably more likely to live in apart-ments than residents of similarly sizedcities in the rest of the country, andconsequently are more dependent oncommunal services for the provision of
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59
various essential services such as heatand water. In the mining sample, 71percent of the respondents reportedliving in an apartment as opposed to 45percent in the comparable urban sample.
Respondents in the mining samplenoticeably more often gave negativeassessments of their housing conditionsthan respondents in the national sample.In the mining sample, 46 percent ofapartment-dwellers said that the condi-tion of their housing was very bad oreven dilapidated, requiring either majorrepairs or demolition, as opposed to 21percent in the national urban sample.Also, considerably more respondents inthe mining sample reported having nohot water in their apartments (79 percentvs. 43 percent). Respondents in the min-ing sample were also more likely to haveno central heating (21 percent in miningtowns vs. 12 percent in the other cities) orgas for heating (75 percent vs. 63 percent)and less likely to have a telephone (56percent in the mining sample did nothave telephones vs. 43 percent in thenational urban sample).
For respondents who receive theseservices, the analysis demonstrated thatthe functioning of all basic services isconsiderably worse in mining towns thanin the rest of the country. Twenty-ninepercent of the respondents in the miningtowns as compared with 11 percent in thenational urban sample reported that theirelectricity service does not function well.Of those connected to central heating inthe mining towns, 69 percent vs. 43percent in the nation-wide sample saidthat the service does not work well. Coldwater is delivered with interruptions ornot delivered at all to those who havewater connection in 64 percent of thecases in mining towns as compared with35 percent in Ukraine. And almost allrespondents (95 percent) in the miningsample with connection to hot waterreported bad delivery of hot water com-
pared to 68 percent in the national urbansample.
POLICY RECOMMENDATIONS
Policy recommendations that could helpmitigate the negative impact of coalsector restructuring programs on com-munities can be grouped into those ofnational or economy-wide relevance andthose of relevance to the mining sector orthe mining municipalities. The formergroup will not be considered in detailhere, both because this would be beyondthe scope of the research, and moregenerally in adherence to the generalprincipal that special regimes should notbe carved out of instruments of nationaleconomic policy. At the same time, theimportance to mining regions and mu-nicipalities of reforms that could (andshould) be part of national-level policycannot be overstated. Some of the impor-tant broad areas of reform in this regardwould include:
• the system of inter-governmentalrelations;
• the banking system and access tocredit for a wide variety of purposes(to start businesses, improve realestate and infrastructure, etc.);
• housing and communal services;• local economic development and
diversification;• education; and• social protection.
The following policy recommenda-tions are based on the results of theresearch carried out in Romania, Russiaand Ukraine but would also have broadrelevance to other industrial restructur-ing programs, particularly those wherethe patterns of municipal developmentand the social aspects of restructuring aresimilar to those encountered in the coalsector. In one way or another these rec-ommendations seek to further a holistic
Mine Closure and its Impact on the Community
60
or comprehensive approach, as opposedto the limited sectoral approach, to miti-gating the impact of sector restructuringon the entire community. 36
Recognize early on the full range ofcosts to the community of sector restruc-turing, and align benefits more closelywith the costs. Ex-ante analyses of coalsector restructuring recognize the greatbenefits that accrue to the economy atlarge from restructuring when the highlevel of subsidization is eliminated andwhen workers released from the coalsector produce greater value in othereconomic activities. At the same time,such analyses usually do not recognizethe full range and nature of the costs thatare imposed by restructuring on thecommunity, including the negativeemployment impact of mine closure ondownstream industries and on servicesindustries dependent on householdpurchasing power. The time framesrequired for the implementation of localdevelopment initiatives and the transi-tion of shed labor to more productiveuses also tend to be underestimated,which is another form of unrecognizedcosts to the extent that these representdelays in the accrual expected benefitsand increased social tension. The recom-mendation to more closely align the costsand benefits of sector restructuring seeksto minimize the additional costs thatresult from failing to recognize upfrontall the costs of sector restructuring, aswell as the additional costs of protractingsector restructuring, and to more quicklymove to the implementation of the miti-gation strategy through establishing aconstructive framework for dialogue thatclearly identifies the various stakehold-ers and recognizes their respective sharesof the costs of sector restructuring.
