metadata: authors: 0: author: Haney, Michael
1: author: Shkaratan, Maria
count: Romania,Russian Federation,Ukraine
docna: 0: docna: Mine closure and its impact on the community
            : five years after mine closure in Romania, Russia and Ukraine
docty: Policy Research Working Paper
subtopic: Climate Change Mitigation and Green House Gases,Urban Housing and Land Settlements,Mining & Extractive Industry (Non-Energy),Labor Markets,Urban Governance and Management,Urban Housing,Municipal Management and Reform
teratopic: Health, Nutrition and Population
abstracts: cdata!: Against the backdrop of economic
            transition, several countries in Eastern Europe have
            undertaken far-reaching programs to restructure their coal
            sectors, which in the 1990s were in a state of deep crisis.
            One aspect of restructuring has been the closure of
            loss-making mines, which are often located in communities
            where the coal industry is the dominant employer, and the
            significant downsizing of the workforce. Mitigation efforts
            that are implemented at the time of mine closure (such as
            severance payments) are usually intended only for the
            laid-off workers. The authors examine the impact of mine
            closure on the entire community five years after mine
            closure in Romania, Russia, and Ukraine. Using quantitative
            and qualitative research methods and based on interviews
            with national, regional, and local experts, and members of
            the affected population, the authors describe the effect of
            mine closure and evaluate the various mitigation efforts
            that have been used by governments in such cases. They
            conclude with policy recommendations of broad relevance to
            programs of industrial restructuring in communities
            dominated by a single industry.
geo_reg_key: 517208,517198,82689,517190,517191
repnme: repnme: Mine closure and its impact on the
            community : five years after mine closure in Romania, Russia
            and Ukraine
display_title: Mine closure and its impact on the
            community : five years after mine closure in Romania, Russia
            and Ukraine
listing_relative_url: /research/2003/06/2438508/mine-closure-impact-community-five-years-after-mine-closure-romania-russia-ukraine
topicv3: Mining Services m1326410 1701,Climate Change Mitigation m1327079 579,Mining Sector m1327113 554,Land and Housing m1327648 817,Jobs m1503931 2670
publishtoextweb_dt: 2010-07-01T00:00:00Z
historic_topic: Health, Nutrition and Population
origu: Infrastructure & Energy Srvc Dpt (ECSIE)
no_of_pages: 80
model_extractions: | POLICY RESEARCH WORKING PAIPER 3083

# Abstract

Against the backdrop of economic<sup>transition,several</sup> countries in Eastern Europe havc<sup>undertakenfar-</sup> reaching programiis to restructure<sup>theircoalsectors;</sup> whicih in the 1990s were in a state<sup>of deepcrisis.One</sup> aspect of restructuring has been<sup>theclosureof loss-</sup> making mines, which are often<sup>locatedin communities</sup> where the coal industry is the dominant<sup>employer, and</sup> the significant downsizing of the<sup>workforce.Mitigation</sup> efforts that are implemented at<sup>thletimeof mine closure</sup> (suchi as severance payments) are usually<sup>intendedonly</sup> for the laid-off workers.

closure in Romania, Russia, and<sup>Ukraine.Using</sup> quanititative and qualitative research<sup>methodsandbased</sup> on interviews withi national, regional,<sup>andlocalexperts,</sup> and members of the affected population,<sup>theauthors</sup> describe the effect of mine closure<sup>and evaluatethe</sup> various mitigationl efforts that<sup>havebeenusedby</sup> governments in such cases. They conclude<sup>withpolicy</sup> recommendations of broad relevance<sup>to programsof</sup> industrial restructurinig in communities<sup>dominatedby a</sup> single industry.

Haney and Shkaratan examine the<sup>impactof mine</sup> clostire on the entire community five<sup>yearsaftermine</sup> This paper-a product of the Infrastructure<sup>and EnergyServices Department,ELliopeand CentralAsia Region-ispart of</sup> a larger effort in the region to evaluate the<sup>social impact of industrialrestrLIctirinig.Copies of the paperare availablefree</sup> from the World Bank, 1818 H Street<sup>NWV,Washingtoni,DC20433.PleasecontactLarisaMarquez,roomHII-114,</sup> telephone 202-473-6578, fax 202-614-1582,<sup>email adcdresslmarquez@worldbank.org.Policy ResearchWorkingPapers</sup> are also posted on the Web at http://econ.worldbank.org.<sup>The authorsmaybecontactedat mhaney@worldbank.orgor</sup> mshkaratan@worldbank.org. June<sup>2003.(61pages)</sup>

> _'rhe Policy Research WVorkinig Paper Series_<sup>_dissentinlates the fiiidiings of ivork inprogress to eyrcoutrage the exchange of ideas aboutt_</sup> _dcveloptnent issues. Ani objective of the_<sup>_series is to get the findiutgs ou(t quiickly, even if the presentationis are less tbani fuelly polished. The_</sup> _papers carry the nanies of the auftbors_<sup>_anid should be cited accordinigly. T6je finidiiigs, interpretationts, anid contcluisions expressed in this_</sup> _paper are entirely those of the authors._<sup>_7hey do not necessarily represent the viewof the World Bank, its Executive Directorsor the_</sup> _cotetrius they represe,dt._

Produced by Partnerslhips, Capacity<sup>Building,andOutreach</sup>
Mine Closure and its Impact on the Community: Five Years After Mine Closure in Romania, Russia and Ukraine _Michael Haney Maria Shkaratan_ Infrastructure and Energy Department Europe and Central Asia Region
The research described in this report was carried out by a team<sup>consistingofMichaelHaney(team</sup> leader), Maria Shkaratan (specialist in governance and social<sup>issues),VeronikaKabalina(research</sup> manager in Russia), Vladimir Paniotto (research manager in Ukraine),<sup>andCosimaRughinis(research</sup> manager in Romania). Michael Haney is the principal author of this report, which benefited<sup>from</sup> inestimable contributions by Maria Shkaratan and the reports prepared<sup>by the researchmanagersineach</sup> of the three countries. Lee Travers guided the preparation of the report<sup>as sector manager.Specialthanks</sup> are owed to Laszlo Lovei for his comments and insights, and to<sup>JanisBernsteinand Nora Dudwickfor</sup> valuable contributions made during the development phase of<sup>theresearch.</sup> David Craig, Jeffrey Davidson, Ashraf Ghani, Heinz Hendriks, Chris Jones, Christopher<sup>SheldonandDoinaVisa provided</sup> invaluable advice and comments. Anis Dani and Jeni Klugman were<sup>peerreviewers and their thoughtful</sup> comments on the concept and the draft report were instrumental<sup>inguidingtheresearch andthisfinal</sup> report.
# Table of Contents

|ExecutiveSummary..........................................................................<br>i|
|---|
|Introduction..........................................................................<br>1|
|CoalSectorRestructuringinEastern<sup>EuropeandtheFormerSovietUnion..................</sup><br>............................ 2|
|TheNational Context..........................................................................<br>5|
|_Romania.........................................................................._<br>_5_|
|_Russia.........................................................................._<br>_7_|
|_Ukraine.........................................................................._<br>_9_|
|Conceptand structureoftheresearch<sup>..........................................................................</sup><br>11|
|ResearchFindings.........................................................................<br>15|
|_CommonProblemsandExperiences........................................................................._<br>_15_|
|_SelectedIssuesandIndividualCountryExperience_<sup>_........................................................................._</sup><br>_33_<br> <br>|
|_Romania: Restructuringina ChallengingMacroeconomic_<sup>_Environment..............._</sup><br>_........................_33<br>|
|_Russia:SixYearsofLocalDevelopmentPrograms_<sup>_........................................................................_34</sup><br>|
|_Ukraine:MiningTownsComparedtoa National_<sup>_Sample..............................................................._41</sup>|
|PolicyRecommendations.........................................................................<br>45|
|Parting Thoughts: LookingtotheFuture......................<br>...................................................52|
|Annex1.Descriptionofresearchsample<sup>......................</sup><br>...................................................<sup>54</sup>|
|Annex2.WorldBanklendinginsupportofcoal<sup>sectorrestructuringinEasternEurope andtheformer</sup><br>SovietUnion.........................................................................<br>56|
|Annex3.Russia:Evaluation CriteriaforLocal<sup>DevelopmentPrograms....................</sup><br>.............................57|
|Annex4.Cost-benefit analysisofcoalsectorrestructuring<sup>(WorldBankprojects)............</sup><br>.....................59|
|References.........................................................................<br>60|

# Tables

|Table1.Coal SectorRestructuringin<sup>FourCountries...........................................................</sup><br>;<br>.<br>4<br>|
|---|
|Table2.Researchsites:population,mine<sup>closureandcoalsectoremployment.......................................13</sup><br>|
|Table3.LocalDevelopment Programs,<sup>financingbycomponents,1998-2001........................................35</sup><br>|
|Table4.LocalDevelopmentPrograms,new<sup>jobsbysector, 1998-2000..................................................39</sup>|
|Table5.GorlovkaandStakhanov:comparison<sup>ofsampledatatoofficial statistics...............</sup><br>..................42<br>|
|Table6.Ukrainesurvey:mainsources<sup>ofincome..........................................................43</sup>|
# **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>
the existence of alternative economic activity or the possibility of developing it. These criteria were augmented with such qualitative considerations as the imminence of local elections, proximity to other towns with more diversified economies, the desirability of regional variation in the final selection, etc.

# **Research Findings**

7. Following are the most significant areas of the impact of mine closure on the community:

- Employment and Labor Migration

- Municipal and Social Services

- Community Cohesiveness

- Environment

_8._ **_Employment and Labor Migration._** The problem of employment is one of the most serious and long-lasting consequences of mine closure, even five or more years after the downsizing of the local mining workforce. Mining communities in all three countries have in common the problem not just of the quantity of jobs, but of the quality of jobs as well: long-term, stable jobs providing livable wages are scarce. This basic situation on local labor markets has led to a worsening of living standards for many; a qualitative change in the nature of employment, with the emergence of informal, insecure forms of employment at lower wages with fewer legal and social safeguards; and the emergence of groups that are particularly vulnerable in these highly competitive job markets.

9. Two basic types of response to the dramatically worsened local labor market conditions following mine closure are: (i) local development and job-creation efforts, and (ii) migration.

10. Local development and job-creation. The standard policy response to the high unemployment that follows industrial restructuring is to foster the diversification of the local economy and to seek to improve the match between the available jobs and workers' skills through active labor market policies. Among the common mechanisms used in pursuit of this goal are: the provision of microcredits to individual entrepreneurs and subsidized credits to small and medium enterprises; technical assistance and support for business development; and programs matching job-seekers with potential employers through subsidized on-the-job training or training in another profession.

11. The research suggests the following general findings in this area:

- There is a long and steep "leaming curve" of several years before the various local development efforts are established and begin to make an impact.

- While support to individual entrepreneurship and the SME sector is an important part of the policy response, it is equally important to recognize the limit to the job-creation capacity of these efforts. Even where these programs were most established and best financed, expert respondents characterized their impact as positive but "a drop in the bucket" of the total need.

- In addition to the targeted mitigation policies, general economic growth plays an important role in absorbing the larger part of the labor that is shed through mine closure.

ii
12. Migration. The commonly encountered<sup>viewoftheimmobilityoflaborin thetransition</sup> countries is challenged by the research<sup>findings.</sup> In Ukraine, at the time of the survey,<sup>an</sup> estimated 37% of the population was absent<sup>for anextendedperiodinconnection'with</sup> employment elsewhere. Whether or not<sup>migrationispermanent or temporary, or successfulor</sup> not, however, cannot be determined on the<sup>basisof thisresearch.Casesof return migrationare</sup> common in some places (notably in Romania),<sup>usually forthe reasonthat thingsdid not work out</sup> for the migrant in the other location.

13. The potentially beneficial impact of labor<sup>migrationon the localemployment market</sup> suggests that some form of migration support<sup>or subsidizedtransportation shouldbean explicit</sup> policy goal to help mitigate the employment<sup>problemscausedby mineclosure(seePolicy</sup> Recommendations). In actual experience,<sup>however,supportof migrationhasbeenlimited.In</sup> each country economic conditions have been<sup>generallydifficulteverywhere, and officially</sup> sponsored migration is a politically and<sup>sociallysensitiveissuewhenthereareno obvious</sup> growth centers that can recenve migrants<sup>without displacingthelocalworkforceandcreating</sup> social tension. The problem of housing is<sup>alsoasevereconstraint.The costsof migrationare</sup> high, and practical and financial considerations<sup>would ruleout thepossibility of fullysatisfying</sup> the likely demand for such support.

_14._ **_Municipal and Social Services._** Municipal budgets suffer a dual impact from mine<sup>closure:</sup> tax revenues contract, while expenditure<sup>obligationsexpand.In the rangeof municipalservices,</sup> respondents singled out housing and communal<sup>servicesas priorityareasthat havebeenseverely</sup> negatively impacted by mine closure. Education<sup>andhealtharealsoimportantlocally-provided</sup> social services that are affected by mine<sup>closure,althoughtheresearch results indicatethatthe</sup> provision of these services has generally fared<sup>betterdespitethe difficult circumstances.</sup> 15. The poor state of the housing stock of<sup>mostminingtownsisaresultofhistorical</sup> considerations and of the impact of<sup>miningandmineclosure.Subsidenceandseepageofthe</sup> groundwater have damaged residential<sup>andotherstructures,andphysical infrastructurethat</sup> delivers services of social significance.<sup>In some settlementsthat are immediatelyin the environs</sup> of closed mines, these services have ceased<sup>altogether'asaresultof mineclosure.Andinall</sup> research sites, hot water is generally<sup>not available.</sup> 16. Divestiture of housing and social assets<sup>from enterprisesto municipalitiestookplaceinthe</sup> 1 990s in Russia and Ukraine, with a particularly<sup>harshimpacton themining towns.The capacity</sup> of local administrations was overwhelmned,<sup>as inmany casesthelevelsof theassetsdivestedto</sup> the municipalities by the enterprises exceeded<sup>byafactorof severaltimesthepre-divestiture</sup> levels for which the municijpalities were responsible. While municipalities throughout both countries have had to shoulder extra burdens<sup>as a result of divestiture,the situation inthe mining</sup> towns in these countries is generally worse, both<sup>becauseof the physicalimpactof miningon</sup> housing and because the enterprise's share<sup>of the totalstockof housingandsocialassetstended</sup> to be greater in mining towns than in other<sup>municipalities.Enterprisesfacingtheprospectof</sup> divestiture did not maintain assets,<sup>sothat by the time the divestiturewas completed assets were</sup> severely depreciated and in need of high<sup>levelsofrepairfor whichnofinancingwas</sup> forthcoming.

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_17._ **_Community Cohesiveness._** In addition to social consequences of mine closure that are implicit in the problems of employment and social infrastructure, the research examined the capacity of the community to absorb the negative shocks of mine closure and to mitigate such negative phenomena as social instability, alienation and apathy. From this perspective, on the whole the mining communities appear to be rather fragile or vulnerable, their capacity to respond adequately on the community level diminished.

18. The role of civil society in these towns is quite limited: while various organizations representing civil society were found in all locations, their impact on the community was characterized by expert respondents as insignificant, while members of the population generally had no knowledge of any organizations that could be considered representatives of civil society.

_19._ **_Environment._** The environmental impact of mine closure is severe and generally well known, even if the exact manifestation of the impact is highly site-specific. Environmental remediation is a standard component of mine closure plans, and usually the single largest component of the overall cost of mine closure. In the typical conditions of limited financing, first priority is given to preventing damage resulting from the restoration of the underground water level, while such items as land reclamation are often assigned a low priority.

20. Most of the research participants were not technically qualified to discuss the problems of the environmental impact of mine closure. Not surprisingly in view of the technical complexity of environmentally-related issues and the dearth of specialists among the respondents, on occasion respondents expressed contradictory opinions on matters of relevance to the subject. As residents of the community, they most frequently expressed concern about the problem of flooding, the damage caused to houses by mining, the quality of the drinking water (particularly in Ukraine), the danger of methane leaks, and mining waste piles that are not removed.

# **Policy Recommendations**

21. The following policy recommendations are tailored to coal sector restructuring programs but would also have broad relevance to other industrial restructuring programs, particularly those where the patterns of municipal development are similar to those encountered in the coal sector.

22. **Recoanize early on the costs to the community of sector restructuring, and align benefits more closely with the costs.** Ex-ante analyses of coal sector restructuring recognize the great benefits that accrue to the economy at large from restructuring when the high level of subsidization of the sector is eliminated and when workers released from the coal sector produce greater value in other economic activities. At the same time, it is less common for such analyses to recognize the full range and scope of the costs that are imposed by restructuring on the community, including the negative impact on downstream industries and on businesses dependent on household purchasing power. More closely aligning the costs and benefits of sector restructuring would help to minimize additional costs resulting from the failure to recognize upfront all the costs of sector restructuring and from the protraction of sector restructuring.

iv
23. This general recommendation has some<sup>importantpractical policy applications,including:(i)</sup> broaden the base of eligibility for social<sup>protectionbenefitsto mitigatethe negativeemployment</sup> impact of mine closure on dependent<sup>industries(possiblyusinganapproachbasedon</sup> demonstrated proportional dependence,<sup>as inthe Russianexperience),eligibilityfor participation</sup> in microcredit programs, etc. and (ii)<sup>recognizetheroleandpotentialof themunicipalityin</sup> mitigating the impact of sector restructuring<sup>ontheentirecommunity,wherethecostsof</sup> restructuring are disproportionately<sup>concentrated.</sup> 24. Notionally, the process of coal sector<sup>restructuringcanbe viewedasone in whichsubsidies</sup> that previously went to support loss-making<sup>productionatuneconomicminesareshifted,for</sup> some period and in one form or<sup>another,to themitigationof theimpactof mineclosureon the</sup> mining community. The actual form of the assistance is<sup>amatterforpolicy,judgmentand</sup> negotiation. In view of the inevitable period<sup>of adjustmentandthe"learning curve",it islikely</sup> greater value to the community would come<sup>from extending assistance over time.This reviewof</sup> the situation five years after mine closure<sup>inthreedifferentcountriesindicatesthatthecoal</sup> municipalities need additional targeted<sup>assistancebefore beingmainstreamedintonational</sup> programs of inter-budgetary support; given<sup>thelong timeframesof thelocalresponsetosector</sup> restructuring, additional monitoring<sup>overcomingyearswouldbe warrantedtogain amore</sup> complete understanding of the long-term<sup>impact of sector restructuring.</sup> 25. **Build capacity on the community**<sup>level.</sup> Communities in which mines are closed<sup>are</sup> confronted with an array of new<sup>problems forwhich thecapacityandskillsembodiedin the</sup> various local response systemts are inadequate.<sup>Assuringadequacyof financingisanecessary</sup> but not sufficient condition for the<sup>propermanagementof theconsequencesof mineclosureon</sup> the local level; measures to build capacity<sup>arenecessarytoensurethatthe limitedfinancingis</sup> put to its best use. The evidence from<sup>Russia'sexperiencewithlocaldevelopmentprograms</sup> suggests that capacity-building is relevant<sup>forlocalgovernmentandalsoforthevariousnon-</sup> governmental organizations that constitute<sup>civilsociety andthatcanmakeanimportant</sup> contribution to the development of<sup>adequateinstitutionson thelocallevel.</sup> 26. Given the long-term nature of the<sup>impactof mineclosure andthelocalresponsetoit,it</sup> would be appropriate to plan long-term<sup>provisionoftechnicalassistancetocommunities.</sup> Because the capacity and needs<sup>ofmunicipalitieswilldifferandevolve overtime,these</sup> programs should include an array of options<sup>that can betailoredtoindividual municipalitiesand</sup> that are re-visited periodically to confirm<sup>theircontinuedrelevance.Ingeneral,thereisahigh</sup> need for training municipal governments<sup>inacomprehensiveapproachtostrategicmunicipal</sup> development. Effective and relatively low-cost<sup>technical assistancecanbeofferedthrough</sup> seminars that bring together representatives<sup>ofmunicipalitiesforanexchangeofexperience.</sup> Most important is to recognize the leading<sup>roleof municipalgovernmentsindirectingthe</sup> response to the dramatically changed<sup>conditionsof thelifeofthecommunityandtoprovide</sup> them with the knowledge and skills they<sup>need formanagingthesecomplexprocesses.</sup> 27. **Enhance the private sector development**<sup>**componentof thelocaldevelopment response.**</sup> Mitigation strategies sponsored by governments<sup>and supportedby the World Bank tendto refrain</sup> from advocating large-scale enterprise<sup>developmentinthelocaldevelopmentresponse,partly</sup> because of well-founded concerns that<sup>thecoalindustrycould highjackthisprocess,andpartly</sup> v
because of the sheer difficulty of carrying too many development initiatives at once. But unless restructuring is carried out in an environment of growth that is sufficient to absorb the shed labor, most of the jobs that are destroyed through mine closure will not be re-created through programs supporting individual and small businesses. Facilitating the growth of jobs at larger enterprises could also be particularly helpful in re-integrating into the labor force vulnerable groups who are least able to compete in these contracted labor markets. The focus of these efforts should be existing larger private/privatized enterprises or, in exceptional cases, SOEs that have a demonstrated commitment to restructuring.

