# **Executive Summary**

## **Background**

1. In recent years, Poland, Romania,<sup>Russia,andUkraine haveundertaken majorreformsof</sup> their coal sectors, in all cases with<sup>financial supportandpolicy advicefromthe WorldBank and</sup> bilateral donors. While conditions<sup>variedfrom country to country,ingeneralbeforerestructuring</sup> the coal industries of these<sup>countries sufferedfromanumberof seriousproblems,including:</sup> obsolete equipment and years of<sup>inefficientinvestments;poorsector management; inauspicious</sup> geological conditions in many<sup>basins; excessive employment,with productivitylevelsamong the</sup> lowest in the world; wretched<sup>healthand safety conditions;and acutelevelsof accountspayable.</sup>

2. Full-blown crises emerged<sup>inthe coalsectorsof thesecountriesinthegeneraleconomic</sup> dislocation of transition. The initial response of governments<sup>was to allocatehighlevelsof</sup> subsidies to the industry. In<sup>UJkraine,forexample,statesupportforthe coalindustryin1993</sup> was equivalent to about 4% of<sup>GDP.</sup> It soon became clear, however,<sup>thatsuchlevelsof</sup> subsidization were unsustainable<sup>inthe faceof theother demandson theshrinkingnational</sup> budgets. From this recognition<sup>followedthe decision,takenat thehighestlevelsof government,</sup> to embark upon the restructuring<sup>of the coal sector.</sup> 3. In order to reduce the burden<sup>ofsubsidieson thebudgetasquicklyaspossible,sector</sup> restructuring entails the closure<sup>ofuneconomic minesandanextensivedownsizingofthe</sup> industry workforce. Privatization<sup>of thehealthycoreof theindustrymayalso beapartof the</sup> restructuring program. In view of<sup>theconcentrationof coal miningin a small numberof regions</sup> and towns within regions, coal<sup>sector restructuringprograms include mitigationstrategiesto</sup> strengthen the social safety nel:<sup>for laid-off workersand their families,and tocreate jobs inother</sup> sectors in the local economy.

## **Concept and** structure of the<sup>research</sup>

4. This report is part of a work<sup>inprogressandreflectstheresultsof research thatwascarried</sup> out in Romania, Russia and Ukraine<sup>withthe goalsof (i) assessingtheimpact of mine closureon</sup> communities in which large-scale<sup>downsizingof the miningworkforce beganat least fiveyears</sup> ago, in 1997, (ii) evaluating the<sup>effectivenessof themitigationpolicies thathave beenusedto</sup> date, and (iii) developing policy<sup>recommendationstoaddresstheproblemsidentifiedbythe</sup> research.

5. The research was designed<sup>primarilyasaqualitative studyintwophases consistingof in-</sup> depth interviews with national,<sup>regionalandlocalexperts(in thefirstphase) andimpacted</sup> groups of the population and<sup>"response"groupssuchaslocalentrepreneurs (inthesecond</sup> phase). The research carried<sup>outinUkrainealsoincludedaquantitative componentinwhich</sup> survey data were collected on employment<sup>and livingconditionsintwo mining municipalitiesas</sup> well as in the rest of the country.

6. Mining municipalities were<sup>selectedon the basisof ahighimpactof restructuringonthe</sup> share of coal sector employment<sup>in theoverall workforceof themunicipality,and on the basisof</sup>