Notionally, the process of coal sectorrestructuring can be viewed as one inwhich subsidies that previously went tosupport loss-making production atuneconomic mines (and, indirectly,employment in dependent industries)are shifted, for some period and in oneform or another, to the mitigation of theimpact of mine closure on the miningcommunity. The extent and manner inwhich these funds are shifted is a matterof policy within the usual budget andother constraints. In practice, the linkbetween these two general categories ofneed is recognized, but usually only inthe context of making a case for postpon-ing the initiation of closure at a loss-making mine (i.e. the community willsuffer if another mine is closed, jobs needto be maintained). Implicitly, this argu-ment seeks to justify subsidization ofloss-making production as a form ofsocial protection that guarantees employ-ment for a certain number of people andhelps preserve stability in a community.
While in some cases it could cer-tainly be advisable to stagger closure ofmines in a given location in order tomitigate the impact on the affected work-ers and the community, the argumentreferred to in the preceding paragraphoften amounts to no more than an at-tempt to delay the inevitable. Failing toforestall the inevitable, this positionresults in increased financial and socialcosts of mine closure and consumesfunds that could otherwise be used formitigation programs. Far from beingstrengthened, the level of social protec-tion of workers at uneconomic mines isusually eroded under such circum-stances (bad management, for example,gives rise to wage arrears) while thefundamental economic problem of theloss-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 ofnote in this context.
61
Rostovugol in Russia illustrates thiswell. Having resisted the comprehensiverestructuring that was being carried outin the rest of the industry (for severalyears, Rostovugol produced about 1-2percent of total production but receivedup to 25 percent of the total subsidies forloss-making production), as a result of arecent Government decision the companynow faces extensive restructuring. Wagearrears are very high at the loss-makingmines that were kept functioning andthat are now slated for closure.
While a case-by-case approach isobviously called for in such circum-stances, given the high return to thebudget of eliminating production subsi-dies, a rationale generally exists forincreasing the support directed to com-munities without undermining the over-all economic rationale of sector restruc-turing. The actual form of the assistanceis a matter for policy, judgment andnegotiation. In view of the inevitableperiod of adjustment and the “learningcurve,” it is likely greater value to thecommunity would come from extendingassistance over time. In the cases underconsideration here, the review of thesituation five years after mine closure inthree different countries indicates that thecoal municipalities need additionaltargeted assistance before beingmainstreamed into existing nationalprograms of inter-governmental trans-fers.
This general recommendation hassome important practical policy applica-tions, including: (i) broaden the base ofeligibility for social protection benefits(i.e. severance, participation in job-creation programs, etc.) to mitigate thenegative employment impact of mineclosure on dependent industries (possi-bly using an approach based on demon-strated proportional dependence, as inthe Russian experience), and (ii) recog-
nize the role and potential of the munici-pality in mitigating the impact of sectorrestructuring on the entire community. Inall cases under review here control overthe funds intended for local mitigationefforts has been an issue in relationsbetween regional and municipal authori-ties. While regional authorities can play acrucially supportive role, the experienceat various points in times in variouslocations has been that funds targeted forassistance to mining towns have beencaptured at the regional level and usedfor other purposes (and here it is worthrecalling that the concentration of themining industry is highly localized, andthe priorities of the regional governmentare often different from those of the localadministrations of the mining towns).The funds provided for solving localproblems are ultimately more effectivelyused if they are allocated directly to thecommunities, with the important provisothat this be done in the context of appro-priate policies and procedures exist, andthat training and capacity-building bemade available over time.