> 28. A private sector development component could consist of provision of business consulting/technical assistance to (i) existing larger enterprises that are already major employers, (ii) medium enterprises that are seeking to grow, and (iii) local and regional governments that are seeking to enhance the role of the private sector in the economic development of their respective territories.

29. The provision of assistance to existing large enterprises has certain potential pitfalls that should be guarded against, notably SOEs that are themselves in need of restructuring. Given the risk that a large enterprise could absorb large amounts of finance without much effect, the type of assistance provided should be non-financial, such as strategic business planning, competitiveness assessments, and so on.

> 30. Local and regional governments can benefit from policy advice directed at strengthening the investment climate, increasing local/regional business competitiveness, private provision of housing and other municipal network-borne services and so on. When long-term strategic development plans include infrastructure-intensive projects, the scale of required investments is beyond the capacity of any level of government and underscores the relevance of a sustained effort to strengthen the capacity of municipalities and regions to attract investors, to work with creditors, etc.

31. **Deepen efforts to rationalize the housing stock and social assets and infrastructure.** In the typical mining town in which mines are being closed, the population is aging and contracting. Consequently, the need for certain types of social assets and infrastructure also declines. In recent years, most municipalities have understood the need to rationalize expenditures through closing kindergartens, consolidating schools and so on. The rationalization of the housing stock, while of greater significance given its impact on the municipal budget, is a considerably greater challenge than the rationalization of public buildings, however, for three major reasons. First, ownership of housing is sometimes legally ambiguous on the building level. Second, reliable information on building occupancy is typically lacking. Third, efforts to rationalize the housing stock are complicated by the partial occupancy of many buildings.

32. Capturing the gains from the rationalization of the municipal housing stock is not an easy task. At the same time, most municipalities cannot afford to disregard the huge potential of reforms in this area. In order to help ensure the successful continuation of efforts in this area, municipalities should strengthen their information base of the housing stock by working closely with neighborhood groups or (where they exist) building-level associations to identify unoccupied apartments. If financing is available, a program of municipal "buy outs" of vi
unoccupied apartments could benefit the<sup>municipalityas wellas theseller.Reducing the number</sup> of unoccupied apartments would also<sup>be a positivesteptowardsthereductionof non-payments</sup> for utility services that were reported in<sup>towns that have experienced highlevels of migration.</sup> 33. **Enhance mi2ration or transDortation**<sup>suDDort</sup><sup>**tohouseholds.**</sup> It is unlikely that direct financial support for migration could<sup>bemadeavailableinthevolumerequiredto matchthe</sup> demand that exists for such support in<sup>many communitiesin which mines havebeenclosed.At</sup> the same time, recognizing that in many cases<sup>labor migrationis a desirable phenomenonto help</sup> achieve a better balance between demand<sup>and supplyonthe locallabormarkets,thereare social</sup> and economic gains to be had through<sup>strengtheninglocalcapacityto provide migrationsupport</sup> to interested households. ln cases of short-term, temporary<sup>orseasonallabor migration,</sup> municipalities and civil society groups<sup>canhelpprotectthe interestsof thepeoplelivingin the</sup> mining towns by coordinating information<sup>onemploymentprospectsandconfirmingthe</sup> legitimacy of employment offers that<sup>are extendedfromotherlocations.</sup> Efforts should be strengthened to remove barriers to migration,<sup>forexample,housingortransportation.</sup> When families have decided to migrate<sup>permanently,orareconsideringpermanentmigration,</sup> municipalities can capture gains through<sup>better trackingof the housing stockand apartmentsthat</sup> are potentially abandoned, and possibly<sup>acquiringapartmentsfromfamilieswishing tomigrate.</sup> In view of the transportation constraints<sup>that existinmany areas,aless radicalsolutionto</sup> balancing the local labor market would<sup>betoprovidesubsidizedtransportationforworkers</sup> willing to travel to other cities for employment.

vii
# **Introduction**

1. World experience in coal sector restructuring has shown that the<sup>processhashighup-front</sup> costs, is usually accompanied by various forms of protest as well<sup>as</sup> longer-term<sup>distressinthe</sup> affected regions, and is so politically contentious that its implementation<sup>isoftendelayedor</sup> protracted over years. In the lypical case of a State-owned industry, by<sup>the timerestructuringis</sup> recognized as inevitable, the industry is heavily loss-making and unable<sup>tofunctionwithout</sup> significant, often unsustainable support from the general budget. The imperative for the government in such a case is to contain costs as quickly as possible.

2. Restructuring of the coal sector generally is a major policy initiative for<sup>any government, not</sup> only because of the State ownership of the sector and the lifeline provided<sup>totheindustry</sup> through subsidies, but also for compelling political and social reasons.<sup>Inthe"social contracts"</sup> between the State and coal trade unions, the State generally assumes<sup>a level of responsibility vis-</sup> a-vis the sector that exceeds that reflected in its relations with other industries.

3. The geographic concentration of coal mining is another important aspect<sup>of the rationalefora</sup> government's active role in supporting efforts to mitigate the social<sup>impactsofsector</sup> restructuring and to create new jobs for laid-off workers. Historically, the<sup>settlementsthatgrew</sup> up around coal mines did so primarily to serve the labor needs of the mines.<sup>Even in countries</sup> with viable coal industries, a(dvances in coal mining technology have<sup>ledtoahighdegreeof</sup> mechanization in the industry, resulting in the steady downsizing of<sup>thelaborforce.Theless</sup> fortunate variant of sector restructuring is mine closure due to the exhaustion<sup>of reserves that can</sup> be economically recovered, in which case all the labor is shed, usually<sup>overa shortperiod.In</sup> either case, coal sector restructuring has an immediate negative impact<sup>on the locallabor market</sup> and economy. In addition to the workers laid-off directly from the<sup>mines,jobsarelostin the</sup> auxiliary industries that serve the coal mines and in local service industries<sup>used by households.</sup> The closing of mines also means the loss of enterprise and personal<sup>taxesforthelocalbudget,</sup> which has obvious detrimental effects on the provision of municipal<sup>services.</sup> 4. It is striking that even in highly developed economies, the long-term<sup>impactofsector</sup> restructuring persists decades after its implementation.' In the United States, a country with a long tradition of labor mobility, the historic coal regions are plagued with<sup>endemic poverty.In</sup> Appalachia, despite decades of labor force downsizing due primarily to<sup>mechanization,coal</sup> remains the lifeblood of the local economy in counties historically dominated<sup>by the industry in</sup> the absence of other significant forms of economic activity. The technological<sup>transformationof</sup> the industry has led to a relatively small number of skilled,<sup>well-paid workers, while</sup> considerably greater numbers of people, whose families worked the mines<sup>over generations,live</sup> in a state of chronic unemployment, or under-employment in the informal economy,<sup>without</sup> developing marketable labor skills.<sup>2</sup> Decades of Federal and other types of assistance,<sup>as well as</sup> the overall growth of the U.S. economy, have done little to change the status of<sup>theAppalachian</sup> coal communities as one of the country's greatest development challenges.

Neil (1992) is particularly useful in providing an intemnational comparison of<sup>how mining towns havecoped with</sup> closure in several OECD countries. While the general experience of these countries differs<sup>in obvious ways from</sup> the experience of countries of Easteni Europe, from the point of<sup>view of the problemsthat face communitiesin</sup> which mines have been closed, the similarities are striking.

2Duncan (1992), particularly pp. 114-125 on the effects of coal industry downsizing<sup>on the regional labor market.</sup>
5. In formal restructuring programs, most of the financial<sup>costsofthesocialaspectsof</sup> restructuring are incurred early on in the process. Severance payments<sup>tend to be thesingle most</sup> costly item as they are made to all workers separated from the<sup>industry,althoughthemagnitude</sup> of these payments varies depending on the conditions of<sup>downsizingpackageandspecific</sup> attributes of the workforce. Some level of counseling and retraining<sup>isalsousuallyprovided.</sup> Governments also usually provide funds for temporary public<sup>worksprogramsinorderto</sup> mitigate the short-term negative employment impact of coal sector<sup>restructuring,providingsome</sup> income to the workers and necessary services to the community.

6. Consistent with the front-end bias of the costs to the budget of coal<sup>sector restructuring,most</sup> of the monitoring and evaluation carried out to assess the impact<sup>ofrestructuringandthe</sup> effectiveness of the mitigation efforts tends to focus on the short term,<sup>when workersare being</sup> laid-off, and when the risk of social disruption and related political<sup>actionis perceivedto be at its</sup> highest. The research described in this report was undertaken in an<sup>attempttolookbeyondthe</sup> short-term effects of coal sector restructuring and the relatively narrow<sup>confinesof the sectorand</sup> its workers to the broader affected communities several years after mine<sup>closureinthree</sup> countries in Eastern Europe and the Former Soviet Union (EE/FSU).

# **Coal Sector Restructuring in Eastern Europe and the Former Soviet**<sup>**Union**</sup>

7. The countries of EE/FSU that have significant coal industries<sup>arenoexceptiontothe</sup> generalized description above of the impetus behind governments'<sup>decisionstoengagein sector</sup> restructuring. In addition, these countries possess some unique features,<sup>ormoreextreme</sup> manifestations of similar attributes, that distinguish their experience<sup>withcoalsector</sup> restructuring from that of other coal-producing countries And while the formerly socialist economies know many other examples of "one-company towns",<sup>thecoalindustry andthe</sup> communities dependent on it, nonetheless, possess a number of characteristics<sup>thatdistinguish</sup> them from other small and medium-sized towns dominated by a single<sup>industry.3</sup> 8. First, the coal sector has been in something of the avant-garde of industrial<sup>restructuringin</sup> transition economies, and governments in the region have borrowed<sup>fromthe WorldBankand</sup> other international lenders to finance the restructuring of the<sup>coalindustry.4</sup> While this may appear at first to be a formal rather than substantive indication of<sup>significance,infact it reflects</sup> the priority that governments have accorded to coal sector restructuring<sup>in the generalcontextof</sup> economic transition, and suggests that the lessons of coal sector restructuring<sup>that can be derived</sup> today may be of broader relevance to restructuring programs yet to<sup>be undertaken.Asecond</sup> (related) factor distinguishing the coal sector and communities dependent<sup>on itfrom other</sup> industries is that in all countries the coal sector was (in some<sup>cases,continuestobe) unique</sup> among industrial sectors of the economy in the levels of subsidization<sup>receivedfrom the national</sup> budget (indeed, it is ultimately this factor that drives the decision to<sup>embarkuponrestructuring).</sup> Third, the industry was generally a major employer even<sup>inthenational contextpriorto</sup> restructuring. In Ukraine, for example, the entire coal industry employment<sup>wasestimatedat</sup> 4.3% of the country's labor force in 1994. Fourth, certain attributes of the labor and<sup>thelabor</sup> force (underground work in brigades often carried out by men<sup>whohaveworkedonlyinthe coal</sup>

> **3** Expert Institute (2000) provides a thorough review and analysis of "one-company towns" in Russia.

> 4 Annex 2 lists World Bank loans to Poland, Romania, Russia and Ukraine in support of coal sector restructuring.

2
industry) complicate efforts at liabor redeployment after<sup>workers are separatedfrom the industry.</sup> Fifth, communities dependent on coal (or extractive industries<sup>ingeneral) are arguablymore</sup> vulnerable than communities dominated by other<sup>typesof industrygiven the volatilityof energy</sup> commodity prices and, most fundamentally, the non-renewable<sup>natureof the principal economic</sup> activity. A coal mine cannot be refitted to produce<sup>anotherproduct,whileafactory conceivably</sup> can. Finally, extractive industries takes a particularly<sup>severetollontheenvironmentand</sup> physical infrastructure of the community, to say nothing<sup>of thehealthof thosewhoworkinthe</sup> industry or live in the area.

9. Four countries in the region - Russia, Poland, Ukraine,<sup>andRomania(inorderof their</sup> prominence as producers) - have undertaken major<sup>reformsof their coalsectorsin recentyears.</sup> The backdrop to these reforms has been the historic<sup>transformation from thecentrallyplanned</sup> economy to a market-based system. For most countries<sup>(Polandisan exceptionto someof what</sup> follows, and is also the one major coal-producing country<sup>in whichthe researchwas notcarried</sup> out<sup>5</sup> ), the transition has been characterized by the collapse<sup>of traditionalmanufacturedoutputand</sup> the steady contraction of the fornal economy, raising<sup>forsomethedisturbingprospectof de-</sup> industrialization; high inflation in the early years that<sup>wipedoutthe savingsof manyand that,in</sup> the former Soviet Union, was brought under control<sup>throughmonetarypoliciessotight that</sup> liquidity left the system and pervasive non-cash settlements<sup>took root;contractingstate budgets</sup> and chronic budget deficits; economic output that<sup>isnotcompetitiveinworldmarkets;and</sup> general social and economic dislocation. In addition,<sup>thesocialistlegacyoftheregionmeant</sup> that mining enterprises not only mined coal, but also<sup>provided housing andsomesocialservices</sup> to the communities. Part of the impact of sector<sup>restructuringarisesfrom the transferof social</sup> assets to other agencies that at least initially do not<sup>havethecapacityor the resourcesto manage</sup> those assets.

10. Coal-sector-specific issues that presaged the<sup>majorrestructuringprogramsincluded:</sup> inauspicious geological conditions in many basins;<sup>obsoleteequipmentandyearsof inefficient</sup> investments; poor sector management; steadily decreasing<sup>production;productivitylevelsamong</sup> the lowest in the world; cross-subsidization from the<sup>most profitabletothemostseverelyloss-</sup> making mines; wretched health and safety conditions;<sup>acutelevelsof non-cashpaymentsfrom</sup> customers, particularly the povwer sector; and consequently,<sup>highlevelsof accountspayableto</sup> creditors, tax arrears, and months of wage arrears to workers.

11. Confronted with this inventory of coal sector<sup>woesthateruptedundertheconditionsof the</sup> early transition period, the initial response of governments<sup>throughouttheregion wasto allocate</sup> even higher levels of subsidies to the industry. In Ukraine,<sup>statesupport for the coalindustryin</sup> 1993 was equivalent to about 4% of GDP. In Russia,<sup>afterprices wereliberalizedinthecoal</sup> market, subsidies in 1994 rose to the equivalent of<sup>US$2.76billion,ormorethan1% of GDP;</sup> the analogous proportion held in Romania in 1996.<sup>Whiletheprivileged positionof thecoal</sup> sector (proclaimed by early socialist planners the<sup>backboneof theindustrialeconomy,andan</sup> important vehicle for transforming the peasantry into<sup>theproletariat)and the socialistlegacyof</sup> self-reliance helped perpetuate the belief that the sector<sup>was somehow absolvedfromthe needto</sup> be competitive, it soon became clear that such levels of<sup>subsidization were unsustainablein the</sup>

> 5 Budget constraints limited the research to three countries;<sup>inviewof the sustainedpositiveeconomicgrowthin</sup> Poland, it was decided to focus on Romania, Russia,<sup>and Ukraine,whichcommencedtheir coalsectorrestructuring</sup> in the more typical and challenging conditions of economic<sup>contraction.</sup>

3
face of the other demands on the shrinking national<sup>budgets.Fromthis recognitionfollowed the</sup> decision, taken at the highest levels of government,<sup>to embarkupon therestructuringof thecoal</sup> sector.

12. Table 1 provides an overview of the coal extraction<sup>workforceinPoland, Romania,Russia</sup> and Ukraine before restructuring was launched, and<sup>the forecastedneedfor thedownsizing of the</sup> coal extraction workforce in each country. As can<sup>beseen,coalsectorrestructuring involvesa</sup> substantial reduction of the pre-restructuring mining workforce<sup>inall countries.InPoland,the</sup> least severe case, the pre-restructuring coal extraction<sup>workforceisprojectedto be reducedby</sup> slightly less than half Restructuring in Russia is<sup>themostadvanced fromthe pointof viewof</sup> downsizing achieved by the end of 2001 relative to<sup>thetotalforecastedneedfor downsizing,and</sup> least advanced in Ukraine from this perspective.

Table 1. Coal Sector Restructuring in Four Countries

|||Poland<br>|Romania<br>|Russia<br>|Ukraine<br>|
|---|---|---|---|---|---|
|(i)|Yearrestructuringpolicyadopted<br>|1998<br>|1997<br>|1993<br>|1996<br>|
|(ii)|Numberofcoal extraction workersat<br>commencementofrestructuring|243,000<br>|113,000<br>|373,000<br>|410,000<br>|
|(iii)|Numberofcoalextraction workersat<br>end2001|145,000<br>|46,000<br>|178,000<br>|300,000<br>|
|(iv)|Projected numberofcoal extraction<br>workersremainingatendof<br>restructuringa<br>|133,000<br>|18,000<br>|160,000<br>|150,000<br>|
|(v)|Totalreductioninmining workforce<br>plannedoverperiodofrestructuring[(ii)-<br>(iv)]<br>|110,000<br>|95,000<br>|213,000<br>|260,000<br>|
||Forecasted%ofworkforcereduction<br>over periodofrestructuring[(v)/(ii)]<br>|45%<br>|84%<br>|57%<br>|63%<br>|
||%offorecastedworkforcereduction<br>completedbyend-2001[(ii-iii)/(v)]|89%|71%|92%|42%|

a World Bank estimates.

13. In addition to the large numbers of miners who are<sup>separated from theindustry through</sup> formal restructuring programs, the crisis conditions<sup>prevailingintheindustrytypicallyleadto</sup> the large-scale departure of other workers. These are both the various<sup>categoriesof workers</sup> associated with mining but not actually engaged<sup>inextractingcoalatthefaceornew</sup> development work, and workers employed at auxiliary<sup>enterprisesandinothernon-core</sup> activities (for example, social services) that were previously<sup>on thebalancesheetsof thecoal</sup> enterprises. In Russia, for example, over the period<sup>1993-2001,some 354,000 non-miners left</sup> the coal industry, which exceeds by far the number of miners<sup>wholeft theindustry.Finally, the</sup> mass downsizing of the coal industry inevitably<sup>has a negative downstreamimpacton jobsin</sup> industries that supply the coal sector and in consumer-oriented<sup>industries thatsuffer as a result of</sup> the decline in household purchasing power.

14. Furthermore, in some cases high wage arrears drove<sup>workers outof theindustry beforethe</sup> adoption of formal sector restructuring policies and<sup>theintroductionofincentivepackages</sup> designed to reduce the labor force. In Ukraine, for example,<sup>the total coal sectoremployment in</sup> 1994 was about 925,000 people (or, as noted earlier,<sup>about4.3%of thecountry'slaborforce.)</sup> From 1994 to 1996 - that is, before the restructuring<sup>policywas adopted-thisnumberdeclined</sup> 4
by 26%, to about 685,000 (of whom 410,000 were classified as extraction workers,<sup>as indicated</sup> in Table 1). In sum, while the reduction in the mining workforce is an important<sup>indicatorof the</sup> scope and impact of restrucluring, it should be stressed that coal<sup>sector restructuringhas</sup> impacted many more workers both in the coal industry itself and<sup>indownstreamanddependent</sup> industries. In these countries., sector restructuring has had a direct<sup>adverseimpactonseveral</sup> million people living in a relatively limited total territory.<sup>6</sup> Severance<sup>andother social mitigation</sup> benefits are typically made available only to the minority of those<sup>directlyimpacted bysector</sup> restructuring, the miners who are separated from the industry through<sup>formalmine closureor</sup> downsizing programs. From this perspective there is a disjoint<sup>betweenthesectoralparameters</sup> of restructuring programs and the actual social impact of restructuring.

# **The National Context**

15. While the impetus behind the decision to embark upon coal sector<sup>restructuringandthe goals</sup> that are pursued in doing so are broadly the same everywhere,<sup>individualcountriespossess</sup> unique attributes that influence the course of sector restructuring<sup>andthelong-term impactof</sup> industry downsizing on impacted communities and consequently<sup>exhibitawidevarietyof</sup> experience. This diversity is the result of many factors, including differing<sup>naturalendowments,</sup> the history of the exploitation of the coal fields, patterns of economic<sup>andsocialdevelopment,</sup> the political economy of coal sector restructuring in the country, and<sup>the overallmacroeconomic</sup> conditions that prevail in the country. This section provides an overview<sup>of the salient aspectsof</sup> coal sector restructuring as it has taken place in Romania, Russia<sup>andUkraine,includinga</sup> description of the mining towns in which the research was carried out.

