Khakassia is Losing Coal

Khakassia is Losing Coal


Republic of Khakassia, a constituent region of Russia in the south of Siberia, is lobbying for a tax increase for coal mines. At present, the Mineral Extraction Tax (MET) for coal mines is token payment. Meanwhile, the budget of the republic is losing billions of rubles.

The financial situation in Khakassia is one of the most difficult in Russia, although the area has well-developed industries and is rich in natural resources. Located in Khasassia are the Sayano-Shushenskaya hydropower plant, one of the world's largest plants of this kind, aluminium smelters, gold mining companies, and a well-developed food industry. Nevertheless, its budget is extremely unbalanced. As wrote earlier, the area has a huge national debt and a deficit budget.

According to official data, Khakassia's revenues amounted to 37 bln rubles ($495.25 mln) in 2020. This is almost 18% higher than in 2019. The revenue plan was exceeded. However, this is not due to the efforts of the local authorities. The republic gets federal subsidies. Last year, their volume exceeded 19 bln rubles ($254.36 mln.) Khakassia's own revenues, on the contrary, dropped from 21.6 ($289.12 mln) to 17.8 bln rubles ($238.25 mln.)

Although the index of industrial production in Khakassia was 103.1%. According to the branch of the State Statistics Service for Krasnoyarsk, Khakassia and Tuva, mining and processing as well as electricity, gas and steam supply have brought money to the region against the background of general stagnation. However, it is the coal industry which brings the biggest revenue to the region. It is this segment that saw 4% growth in 2020 vs. 2019.

Meanwhile, the coal industry is the subject of fierce debates in the republic, with its impact on the environment and infrastructure in the focus of discussions. However, financial issues are the main subject. For many years, local politicians and public activists have been saying that Khakassia receives less tax from the coalmining companies than they should pay. There is little doubt the Russian authorities’ budget policy and the way the taxes are distributed between the federal government and the regions are the first to blame. However, at present, the initiative to increase the MET for coal mines has become a priority.

The current rate was established many years ago. Now, it is only 24 rubles ($0.32) per tonne of coal. Almost half of this sum goes to the federal budget. Khakassian deputies are proposing to raise the rate to 480 rubles ($6.42) per tonne, except for anthracite, coking coal and brown coal.

"The ruble has depreciated a lot over the past 20 years. The current tax rate for steam coal is about the same as for gravel," Vladimir Shtygashev, the chairman of the Supreme Council of Khakassia, said indignantly.

According to experts, if the MET rate grows, Khakassia will start getting money on a regular basis not from profits, which might vary but from the very fact of extracting coal.

"There are many legitimate loopholes because of which the budget of the Republic of Khakassia receives unfairly small revenues from coalmining, and one of them is the registration of a coal mining company or a trading house in another region. Transferring the tax burden to MET will ensure the absence of necessity to persuade the top executives of every enterprise to re-register in the region. Last year, Khakassia got 372 mln rubles ($4.98 mln) of MET on coal. An increase in the base rate would bring in an additional 7 bln rubles ($93.7 mln) to the budget. Moreover, taking into account the growth of increase of production by 2030 in accordance with the plan, the additional revenue might be from 12 ($160.62 mln) to 15 bln ($200.78 mln) rubles annually," Yevgeny Mamayev, the head of the Khakassia branch of the All-Russian People’s Front told

"Our legislative initiative changes the situation. The process becomes simple. A tonne of coal is mined, tax on it is paid, and then it can be sold in any amounts and at any price. We are not laying claim to profit tax. We are replacing it with another tax. That seems fair to me. The current tax rate was set almost 10 years ago. Over that time, all the prices have gone up. Inflation has made all of it paltry and negligible. At the same time, Khakassian coal is the cheapest in Russia, and the stripping ratio is extremely small. Coal lies very close to the surface. That is why everyone is rushing to Khakassia for coal," said Oleg Ivanov, the chairman of the Committee on Budget and Tax Policy of the Supreme Council of the Khakassian Autonomous Republic.

However, the situation is not that simple. Khakassia's initiative requires amendments to the Russian Tax Code. It often takes regions years to make the federal authorities hear their proposals. Local authorities have to be very persistent or a strong governor is needed who will lobby for the interests of the republic. Valentin Konovalov, a 33-year-old member of the Communist Party of the Russian Federation (CPRF) party, whose election in 2018 as Khakassian Governor became an unpleasant surprise to the Kremlin, is highly unlikely to be this person. Meanwhile, a corporation like the Siberian Coal Energy Company [Russia's largest coal company and a systemically important enterprise] clearly has more influence and connections in Moscow. Therefore, there are skeptics who believe that the current "coal-related interest" of the deputies of the Supreme Council of the republic might be well connected with the elections to the State Duma scheduled for this autumn.

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