The experience of Russia in the finalfour years of the existence of productionsubsidies illustrates the disparity be-tween the subsidies provided to loss-making mines and the subsidies pro-vided to municipalities for local devel-opment programs, and demonstrates thateven in this case of a relatively high levelof support to impacted communities, theloss-making mines in the coal industryreceived higher levels of support. In1998, subsidies in support of loss-makingproduction exceeded the support to localdevelopment programs by a factor of 6.In the following year, this ratio wasreduced to about 3. By 2000, the ratio wasreduced to about 1.3, and then in 2001,the last year of production subsidies, toless than 1. Viewed over the four-yearperiod, the subsidies in support of loss-making production were almost exactly
Mine Closure and its Impact on the Community
62
double the subsidies devoted to localdevelopment programs.37 Viewed overthe entire period of restructuring, theratio would be far greater than 2:1 infavor of loss-making production subsi-dies, as these existed for many moreyears than local development programsand subsidies to the sector in the period1993-97 exceeded US$10 billion, most ofwhich went to subsidizing loss-makingproduction and inefficient investments.
Because of the sectoral approach thatdominates in the process of the develop-ment of industrial restructuring pro-grams, it is not common practice to viewthe two types of State support (subsidiza-tion of a loss-making industry versussupport to the municipalities in whichthe industry is located) as constituting atrade-off. As a general framework, how-ever, for an approach to industrial re-structuring, this view may help nationalgovernments to build support and un-derstanding for the need to carry outrestructuring and to articulate moreclearly the high cost to the communitiesthemselves of perpetuating the untenablesituation of subsidization of loss-makingmines. In this, the government will facethe challenge of the widely varyingattitudes and capacities on the part ofdifferent players on the regional andlocal levels. Public information cam-paigns and continuous social dialogueare important instruments to help meetthis challenge.
Build capacity on the communitylevel. Communities in which mines areclosed are confronted with an array ofnew problems for which the capacity andskills embodied in the various localresponse systems are inadequate. Assur-ing adequacy of financing is a necessarybut not sufficient condition for the proper
management of the consequences of mineclosure on the local level; measures tobuild capacity are necessary to ensurethat the limited financing is put to its bestuse. Capacity-building in this context isrelevant for local government and alsofor the various non-governmental organi-zations that constitute civil society andthat can make an important contributionto the development of adequate institu-tions on the local level. As has been seen,civil society in the mining communitiesis relatively weak; indeed, the concept ofcivil society and the recognition of itspotential are often poorly developed atthe local level. Equally important issupporting the creation of a mechanismthat ensures the adequate and meaning-ful interaction of municipal governmentand civil society (as illustrated, to someextent, by Russia’s Local OversightCouncils.)
Given the long-term nature of theimpact of mine closure and the localresponse to it, it would be appropriatefor governments and international lend-ers and donors engaged in supportingcoal sector restructuring to plan long-term provision of technical assistance tocommunities. Because the capacity andneeds of municipalities will differ andevolve over time, these programs shouldinclude an array of options that can betailored to individual municipalities andthat are re-visited periodically to confirmtheir continued relevance. In general,there is a high need for training munici-pal governments in a comprehensiveapproach to strategic municipal develop-ment. Effective and relatively low-costtechnical assistance can be offeredthrough seminars that bring togetherrepresentatives of municipalities for anexchange of experience. Most importantis to recognize the leading role of munici-
37 Budget financing of repair of social infrastructure, housing, etc. is not counted here as these are formalliabilities recognized under mine closure plans, as opposed to the local development programs which aremitigation programs, the financing of which is entirely the prerogative of the Government.
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pal governments in directing the re-sponse to the dramatically changedconditions of the life of the community(including critically in such disparateareas as the management of social assetsand local economic development) and toprovide the staff of the municipal gov-ernments with the knowledge and skillsthey need for managing these complexprocesses.