## **_Romania_**

16. Of the three countries in which research was conducted, Romania<sup>differsfromthe othertwo</sup> for the obvious reason that it was not part of the former Soviet Union<sup>and,indeed,occupieda</sup> unique position among the Eastern European socialist bloc during<sup>theregimeofNicolae</sup> Ceausescu. From the point of view of its experience with coal sector<sup>restructuring,Romaniais</sup> also unique for having launched sector restructuring through a<sup>voluntarydownsizingprogram.</sup> And in the context of the World Bank's support to governments'<sup>coalsector restructuring</sup> programs in the countries of EE/FSU, the case of Romania is of interest<sup>becauseitistheonly</sup> country in which the Bank has supported a major mine closure program<sup>throughaninvestment</sup> loan as opposed to sectoral adju:stment loans.<sup>7</sup> 17. Despite inherently poor con.ditions, the Romanian coal sector,<sup>likeotherextractiveindustries</sup> in the country, was extensively developed under the previous regime's<sup>drivefor economicself-</sup> sufficiency. The emphasis on increasing production irrespective of<sup>costsresultedinalarger</sup>

**6** A related indicator is the total population living in towns considered<sup>tobeminingtowns.Whilethisisnotan</sup> official statistical designation, it nonetheless has a working meaning<sup>in</sup> most<sup>countriesduetheexistenceof formal</sup> restructuring programs. In Russia, for example, at the end of 2001 the<sup>totalpopulation livingintowns thatare</sup> members of the Association of Coal Mining Cities was some<sup>5.6million,orslightlyunder4%ofthetotal</sup> population. In Ukraine, an estimated 5.7% of the total population<sup>in2001livedinmunicipalities consideredto be</sup> mining towns on the criterion of the existence of at least one mine<sup>in thetown, excludingDonetsk and Lugansk.</sup> 7 The Ukraine Coal Pilot Project (3 mines) was also an investment<sup>loan.Whilethe modality of World Bank support</sup> can have potentially important implications for those engaged in<sup>carryingoutindustrialrestructuringprograms,a</sup> detailed examination of this technical observation is beyond the scope of<sup>this report.</sup>

_5_
industry than was economically justified and which consequently required extensive budget support. As the industry expanded, its relatively high wages attracted large numbers of workers from all over the country.

18. Romania is by far the smallest producer of coal of the countries examined here, and the mining towns are generally considerably smaller on average than the analogous towns in Russia and Ukraine. Nonetheless, the coal sector has been of significance on the national level in view of the all-Romanian character of its workforce, the high levels of subsidization provided to the industry, and more recently, as a result of the scope of the Government's sector restructuring program and the attendant resistance to further layoffs by the unions and general social unrest that has accompanied phases of the restructuring program.

19. The year 1997 marks the beginning of the Government's effort to restructure the coal industry through a voluntary program rather than the involuntary method of mine closure. A generous separation package consisting of up to 20 months of wages as severance was offered to workers in the coal and other extractive industries constituting Romania's mining sector. The resulting rush to accept the package, which was two to three times the size of what other industrial workers were being offered, far exceeded the expectations of the Government and the trade unions. By December 1998, about 83,000 miners (out of a total of about 173,000 workers total for coal and other mining industries) left the industry, including about 70,000 who had accepted the voluntary redundancy package (the others retired).

20. The Government also expected that a large portion of those accepting the separation package would return to their native regions. This expectation, too, proved to be inaccurate. The separation of so many workers from the industry and the low level of successful out-migration precipitated a sharp decline in general economic activity in the mining regions as the redundancies triggered further unemployment in local service industries, which was not adequately compensated for by labor redeployment efforts.

21. By January 1999, after the severance payments of the first large group of workers to accept the separation package were largely consumed and it became clear that employment options in the coal regions were extremely limited, the uptake of the separation package declined dramatically and mining unions went on strike in protest against continued high unemployment and the poor results of efforts to create jobs in the mining regions. Social unrest emanated from the Jiu Valley (which has suffered from a particular dependence on the coal industry but also enjoyed the highest visibility and political weight of Romania's mining regions), and trade unions led a march on Bucharest. The Government managed to contain the unrest through a negotiated settlement with the striking miners and the restructuring program has gone forward although employment opportunities in the mining regions remain limited.

22. The World Bank's support to the Government's restructuring program began later in 1999, with the provision of a loan targeted for the physical closure of 29 loss-making mines (20 of which are lignite and brown coal mines) and related social mitigation measures. In addition to the mine closure program that is being financed by the World Bank, the Government is financing the closure of mines with its own budgetary resources; about 60 mines have been closed under this program.

6
23. The elements of the social mitigation strategy supported<sup>underthe WorldBank loanthat are</sup> directed at longer term aspects of alternative economic development<sup>includethe establishmentof</sup> microcredit funds; employmrent and training incentive<sup>schemes(employersaregivenan</sup> incentive to hire unemployed mining sector workers);<sup>andworkspacecenterstopromote</sup> enterprise development and support start-up enterprises through<sup>business incubatorsatformer</sup> mine buildings. However, the Government has been<sup>slowtoimplementmostaspectsofthis</sup> strategy for fostering local development and absorbing the<sup>laborshed in theprocessof mining</sup> industry downsizing.

24. Uniquely in the case of Romania, the research<sup>wascarriedoutinthreeminingcities(in</sup> addition to the capital and regional centers):<sup>Anina(Caras-SeverinCounty),Motru(Gorj</sup> County) and Uricani (Jiu Valley). As can be seen<sup>inTable2(followingpara.45),theseare</sup> relatively small towns, particularly Anina and Uricani,<sup>thatarehighlydependentonthecoal</sup> industry. Motru is a young city, having been established<sup>in1966 asaminingtown.Motruis</sup> also noteworthy for the facts that its workforce is mostly<sup>nativeto theregionandthat itsland is</sup> good for agricultural use. Uricani is located on<sup>theperipheryof theconurbationoftheJiu</sup> Valley. While agriculture is no t an option in Uricani<sup>(oranywherein the Valley),the townhas</sup> derived some benefit -from the political visibility of<sup>theJiuValleyandtherelatedfinancial</sup> support that has flowed to that iregion. Anina, in contrast,<sup>wasincludedinthe researchproject</sup> precisely because of its isolated situation and the<sup>absenceofitspoliticalinfluence.Although</sup> located only 34 kilometers from the larger city of Resita,<sup>Aninaisparticularlycrippledby</sup> problems of public transportation: the train that connects<sup>Anina to Resitatakessix hours to cover</sup> the short distance. The road that connects the two<sup>townsmakesit possibletomakethetripin</sup> considerably less time by car or bus, but these forms of<sup>transportationaregenerallyout of the</sup> reach of many residents of Anina.

# _Russia_

25. Of countries that have undertaken coal sector restructuring<sup>anywhereinthe world,Russiais</sup> noteworthy for a number of reasons. Even after the<sup>closureof 183heavilyloss-makingmines</sup> over a few years, Russia remains one of the largest<sup>producersofcoalinthe world.</sup> The downsizing of the workforce has also been significant: the<sup>overall industry workforce (including</sup> workers involved in extraction, on the surface, in<sup>administrationandsocialassets,etc.)has</sup> declined from about 900,000 in 1992 to 328,000 by<sup>theendof 2001.Therestructuringof the</sup> coal industry has been in progress for almost a decade<sup>inRussia:</sup><sup>_de facto_restructuringbeganin</sup> 1993, when the price of coal was liberalized.

26. Of the countries under review here, Russia has<sup>progressedfarthestinimplementingcoal</sup> sector restructuring, which in addition to the program<sup>ofclosureofloss-makingminesand</sup> related social protection and mitigation programs<sup>hasincludednotablytheprivatizationof the</sup> sector. Of note, too, is the elimination of operating loss<sup>subsidiesatthe end of 2001,whichisan</sup> achievement of enormous significance that not all<sup>coal-producingcountriescanclaimevenafter</sup> decades of restructuring, and is directly linked to<sup>the successesin removingloss-makingmines</sup> from production.

27. Aspects of the social mitigation response in Russia<sup>areofnote.</sup> Concerning statutory payments made to affected individuals, as in other<sup>countries,thesocialprotectionpolicyin</sup> 7
Russia at the beginning of sector restructuring was limited to miners laid off from closing<sup>mines.</sup> Over time, this policy was expanded to include workers laid-off from continuing mines<sup>and,</sup> eventually, workers of auxiliary enterprises that were demonstrably directly impacted<sup>bymine</sup> closure. The extension of eligibility for severance and other payments to this<sup>lattergroupwas</sup> late in coming, however, having been approved by Government in October 1999,<sup>and the</sup> problem of lack of financing for wage arrears and severance for workers laid-off from<sup>auxiliary</sup> enterprises remains acute in some areas. As for programs directed at the community,<sup>thelong</sup> period of coal sector restructuring in Russia has allowed for a relatively long-term focus on<sup>local</sup> development and job-creation programs, which are examined in detail later in this report.

28. Russia has also borrowed more from international lenders for coal sector restructuring than Romania, Ukraine and Poland combined: over the years 1996-2001, the World<sup>Bankdisbursed</sup> $1.3 billion to Russia in the form of adjustment financing, and the Japan Bank for<sup>International</sup> Cooperation matched $800 million of these disbursements, for a total of $2.1 billion. The<sup>World</sup> Bank also extended a $25 million technical assistance loan to assist the Government of Russia<sup>in</sup> the implementation of its coal sector restructuring program. The country's own budget<sup>funds</sup> devoted to the restructuring program over the years 1998-2001 (corresponding to the period of the World Bank's second coal sector adjustment loan for $800 million, which was matched with the funds of the JBIC) were equivalent to about $773 million.<sup>8</sup> 29. The remaining challenges in coal sector restructuring in Russia can be classified<sup>intothose</sup> that pertain to the impacted communities and individuals, which is the subject of this report,<sup>and</sup> those that pertain to the industry itself, which will not be examined here. The achievements<sup>of</sup> restructuring notwithstanding, the challenges to the viable part of the industry are also formidable.

30. Underlying Russia's impressive experience with coal sector restructuring is a great range<sup>of</sup> experience on the regional and local level. In some regions, such as the Kuzbass, a major coal basin in Western Siberia, the coal industry has good future prospects, and the<sup>remainingcoreof</sup> the industry has been able to absorb much of the labor shed in the course of mine closure. Other regions, such as the Moscow basin in Tula Oblast, or parts of the Eastern Donbass<sup>region (which</sup> geologically is part of the Donbass, Ukraine's major coal basin), have been severely impacted<sup>by</sup> mine closure, and remain depressed regions. Still other coal regions, notably those in the Far North and the Far East, face the problem of providing for the relocation of thousands of<sup>workers</sup> and their families back to "mainland" Russia from these remote territories with inhospitable climates that were developed extensively during the Soviet era.

31. Anzhero-Sudzhensk, in the north of Kemerovo Oblast, is the oldest coal town of the Kuzbass. Anzhero-Sudzhensk's significance in the overall production of the Kuzbass peaked in the 1950s, and the town's coal industry has been in steady decline since the mid-1980s. The center of the industry has shifted to the south of the oblast, a few hundred kilometers away,<sup>andit</sup> is clear that Anzhero-Sudzhensk's significance as a coal town will continue to wane: two major

> 8 The restructuring program consists of the social protection, physical closure and local development<sup>programs.In</sup> addition to these subsidy categories, the Government disbursed subsidies that are not considered as part of the restructuring program in this context (for loss-making production, investments, safety etc.)

> 9 A recent and fairly extensive treatment of the challenges to the viable, mostly privatized part of the coal industry can be found in Artemiev and Haney (2002).

8
mines have been closed in recent years<sup>and oneremainsinoperation.10</sup> At the same time, the coal industry continues to provide about<sup>30%ofAnzhero-Sudzhensk's budgetrevenues.</sup> Anzhero-Sudzhensk is home to three major<sup>employers outside thecoal industry: amachine-</sup> building factory, a pharmaceutical factory,<sup>andaglass factory.Anzhero-Sudzhenskalsohas</sup> some important infrastructure advantages:<sup>itislocatedon theTranssib railway,andthefiber</sup> optic cable running from Japan to Europe passes<sup>throughthe town.</sup> 32. Novoshakhtinsk is located in Rostov Oblast,<sup>inthe EasternDonbasscoalbasinon the border</sup> of the Ukrainian Donbass, with which<sup>itsharesacommonhistory,economicandgeological</sup> conditions and extremely limited prospects<sup>forthe coalindustry.Novoshakhtinskhas beenhard-</sup> hit by mine closure under the restructuring<sup>program,having seen theclosureof fiveminesin</sup> recent years and probably facing the prospect<sup>of moreclosureinthemonthstocome.Atthe</sup> same time, thanks to the particularly dynamic<sup>effortsof thecitygovernment,Novoshakhtinsk</sup> enjoys a good reputation for having<sup>establishedaneffectiveinfrastructureforthedevelopment</sup> and support of small business. The city was<sup>oneof themunicipalitiesselectedforparticipation</sup> in the European Union's TACIPS-MERIT<sup>program".</sup> 33. The significance of Anzhero-Sudzhensk<sup>andNovoshakhtinskasminingtownsthathave</sup> suffered from mine closure is illustrated<sup>bytheirstatusasrecipientsforsubsidiesforlocal</sup> development programs. Of the several<sup>dozen municipalities whichreceivedsubsidiesfromthe</sup> Federal budget to finance local development<sup>programs(thenumberof municipalitiesaverages</sup> around 65, varying from year to year<sup>dependingonthemineclosureprogram),bothcitieswere</sup> among the top five recipients in 1999,<sup>eachhavingreceivedontheorderof $1.2-1.3million.In</sup> 2000, Anzhero-Sudzhensk received about<sup>halftheamountofthepreviousyear,while</sup> Novoshakhtinsk again received a little<sup>over$1million,reflectingthegreater impactof mine</sup> closure in that town.

34. In mid-2002, coal sector restructuring<sup>inRussiaisatanadvancedstage.</sup> Some of the program's major goals have been achieved,<sup>suchastheprivatizationoftheindustryandthe</sup> elimination of the subsidization of<sup>loss-makingproduction,andthefundamentalperformance</sup> indicators of the industry itself in recent years<sup>havebeenencouraging. Withthe exceptionof one</sup> major company in Rostov Oblast, it is unlikely<sup>that morelayoffswillbe effectedinconnection</sup> with mine closure. These and other factors<sup>indicatethat2002 maybecomethefinalyearof</sup> formal implementation of coal sector restructuring<sup>inRussiaasithas beenknowninrecent</sup> years. At the same time, it is likely that<sup>the Governmentwillcontinueto financeeffortstomake</sup> good certain critical liabilities, such as environmental<sup>damage,social infrastructureand housing</sup> and relocation, although the level of financing<sup>andthe exact mechanismare at present unknown.</sup>

# **_Ukraine_**

35. Ukraine possesses a large and old coal<sup>industrythatisnowforthemost partuneconomic</sup> with a particularly poor productivity and<sup>safetyrecord.In1996,theGovernmentadopteda</sup>

> ° Data on unemployment underscore the severity<sup>of impact of mineclosure onAnzhero-Sudzhensk.In1998,some</sup> 83% of the officially registered unemployed in<sup>thecity wereformercoal industryworkers.</sup> i i TACIS-MERIT provided assistance to five<sup>mining municipalitiesin Russia to helpthem formulateand implement</sup> an integrated strategy for municipal development<sup>focusing onimproving the diversificationof thelocaleconomy,</sup> strengthening the private sector, and enhancing<sup>localbusiness development.</sup>

9
> restructuring policy consisting of a program of closure of about 20 uneconomic mines per year,

> improvement of the operation of the mines with the best long-term prospects, and provision of production subsidies to mines which have no future but which the Government had decided against closing immediately for social and political reasons. In the same year, the World Bank extended two loans to the Government in support of coal sector restructuring. The Coal Pilot Project helped initiate the restructuring program through the closure of three mines, and was followed by an adjustment loan in support of coal sector restructuring. To date, about 90 mines, mostly in the Donbass, have been taken out of production and about 190 mines are still in operation.

36. In September 2001 the Government adopted a program called Ukraine Coal 2001-2010 that, in essence, reverses its earlier commitment to carrying out a comprehensive reform of the coal industry, and reverts to the earlier policy of supporting increased production through high levels of subsidization of the industry. The motivation behind the change in policy probably has many facets, including: the influence of the vested interests that benefit from the subsidies that are presently being channeled to the industry; the continuing poor general economic condition of the country and concerns over exacerbating the difficult socio-economic situation of the coal regions; the energy security argument, according to which coal, as an indigenous energy source, deserves special protection from the Government, including not holding the industry to the strict parameter of profitability; and the failure to date of municipalities heavily dependent on the coal industry to diversify their economies. It is also reasonable to expect that the specific experience of the first significant wave of mine closures, which had a particularly harsh impact on some municipalities, would be an influential factor in recent pressures to abandon the earlier policy of setting the industry on the path to self-financing through closure of heavily loss-making mines, among other means.

37. The two municipalities selected for the research in Ukraine, Gorlovka and Stakhanov, are both located in the Donbass, the traditional center of coal mining in Ukraine and home to some of the oldest mines in the entire region (the Donbass was industrialized in the early part of the 19th century.) Gorlovka is located in Donetsk Oblast, which is one of the most significant industrial regions of Ukraine, indeed, of the former Soviet Union. Neighboring Lugansk Oblast, where Stakhanov is located, is also heavily industrialized and densely populated. The long history of the settlement and development of the Donbass has resulted in a high density of population and a pattern of urban development in which coal municipalities often run together seamlessly, without apparent borders between municipalities.

38. Stakhanov has been particularly hard-hit by the closure of uneconomic mines, with all four of the mines operating in the city having been closed almost at the same time. Given the scope and timing of the mine closure, the downstream impact on other industries was particularly severe. Alternative economic activity in the city includes notably the development and reconstruction of light industry (particularly textiles, a pattern that has followed mine closure in other countries). In Gorlovka, one of the larger cities of Donetsk Oblast with a population of just under 300,000, three mines have been closed. The city is home to a large pharmaceutical factory employing more than 5,000 workers as well as a number of other industrial enterprises.

10
# **Concept and structure of the research**

39. The research described in<sup>thisreportwascarriedoutwiththegoalsof assessingthe longer</sup> term impact of mine closure<sup>ontheentirecommunity, evaluatingtheeffectivenessofthe</sup> mitigation policies that have been<sup>usedtodate,anddevelopingpolicyrecommendationsto</sup> address the problems identified<sup>by theresearch.Whileit is prematureto speak of thetrulylong-</sup> term impact of mine closure on<sup>thecommunity,the subjectof theresearchwas communitiesin</sup> which large-scale downsizing of<sup>theminingworkforcebeganat least five years ago,in1997</sup> (although in many cases mines<sup>werealsoclosedsubsequently).In orderto captureinsights on</sup> current phenomena and trends<sup>thatarepoorlyreflectedinstatistics,theresearch wasdesigned</sup> primarily as a qualitative study<sup>intwophases consistingof in-depth interviewswithnational,</sup> regional and local experts and<sup>keyinformants(in thefirst phase)andimpactedgroupsof the</sup> population and "response" groups<sup>suchas localentrepreneurs(inthesecond phase).Thefirst</sup> phase of the fieldwork for the<sup>qualitativeresearchwascarriedoutovertheperiodSeptember-</sup> December 2001, and the second phase<sup>fieldworkwas carried out in February-March2002.</sup> 40. In addition, the research<sup>carriedoutin Ukraineincludeda quantitativecomponentinwhich</sup> survey data were collected on employment<sup>andlivingconditionsin theminingmunicipalitiesas</sup> well as in municipalities in the<sup>restof thecountry. The surveyfieldworkwascarriedoutin</sup> Ukraine in January-February<sup>2002.Alsoreportedhereare the findingsof a recent evaluationof</sup> the viability of jobs created under<sup>localdevelopmentprogramsinRussiathatwasfinancedby</sup> the World Bank loan providing<sup>technical assistancetotheRussianGovernment'scoal sector</sup> and carried<sup>out by independentRussianconsultants.</sup> restructuring program 41. The main areas of investigation<sup>were:(i)theoveralleconomic andsocialimpactof</sup> restructuring; (ii) employment<sup>impactofmineclosure;(iii)developmentofanalternative</sup> economic base; (iv) social<sup>consequencesofmineclosure,householdcopingstrategies;(v)</sup> environmental impact of mine<sup>closure;(vi)municipal, socialandutilityservices;and (vii)civil</sup> society (awareness, participation).<sup>Questionson anygiven issue wereformulatedwith respect to</sup> the competence and concerns of<sup>thegiven samplegroup;thus,forexample, localadministration</sup> officials were interviewed on<sup>theirvisionfordevelopinganalternativeeconomicbase,while</sup> local entrepreneurs were asked<sup>toevaluatetheclimateforbusiness andthe effectivenessof</sup> policies to facilitate the development<sup>of economic activityoutsidethe coal sector.</sup> _42._ **_Selection of research sites._**<sup>Contrarytothepopularimageoftheminingtownandthe</sup> tendency in common parlance<sup>togeneralizeexperience,coalminingtowns andsettlements</sup> display a great diversity when considered<sup>fromthepoint of viewof such basic indicatorsas the</sup> composition of their populations,<sup>the localeconomy'sdependenceon theminingsector,the</sup> nature of other existing forms<sup>of economicactivityand the prospectsfor developingthem, andso</sup> on. The selection of the mining<sup>municipalitiesasparticipantsintheresearchwasbasedona</sup> combination of quantitative and<sup>qualitativefactors.The firstphaseof selection wasbasedon</sup> two quantitative factors: (i) a high<sup>pre-restructuringshareof coalsectoremployment inthe</sup> overall workforce of the municipality;<sup>and(ii)ahighimpactof coalsectorrestructuringas</sup> measured by a substantial reduction<sup>in coalsector employment asashare of totalemploymentin</sup> the municipality. This seemingly<sup>straightforwardselectiontaskwascomplicatedbydifficulties</sup> 11
in collecting comparable data on the sectoral structure of municipal employment, although this problem was generally overcome through various means.1<sup>2</sup> 43. The second stage of the selection of municipalities was based on the existence of alternative economic activity or the possibility of developing it. Truly isolated mining communities that were developed with the sole purpose of mining coal and in which no other meaningful economic base was developed (such as the mining towns in Russia's Far North) were excluded from consideration as research sites in view of the limitations their isolation places on the options available to these communities for future development. Such communities, however, constitute a small part of the total of coal municipalities. For similar reasons, the relatively small number of mining towns with good future prospects for coal production were also excluded as potential research sites even if several mines had been closed, as the continued dominance of the coal sector in the local economy would be the determining factor in the local labor market dynamics and in local strategic planning, thereby rendering these locations of limited relevance to the given research.