Organizations representing civilsociety are many and varied. Some func-tion at a high level of professional com-petence, sometimes with the benefit ofdonor-financed training. Others, in con-trast, function on a strictly local levelwith a local focus and with limited fi-nancing and capacity. Two types ofpotential beneficiaries of capacity-build-ing measures are of particular note in thepresent context: (i) groups focused onlocal business development, and (ii)groups that carry out social work ofvarious kinds. The groups that fall intothe first category will often be directlyinvolved in the sorts of activities re-viewed in the discussion of the localeconomic development response, such asthe promotion of small business throughbusiness incubators. But the capacity ofbusiness development groups can alsobe developed in ways that are not asobvious and that have important socialdimensions. For example, the TACIS-MERIT programs sponsored by the EU inRussian coal towns included componentsdedicated to increasing the representa-tion of women and youth among localentrepreneurs.
While the NGOs and other groupsthat provide social services of variouskinds perform a very different function,they too can benefit from basic training inhow government works, how to writegrant proposals, and so on. Withstrengthened capacity, some of thegroups mentioned in the course of theresearch could begin to play, for ex-
ample, valuable roles as monitors of theenvironmental and social impacts ofmine closure.
Enhance the private sector develop-ment component of the local develop-ment response. Programs that supportthe development of the SME sector are astaple of the local development policyresponse. These programs have a signifi-cance that extends beyond their actualweight in the local economy because theysend a powerful and optimistic messageof the possibility of positive change. Atthe same time, policy-makers shouldrecognize the limited potential of smalland medium-sized businesses to providejobs for workers who are made redun-dant as a result of mine closure, at leastover the 5-year period that served as thebasis for this research.
Mitigation strategies sponsored bygovernments and supported by theWorld Bank tend to refrain from advocat-ing large-scale enterprise development inthe local development response, partlybecause of well-founded concerns thatthe coal industry could highjack theprocess, and partly because of the sheerdifficulty of carrying too many develop-ment initiatives at once. But unless re-structuring is carried out in an environ-ment of growth that is sufficient to absorbthe shed labor, most of the jobs that aredestroyed through mine closure will notbe re-created through programs support-ing individual and small businesses. Inthe contracted, highly competitive labormarkets that follow mine closure, work-ers less able to compete are likely tosuffer from long periods of unemploy-ment or under-employment and to bemore vulnerable to abuse of the legal andsocial safeguards that have been estab-lished to protect workers. Facilitating thegrowth of jobs at larger enterprises couldalso be particularly helpful in re-integrat-ing into the labor force vulnerablegroups, including laid-off workers with
Mine Closure and its Impact on the Community
64
employment prospects limited either byage, skills or other factors, and newentrants to the labor force, such aswomen who did not work before mineclosure and youth, who are disadvan-taged by their lack of experience andskills.
A private sector development com-ponent could consist of provision ofbusiness consulting/technical assistanceto (i) existing large enterprises that arealready major employers (assuming suchexist in the municipality, which is typi-cally the case in Russia and Ukraine andless so in Romania), (ii) medium enter-prises that are seeking to grow (for ex-ample, through assisting them in identi-fying a strategic marketing plan to allowthem to grow beyond the local market),and (iii) local and regional governmentsthat are seeking to enhance the role of theprivate sector in the economic develop-ment of their respective territories.
The provision of assistance to exist-ing large enterprises has certain potentialpitfalls that should be guarded against,notably SOEs that are themselves in needof restructuring. In any event, it shouldbe stressed that the larger, existing enter-prises should not be eligible to competefor the limited investment funds madeavailable to support individual andsmall business through local develop-ment programs. The risk that a largeenterprise will absorb large amounts offinance without creating jobs is great.Rather, the assistance should be stream-lined to consist of strategic businessadvice, which can be just as relevant to alarge, established enterprise as to a smallentrepreneur who is just starting out.
Local and regional governments canbenefit from policy advice directed atstrengthening the investment climate,increasing local/regional business com-petitiveness, private provision of hous-ing and other municipal network-borne
services and so on. Where long-termstrategic development plans give animportant role to infrastructure-intensiveprojects, such as the development of atourism industry (as, for example, isoften proposed for Romania’s Jiu Valley),the scale of required investments isclearly beyond the capacity of any levelof government and underscores therelevance of a sustained effort to workwith municipalities and regions in orderto attract investors, work with banks, etc.