44. As a final stage in the selection prdcess, the quantitative criteria were augmented with such qualitative considerations as the imminence of local elections, proximity to other towns with more diversified economies, the desirability of regional variation in the final selection, etc. By design, two municipalities were selected in each country; in the case of Romania, circumstances allowed for the inclusion of a third municipality in the research, which made possible the selection of a greater range of municipalities.

45. Table 2 provides an overview of the seven municipalities selected as research sites, with data on the population, number of mines closed in the restructuring period, and data on the dynamic of the coal mining workforce as a share of overall municipal workforce. The coal municipalities in Romania are of note both because they are smaller, by far, than the research sites in the other two countries (where, indeed, few coal municipalities are as small as their Romanian counterparts), and for the considerably greater share of the coal sector employed in the overall municipal workforce in the municipalities in Romania. These two factors reflect certain historical peculiarities of the development of the Romanian coal industry as noted earlier, when the industry underwent a great expansion and labor was attracted from around the country to the coal regions under the previous regime's drive for self-sufficiency. The coal towns in the two former Soviet republics, in contrast, were established as mining centers in the more distant past and are at a more mature stage of their development, with significant in-migration having abated long ago and greater diversification having been introduced in the local economies. At the sarne time, it is possible that methodological differences in data collection also account for some of the cross-country difference in the figures for coal sector employment provided below'<sup>3</sup> .

> 12 In the Soviet Union, data on coal sector employment were maintained without regard to the municipality, as this as such was not part of the sector. While such data have gradually become more available in the post-Soviet area, inconsistencies in their collection remain, as well as discrepancies between data reported by various agencies in the same location (municipal governments versus local branches of the national employment office, for example.) **13** For example, in the Russian mining city of Kiselevsk (not a research site), in the assessment of the deputy mayor for economic affairs (who is herself a veteran of the coal industry), although the official employment statistics indicated a 35% share of the coal sector in total municipal employment (2000), when coal sector employed who for various reasons are classified under other sectors are considered, coal sector employment increases to 48% of total municipal employment.

12
**Table 2. Research sites: populai-on,**<sup>**mine closureand coalsectoremployment.**</sup>

|**Country,municipality**|**Population**<br>**(year)**|**Number of**<br>**mines**<br>**closed**|**Coalmining workforceas% of **<br>**workforce**<br>|**total**<sup>**municipal**</sup><br>|
|---|---|---|---|---|
||||**Pre-restructuring**|**Current**|
|**Romaniaa**|||||
|Anina|10,695(1997)<br>10,575(1999)|Five|40%(1997)|28%(2000)|
|Motru|26,869 (1997)<br>26,472(2000)|Four|50%(1997)<br>|27%(2000)<br>|
|Uricani|13,078(1997)<br>11,845(2000)|Five|74%(1997)|37%(2000)|
|**Russia**|||||
|Anzhero-Sudzhenskb|106,300 (1996)<br>99,500(2001)|Two|27%(1994)<br>|14%(2000)<br>|
|Novoshakhtinsk|121,300(1996)<br>117,400(2000)|Five|22%(1996)|14%(2000)|
|**Ukraine**|||||
|Gorlovkab|338,100(1995)<br>293,800(2000)|Three|n.a.<br>|9%(2000)<br>|
|Stakhanov|112,700 (1995)<br>99,000(2001)|Four(all)|19%(1996)|0.3%(2000)|

a) Redundancies in the mining sector<sup>inRomaniawereduenottomineclosure,buttovoluntarydownsizing</sup> primarily in 1997 and, to a lesser extent,<sup>in1998.</sup> b) Mining workforce as percentage of<sup>employed.</sup> _46._ **_Selection_** _of_ **_research panricipants._**<sup>Annex1 providesa detaileddescriptionof the research</sup> sample. In each country, the first<sup>phaseof theresearchconsistedof in-depth interviewswith</sup> national, regional and local experts<sup>andkeyinformants,themajorityonthe locallevel.In</sup> Romania, the first phase consisted of<sup>a totalof 80interviews(forthree researchsitesand the</sup> related regional capitals and Bucharest);<sup>in Russia,44 interviews;andin Ukraine,49 interviews.</sup> The Phase I sample consisted of national-level<sup>officialsworkingat the nationallevelas well as</sup> at the local level (local representatives<sup>oftheemploymentoffice,etc.);national-level non-</sup> governmental (civil society) groups,<sup>includingtradeunions;localofficials;otherlocalexperts</sup> and representatives of civil society groups;<sup>and independentexperts(nationaland/orlocal).</sup> 47. The preliminary findings of the<sup>firstphasewereusedtoguidethedesignof thePhase2</sup> sample, which consisted of in-depth<sup>interviewswithvariousgroupsof thepopulationimpacted</sup> by mine closure and response groups<sup>such as local entrepreneurs.Seven groupswere identified:</sup>

- presently unemployed or underemployed<sup>coalminerswhowerelaid-offinconnection</sup> with mine closure in 1997 (or left voluntarily,<sup>in the caseof Romania);</sup>

- wives of unemployed (underemployed)<sup>miners;</sup>

- coal sector workers laid-off in 1997 and<sup>presentlyemployedin anycapacity;</sup>

- unemployed young people (not former miners);

- former miners who received training<sup>in another profession;</sup>

- local individual entrepreneurs who used<sup>theservicesof localbusinessincubatorsand/or</sup> received microcredit to open their own<sup>businesses (where such programsexist);</sup>

- * local entrepreneurs with 10 or more employees.

48. The findings of Phase 1 indicated<sup>the relevanceof aprimaryfocus ontheemployment</sup> impact of mine closure and locally-implemented<sup>policyresponsestothechangedcircumstances</sup> of the local labor market and the structure<sup>of thelocaleconomy.This,inturn,resultedin a de-</sup> 13
emphasis on specifically defined socially vulnerable groups (although it was recognized that some of these groups could be captured in the Phase 2 sample groups as described above), and in a limitation of the Phase 2 selection to working age respondents who are actual or likely participants in the labor market. Other factors underpinning this articulation of the Phase 2 sample included the recognition that (i) members of socially vulnerable groups are generally recipients of some sort of benefits through nationally defined programs (pensions, disability, child support, etc.) and would consequently be less directly impacted by mine closure than individuals competing on the local job market; and (ii) particular aspects of social vulnerability or manifestations of relatively new problems such as the migration of the working-age population, or the emergence of drug abuse as a local problem were captured during the Phase 1 interviews and (in Ukraine) the quantitative survey.

14
# Research Findings

## _Common Problems and Experiences_

49. The most important findings that were common<sup>toallthreecountriesarepresentedhere,</sup> together with the experiences of individual countries<sup>whenthey havebroadapplicationto the</sup> other countries or to industrial restructuring programs<sup>ingeneral.Thispresentationof general</sup> results is followed by selectecl issues that are particularly<sup>well illustratedbytheexperiencesof</sup> individual countries. As coal sector restructuring was commenced in different<sup>years andits</sup> course has run differently in each country, the inevitable<sup>disclaimer concerningthe difficultiesof</sup> generalization must be made.

50. The findings presented he:re do not purport<sup>to</sup> constitute<sup>anassessment of allaspectsof the</sup> programs of coal sector restructuring that are being implemented<sup>inRomania,Russiaand</sup> Ukraine. The scope of this inquiry was limited to the impact<sup>ofthe rapidandlarge-scale</sup> contraction of coal sector employment in communities dominated<sup>bythecoalsector.Thus,by</sup> design, most (but not all) of the sample is composed<sup>of those whohavelost somethingas a result</sup> of coal sector restructuring: individuals<sup>whohavelostemploymentandprospectsfor future</sup> employment and in some cases social stature, and municipalities<sup>which havelostrevenuesand</sup> gained increased expenditure and other sorts of responsibilities<sup>and problems.</sup> _51._ Before the review of the substantive findings, an observation<sup>onthedifferingqualityof the</sup> research results depending on the level of the respondent<sup>will helpestablisha generalframework</sup> for interpreting the results. National-level experts,<sup>whetherintheGovernmentorindependent,</sup> tend to have a broader view of the entire<sup>coalsectorrestructuringprocessand a greater</sup> appreciation of its rationale in the context of national<sup>policy.Totheextentthat theyidentify</sup> personally with the articulation and implementation<sup>of thecoalsectorrestructuring policyor,</sup> more generally, with a centrist view, they may be inclined<sup>to defendtheGovernment'spolicyas</sup> a principal. A particular view sometimes encountered<sup>amongtheserespondentsis thatthe coal</sup> industry and coal municipalities have been relatively<sup>privilegedvis-A-visthe restof thecountry</sup> in that a special program of restructuring has been implemented<sup>onlyfor thecoalindustryand</sup> the coal municipalities have as a result enjoyed a<sup>levelof support,even patronage,that sets them</sup> apart, although the entire country is going through difficult<sup>times.Thepositiveassessments of</sup> coal sector restructuring that were articulated in<sup>thecourseof theresearch weregenerallygiven</sup> by respondents on this level.

52. Local experts and members of the population of the impacted<sup>communities,incontrast,view</sup> the term "restructuring" as synonymous with "mine closure",<sup>andoftenexpressedtheviewthat</sup> the process was chaotic, unplanned and carried out in haste<sup>withoutregardforthe long-term</sup> consequences that the affected communities and individuals<sup>havebeensuffering. Toomany</sup> mines were closed too quickly, and (some believe)<sup>sometimeseventhewrongdecisionswere</sup> made about mine closure. For respondents on this<sup>level,theclosureof mineswasa severeblow</sup> to the life of the community, and the human price has been high.'<sup>4Thedistressand dislocation</sup>

> 14 A notable (but limited) exception to this typical local view<sup>was madein referenceto theparticularlysevere levels</sup> of wage arrears that prevailed in Russia and Ukraine in the early<sup>and mid-i 990s.Workersreceived directgains from</sup> mine closure when their separation fiom the industry was associated<sup>withrepaymentof their wagearrears(whichin</sup> the average case in Russia were much greater than the severance<sup>thatwas also paid)..</sup>

15
caused by mine closure are all the greater when contrasted to the industry's once privileged status and the high wages that were paid in the coal industry; many individuals go through a difficult process of psychological and social adaptation to their changed circumstances.

53. The view that the social aspects of coal sector restructuring and specifically the various social mitigation policies and job-creation programs were given short shrift or were late in the implementation was voiced by respondents on all levels in all countries. The disjunction between the sectoral limitation of the benefits provided and the actual broader social impact was raised as a matter of concern (indeed, in some cases benefits have been limited even within the coal sector, with miners the most privileged, while other workers have not been eligible for separation benefits).

54. The point of this distinction between the various levels of respondents is to underscore the extreme degree of alienation of basic positions, which is a condition resulting from the very nature of sector restructuring. The gains of coal sector restructuring are generally captured outside of the impacted communities, most notably by the national government in the form of reduced subsidization and sometimes revenue from the privatization of viable enterprises, while the negative impact is concentrated locally.15 One implication of this discrepancy between where the benefits and costs of sector restructuring accrue is the likelihood that the costs of coal sector restructuring may be underestimated during the initial period of analysis and preparation for implementation of the reform program, particularly as concerns the impact (cost) of restructuring on workers and others outside the coal sector.'<sup>6</sup> A related implication of the inherent alienation between the different levels of stakeholders is that long and difficult periods of transition and adaptation are probably inevitable in cases of industrial restructuring. Mitigation policies are necessary, but it is also important to recognize their limited potential and the time lag between the imposition of the social and environmental impacts of mine closure and their eventual mitigation.

55. The research findings have been grouped into the following broad areas of impact which are discussed in detail below:

- Employment and Labor Migration

- Municipal and Social Services

- Community Cohesiveness

- Environment

> **15** To thc cxtent that restructuring succeeds in putting the industry on a more stable footing, workers retained in the industry are, arguably, local "winners" of the restructuring process. At the same time, the interviews with the current coal sector workers revealed a general sense of insecurity about the prospects of sustained, long-term employment in the industry, which is not surprising given that in most cases, restructuring is far from complete. 16 Annex 4 provides an overview of the various cost-benefit analyses carried out in the context of World Bank investment loans in support of coal/mining sector restructuring in Romania and Ukraine.

16
# **Employment and Labor Migration**

56. By all accounts and in all research sites, the problem of<sup>employmentisoneof themost</sup> serious and long-lasting consequences of mine closure, even<sup>fiveormoreyearsafterthemass</sup> contraction of the mining wc'rkforce.<sup>17</sup> And while the overall economic and employment situations differ dramatically between the research sites,<sup>miningcommunitiesinallthree</sup> countries have in common not just the problem of the quantity<sup>of jobsbut the qualityaswell.</sup> The scarcity of long-term, stable jobs providing livable wages<sup>isaproblemeverywhere,</sup> including places where research respondents reported an improvement<sup>inlabormarketand</sup> general economic conditions in recent years. The long-term<sup>unemploymentandunder-</sup> employment that is endemic in the mining towns has led<sup>toa worseningof livingstandardsfor</sup> many who remain, and the irnpoverishment of some; a<sup>qualitativechangeinthenatureof</sup> employment, with the emergence of informal, insecure forms of<sup>employment atlowerwages</sup> with fewer legal and social safeguards, including the loss of<sup>accumulationofserviceinthe</sup> formal employment system (same employers wish to avoid<sup>payingthesocial taxesassociated</sup> with formal employment), and sometimes outright fraud of<sup>workerswhentheyarenot paidfor</sup> labor in the informal sector; to significantly changed perceptions<sup>of futureemployment andlife</sup> prospects among young people; and to the emergence of groups<sup>that areparticularly vulnerable</sup> in these highly competitive job markets where the demand<sup>for jobshasconsistentlyoutstripped</sup> the supply of jobs over several years. To be sure, these<sup>problemsarenotuniquetothecoal</sup> municipalities, and the coal municipalities do not exist<sup>inavacuum,separated fromtherestof</sup> the country. But the general economic difficulties of most<sup>transition economiesare intensifiedin</sup> the mining towns by the destruction over a short period of<sup>alargenumberof jobs inthe industry</sup> that is dominant in the local economy and the downstream<sup>destructionof jobs.</sup> 57. Viewed broadly, there are lwo basic types of response<sup>tothedramaticallyworsened local</sup> labor market conditions following mine closure: (i) local<sup>developmentand job-creationefforts,</sup> and (ii) migration. Both types of response are considered here.

58. **Local development and job-creation.** A standard policy response to the high unemployment that can arise from industrial restructuring<sup>istofosterthediversificationof the</sup> local economy through creation of jobs outside of the impacted<sup>sectorandto seekto improvethe</sup> match between the available jobs and workers' skills<sup>throughvarious activelabormarket</sup> policies. In Romania, Russia and Ukraine, among the common<sup>mechanisms usedinpursuitof</sup> these goals are: the provision of microcredits (sometimes<sup>grants)to individualentrepreneursand</sup> subsidized credits to small and medium enterprises; technical<sup>assistanceand support for business</sup> development through business incubators and workspace<sup>centers;andprogramsmatching job-</sup> seekers with potential employers through subsidized on-the-job<sup>trainingor traininginanother</sup> profession, in addition to the more traditional local employment<sup>officesthat provide information</sup> on vacancies to job-seekers. Public work programs are also<sup>acommonandimportantpolicy</sup> response to mass unemployment, although these are generally<sup>transitionalprogramsthat donot</sup> seek to create permanent jobs. Sometimes these locally-focused<sup>programsarecomplemented</sup> with efforts to attract new investments by conferring upon<sup>theregionaspecialstatus(e.g.</sup>

> 17 Quantitative surveys and analysis of official statistics<sup>have</sup> also<sup>founda moredifficult employmentsituationin</sup> mining regions after the implementation of sector restructuring.<sup>See,for example,the analysisof thesurvey carried</sup> out in Ukraine later on in this report and NAD (2001), which<sup>found thatthe declineinemploymentinmining</sup> regions in Romania was more dramatic than the decline at the national<sup>level.</sup>

17
"disadvantaged region") that provides such<sup>enticementsastaxholidays.Inregionsinwhich</sup> mine closure has taken place, it is also common<sup>to promotetheuse of the industrial space and</sup> surface buildings of the closed mines for<sup>alternative industrial purposes.</sup> 59. Severance payments to laid-off workers<sup>are alsosometimesconsidered by policymakersasa</sup> form of seed capital that workers will<sup>use tostart businesses,and/orto migrate.Inthecountries</sup> under review here, this expectation was<sup>mostprevalentinRomania,wherethetermsof the</sup> severance package were more generous than<sup>in the othertwo countries.</sup> 60. Among the general observations that<sup>can be made on the basis of the researchresultsfrom all</sup> locations is that there is a long and steep<sup>"learning curve"of several yearsbeforethevarious</sup> local development efforts and active<sup>labormarketpoliciesareestablishedandbegintohavea</sup> positive impact. There is a discrepancy<sup>betweentheswiftnessof theemergenceof theproblem</sup> (large-scale unemployment following industry<sup>downsizing)and thecapacityof responsesystems</sup> on all levels to react, even under the<sup>bestofcircumstances(whichnormallydonotprevail).</sup> Romania is arguably at one extreme in this<sup>regard,havingstimulateda mass downsizingof the</sup> industry in 1997 through a voluntary<sup>separationpackagewithouthavinginplaceany</sup> mechanisms to absorb the shed labor<sup>ortootherwise fosterjob-creation.</sup> Since then, the Government has been slow to implement<sup>itsstrategy forlocal development, and criticalelements</sup> of the strategy for dealing with the severe<sup>employmentproblem of the miningregionsare not yet</sup> in place. These research findings are consistent<sup>withstudiesof activelabor market programs,</sup> even in countries where they have been<sup>carried outforyearsandwheremoreresourceshave</sup> generally been available to facilitate program<sup>implementation and tomonitorandevaluate</sup> programs than has been the case in the<sup>countriesin which research was carriedout.'8</sup> 61. The case of Russia (which also experienced<sup>a longlearningcurvewithlostopportunities</sup> along the way) is worthy of mention in view of<sup>therelativelylongperiodof theconsistent and</sup> well-financed implementation of the Government's<sup>coalsector restructuring programand</sup> specifically the local development programs<sup>that were launchedin 1996andarestillreceiving</sup> financing. An evaluation of these programs<sup>wasrecentlycarriedout,andthe resultsofthis</sup> evaluation are described in the country section<sup>below.</sup> 62. The second general observation is that<sup>whilesupporttoindividualandsmall businessesis an</sup> important component of the policy response<sup>totheemploymentproblemthatarisesfrom mine</sup> closure, and one whose potential has not<sup>beenfullyrealizedinmostlocations,itisequally</sup> important to recognize the limit to the job-creation<sup>andeconomicdiversificationcapacityof</sup> policies supporting microcredits, loans<sup>tosmall businesses,etc.</sup> The research found several examples of such support programs<sup>that respondentscharacterizedassuccessfulandusefulbut</sup> "a drop in the bucket" of the total need. Moreover,<sup>thedevelopmentof smallbusinesses,which</sup> are overwhelmingly oriented to local markets<sup>and householdconsumption,isconstrainedby the</sup> limited household purchasing power in communities<sup>impactedbymineclosure.</sup> There is a qualitative limit to these programs as well:<sup>theskills andappetite forriskthatarerequiredto</sup> survive as a small entrepreneur, or even<sup>asanemployeeof a smallentrepreneur,areparticular,</sup> and this research is consistent with the findings<sup>of manysocialsurveysthatindicatethat onlya</sup> small portion of the population considers<sup>thesmallbusinesssectorasaviable optionfor</sup> themselves. And while the small business<sup>sectorisbeginningtomakeanappreciable</sup>

> " See, for example, Dar (1999).

18
contribution to revenues collected by municipal budgets, that contribution is still relatively small (at highest around 15% of total revenues in the cases reviewed here).

63. Here, too, Russia's experience may be informative. The financing made available to coal municipalities for local development in the years 1998-2001 was sufficient in the sense that the municipalities themselves acknowledged that they had reached their absorptive capacity to assimilate these funds. Even under conditions of relatively efficient implementation of the funds allocated to local development programs (that is, not counting the first two years of implementation, 1996-97), the number of jobs created over the reference period was equivalent to only about 18% of those who entered the job market as a result of mine closure. In the course of the research, the mayor of one of the cities that has been one of the largest recipients of funds for local development programs expressed the view that the development of the small business sector, while one of the uncontested achievements of recent years, had probably reached its limit.