Deepen efforts to rationalize hous-ing stock and social infrastructure. Theintractable problems of housing andsocial infrastructure are found in munici-palities throughout the transition econo-mies, but they assume a particular sig-nificance in mining towns, both for thehistorical reasons as described earlierand because the rate of population de-cline in these communities is likely toexceed the national average. A significantimplication of this is the continued de-cline of already highly depressed localhousing markets (which in turn consti-tute a major constraint to individuals andfamilies considering out-migration.) Thiscondition, in turn, argues against invest-ments in the housing stock of miningcommunities beyond what is necessaryfor basic maintenance and to ensure abasic level of safety.
As populations decline and age, theneed for certain types of social infrastruc-ture also declines. The research foundthat in recent years, many municipalitieshave understood the need to rationalizethese expenditures through closingkindergartens, consolidating schools andso on. In the more positive cases, thisprocess of rationalization is accompaniedby improved maintenance of the remain-ing assets.
The rationalization of the housingstock, while generally of greater signifi-cance from the point of view of the im-
65
pact on the municipal budget, is a con-siderably greater challenge than therationalization of public buildings,however, for three major reasons. First,ownership of housing is sometimeslegally ambiguous, as when there is aprivate ownership at the apartment leveland municipal ownership (by default) atthe building level. Second, reliable infor-mation on building occupancy is typi-cally lacking. While a large number ofapartments might be empty for monthson end (as indicated by the survey car-ried out in Ukraine), the municipalityusually does not know whether an apart-ment has been abandoned, or whetherthe owner/occupant intends to return(indeed, the occupants themselves maynot know this when they leave). Third,efforts to rationalize the housing stockare complicated by the partial occupancyof many buildings. Given equal claimson replacement housing of comparablequality, municipalities face the difficultquestion of determining which buildingswill be demolished and who will berelocated first.
Some mining municipalities havehad a positive experience in rationalizingthe municipal housing stock and relatedservices, particularly when the munici-pality includes mining settlements thatare spread out over a large territory.Where sponsored migration programsexist (such as from Russia’s Far North),municipalities have a chance to realizegains by closing down the mining settle-ments, compacting the physical infra-structure that was extended over kilome-ters to serve the settlements, and provid-ing improved living conditions to thosewho remain, who are relocated intobetter quality apartments that have beenvacated by official migrants. But suchclearly defined situations are rare.
Capturing the gains from the ratio-nalization of the municipal housing stockis not an easy task, for the economic,
social and political reasons touchedupon here. At the same time, most mu-nicipalities cannot afford to disregard thehuge potential of reforms in this area. Inorder to help ensure the successful con-tinuation of efforts to rationalize thehousing stock and related social infra-structure, municipalities shouldstrengthen their information base of thehousing stock by working closely withneighborhood groups or (where theyexist) building-level associations toidentify apartments that are unoccupied.If financing can be made available, aprogram of municipal “buy outs” ofunoccupied apartments could benefit themunicipality as well as the seller. Reduc-ing the number of unoccupied apart-ments would also be a positive steptowards the reduction of non-paymentsfor utility services that were reported intowns that have experienced high levelsof migration.
Enhance migration and transporta-tion support to households. It is unlikelythat direct financial support for migrationcould be made available to match thedemand that exists for such support inmany communities in which mines havebeen closed. There are also compellingsocial and political reasons why govern-ments would be disinclined to providethis support. At the same time, recogniz-ing that in certain cases labor migration isa phenomenon of enormous significanceto the present and future of a miningtown, there are social and economic gainsto be had through strengthening localcapacity to provide migration support tointerested households (along the lines,for example, of the support provided inNovoshakhtinsk.) Efforts should bestrengthened to remove barriers to mi-gration, for example, housing or trans-portation. In cases of short-term, tempo-rary or seasonal labor migration, munici-palities and civil society groups can helpprotect the interests of the people livingin the mining towns by coordinating
Mine Closure and its Impact on the Community
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information on employment prospects(which could lead to a more optimalmatching of jobs with job-seekers, e.g.over a smaller geographic territory thanis the case when individuals seek toresolve this problem on their own) andtaking steps to confirm the legitimacy ofemployment offers that are extendedfrom other locations.
When families have decided tomigrate permanently, or are consideringpermanent migration, municipalities cancapture gains through better tracking ofthe housing stock and apartments thatare potentially abandoned, and possiblypurchasing apartments from familieswishing to migrate, as described in theprevious paragraph. In view of the trans-portation constraints that exist in manyareas, a less radical solution to balancingthe local labor market would be to pro-vide subsidized transportation for work-ers willing to travel to other cities foremployment.
PARTING THOUGHTS: LOOKING TO THE
FUTURE
Mining towns and other towns domi-nated by a single industry are oftendescribed as “dying towns” after theclosure or significant downsizing of thedominant industry in the local economy.This term has been avoided throughoutthis report, as it carries rather negativeimplications usually without a corre-sponding analytical basis for this desig-nation. And while it seems that the popu-lation of mining towns will continue tocontract (as will populations overall inEE/FSU, at least in the medium term), itis important to keep in mind the short“shelf life” of some of the more grimprognoses of decline in regions that havesuffered large-scale job-destruction as aresult of industrial restructuring. It istrue that the process of recovery is a longand arduous one. One way or another,
however, most municipal governmentswill come around to dealing with theproblems that confront their communi-ties. If they can be aided in this processby national and regional governmentsand other concerned groups, such asNGOs, that share a vision of coal sectorrestructuring and implement it consis-tently, financial and human costs can bereduced.
There is an important role to beplayed by makers and implementers ofpolicy in helping to prepare municipali-ties for the difficult adaptation that theyface when mines are closed, includingfirst and foremost minimizing the periodof the adaptation (which often includes aphase of resistance to the restructuringpolicy, or a phase of simply not knowingwhat to do) so that resources may beemployed more effectively and thevarious components of the mitigationstrategy put into operation as soon aspossible.
The town of Stakhanov, one of theresearch sites in Ukraine, is a noteworthyexample in this regard. All of the minesin Stakhanov have been closed and, asdescribed earlier, there is evidence of ahigh level of out-migration from thetown. The local development responsehas been slow to come, protracted, per-haps, by the on-going ambivalence to-wards coal sector restructuring from thenational level down. At the same time,for the first time in many years, recentassessments of Stakhanov’s future pros-pects contain a glimmer of encouragingnews. A comprehensive report onStakhanov’s economic and socio-culturallife that was prepared by the city govern-ment in 2001 details a number of positivedevelopments, including the resumptionof growth of industrial production,improved tax collections, the growth inthe number of individual and smallenterprises, a doubling of the averagemonthly number of vacancies in the
67
employment service, and so on. Of par-ticular interest is the description of aninvestment project under implementa-tion by a domestic investor that is con-verting waste from coal mining into amarketable product that is sold as fuel topower stations. An environmental prob-lem has been turned into a businessopportunity. 38
The optimism of the local adminis-tration is echoed in the words of anentrepreneur in Stakhanov who partici-pated in the research:
[Business people] are trying to fill all theniches for the things necessary in life...Just this last year there’s been a realleap forward... People who, for ex-ample, began to work with wood andmetal now have businesses installingdoors with codes. New kinds of activi-ties are starting up in the city, peopleare beginning to use services... Therereally is competition here now. Peoplecome here from all over the region tohave weddings, celebrate birthdays andspecial occasions. The thing is, theabsence of jobs and the closure of themines really forced people to try tosurvive. And we all feel this and weknow that if we’re going to do some-thing, we have to do it right, it’s amatter of conscience. And the peoplewho take up [business] are the peoplewho know how to do something.