64. A final general observation which follows from the second observation, and also is suggested by the Polish experience (and inversely by the Romanian experience), concerns the importance of the role of general economic growth in absorbing the labor that is shed through mine closure. A Russian labor expert who participated in the research identified three distinct phases of the employment impact of mine cilosure and the capacity of local and regional labor markets to absorb the shed labor against the background of general economic developments in Russia in recent years:

- (i) the initial period of mass layoffs through mine closure, when the economic situation in the country was not very good, with the result of high unemployment and difficult social consequences (one may recall the "rail wars" of 1998 when miners occupied the country's major rail arteries). At this initial stage local development programs were not in place; thaet is, the policy response was inadequate.

- (ii) the subsequent period of the beginning of the adaptation, characterized by the establishment of the local development programs in their present form in 1998 and the operationalizatiort of other policy responses; and

- (iii) the latest period, beginning approximately two years ago, characterized by a dramatic drop in unemployment against the backdrop of economic growth in Russia.

65. The remainder of this section considers selected issues of relevance to local development efforts and the local labor market.

66. _Temporary public works programs._ Public work programs are commonly implemented in response to the conditions of high unemployment that follow the downsizing of the industry through closure or voluntary selparation programs. Although typically offering low wages and temporary by design (and hence, not an effective means for addressing the longer-term problems of job-creation and economic diversification), public work programs can nonetheless be an important part of the initial policy response to mine closure in that they help relieve social tension, provide some level of income to workers, and are focused on projects of social value (repair of social infrastructure, maintenance of the housing stock, and so on). Public works programs are also amenable to targeting assistance to more disadvantaged groups, such as older workers or women. Priority should be given to establishing these programs early on in the restructuring process, before initiating the downsizing of the industry. Eligibility for participation in public works programs should be open to all who are interested (and willing to work for relatively low wages), that is, not limited to the coal sector.

19
_67. Microcredits, small and medium business_<sup>_development._</sup> Policies that promote the development of individual entrepreneurship and<sup>the SMEsector are astandardcomponentof the</sup> response to industrial restructuring. Even if the<sup>demandfor this kind of assistanceislimited, as</sup> is the potential of small business to contribute<sup>totheresolutionof theemployment problem,at</sup> least in the assessment of municipal officials who<sup>participatedinthe research,thelaunchingof</sup> microcredit and small business programs early<sup>onin the post-closure periodcansenda positive</sup> message in an otherwise highly depressed environment.<sup>At the sametime, the basic challengeof</sup> ensuring an acceptable return to these public<sup>investmentsin job-creationshouldbe noted,and</sup> this challenge is compounded by the difficulties<sup>in carryingout systematic</sup><sup>_ex post_evaluationof</sup> the programs after some appropriate period of<sup>implementation.19</sup> 68. A particularly important and relatively low-cost<sup>aspectofensuringthesuccessofthese</sup> programs is the establishment of an infrastructure<sup>tosupportsmallbusiness,e.g.,business</sup> incubators, workspace centers and other facilities<sup>whereindividualscanreceiveassistancein</sup> preparing business plans, successfully navigating<sup>thebureaucraticrequirementsof startinga new</sup> business (including simply assistance in properly<sup>completingforms),coursesin the fundamentals</sup> of business, marketing, management, sales<sup>andadvertising,andsoon.</sup> The experience of Novoshakhtinsk is noteworthy in this regard,<sup>andisdescribedbelowinBox1.Ina numberof</sup> locations, European Union programs were singled<sup>outaseffectiveexamplesof thiskindof</sup> technical assistance, although respondents regretted<sup>the smallvolumesof theseprograms andthe</sup> fact that they were typically under implementation<sup>for only a couple of years.</sup> 69. Experts respondents in several locations noted<sup>that theirexperiencedemonstrates the relative</sup> desirability of expanding jobs at existing enterprises<sup>comparedto startinga new enterprise. The</sup> cost-per-job at an expanding enterprise is generally<sup>lowerthanatanewenterprise,and</sup> established, existing enterprises have good potential<sup>for absorbinglabor.Also, those enterprises</sup> that market their product not only locally (where<sup>purchasing powerislimited)butalsooutside</sup> the region tend to be more successful.

70. On the subject of barriers to establishing and<sup>expandingsmallbusinesses,thecommentsof</sup> entrepreneurs who participated in the research<sup>echoed theresultsofgeneralstudiesofthe</sup> investment climate and the development of the SME<sup>sector.Obtainingcreditfrom banksis one</sup> of the biggest problems, particularly for the smaller<sup>entrepreneurs, whohavelittletoofferby</sup> way of collateral that is acceptable to the banks.<sup>Thisis partof a muchlarger,economy-wide</sup> problem that is unlikely to change for the better<sup>soon, andthegeneralproblemof theaccessto</sup> credit underscores the important role that has<sup>beenandcanstillbeplayedbycreditprograms</sup> offered by governments and international donors.

71. In all countries, entrepreneurs complained of<sup>theexcessive bureaucracy thatattendsthe</sup> creation of a new business as well as its perpetuation<sup>over time.Resolving theseobstaclescan</sup> be a time-consuming and sometimes costly matter<sup>for a small business.Romaniahasrecently</sup>

> 19 In Russia, where coal municipalities have received<sup>targetedFederalfunding to implementsuch programsfor</sup> several years, expert respondents on both the local<sup>and national levelscited the positive role played by these</sup> programs in reducing social tension and helping<sup>to create jobs.In Russia's case,asdescribed later on in this report,</sup> the first extensive evaluation of the local development<sup>programs took place only after almost six yearsof</sup> implementation.

20
focused on the problem of reducing the<sup>administrativebarrierstoestablishingnewbusinesses,</sup> requiring, for example, that new businesses<sup>beregisteredwithin 30daysof thesubmissionof the</sup> application. At the moment, the implementation<sup>of thisnew initiativeisweak,but withtime and</sup> experience it may yield creative solutions<sup>to this problem.</sup> 72. A related problem is the tax burden<sup>onsmallbusinesses,which entrepreneursusually</sup> consider excessive and, what is perhaps<sup>worse,unpredictable.</sup> Entrepreneurs spoke of the disincentive to produce and expand business<sup>that results from hightaxes,andof theincreased</sup> bureaucratic power that inconsistent<sup>applicationof taxesgives to localauthorities.Two obvious</sup> and detrimental consequences of this situation<sup>are the creationof the potentialfor corruption,and</sup> the retreat of some part of the SME sector into<sup>the informaleconomyto avoidpayingtaxes.</sup> _73. Professional retraining._ Professional<sup>retraininginoneform oranother has beenofferedin</sup> all three countries. The general experience is that the demand<sup>fortheseprogramshasbeen</sup> limited (for a variety of reasons that could<sup>betermedobjectiveandsubjective),andthe</sup> experience of those who received<sup>traininginanotherprofessionhasbeenthatactually finding</sup> and retaining a job in the new profession has<sup>beendifficult, evenwhen thetrainingitselfhas</sup> been of a high quality. Many interviews<sup>withlaid-offminersoff revealedadeeplyskeptical</sup> attitude about the value of learning a<sup>new profession.It isof note thatthisattitudecanbefound</sup> both in locations where the local employment<sup>situationhasbegunto improve,sometimesthanks</sup> to positive developments in the coal industry<sup>itself(asinRussia'sKuzbass),andinlocations</sup> where the employment situation is particularly<sup>poor,oftenbecauseof recentmineclosure.In</sup> places where the coal industry is. hiring, laid-off<sup>minersoften preferto seekre-employmentinthe</sup> coal industry. And where, on the contrary,<sup>the industryis not hiringandunemploymentishigh,</sup> unemployed mining workers are often<sup>cautiousanddoubtfulof the valueof retrainingthat isnot</sup> likely to lead to viable employment prospects. The explicit linking of retraining with job placement, including the provision of<sup>somelevelofincentivetothenew employer,asin</sup> Romania, would appear to be the most sound<sup>approachtotheadministrationof theseprograms,</sup> although there are challenges to getting<sup>theincentiveright andovercomingthe negativeimageof</sup> former miners as workers in other fields<sup>thatisoften encounteredamong potentialemployers,</sup> including some of the research participants.

_74. Disadvantaged region status._ This idea<sup>hasreceiveditsmostextensivedevelopmentin</sup> Romania, although in other countries it<sup>hasalsobeenadvocatedbyregional and municipal</sup> groups as a way of attracting investments.<sup>Of the totalof 27regionsthat havebeengrantedthis</sup> status in Romania, 23 are mining regions that<sup>receivedthe statusin1998-1999for a periodof 10</sup> years under criteria that have since<sup>beenmademorestringent.Undertheoriginal criteria,this</sup> status was granted to regions (i) in which<sup>registeredunemploymentwas25%greaterthanthe</sup> national unemployment rate, (ii) considered<sup>miningregionsinwhichmasslayoffshadtaken</sup> place, or (iii) in which more than 25% of<sup>theworkforce had beendeclaredredundant asa result</sup> of mass layoffs. The revised and<sup>strictercriteria requirethat theregisteredunemploymentina</sup> region be at least three times greater<sup>thanthenationalaverage.</sup> Most expert respondents in Romania agreed that this policy has not resulted<sup>intheanticipated increaseininvestmentsand</sup> new jobs. One of thc rcasons for this<sup>isthc poorlytargctednatureof the original criteria usedto</sup> determine eligibility for this status, which<sup>reduceditseffectivenessandtendstocancelout</sup> whatever benefit might accrue to disadvantaged<sup>regions.Theresultisthatthe competitionfor</sup> limited investment funds has been decided<sup>bytheusualfactorsthatareofsignificanceto</sup> investors; regions with superior infrastructure<sup>anda morequalified andflexible workforceand</sup> 21
generally better investment climates win out over the most disadvantaged regions. Another reason for the lack of success of this policy is the existence of other legislation such as the law on SMEs that in part duplicates the provisions of the legislation on disadvantaged regions. Enforcement has also been difficult: some investors have registered businesses in disadvantaged regions in order to receive the benefits without actually producing anything and without creating jobs. The government has recently taken steps to improve the impact of this policy by strengthening enforcement, limiting the eligible activities, and stiffening requirements for the minimum number ofjobs to be created (increased from 1 to 10).2o _75. Severance as seed capital._ It is sometimes considered that the severance payments made to workers upon separation from employment can serve as seed capital to be invested in new small businesses and/or to facilitate migration to a place where the individual could start a business. This expectation existed in Romania at the time of the mass downsizing of the industry in 1997. Despite the fact that severance payments were generous (both by national standards and in comparison to the experience in Russia and Ukraine), the view of the vast majority of those interviewed is that the severance payments failed to result in an appreciable level of economic development activity; new businesses were not created. The idea of severance as seed capital also found application in Russia, where by way of an experiment the Government offered some 570 laid-off miners in two coal towns in Rostov Oblast grants in amounts equivalent to 2-3 times the average severance to be used to establish individual businesses. An evaluation project, financed through technical assistance from the World Bank, has recently been launched to review the experience using a 100% sample of grant recipients. While the evaluation was just getting under way as this report was being finalized, the indications from expert respondents familiar with the project in Rostov Oblast were negative, the main criticism being that funds were offered indiscriminately to many people, relatively few of whom were likely to have the requisite business skills to successfully grow and manage a small business, and no support systems were in place to assist recipients with such basic tasks as preparing business plans. (Novoshakhtinsk, which has established a model small business support infrastructure, was not one of the towns which participated in this experiment.) 76. The experience of Romania and Russia (based on preliminary assessments) indicates that the use of severance (or grants in lieu of severance) as seed capital is generally not good policy. In most cases there will be a disjunction between the basic attributes of the severance policy (a payment made upon separation from employment to all separated employees) and the needs of a successful small business development program, which requires a support infrastructure and some kind of filtering process that targets individuals likely to succeed as small business people. At the same time, one could imagine this idea working more effectively if linked to specific conditions, such as the small business support infrastructure being in place and a more targeted individual selection process, with the recipient agreeing to receive training in the fundamentals of business, etc.

77. **Migration.** The logical complement of the local development response to the dramatically worsened local labor market conditions following mine closure is migration. Migration is directly linked to the local labor market in two important ways: (i) it arises as a response to the lack of employment (or employment acceptable to the migrating individual); and (ii) it relieves the pressure on the local labor market for those who do not migrate. Seen from this perspective,

> 20 World Bank (2001a) treats regional development policy with particular reference to Ukraine.

22
migration can be considered not only in<sup>the positive senseasacommon response by individuals</sup> and families to difficult circumstances, but<sup>alsointhenormativesenseasadesirableoutcome</sup> that can help achieve equilibrium on the local<sup>labor market (recognizing that those departingmay</sup> be more likely to possess good skcills and to be<sup>moreproductive workers).</sup> 78. The foregoing suggests that some form<sup>ofmigration support (notnecessarilyfinancial)</sup> should also be an explicit policy in response<sup>totheemploymentproblemscausedbymine</sup> closure. In actual experience, however, policy directed<sup>atsupportingmigrationorotherwise</sup> stimulating labor mobility has been limited<sup>inthe casesunder review,fora number of reasons.</sup> First, in each country economic conditions<sup>havebeengenerallydifficulteverywhere,and</sup> officially sponsored migration is a politically<sup>andsociallysensitiveissuewhenthereareno</sup> obvious growth centers that can receive<sup>migrantswithoutdisplacingthelocal workforceand</sup> creating social tension. The problem of<sup>disposingof housingintheminingtownandof the</sup> availability of affordable housing in the new<sup>locationisalsoa severeconstraint. Thecostsof</sup> migration are high, and in cases where demand<sup>forsuchsupportishigh,practical andfinancial</sup> considerations would rule out the possibility<sup>of supportingmigrationofthepresumedscope.</sup> And while one can speak of a theoretically<sup>optimal populationsizeandcompositionforany</sup> given municipality that would help bring<sup>abouta(theoretical)equilibriumonthelocallabor</sup> market, governments might not wish to undertake<sup>theanalytical challengeof quantifyingthese</sup> variables and determining the related required<sup>scopeof migration supportfora varietyof social</sup> and political reasons. There need not be a contradiction<sup>betweensupportingpolicydirectedat</sup> preserving and developing the local economy<sup>and policydirectedat helpingpeople leavea place,</sup> but in practice it is difficult to combine these<sup>twopolicies intoanintegratedapproachto</sup> mitigating the effects of mine closure.

79. Another potential problem in the implementation<sup>of migrationsupportprogramscouldbea</sup> disinclination on the part of local officials<sup>tosupport migration,to theextent thattheseprograms</sup> are based on discretionary funds. This can be seen in the experience of Russia's<sup>local</sup> development programs, where particularly isolated<sup>municipalitieswithpoorfutureprospects</sup> have been given the choice of using their<sup>funds eithertosupportthe migrationof families back</sup> to "mainland" Russia or to carry out local development<sup>programs.Municipalofficialsinsuch</sup> cases are faced with the difficult task of finding<sup>the right balancefor the use of thelimitedfunds</sup> they receive, and in the first years of the<sup>administrationof these programstended tospend most</sup> of the funds on unrealistic local development<sup>programs ratherthanonfacilitating migration.</sup> Novoshakhtinsk in Russia is an interesting exception<sup>tothisgeneralstatement,havingmanaged</sup> to combine a successful local development effort<sup>basedonfacilitatingthegrowthof thesmall</sup> business sector while at the same time helping<sup>its residentsfind workoutside of thecity through</sup> an agency that was established for this purpose.<sup>Theagency,whichcontinuestofunction,assists</sup> people considering accepting job offers in<sup>other places(oftentemporaryorseasonal)primarily</sup> through verifying the legitimacy of the employer,<sup>whichisanimportantserviceascasesof</sup> deception of labor migrants are widely reported.

80. Despite the difficulties that face the<sup>migrantorwould-be migrant,theresearchfindingsas</sup> well as other evidence indicatc that to one<sup>degreeoranother,migrationfromcommunities</sup> impacted by mine closure is taking place, and in<sup>themajorityof caseswithoutofficial support.</sup> The commonly encountered view of the<sup>immobilityoflaborin thetransitioncountriesis</sup> challenged by the research findings in<sup>someof thelocations, notablyinUkraine,wherethe</sup> quantitative component of the research found<sup>evidenceof averyhighlevelof migrationof the</sup> 23
working-age population (see the detailed treatment of this topic<sup>inthe Ukraine countrysection</sup> below). ' This finding is consistent with recent research by the World Bank<sup>on the social impact</sup> of enterprise restructuring in Russia, which found that labor mobility<sup>appearsto be much higher</sup> than captured by official statistics, challenging the standard argument<sup>thatthelackofa</sup> developed housing market has impeded labor mobility in this country. The study found that labor migration on a shift/semi-permanent basis has developed into a significant<sup>featurein</sup> today's Russia; bread-winners leave their families at the original<sup>placeof residenceandfind</sup> jobs, often informally, in major "centers of gravity".<sup>22</sup> At the same time, it is important to stress that the nature of the migration (permanent or temporary) cannot<sup>be determinedon the basisof</sup> this research, and cases of return migration are also common in some locations,<sup>usuallyfor the</sup> reason that things did not work out for the migrant in the other location. Social impact monitoring carried out in Romania in 2000 found that it was not<sup>unusualfor those whomigrated</sup> from the mining regions to return within a year, usually for the reason that<sup>the "promisedwork"</sup> never materialized or was of a lower quality or level of pay than expected.

81. There are several barriers to studying labor migration that takes<sup>place outside of thecontext</sup> of formal programs to assist migrants: the fact of the migration is usually<sup>poorlyreflectedin</sup> official statistics and other available data (for example, a family may<sup>continuetoownitshouse</sup> or apartment in the town it has migrated from); the nature and duration<sup>of the migrationare</sup> unpredictable; and individuals who migrate disperse to other<sup>locationsandarenot easily</sup> identified in the "magnet" locations. Also, bearing in mind the focus of the research on communities where mine closure or mass downsizing took place<sup>severalyearsago,itislikely</sup> that a wave of migration would have happened earlier, as those possessing the<sup>inclinationand</sup> financial and other resources required to migrate successfully would have left<sup>in searchof better</sup> opportunities.

82. Given the need for "pull" factors in addition to the obvious<sup>"push"factor,theactual</sup> experience with migration of individual mining communities is highly sensitive<sup>toa numberof</sup> factors, including the proximity of growth centers. For example, even though the coal communities of Russia's Tula Oblast (which was not part of this research but well<sup>known tothe</sup> researchers) have been very hard-hit by mine closure, many laid-off miners<sup>havefound</sup> employment in Moscow, which is about four hours away by car. Typically,<sup>workerstravelto</sup> Moscow for several weeks or months at a time and work in construction,<sup>with theirfamilies</sup> remaining behind in Tula Oblast. As such, the employment is<sup>not permanentandmuchfault</sup> could probably be found with the work conditions; but given the absence of<sup>alternative</sup> employment closer to home, Moscow as a labor market has been important<sup>for manyfamiliesin</sup> the coal communities of Tula Oblast.<sup>23</sup> . As the dominant growth<sup>centerintheregion, Moscow</sup> has also served as a magnet for workers from the mining communities of the Donbass,<sup>whoalso</sup> find opportunities in other cities in Ukraine and southern Russia.

83. Of the countries in which research was carried out, migration figured<sup>most prominentlyin the</sup> expectations of policymakers in Romania, and Romania is also unique<sup>inhaving introduceda</sup>

> 21 See, for examplc, Friebel and Guricv (1999).

> **22** World Bank (2001b).