Entrepreneur, cable and satellite TVsystems, Stakhanov, Ukraine
The report prepared by theStakhanov city government also notedthat a business incubator had beenopened in the town in 2001, with the helpof a Lugansk Oblast organization dedi-cated to the support of entrepreneurship.One cannot help but note the contrastwith Novoshakhtinsk, a coal town ofabout the same size, equally hard-hit by
mine closure, and a short distance awayon the other side of the Ukrainian-Rus-sian border. Novoshakhtinsk opened itsfirst business incubator in 1996 and hassince gained recognition as one of themore progressive small towns in Russiain this field. Much remains to be done todiversify the local economy and establishan economic base that is independent ofthe coal sector, and in the meantime thereis, inevitably, some dislocation andsocial cost, as workers leaveNovoshakhtinsk in search of gainfulemployment. At the same time, it isreasonable to suppose that the combina-tion of a realistic vision on the local leveland adequate support from above hashelped shorten the adaptation periodand to facilitate the town’s progressioninto the constructive phase of response tothe closure of the mines that were oncethe lifeblood of the town.
38 Stakhanov, Ukraine (2001).
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69
Annex 1: Description of Research Sample
A. Phase 1 Indicative Sample. Thefollowing indicative sample was used todevelop the sample in each country, withvariations introduced as appropriate ineach research location.
I. National-level officials working atnational level
1. Deputy minister (Department head) ofMining/Energy Ministry or MineClosure Agency. (More than one officialis possible depending on nature ofexpertise)2. Deputy minister (Department head) ofthe Ministry of Finance3. Deputy minister (Department head) ofthe Ministry of Health4. Deputy minister (Department head) ofthe Ministry of Social Development /Labor5. Government official overseeingregional/municipal development6. Member of parliament from coalmining region
II. National-level officials working atlocal level
Official from local branches of:7. Employment Service8. Health service agency9. Education agency10. Social protection agency11. Environmental agency
III. National-level non-governmental
(civil society) groups
12. Representative of coal trade union13. National association of miningmunicipalities (alternativelymunicipalities in general)
IV. Local officialsMunicipal government officials:14. Mayor15. Deputy mayor for social issues (socialprotection, health, education, etc.)16. Deputy mayor for social assets (ifapplicable)17. Deputy mayor for economics/economic development
V. Other local experts andrepresentatives of civil society groups
18. Managers of job-creation programs,business incubators, etc.19. Local union representative20. Local NGOs and other civilorganizations21. Leaders of the informal groups in thecommunity22. Director (deputy director) of large orgrowing non-coal enterprise thatemploys former miners (or potentiallycould)23. Local religious leader (if appropriateand significant for community)
VI. Independent Experts (national and/or local)
Mine Closure and its Impact on the Community
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Experts in the areas of:24. Education25. Health, including stress-relatedmental and physical illnesses26. Child and youth problems27. Social deviations such as crime, drugabuse and other socially destructivebehavior28. Family issues
Following is the description of the Phase2 sample for each municipality; in eachmunicipality, approximately 30interviews were sampled, for a total of 60per country (90 in Romania).
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Annex 2: World Bank Lending in Support ofCoal Sector Restructuring in Eastern Europeand the Former Soviet Union
1. Benefits from microcredit and incentive schemes not quantified for purposes of analysis in view of lack ofreliable data.2. The economic analysis compares (i) costs and benefits of the continued operation of the mines during the projectimplementation period and during a post-project period limited by coal reserves at each mine, with (ii) the costsand benefits of closing the mines immediately.3. The driver behind the results is reduction of cost of domestic coal production through mine closure in “withproject” 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. Further, the cost estimates for mine closure were on target (even slightly lower than atappraisal);(b) however, social mitigation costs wre higher than estimated at appraisal and creation of new employment wasprogressing slower.
Mine Closure and its Impact on the Community
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