> 23 The dramatic improvement in overall economic conditions in Tula<sup>Oblast is reflected in World Bank (2001b),</sup> which relates the views of the head of a raion in Tula oblast that<sup>was among thehardest hit by mine closure.This</sup> research respondent described 1997 as "hell" and 2001 as "heaven",<sup>noting that if three yearsago there were</sup> typically 50 people in his waiting room seeking assistance, today the<sup>number has shrunkto 2-3 people.</sup>

24
modest level of support of<sup>labormobility.Manyfamiliesin the Romaniancoalminingregions</sup> originally came from other parts<sup>of thecountry, andit wasexpectedthatlargenumbers would</sup> return to their native villages,<sup>usingtheirseverancepaymenttofacilitatethetransitionandin</sup> some cases taking up agriculture.<sup>Intheevent,thisexpectationprovedto bea miscalculation.</sup> Although many families did<sup>attempttoreturntotheirnativelocalities,formanythe transition</sup> proved to be unaffordable given<sup>their limitedresourcesandtheoftenequallypoor employment</sup> prospects of their new location<sup>(evengenerousseverancepaymentswerenot sufficienttocover</sup> moving expenses or to start<sup>upa newbusinessinthenewlocation),ortoodifficultforother</sup> reasons related to the adaptation<sup>to a very differentlifestyle.Research respondentssaid that most</sup> of those who attempted to migrate<sup>hadreturned,andlivedunderconditionsthatwereinferior</sup> even to the poor conditions that<sup>had promptedthefamilyto migrateinthefirstplace(theyhad</sup> spent their severance on the failed<sup>move,hadsold their apartmentin themining town,etc.).</sup> 84. The experience of Romania<sup>isalsoof interestfromthepointofviewof officialeffortsto</sup> stimulate labor mobility through<sup>subsidizingtransportation expenses.Underalawpassedthis</sup> year, unemployed people who<sup>accepta job situatedmore than 50 kilometersfromtheir homewill</sup> receive a grant equal to two<sup>minimumwages. In caseswheretheunemployed workerchanges</sup> his domicile in order to accept<sup>a jobata distancegreaterthan50 kilometersfromhis home, the</sup> value of the grant is calculated<sup>as sevenminimumwages.The law does not, however, applyto</sup> workers who travel distances<sup>under50kilometersin ordertoget towork, despitethe factthat</sup> transportation expenses may<sup>nonethelessbeconsiderableandtransportationitselfaserious</sup> constraint to mobility (as<sup>in the case of Anina).</sup>

# **Municipal and Social Services**

85. Mine closure has a negative<sup>impactonservicestothepopulation thatareprovidedlocally</sup> and associated with the municipal<sup>budget.Theprocessof mineclosurehashad a dualnegative</sup> impact on municipal budgets:<sup>therevenuesidecontractsthroughthelossof enterpriseand</sup> personal income taxes, and<sup>the:obligationson theexpendituresideexpand,generallyas a result</sup> of the greater need for assistance<sup>that followsmass unemploymentand specificallyas a result of</sup> the assumption by the municipality<sup>of servicesandassetsformerlyassociatedwiththe mining</sup> enterprise. In addition, mine closure<sup>couldalsoimpactonlocaldeliveryof servicesif it results</sup> in the migration of qualified<sup>professionalswhoprovidetheservices,suchasteachersand</sup> doctors. In the broad range of municipal<sup>services,housing and communalservices weresingled</sup> out by respondents as priority<sup>areasthathavebeenseverelynegatively impactedbymine</sup> closure. Depending on the location,<sup>transportation wasalsosometimescitedasapriority</sup> problem that has a direct link<sup>tothe employmentmarketasmost people aredependentonmass</sup> transportation to get to their place<sup>of employment (or prospective employment),althoughthis</sup> problem is more amenable to<sup>solutionsofferedby theprivatesector,andoftenoneof thefirst</sup> sectors to develop successfully<sup>inthecontextoflocaldevelopmentprograms.Undersocial</sup> services, education and health<sup>are consideredhere.</sup> _86. Housing and communal services._<sup>Oneoftheenduringaspectsofthecommonimageof</sup> mining towns is the poor quality of<sup>housinginthesecommunities,andthe researchaswellas</sup> ample field experience confirm that,<sup>in this regard,thereisunfortunatelylittle variation between</sup> locations. The present generally<sup>poorstateof thehousingstockisaresultbothof historical</sup> factors-some residential buildings<sup>stillinuse in mining towns were builtas temporaryshelter</sup> and never intended for long-term<sup>occupation-andof thelegacyof miningandmineclosure,</sup> 25
which have inflicted damage on residential and other structures through subsidence and seepage of ground water. The longer the history of underground mining in a given area and the more extensive the underground works, the greater the likelihood that housing has either already suffered damage directly linked to mining, or could be in the future. For the same reasons, physical infrastructure that delivers services of social significance (water and heating systems, telecommunications) has also suffered great damage in the typical mining town. In some mining settlements (districts of municipalities in the environs of the mines) these services have ceased altogether as a result of mine closure. And in mining communities in all three countries, there is a severe problem of access to water, and hot water is generally not available.

> 87. Divestiture of housing and social assets from enterprises to municipalities took place in the 1990s in Russia and Ukraine, with a particularly harsh impact on the mining towns. The capacity of local administrations was overwhelmed, as the levels of the divested assets exceeded by a

> factor of several times the pre-divestiture levels. In Russia, for example, the housing stock

> managed by local administrations in mining towns increased almost 10-fold as a result of

> divestiture, while the stock of other types of social assets increased by 15%-40%. In contrast, social infrastructure (boilers, gas and water distribution systems, telephone systems, etc.) usually remained on the balance sheets of mines until closure, at which point a number of things could

> happen: the assets could be transferred to the municipalities; the agencies responsible for carrying out the liquidation works could hold on to these assets; and/or the assets could suffer from being abandoned or vandalized, with no clear delineation of the ownership and responsibility for the asset. While municipalities throughout both countries have had to shoulder extra burdens as a result of divestiture, the situation in the mining towns in these countries is generally worse, both for the reason already noted (the physical impact of mining on housing) and because, as a general rule, the enterprise's share of the total stock of housing and social assets tended to be greater in mining towns than in other municipalities. Enterprises facing the prospect of divestiture had no incentive to continue the maintenance of the assets, so that by the time the divestiture was completed, assets were in need of high levels of repair for which no financing was forthcoming.

88. In Russia and Ukraine, the damage to housing, social assets and social infrastructure as a result of mining works and mine closure is formally acknowledged through the inclusion of financing lines for the mitigation of this damage in the approved mine closure plans. The experience 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 a whole has been relatively well-financed, the overarching objective of the first several years of its implementation was to remove from production almost 200 heavily loss-making mines, with priority given to the completing the technical closure of the mine itself. The other major priority has been the mitigation of such life- and property-threatening risks as flooding, underground fires, and methane leaks. As a result, the housing, social assets and social infrastructure components of the mine closure plans, and long-term aspects of the environmental damage mitigation component such as land reclamation, have received little financing relative to the total need.

89. In Ukraine, the Coal Pilot Project that was supported by the World Bank established an approach to the various social problems arising from mine closure that had a strong focus on housing and social assets, among other dimensions of the problem. Unfortunately, implementation difficulties on the ground and the persistent ambivalence about coal sector restructuring in Ukraine have prevented the replication of this model.

26
90. In Romania, the role of the mining<sup>enterpriseinthe provisionof housingand other assetswas</sup> not as great as in the former<sup>Sovietrepublics,butsomeportionof thehousingstockisthe</sup> responsibility of the municipality,<sup>althoughthisisgenerallynot considereda priorityor evena</sup> concern for the local authorities.<sup>Theproblemof damagetohousing,social assetsandsocial</sup> infrastructure also appears to<sup>belessurgent in Romania,at leastforthemoment, whichmay be</sup> attributable to the fact that the mass<sup>downsizingof theindustry took place wellin advanceof the</sup> implementation of the mine cilosure<sup>program,andit couldbethatin mostlocalities eventhose</sup> local mines slated for eventual<sup>closurecontinueto supply these services.</sup> 91. Payment arrears for housing<sup>and communalservicesarehighinsome locations,particularly</sup> in Ukraine, where respondents<sup>spokeoftheunaffordabilityofbasic servicesandmost</sup> significantly heat. In the choice<sup>betweensuchessentialexpendituresfoodand medicalcareand</sup> expenditures on housing and<sup>communalservices,respondentsgiveprioritytotheformer,</sup> allowing large arrears to accumulate<sup>for thelatter.</sup> Municipal authorities reported<sup>working</sup> constantly with the population<sup>toreduce arrears,but it seems likelythatpart of theproblem,in</sup> addition to the real burden<sup>thlatthehighcostofheatingservicesinparticularplaceonthe</sup> population, is a degree of tolerance<sup>ofnon-paymentsfortheseservicesonthepartofthe</sup> authorities.

92. These findings of the in-depth<sup>interviews with experts on variouslevelsandmembersof the</sup> population are consistent witl<sup>theresultsof thecomparativesurvey carriedoutinUkraine.</sup> Respondents in the sample of<sup>thetwominingtownsreported generallyworse conditionsof</sup> access to basic utility services<sup>comparedtorespondentsin thenationalsampleoflike-sized</sup> municipalities. Considerably more respondents<sup>intheminingsample,forexample,reported</sup> having no hot water in their<sup>apartmentsthaninthenationalurbansample (79%vs.43%,</sup> respectively). Additional survey<sup>resultsare reported belowin the sectionon Ukraine.</sup> _93. Education and health services._ Among the most important<sup>humandevelopment</sup> achievements of socialism, as<sup>viewedbythesocialistsystemitself,wastheprovisionof</sup> education and health services<sup>totheentirepopulationatnochargeorfor anominalcharge.</sup> Throughout the transition economies,<sup>governmentshavefoundthat theycanno longeraffordto</sup> continue to subsidize these services<sup>to thesame extentasinthepast,and fee-basededucation</sup> and health services are increasingly<sup>common.At thesametime,aspectsof thepastsystemare</sup> maintained, such as subsidized<sup>kindergartens, andthereisgenerallyexcessdemandforthese</sup> subsidized services. While the<sup>research results aresomewhatdifferent for the twokindsof basic</sup> services examined here, they<sup>hadincommonthesuggestionof increasingsocialstratification</sup> and the differing qualities of access<sup>totheseservicesdependingon one'sabilitytopay.These</sup> results are broadly consistent<sup>wviththe resultsof studiesdevotedto theseissuesin thetransition</sup> countries. As these are broad,<sup>country-wideissues,it wouldbe appropriateto viewthe problems</sup> of the provision of education<sup>and healthservicesaspartoftheoverallproblemof economic</sup> transition that are aggravated by the<sup>relatively moredepressedconditionsof the miningtowns.</sup> 94. _Education._ In all three countries,<sup>the broad consensusamong respondentswas that education</sup> services were generally available<sup>to the population,if somewhat more expensivethanin thepast,</sup> and that despite the difficulties of<sup>recent times,the qualityof theserviceswas beingmaintained.</sup> Municipalities are aided in their<sup>effortstomaintainkindergartensandprimaryschoolsbythe</sup> demographic trends of recent years:<sup>populations acrossthe regionare aging,andinmining towns</sup> 27
> this trend tends to be even more pronounced than in the rest of the country. In some mining

> settlements, it was reported that there are very few children, which has made it possible for municipalities to rationalize resources by closing kindergartens and schools for which there is no longer demand. In Stakhanov, in Ukraine, the rationalization of the number of schools has been accompanied by a program of installation of individual boilers in public buildings, leading to

> even greater savings for the municipality and to better quality heat for the children and other

> users of the buildings.

> 95. At the same time, some experts sounded notes of caution when considering the future of education services in the mining towns, and sometimes even more generally. In Romania, a national-level expert saw an education crisis looming in all areas of the country afflicted by poverty and unemployment, expressing concern that children growing up in an environment dominated by the chronic unemployment and perception of failure on the part of their parents would suffer from diminished expectations and goals in life, seeing little point in pursuing education. A Russian expert in Anzhero-Sudzhensk echoed this observation, noting that the higher charges for kindergarten and the resulting decrease in attendance have led to a situation where half of the children in the first grade experience difficulties with their studies.

> 96. In general, the most worrisome results were reported from Romania, where the reduction in families' incomes seems to have had a greater impact on their ability to pay for their children's

> education, and where problems with the attendance rates and attention spans of children from poorer families have been noted. In Motru, attendance at the all-day kindergartens has dropped by 50%, because a daily fee of 20,000 ROL (about US 60 cents) is charged for the all-day kindergarten, whereas the half-day session is free of charge but overcrowded.<sup>24</sup> Respondents in Russia also noted that the subsidized, free schools were also overcrowded.

> 97. Respondents in all three countries spoke of increased difficulties in finding qualified

> teachers, whose salaries are low and who, like others, have also sought better working and life conditions in other cities.

> 98. Generally, the higher the level of education, the greater the problems of affordability and in some cases, the greater the problem of diversifying curricula to equip pupils with knowledge and

> skills that will help them find jobs in the future. In all three research sites in Romania, secondary

> schools and vocational schools still train pupils for careers in the mining industry. Some families send their teenage children away to high schools in other towns for this reason, but most families cannot afford this. In Ukraine and Russia, in contrast, respondents reported that young people were interested in obtaining higher education, and despite the great costs, could still find relatively affordable education at state universities.<sup>2 5</sup>

> _99. Health services._ Expert respondents in all three countries reported that access to good-quality healthcare is a problem for most of the population of the mining towns. While the health

> **24** At the same time, the particularly good quality of education in Motru was singled out by respondents from that town, who noted that high school children from Motru regularly compete in national education Olympics and have a

> good record of entering university.

> **25** This relatively more optimistic assessment of young people's attitude to higher education in Russia and Ukraine

> was not reflected in the interviews with young people who were part of the sample and who, by design, did not include students or young people with higher education. It could be that the expert respondents were projecting their own values or reflecting the values of the young people with whom they have more social contact.

28
infrastructure is still generally<sup>inplace,itis.beingsteadily erodedbypersistentfinancial</sup> problems. The low salaries of<sup>medical personnelin-mining townslead themto migrate in search</sup> of better prospects (in Anina,<sup>inRomania,tfireedoctorsremainatthehospital, whichisin</sup> danger of being shut down).<sup>Hospitalsstruggle tomaintain medicalequipment,which was</sup> reported to be heavily deprecia.ted<sup>in some locations.And peoplefind it increasinglydifficult to</sup> afford even basic medical services,<sup>to say nothing of specializedservices.</sup> 100. The research in Ukraine revealed<sup>twointeresting aspectsof theproblemof healthcare</sup> services in that country. First,<sup>thecomparativesurvey results showedthat theassessmentof the</sup> quality of health services available<sup>inthetwomining townswasessentiallyidenticalto the</sup> assessments given in like-sized<sup>towns intherestofthe country,underscoringthenational</sup> character of the problem.<sup>26</sup> Second, cooperative group<sup>insurancepools havebeen establishedin</sup> both Gorlovka and Stakhanov.<sup>These groupinsurance schemes,whichare basedonindividual</sup> memberships and cover hospitalization<sup>fees,havenotbeeninexistence forverylong(and</sup> accordingly, have not been<sup>not, assessedintany. meaningfulway),but areapparently popular;in</sup> Gorlovka, the cooperative has<sup>reportedlymorethan15,000membersinlittleoverayearof</sup> operation.

> 26 These services were assessed<sup>as"bad"by about 37-40%of respondentsinthetwosamples,as"good"by about</sup>

> 13-17% of respondents, and<sup>as "neither good nor bad" by about one-third of respondents.</sup>

29
# **Community Cohesiveness**

> 101. Certain consequences of mine closure of an obvious social import, such as widespread

> employment problems and housing and social infrastructure deterioration, are addressed in governments' coal sector reform programs through mitigation policies that are generally under implementation (with varying levels of financing and varying degrees of effectiveness). Other

> dimensions of the social consequences of mine closure can be equally important but less commonly treated as such, or less amenable to mitigation through the standard policy approach employed in the context of industrial restructuring. These could include problems of a more

> psychological or behavioral nature, including various manifestations of socially undesirable or

> self-injurious behavior such as substance abuse. The evolution of these social indicators over the

> last decade in the transition economies has been well documented.

> 102. While specific manifestations of socially undesirable behavior, such as drug abuse and prostitution, or the emergence of troubling indicators of social disruption such as the problem of abandoned children, were mentioned as concerns by some respondents, these individual phenomena will not be examined here as the research results either indicated that some communities did not, in fact, appear to be suffering particularly from these phenomena, or results

> were somewhat contradictory and do not allow for meaningful generalization.<sup>27</sup>

> 103. Communities in which mines are closed face various response options, ranging from an activist stance of resistance (expressed through various forms of protest) to a proactive or constructive approach to the changed conditions of life, with probably the most common response being a form of retreat of the individual from the broader community and, in some

> cases, even from his or her own family in the face of the difficulties of getting by. Of course, different members of the same community can and do exhibit widely varying reactions to the same set of external circumstances and to changing circumstances over time, and this reaction will depend, in addition to personal attributes, on the severity of the employment problem, the

> quality of the national and local political leadership, and the resilience of the community of which the individual is a member. These factors will play important roles in determining the

> nature of the social tension that is experienced in communities in response to mine closure and the extent to which this social tension in turn serves as a form of feedback that influences local and national implementation of the coal sector restructuring policy, including the continuation of

> a program of closure of loss-making mines.

> 104. From the point of view of community cohesiveness and the capacity of the community to absorb the negative shocks of mine closure and to mitigate such phenomena as social instability, alienation and apathy that take a toll on individuals and the community at large, the research found that, on the whole, the mining communities appear to be rather fragile or vulnerable, their capacity to respond adequately on the community level diminished. The role of civil society in

> these towns is quite limited: while various organizations representing civil society were found in

> all locations, their impact on the community was generally characterized by research respondents as insignificant. Members of the population who participated in the research typically had no

> knowledge of any organizations that could be considered representatives of civil society.

> 27 It is noteworthy that as concems alcohol consumption, some respondents felt that it had increased in reaction to

> the more difficult circumstances of life, while others felt that it had decreased in reaction to the considerably more competitive labor market (workers are less inclined to come to work drunk for fear of losing their jobs.)

30
105. Two broad types of social consequences are<sup>noteworthyinthiscontext:(i) the lossor</sup> destruction of "community space", including<sup>thevarious formsofinfrastructurelinkingthe</sup> individual/family to the comrnunity, social<sup>networksandfamily relations,and(ii)thelossof</sup> social status, which has implications of<sup>a microeconomicnature (e.g. how individualsreact to the</sup> labor market conditions they face) as well<sup>as moregenerallyfor howthe individual relatesto his</sup> society.

106. _The loss of communitv space._ This problem<sup>consistsof aphysical dimensionandan</sup> abstract dimension. The most important<sup>aspectsof the physical dimensionin thiscontext include</sup> the deterioration or destruction of such<sup>infrastructureas telephonesystems,roads,andso on, that</sup> makes it possible for the individual and family<sup>tointeractwithothersin thecommunityandthe</sup> world at large. Particularly in cases where<sup>miningsettlementsexist within the largermining town</sup> (that is, the parts of municipalities in<sup>theimmediateenvironsof aclosedmine), thesenseof</sup> isolation is profound, not only because there<sup>are noalternative employmentoptionsinthearea,</sup> but because the closure of the mine and the<sup>damage to infrastructureresulting from mine closure</sup> and sometimes vandalism often lead to<sup>thecompleteterminationof theseservices.Respondents</sup> living under these circumstances described<sup>asense of being cutoff from civilization.</sup> 107. Cultural centers and youth clubs are examples<sup>of physical infrastructureof a significance</sup> for the entire community that have often fallen<sup>intodisrepairin recentyears.As a resultof social</sup> assets divestiture, in many cases they were<sup>essentially abandonedandmunicipalitieshavelacked</sup> the financing required to maintain them. In<sup>suchcases,membersof thecommunityhavelostthe</sup> opportunity to socialize and to organize activities<sup>forchildrenthat were frequentinthepast.In</sup> Russia, some respondents reported the<sup>recentreversalofthisnegativetrend:clubsandother</sup> types of activities for children are being<sup>recreatedunderthesponsorshipof localenterprises</sup> (thus, to some extent reversing the impact<sup>of divestiture).</sup> 108. More abstract but no less significant aspects<sup>of communityspace includethegeneral</sup> atmosphere of a lack of community<sup>cohesion anda lackofa sharedsenseofidentity ora</sup> worthwhile future. As families struggle<sup>tomakeends meet,suchpreviouslycommonaspectsof</sup> life such as socializing with friends and<sup>neighbors andvacationingareamongthefirsttobe</sup> dispensed with as unaffordable luxuries.<sup>Notsurprisingly, respondentsoftencomplainedofa</sup> growing antagonism among different<sup>groupsofthe populationandreportedthatpeople</sup> communicate less with one another than previously,<sup>before mineclosure(althoughit shouldbe</sup> noted that these processes have been<sup>observed throughoutthetransitioneconomies).</sup> The constant factor of migration (actual<sup>or unrealized) underscorestheerosionof theidentityof the</sup> community. Those who migrate successfully<sup>from the miningtowns are morelikely to be young</sup> and male, which leads to an imbalance<sup>inthedemographicstructureof thecommunity.Labor</sup> migration of one or more members of<sup>thefamily, while helpingresolvethefundamentalproblem</sup> of earning income, often leads to the<sup>unfortunateconsequencesofgreater tensionbetween</sup> spouses, and greater numbers of children<sup>who are not being raisedby their parents.</sup> 109. _The loss of social status._ Before restructuring,<sup>coalminersenjoyeda highstatusin their</sup> communities, indeed on the national<sup>level.Thisstatuswasreflectedin wagesthat were among</sup> the highest for industrial workers and<sup>invarious perquisites,andbuoyedbyasocialprestige</sup> accorded by the socialist system to the<sup>minerasa significantagent of theindustrializationof the</sup> economy. The sudden loss o:f this<sup>statushastypicallyledtodifficult periodsof adaptationfor</sup> 31
miners and members of their families. For miners' wives, the loss of the husband's income can serve as the impetus to enter the work force, where a lack of experience and competitive skills often relegates them to low-paying work. Several women who participated in the research related difficulties in finding work if they were above the age of 35. Older miners in particular suffer from a loss of self-identity when they lose their jobs at the mines and find it difficult or impossible to secure stable, "respectable" employment in other lines of work.

110. The practical implication of these observations is that the post-closure adaptation period for miners and members of their families can be more difficult than for workers laid-off in other situations, as the actual and perceived losses are greater and the initial period of (usually unrealistic) hopes of a rapid restoration of the former status is protracted. Laid-off miners often find unacceptable the labor conditions of jobs that are offered to them, while potential employers (including the entrepreneurs who participated in the research) and job-placement specialists often remark that they have had bad experiences with former miners as employees, precisely because of the problem of unrealistic expectations on the part of the workers. For the same basic reason, many former miners (and particularly miners older than around 40) are disinclined to pursue such active job-search strategies as professional requalification, labor migration or holding multiple jobs.

# **Environment**

111. The environmental impact of mine closure is severe and generally well understood by specialists, even if the exact manifestation of the impact is highly site-specific, depending on the configuration and depth of the mine, attributes of the groundwater system, subsidence patterns, the presence of near-by continuing mines, the pattern of human settlement on the surface relative to the mining territory, and so on. Environmental remediation is a standard component of mine closure plans and usually the single largest component of the overall cost of mine closure, although the various specific environmental problems caused by mine closure vary considerably in the extent to which they pose a threat to life and property. In conditions of limited financing, first priority is given to preventing damage resulting from the restoration of the underground water level, while such items as land reclamation are often assigned a low priority.

112. In view of the limitations of this research to provide technical assessments of the environmental situation that prevails in each research site, detailed research results will not be presented here. Most of the research participants were not technically qualified to discuss the problems of the environmental impact of mine closure. Not surprisingly in view of the technical complexity of environmentally-related issues and the dearth of specialists among the respondents, on occasion respondents expressed contradictory opinions on matters of relevance to the environment. As residents of the community, they most frequently expressed concern over the problem of flooding, the damage caused to housing by mining, the quality of the drinking water (particularly in Ukraine), the danger of methane leaks, and the mining waste piles that are not removed.

32
# **_Selected_** _Issues_ **_and Individual Country_** _Experience_

113. This section presents selected issues from each of the three countries in which the research was carried out. The selection of the issues was based on unique aspects of the research design (as in the case of the survey carried out in Ukraine) and the individual country experience.

## **_Romania: Restructuring in a Challenging Macroeconomic Environment_**

114. Economic transition in Romania has had a difficult and erratic history over the last decade. The government that took office in 1992 adopted a cautious and gradualist approach to economic reform, which failed to produce sustainable gains in either economic or social conditions. Three years of contraction of the GDP were followed by two years of real growth, 1995 and 1996, and then three more years of economic contraction. Positive real growth was recorded in 2000 and 2001. Poverty has increased sharply, with the share of the population living below the national poverty line doubling in the second half of the 1990s, from 20% to 41%.

115. Coal sector restructuring was launched in Romania in 1997, which was a particularly bad year for the country's economy overall, and the first year in one of the three-year spirals of negative growth. As described earlier in this report, the Government stimulated the mass downsizing of the industry in 1997 through its offer of a generous voluntary separation package without having in place measures for the restoration of the incomes of the workers separated from the industry. Since then, with support of the World Bank and the UK Department For International Development (DFID) under the Mine Closure and Social Mitigation Project, the Government has articulated a social mitigation strategy consisting of the following components: (i) microcredit schemes; (ii) workspace centers using facilities at closed mines; (iii) an enterprise support program; (iv) an employment and training incentive scheme; and (v) a public information and social dialogue. As noted earlier, the Government has been slow to implement most aspects of this mitigation strategy for the mining regions. The best progress to date has been had with the establishment of the employment and training incentive scheme and, most recently, with movement towards establishing the microcredit schemes.

116. In addition to the programs focused on the mining regions, other national-level programs sponsored by the Romanian Government seek to stimulate employment in depressed regions, including the mining regions. These programs include subsidized credits and temporary work programs. The latter constitute one part of the support provided by the World Bank under the Employment and Social Protection Project. It is noteworthy that these temporary public works programs, which provide employment up to six months, are the best known and, indeed, in many cases the only Government-sponsored employment programs known to research participants. Such a situation is typical for the initial phase following mine closure or mass downsizing, and it underscores that probably a few, more years are necessary before the other, longer-term mitigation policies begin to have the intended effect.

117. The point of the foregoing is that Romania has faced an exceptional challenge in launching mining sector restructuring in an environment of economic contraction<sup>and</sup> macroeconomic instability. The same basic economic conditions that led to the decision to adopt the restructuring policy also determined the very limited capacity of the economy to absorb the labor shed from the mining industry. Under such difficult circumstances, it is almost inevitable 33
that "things get worse before they get better", as illustrated by Russia's experience<sup>with coal</sup> sector restructuring in the late 1990s. Conditions at present are more promising<sup>thantheyhave</sup> been in the past: the economy overall appears to be on a stable growth trend,<sup>andgood progress</sup> has recently been made to removing the various obstacles to operationalizing<sup>the social</sup> mitigation component of the Government's mining industry restructuring program.

118. The research results for the three mining town in Romania reveal individual differences that are more pronounced than in the other two countries. Of the three, Motru<sup>hasfared best,</sup> thanks in part to the availability of small agriculture as a subsistence solution;<sup>agricultural</sup> products are a constant part of the household income in a significant number of<sup>cases.Social</sup> services in Motru are also relatively good (some respondents believe<sup>theyareverygood,</sup> especially education), and the state of the housing blocks, including water and<sup>heatingprovision,</sup> is also relatively good.

119. In contrast to Motru, which is relatively isolated from large cities, Uricani<sup>isintegrated</sup> into the conurbation of Jiu Valley. Local social services are poor. The city<sup>has derivedsome</sup> benefits from the political visibility of the Jiu Valley, for example, like the<sup>other towns,Uricani</sup> has benefited from the Solidarity Fund, a program of social assistance that is<sup>usedprimarilyin</sup> the Jiu Valley. In Uricani, as in the entire Jiu Valley, agriculture is not an option.<sup>Thehousing</sup> blocks, especially the older ones, are in particularly bad condition.

120. Anina is in the worst situation: a small town, quite isolated from the larger<sup>city</sup> of<sup>Resita,</sup> it has no agricultural opportunities, and no political visibility. The forest is<sup>the mainsubsistence</sup> source for chronically unemployed people, especially because heating in<sup>allblocksof flatsis</sup> based on wood. The state of housing blocks is rather poor, and significantly more<sup>apartmentsare</sup> in public property. In Anina, more than anywhere else, respondents expressed<sup>thefeelingof</sup> being at a dead end and having no future.

# **_Russia: Six Years of Local Development Programs_**

121. Since 1996, the Russian Government has financed Local Development Programs<sup>(LDP)</sup> in coal municipalities impacted by mine closure. The first two years of the<sup>implementationof</sup> the LDP through regional administrations were characterized by poor administration,<sup>a lackof</sup> accountability for subsidies received and disbursed (which was a system-wide<sup>problemaffecting</sup> all categories of subsidies), and a tendency by regional administrations to<sup>absorbthese targeted</sup> funds into the general regional budget. Flaws in the design of the programs,<sup>such asthelackof</sup> competitive bidding in the awards process and the fact that funds were offered<sup>asgrants,not</sup> credits to be paid back, contributed to the poor record of the LDP in 1996-97.<sup>Andwhilethe</sup> funds were intended to compensate for the job destruction resulting from mine<sup>closure andto</sup> promote the diversification of local economies, powerful regional coal companies<sup>attemptedto</sup> channel the funds into investment projects of benefit to the coal companies themselves.

122. In late 1997, during negotiations between the Russian Government and the World<sup>Bank</sup> for the provision of the second coal sector adjustment loan, it was agreed<sup>that startingin1998,</sup> LDP subsidies would be disbursed directly to municipalities, which would be<sup>responsiblefor</sup> determining the use of the subsidies within established parameters, for<sup>carryingoutthe</sup> competitive tenders that would now be required for certain categories of use of<sup>thefunds,andso</sup> on. As detailed in Table 3, there are six categories of use of LDP funds, and they<sup>are designedto</sup> 34
mitigate different phases and aspects of the local employment problems that arise from mine closure. Each municipality determines the allocation of the subsidies it receives across the various categories; the use of the funds for relocation support is allowed only in a small number of municipalities considered to be "non-viable" due to their isolated location and lack of alternative economic development options.

**Table 3. Local Development Programs, financing by components, 1998-2001**

||**1998**||**1999**||**2000**||**2001**||
|---|---|---|---|---|---|---|---|---|
|**Total(thousrubles)**|293,000|100%|828,591|100%|938,372|100%|1,024,520|100%|
|**Pre-redundancyconsultations**|**1,910**|**1%**|<br>1,871|0%|2,296|0%|335|0%|
|**Professionalretraining**|10,274|4%|16,177|2%|5,807|1%|3,177|0%|
|**Temporarypublic works**|119,956|41%|141,609|17%|138,426|15%|87,208|9%|
|**Smallbusinesssupport**|16,778|6%|87,548|11%|77,105|8%|71,583|7%|
|**Job-creationprograms**|131,377|45%|269,563|33%|402,887|43%|493,349|48%|
|**Relocation**|12,706|4%|311,822|38%|311,851|33%|368,869|36%|
|**Memo:**USDequivalent(based onmo|nthlydisburse|mentda|taand ave|ragemo|nthlyrate|ofexch|ange)||
|Total(million$)|22.6||32.8||33.4||27.2||

123. Local public oversight, participation and transparency have been facilitated through a reliance on Local Oversight Councils consisting of representatives of the local administration, the local employment service, the trade unions, and other governmental and non-governmental entities operating in the municipality. Although Local Oversight Councils have no official status, they are active in coal municipalities throughout Russia and by local consensus typically function as the decision-making authority over the use of LDP funds.

124. The data in Table 3 reflect the development of local priorities over time, which is a function both of the increased experience with the administration of these programs (including the complicated processes of project evaluation and competitive tenders), and of the changing needs of the local employment markets. In the first year shown here, 1998, coal municipalities in the aggregate assigned an importance to temporary public works (which received 41% of the financing made available through the LDP) that was roughly equal to the importance accorded to job-creation programs (45% of the total). By 2001, coal municipalities in the aggregate disbursed only 9% of their LDP funds on temporary work programs, and job-creation programs were by far the largest expenditure category. Removing relocation (as a special category used by a small number of isolated municipalities), the overall weight of job-creation programs in the LDP grows to 75% in 2001. The decline in the share of financing allocated to temporary work programs from 1998 to 2001 reflects the more pronounced social tension in coal municipalities in 1998 (one of the peak years for mine closures), and the improvement of the overall employment situation in the coal municipalities in recent years.

125. Over the last four years the LDP have received large amounts of financing; the total for the four years shown is about $ 116 million. These funds have been disbursed to a universe of some 78 coal municipalities thait have been impacted by mine closure, but each year about 12-15 coal municipalities have accounted for about half of total LDP financing (the actual number of 35
recipient municipalities varies from year to year depending<sup>on the mineclosureprogram, where</sup> new mine closure takes place, etc.).

126. Of note is the extremely small volume of financing<sup>that municipalitieshaveallocated to</sup> professional re-training programs. While these are a common<sup>policyprescriptionincasesof</sup> large-scale industrial downsizing, the actual experience on<sup>thegroundinRussiaindicatesthat</sup> this policy tool has not been used. The interviews conducted with local experts and with recipients of the training indicate that the major problem<sup>withprofessionalre-training,even</sup> when the training is of a high quality, is the lack of relevance of<sup>the professionsin whichtraining</sup> is provided to the needs of the local job market.. This experience<sup>isconsistentwiththat of other</sup> countries. Another view encountered in some of the interviews<sup>is the morecomplex questionof</sup> demand for such services among laid-off miners. One<sup>frequentlyencounteredpointof viewis</sup> that the miner's mentality is such that he is not inclined to<sup>seekemployment in other professions,</sup> and hence not interested in retraining. A more prosaic<sup>explanationin the case of Russia couldbe</sup> that in recent years, jobs have again become available<sup>inthecoalindustryinsome regions,and</sup> miners reasonably prefer to seek employment in the profession<sup>they knowbest andin which they</sup> can make relatively better wages. A comparative study of<sup>social assessmentscarriedout in1996</sup> and 2000 found that in 2000, interest among miners who had<sup>beenlaid-offinconnectionwith</sup> mine closure in seeking re-employment in the industry had increased,<sup>whileinterest inre-training</sup> had decreased relative to the 1996 survey.<sup>28</sup> 127. The small business support category (which may be used<sup>forprovisionof microcredits</sup> and to establish a support infrastructure) has received<sup>arelativelysmallshareof eachyear's</sup> allocation, but in absolute terms increased appreciably<sup>from the firstyear tosubsequentyears.</sup> Box I recounts the interesting experience of the city of<sup>Novoshakhtinskinrelationtothesmall</sup> business support category of LDP.

128. One of the more hotly debated issues in the administration of<sup>theLDP has beenthe</sup> question of whether former miners and non-miners alike,<sup>oronlyformerminers,werethe</sup> intended beneficiaries of these funds (either as workers in temporary<sup>publicwork programs, or as</sup> entrepreneurs competing for investment funds, or as employees<sup>inenterprisescreating jobs with</sup> the help of the subsidies.) In fact, from the start, the philosophy<sup>of theLDP as formulatedon the</sup> national level and as supported by the World Bank<sup>has beento ensure maximumaccesstoLDP</sup> funds to benefit the entire community. The rationale for<sup>this position wastherecognitionthat</sup> mine closure has an impact on the entire community and<sup>alsothat theentirecommunitybenefits</sup> from successful efforts to create new jobs and to diversify<sup>the local economy.</sup> In practice, however, different municipalities have employed various interpretations,<sup>with some insisting that</sup> the LDP funds are "money for the coal miners" and<sup>shouldbe usedtoalleviatethesituationof</sup> miners and their families. Most municipalities; however,<sup>have followeda moreinclusivepolicy</sup> that is closer to the intention of the programs.

> **28** Coming (2001).

36
# **Box 1. Novoshakhtinsk: Best Practice in Development**<sup>**of a BusinessSupport Infrastructure**</sup>

.Of the several dozen mining oWrs **'in** Russia<sup>thathavereceivedstatesupportfor'localdevelopment-in</sup> recent years, Novoshakhtinsk in Rostov Oblast is'<sup>umiqueforhavi ngpursuedastrategybasedon</sup> cultivating an extensive small enterpnse sector. from;utbich<sup>'it is expectedsomeenterprisesu</sup><sup>**Ill**growinto'</sup> medium and even large enterprises. In order<sup>to achieve</sup><sup>**its**strategicgoais,-as a first pnonty thetown used</sup> LDP subsidies to establish a multi-faceted<sup>smallbusinesssupportinfrastructureWhichwasihenin- place-</sup> to facilitate the implementation of job-creation<sup>projects.Inmost other cities, job-creationprogramswere</sup> implemented, before an adequate support infrastructure<sup>wasestablished,whichledtoimplementation</sup> problems.

An unusual degree' of political stability<sup>**Oli**the"local level-hascontributedtothesuccessofthe</sup> implementation of Novoshakhtinsl 's.strategic<sup>v'ision:-the mayo'rhasbeenthetown'sexecutiveforthelast</sup> II vears, and has put in place a te.im dedicated<sup>tothetown's' strategic development'Animportant factor</sup> underlying the strategic vision was the realization<sup>thatthe' coalsector.. whichdominatedthelocal</sup> economy' until five nmnes uere closed,<sup>hadleftNovoshakhtnnsk%sitha legacyof poor local' managerial</sup> and entrepreneurial skills. The emphasis<sup>onthe,s-upportofthesmallbusiness sectoriiasa conscious</sup> effort to develop a broad base of business<sup>skills amonglocal entrepreneurs,therebyincreasing the success</sup> of job-creation efforts financed by the LDP<sup>an'dincreasiing' thelocaleconoimy'soverallcompetitiveness</sup> through helping educate "tomorrow 's<sup>businessleaders"'</sup> Tw%o municipal agencies form the core of<sup>thebusinesssupportinfrastructureinNovoshakhtinsk:.the</sup> [Novoshakhtinsk Business Incubatcr (NBI),<sup>vwhichwas' thef-rsttobecreatedin1996vwithLDPsubsidies</sup> ! and %%hich provided various business support<sup>servicesto-alltypesof enrrepreneursandenterprises.until</sup> the creation in 1998 of the Municipal Fouridation for<sup>the Supportn</sup> Enterprises, xvhicballowed wSmall the NBI to specialize in providing loans, technical<sup>assistance,andotherforms' of businessconsultations.to</sup> medium and large enterprises. A showcase project for NBI is the assistance<sup>providedtofacilitaLethe</sup> conversion of a former military iactory,<sup>whichnov,producesvarious'mechanicalpartsandwherethe</sup> number ofj obs was doubled from 400 to<sup>800.</sup> ' ' ' A business park created on the territory of<sup>aclosedmineservesasthe</sup><sup>**site**formanyof thetrainingand</sup> consulting activities provided to sinall<sup>entrepreneurs.Inaddition,industrialspaceat--thebusinesspark is</sup> rented out at subsidized rents **lo** beginning<sup>smallentrepreneursfor upto3 years.. Thebusinessparkalso</sup> provides the entrepreneurs with Internet<sup>access,security andother commonofficetacilioes.</sup> Despite the success of Novoshaklitinsk's strategic<sup>tocusonsmallbusinessdevelopment,localexpens</sup> caution that the employment and tax-base porential<sup>of thesmall business sector is notenoughtosolvethe</sup> citv's problems. Experts voiced the opinion<sup>thatstabilization-of thelocalemplov mentsituationandthe</sup> related social problems M ould take place<sup>wz'hen3-4additionallarge enterprises ha'ebeenestablished.</sup> A second generation of investment projects<sup>**is**nowbeingt'inancedwithfunds'thathavebeenpaid back.</sup> At the same time, local experts stessed<sup>thecontinuing significanceof theannualreplenishmentsofthe</sup> LDP subsidies: the cit) is preparing-for<sup>the closureof another Tminelaterin2002-</sup> 129. Of particular relevance to this research is the<sup>job-creationcategoryof theLDP.</sup> These funds are provided as co-financing of investment<sup>projects onacompetitive, returnablebasis both</sup> for the expansion of existing snmall enterprises<sup>andthecreationof new smallenterprisesoutside</sup> of the coal sector.29 Municipalities have used<sup>increasingly greatersharesof LDPfinancingfor</sup>

> 29 Under Russian legislation, small enterprises are those<sup>inthe manufacturing, constructionandtransport sectors</sup> with no more than 100 employees, and smaller<sup>numbersof employeesin other sectorsas specifiedby law.</sup>

37
job-creation, but until recently there was<sup>noreliablemeasureof thelong-termviabilityof the</sup> jobs created, and no rigorous approach<sup>to calculatingthe actualcosts job-creation.The absence</sup> of reliable data on these two indicators of<sup>theoverall effectivenessof job-creationprograms</sup> became an increasingly serious management<sup>problemfortheprogramadministratorsonthe</sup> federal level and for the municipalities<sup>themselves,astheylackedtheinformationtoestablish</sup> meaningful perfornance criteria for individual<sup>projects,cost-per-job guidelinesby sector,aswell</sup> as more generally to assess the effectiveness<sup>ofthejob-creationprograms undertheir</sup> administration.

130. In late 2001, the first comprehensive evaluation<sup>of the jobscreatedwithLDPfinancing</sup> was carried out by independent Russian consultants<sup>withfinancingfromthe WorldBank.30The</sup> first stage of the study entailed the<sup>analysisofexistingdataonthe410businessesthathad</sup> received co-financing for projects from<sup>the job-creationcomponentof theLDP overtheyears</sup> 1998-2000 and that had used these funds<sup>tocreate19,115jobsoutsidethecoalsector.</sup> The second stage of the study consisted<sup>ofdevelopingevaluationcriteria, collectingand</sup> systematizing detailed data on selected enterprises<sup>infive regions,and carryingout interviewsat</sup> the enterprises and in the concerned<sup>municipalities withthegoalofevaluating thelong-term</sup> viability of the created jobs. On the basis<sup>oftheirfindings,theconsultantspreparedgeneral</sup> recommendations for various levels of<sup>management (fromindividualenterprisestotheFederal</sup> level) for improving the efficiency the<sup>job-creationcomponentof the LDP. Inall,42 enterprises</sup> were selected for the detailed analysis. Of<sup>these,two-thirds(28)hadbeen createdwith thehelp</sup> of LDP subsidies, and the remainder<sup>(14)were existingsmallenterprisesthathadusedLDP</sup> funds to expand their businesses.

131. Enterprises were evaluated on the basis of<sup>fivecriteria:(i)financialpotential;(ii)</sup> productive potential; (iii) marketing assessment;<sup>(iv)socio-economicassessment;and(v)</sup> investment potential. Each criterion, in turn,<sup>wasthecompositeoffiveseparate factors(see</sup> Annex 3). In computing an overall rating<sup>foreach enterprise,theanalysts gavegreater weight to</sup> the investment potential and the marketing<sup>assessmentof theenterpriseonthereasoningthat</sup> these factors more strongly influence the<sup>long-term viabilityof enterprises and jobs.</sup> 132. The analysis found that some two-thirds of<sup>thesurveyedenterpriseshad goodorvery</sup> good potential for long-term viability,<sup>meaningthat they were likelynot only tosurvive,butto</sup> grow, in the process creating more jobs. The<sup>remainingthirdof theenterprisesthat wererated</sup> less positively also have the chance to fare well,<sup>but will needto improvevariousaspects of their</sup> operations and clarify their overall<sup>businessstrategy.Apartof theenterprisesthatwererated</sup> less positively had commenced their operations<sup>in the year precedingthesurvey,whichprobably</sup> contributed to their relatively lower rating.

133. The analysis of the cost-per-job underscored the great<sup>variationofthisfactoracross</sup> sectors. Table 4 shows the sectoral structure of the jobs<sup>createdatthe410enterprises that</sup> received LDP subsidies through the job-creation<sup>componentovertheyears 1998-2000.Inthe</sup> assessment of the analysts who carried<sup>outthis study,theaveragecost of job-creation underthe</sup> LDP is significantly lower than the comparable<sup>average costofthecreationofajobinthe</sup> various sectors of the Russian economy that are<sup>indicated below.</sup>

**30** The results of this evaluation of the LDP are excerpted<sup>here from Reformugol(2001)in view of their relevanceto</sup> the subject of this report.

38
**Table 4. Local Development Programs,**<sup>**newjobs bysector, 1998-2000**</sup>

|Industry|Numberof<br>jobscreated<br>|%oftotal<br>|Averagecost<br>perjob*<br>(thousrubles)<br>|
|---|---|---|---|
|Foodprocessing|3,225<br>|17%<br>|112.7<br>|
|Constructionmaterials|2,977<br>|160/o<br>|180.8<br>|
|Wood,timber, pulpandpaper<br>|2,521<br>|13%<br>|131.6<br>|
|Machinebuildingandmetal working|2,017<br>|11%<br>|99.6<br>|
|Lightindustry|1,909<br>|10%<br>|148.9<br>|
|Chemicalandpetrochemical|1,795<br>|9%<br>|182.7<br>|
|Agriculture|1,079<br>|6%<br>|96.3<br>|
|Consumerservices|1,025<br>|5%<br>|113.0<br>|
|Medicalindustry|481<br>|3%<br>|91.1<br>|
|Communications|326<br>|2%<br>|97.6<br>|
|Tradeandpublic catering|320|2%|117.6<br>|
|Transport|141<br>|1%<br>|102.9<br>|
|Printing|37|0%|101.3<br>|
|Electro-technical|20|0%<br>|60.0|
|Otherindustries|1,242<br>|6%<br>|--|
|**Total:**|**19,115**|**100%**||

***** Total cost from all sources of financing.

134. Despite the relatively positive assessment<sup>of the performanceof theLDPinmore recent</sup> years, it is important to keep in mind the<sup>smallscaleof job-creationrelativetothe lossof jobs</sup> due to mine closure. Over the years 1997-1999<sup>sector employmentdecreasedby about156,000.</sup> Assuming on the basis of general experience<sup>thataboutone-thirdof thisnumberretired,about</sup> 104,000 workers would have entered<sup>thejobmarket; thus, thejobscreatedundertheLDP</sup> provided employment for about 18% of<sup>thosewhoenteredthe jobmarketas aresultof mine</sup> closure.<sup>3 1</sup> 135. Russia's experience with the LDP suggest<sup>some generalconclusions:</sup>

- Programs such as the LDP that receive<sup>sustained financialsupportand thatare augmentedby</sup> training and other forms of technical<sup>assistancecanbecomeapowerfultoolformunicipal</sup> capacity-building and for job-creation<sup>in the smalland medium enterprisesector.</sup>

- Coal municipalities throughout Russia<sup>acknowledgetheimportantrole playedbyLDPin</sup> reducing social tension and fostering<sup>the developmentof jobs outsidethe coalindustry.32</sup>

- At the same time, the success of such<sup>programsalsomakesit possible tospeakof an upper</sup> limit of their job-creation potential:<sup>thenumberof jobscreatedissmallcomparedtothe</sup> number ofjobs destroyed through mine<sup>closure.</sup>

**31** This is a simple calculation to illustrate<sup>theorderof magnitudeof the differencebetween jobscreatedandjobs</sup> lost. The reference period for the downsizing<sup>of industryemployment,1997-99,is oneyear earlierthanthe</sup> reference period for the job creation programs<sup>toreflect thenormallagbetweenanindividual'slossof employment</sup> and the beginning of the individual's job<sup>search.</sup>

> 32 In a recent letter to the World Bank, the Association of Mining Cities noted that "the joint efforts of the Russian Government and the World Bank in implementation<sup>of LocalDevelopment Programs... have madeitpossibleto</sup> significantly decrease social tension ielated<sup>toredundancyatthe closingcoalmines,andhaveassistedin the</sup> formation and development of new directions<sup>in the economy of coalcommunities."</sup>

39
- The programs had a long "learning curve", as local governments and other engaged local bodies grappled for the first time with such complex tasks as optimizing the use of financing, carrying out project evaluation and competitive tendering, etc. Training seminars<sup>and</sup> conferences for sharing experience have been effective tools.

- * Ideally, the institutional and regulatory framework for such programs should be in<sup>place</sup> **before** large-scale layoffs take place. In Russia, precious years were lost between the beginning of the mass program of mine closure in the mid- 1990s and the establishment of<sup>the</sup> LDP in their present form in 1998. The regulatory documents that govern the LDP have undergone a fairly constant process of revision, and at the time of the writing of this report another set of major revisions was under ministerial review in Moscow.

- Close supervision and support from the national project administrator and a working system of feedback between the municipalities and the project administrator in the capital<sup>are</sup> important factors for success.

136. At the time of this writing in mid-2002, it is not known whether the LDP will receive Federal financing beyond 2002. Even if financing ceases at the end of this year, it is encouraging that some degree of sustainability has been built into the system through<sup>the</sup> mechanism of the revolving fund: as the first generation of loans recipients begins to pay<sup>back</sup> the borrowed funds, municipalities are recycling them to other businesses for continued investment in job-creation. The most effective form of future assistance from the Government may be to target the limited resources available to the coal municipalities that have been<sup>most</sup> hard-hit by sector restructuring. Such assistance could be carried out either in the existing framework of support to coal mining municipalities or in a broader framework of support<sup>to</sup> municipalities negatively impacted by economic restructuring in general.

40
# **_Ukraine: Mining Towns Compared_**<sup>**_to a National Sample_**</sup>

137. In Ukraine, in addition to the qualitative<sup>component,aquantitativecomponentwas</sup> included in the research with the<sup>objectiveof comparing employmentandliving conditions in the</sup> mining municipalities with those<sup>in like-sizedmunicipalities acrossthe country.Followingisa</sup> brief description of the survey design<sup>and its chief findings.A detaileddescription of thesurvey</sup> and the analysis of the results is given<sup>in Shkaratan(2002).</sup> 138. The same questionnaire was administered<sup>torespondentsdrawnfromtwo samples:(i)a</sup> representative sample of the<sup>populationofthetwomining municipalities, Gorlovkaand</sup> Stakhanov, in which the qualitative<sup>researchwas carriedout (sample size -514individuals),and</sup> (ii) a representative national sample<sup>ofurbanUkraine.Respondentslivinginruralareasand</sup> large cities (those with populalions<sup>over500,000)wereexcludedfrom theanalysisinorderto</sup> enhance the comparability with<sup>GorlovkaandStakhanov,which resulted inasampleof 705</sup> individuals.

139. The analysis found significant<sup>resultsinthreeareasthatarepresentedbelow:(i)labor</sup> migration; (ii) employment conditions;<sup>and (iii) housing andcommunal services.</sup> 140. _Large-scale migration fiom the mining_<sup>_cities._Even before the interviewingin the mining</sup> municipalities was completed,<sup>ihe processof compilingthesampleinthetwo towns revealeda</sup> high level of unoccupied apartments,<sup>orabsent familymembersinapartmentsthatwere</sup> occupied. At the time of the survey, an<sup>estimated37%ofthepopulationof Gorlovkaand</sup> Stakhanov aged 18 or more was<sup>absentfrom the citiesforanextended period.</sup> 141. The methodology used to compile<sup>thesample entailedasafirststeprecordingbasic</sup> demographic information on the<sup>residentsof a largenumberof randomly selectedaddresses.Of</sup> the total 1,618 addresses selected<sup>inthis fashion,information receivedfrom neighbors indicated</sup> that in 460 cases (or 28% of the<sup>total),theresidentsof theselectedaddresshadeithermoved</sup> away or were absent for an extended<sup>periodinconnection withemploymentelsewhere.In the</sup> remaining cases, interviewers were<sup>abletorecordhousehold composition, foratotalof 2,136</sup> individuals in the two cities, as<sup>indicatedinTable5 below.Of the671individualswhowere</sup> selected from this composite<sup>listfor thesample,89,or13%,wereabsentfrom thecityin</sup> connection with employment elsewhere,<sup>as reportedby other membersof theirhousehold.These</sup> two separate observations combined<sup>makefortheestimatethatsome37%of theregistered</sup> population in the two cities was absent<sup>for anextendedperiodat the time of thesurvey.</sup> 142. The second estimate of 13% is<sup>consistentwithactualsurveyresults.Around11%of</sup> respondents gave a positive response<sup>tothe question,"In thelast12months,haveyou or your</sup> family members had to travel in<sup>order toearn moneyinothercities or countries(seasonal work,</sup> "shuttle" trading, etc.)?" 143. Table 5 compares the age and gender<sup>structureof the populationas recordedin thecourse</sup> of compiling the sample with the<sup>official statisticsfrom thetwo cities.As canbe seen,itis the</sup> working-age population, and<sup>more likelymenthan women,whowereabsent.Thepopulation</sup> actually living in the cities is considerably<sup>older, and morelikely to be female,than indicatedby</sup> official statistics. The tendencies<sup>areidenticalin GorlovkaandStakhanov.</sup> 41
**Table 5. Gorlovka and Stakhanov: comparison of sample data to official statistics**

|Demogr|aphic variable|Survey,<br>January-<br>February2002<br>(%)|Officialstatistics<br>asof01.01.2001<br>(%)|Difference(%)|
|---|---|---|---|---|
|**Gorlovka**|||||
||male|40.6|44.8|-4.2|
|gender|female|59.4|55.2|+4.2|
||18-29|12.0|21.4|-9.4|
||30-44<br>|23.9|27.7<br>|-3.8|
|age|45-59|22.8|22.6|+0.2|
||60andolder|41.3|28.3|+13.1|
|TOTAL(populat|ion18+)|1,053|236,011||
|Stakhanov|||||
||male|40.6|44.0|-3.4|
|gender|female|59.4|56.0|+3.4|
||18-29|14.1|20.6|-6.5|
||30-44|20.8|28.7|-7.9|
|age|45-59|24.5|23.7|+0.8|
||60and older|40.6|27.1|+13.5|
|TOTAL (populat|ion18+)|1,083|80,298||

144. The quality of the migration - whether temporary or permanent - is impossible to determine on the basis of this research. At the same time, the survey results (as well as the qualitative research) indicate that among those who remain, migration intentions seem to have subsided; the overwhelming majority of respondents indicated that they expect to live in the same place 5 years hence, even when the analysis was limited to the working-age population (results are the same for the two samples at 77%). A concern emerges, however, when the situation is considered not in the static view, as it is here, but rather, in the dynamic perspective. While the survey data cannot shed light on the circumstances of the out-migrants and the likelihood of their return to Gorlovka and Stakhanov, the qualitative research indicated that a new phenomenon of return migrants has been noted, primarily for negative "push" factors from the place of migration, not for positive "pull" factors of more attractive conditions in the two mining municipalities.

_145. Employment conditions._ The survey results indicate a somewhat disadvantaged employment position of the mining municipalities compared to similar sized municipalities in the rest of Ukraine. While the difference is not dramatic, it is reasonable to assert that the difference would be much greater if the observed migration had not taken place. The analysis showed that 55% of the working age adults in urban Ukraine (not including cities with populations above 500,000) compared to 47% in the mining municipalities were employed.<sup>3 3</sup> For the sake of comparison, employment in different sized settlements in Ukraine was analyzed, with the following results: the share of the employed working age population is 61% in rural areas, 55% in cities, 68% in large cities other than Kyiv, and 73% in Kyiv. Thus, of all the settlement types considered here, the mining municipalities had the lowest level of current employment. Among working age adults, there is no difference in the level of employment among women in the mining municipalities compared to women in urban Ukraine (46-47%) but the difference among

> **33** The difference is statistically significant at 5%.

42
men is cuite large: 48% in the<sup>mining municipalitiescomparedto64%inthe Ukraineurban</sup> sample. The structure of employment by<sup>agereveals lowerlevelsof employmentin the mining</sup> municipalities for all age groups,<sup>mostsignificantlyfortheyoungestgroup(18-29),36%of</sup> whom in the mining sample reported<sup>beingemployedcomparedtoalmost50%inthenational</sup> sample.

146. Another indication of the relatively<sup>morecomplicated employmentsituation inthe</sup> mining municipalities was given<sup>bytheanswerstothequestionabout mainsourcesof income</sup> (Table 6). For 38% of respondents<sup>inthesampleof miningmunicipalitiesandfor57%of</sup> respondents in the national urban<sup>sample, amainsourceofincomeiswages.Thisstriking</sup> difference is largely a function of<sup>the preponderanceof older individualsin the populationof the</sup> mining municipalities; when age<sup>iscontrolledfor and results for the working age population only</sup> considered, the corresponding numbers<sup>are61%and72%.Thisdifferencewouldbe partially</sup> accounted for by lower levels of<sup>employment inthe miningtowns,andcould alsoreflectlower</sup> average wages in the mining towns<sup>thanin the othercities in thecountry.</sup>

**Table 6. Main sources of income**<sup>(% of respondents;multipleresponsespossible.)</sup>

|||wages<br>|social<br>benefits<br>|produce<br>from<br>gardens<br>|secondor<br>occasional<br>jobs<br>|own<br>business<br>|helpfrom<br>relatives<br>|
|---|---|---|---|---|---|---|---|
|||||||||
||mining|60.7|37.8|15.6|14.1|3.0|.|
|Workingage<br>**adults**|towns<br>urban<br>Ukraine*|72.2<br>|32.2<br>|26.7<br>|12.9<br>|4.0<br>|i6.0<br>|
||mining|13.5|98.4|10.7|0.8|0.0|2.0|
|Retired|towns<br>urban<br>Ukraine*<br>|20.1<br>|97.1<br>|26.7<br>|2.2<br>|0.3<br>|3.1<br>|
||mining|38.3|66.5|13.2|7.8|1.6|5.4|
|**Total**|towns__|||||||
||urban<br>Ukraine*|57.2|50.9|26.7|9.9|2.9|12.3|

* excluding large cities

147. Relatedly, given the higher unemployment<sup>intheminingtowns(aswellalevelof</sup> occupational diseases that is likely<sup>to be higher),it isnot surprisingthat a greater percentageof</sup> working age, respondents in<sup>1theminingtownscited"socialbenefits"asamainsourceof the</sup> family's income (38% compared<sup>to32%inthenational urbansample).Respondentsinthe</sup> mining sample were also considerably<sup>less likely thanrespondentsinthe nationalurbansample</sup> to name produce from garden plots<sup>asa main sourceof income(13%versus27%).It isalsoof</sup> note-that respondents in the national<sup>urbansample areroughlytwiceaslikely as respondentsin</sup> the mining sample to receive<sup>helpfromrelatives(12%comparedto5%),whichisconsistent</sup> with what is known about the history<sup>of thesettlementof the mining townsand themore limited</sup> nature of the support networks of<sup>extendedfamiliesof thoseremaining in the mining towns.</sup> 148. Job stability including payment<sup>stabilityis animportantcharacteristicofemployment</sup> conditions. The survey shows<sup>that the percentage of respondentsreportingwage arrearsis higher</sup> in the mining municipalities: 28%<sup>ofemployedrespondentsfrom thissample saidthattheir</sup>

> **34** The difference is statistically<sup>significantat5%.</sup>

43
wages were delayed vs. 21% in the national urban sample. In addition, the average level of wage arrears is higher in mining municipalities (7.3 months compared to 4.2 months in the national urban sample).

149. Concerning past unemployment, the same percentage (30%) of employed respondents in the mining and in the nation-wide samples said that they had been unemployed during the last five years, but the average length of unemployment among respondents in the mining sample was 26 months as opposed to 19 months for respondents in the national urban sample _150. Housing and communal services._ Residents of the two mining communities are considerably more likely to live in apartments than residents of similarly sized cities in the rest of the country, and consequently are more dependent on communal services for the provision of various essential services such as heat and water. In the mining sample, 71% of the respondents reported living in an apartment as opposed to 45% in the comparable urban sample.

> 151. Respondents in the mining sample noticeably more often gave negative assessments of their housing conditions than respondents in the national sample. In the mining sample, 46% of apartment-dwellers said that the condition of their housing was very bad or even dilapidated, requiring either major repairs or demolition, as opposed to 21% in the national urban sample. Also, considerably more respondents in the mining sample reported having no hot water in their apartments (79% vs. 43%). Respondents in the mining sample were also more likely to have no central heating (21% in mining towns vs. 12% in the other cities) or gas for heating (75% vs. 63%) and less likely to have a telephone (56% in the mining sample did not have telephones vs. 43% in the national urban sample).

152. For respondents who receive these services, the analysis demonstrated that the functioning of all basic services is considerably worse in mining towns than in the rest of the country. Twenty-nine percent of the respondents in the mining towns as compared with 11% in the national urban sample reported that their electricity service does not function well. Of those connected to central heating in the mining towns, 69% vs. 43% in the nation-wide sample said that the service does not work well. Cold water is delivered with interruptions or not delivered at all to those who have water connection in 64% of the cases in mining towns as compared with 35% in Ukraine. And almost all respondents (95%) in the mining sample with connection to hot water reported bad delivery of hot water compared to 68% in the national urban sample.

44
# **Policy Recommendations**

153. Policy recommendations that could<sup>helpmitigatethenegativeimpactofcoalsector</sup> restructuring programs on communities<sup>canbegroupedintothoseof nationaloreconomy-wide</sup> relevance and those of relevance to the<sup>miningsectoror theminingmunicipalities.Theformer</sup> group will not be considered in detail<sup>here, bothbecausethiswouldbe beyondthescopeof the</sup> research, and more generally in adherence<sup>tothegeneralprincipalthatspecialregimesshould</sup> not be carved out of instruments of<sup>nationaleconomic policy.At the sametime, the importance</sup> to mining regions and municipalities of<sup>reforms thatcould(and should)be part of national-level</sup> policy cannot be overstated. Soome of<sup>the importantbroadareasof reforminthis regardwould</sup> include:

- the system of inter-governmental relations;

- the banking system and access to credit<sup>for a wide variety of purposes(to start</sup> businesses, improve real estate and infrastructure,<sup>etc.);</sup>

- housing and communal services;

- local economic development and diversification;

- education; and

- social protection.

154. The following policy recommendations<sup>are based ontheresultsof theresearchcarried</sup> out in Romania, Russia and Ukraine<sup>butwouldalso havebroadrelevancetoother industrial</sup> restructuring programs, particularly those<sup>wherethepatternsof municipal developmentandthe</sup> social aspects of restructuring are similar<sup>to those encounteredinthe coalsector.In onewayor</sup> another these recommendations seek<sup>tofurthera holisticor comprehensiveapproach,as opposed</sup> to the limited sectoral approach, to<sup>mitigatingtheimpactof sectorrestructuringontheentire</sup> community. 35 _155._ **Recognize early on the full range**<sup>**of costs tothe communityofsectorrestructuring.**</sup> and align benefits more closely with<sup>thecosts.Ex-ante analysesof coalsectorrestructuring</sup> recognize the great benefits that accrue<sup>to the economyat large from restructuringwhenthe high</sup> level of subsidization is eliminated<sup>and whenworkersreleasedfromthecoal sectorproduce</sup> greater value in other econornic activities. At the same time, such analyses usually<sup>do not</sup> recognize the full range and nature of<sup>thecoststhatareimposed by restructuringonthe</sup> community, including the negative<sup>employmentimpactofmineclosure on downstream</sup> industries and on services industries<sup>dependentonhouseholdpurchasingpower.</sup> The time frames required for the implementation<sup>of localdevelopment initiativesand the transitionof shed</sup> labor to more productive uses also<sup>tendtobeunderestimated, whichisanotherformof</sup> unrecognized costs to the extent that<sup>theserepresentdelaysin theaccrualexpectedbenefitsand</sup> increased social tension. The recommendation<sup>tomorecloselyalignthecostsandbenefitsof</sup> sector restructuring seeks to minimize<sup>theadditionalcoststhat resultfromfailingtorecognize</sup> upfront all the costs of sector restructuring,<sup>aswellastheadditionalcostsof protracting sector</sup> restructuring, and to more quickly move<sup>to the implementationof the mitigationstrategythrough</sup>

> **35** The observation in World Bank (2001<sup>a) that "regional policy has beendevelopedas a necessaryapproachto</sup> solving a wide range of systemic issues<sup>thatcannotbe resolvedby isolatedsectoralpolicies,"is of notein this</sup> context.

45
establishing a constructive framework for dialogue that clearly identifies the various stakeholders and recognizes their respective shares of the costs of sector restructuring.

156. Notionally, the process of coal sector restructuring can be viewed as one in which subsidies that previously went to support loss-making production at uneconomic mines (and, indirectly, employment in dependent industries) are shifted, for some period and in one form or another, to the mitigation of the impact of mine closure on the mining community. The extent and manner in which these funds are shifted is a matter of policy within the usual budget and other constraints. In practice, the link between these two general categories of need is recognized, but usually only in the context of making a case for postponing the initiation of closure at a loss-making mine (i.e. the community will suffer if another mine is closed, jobs need to be maintained). Implicitly, this argument seeks to justify subsidization of loss-making production as a form of social protection that guarantees employment for a certain number of people and helps preserve stability in a community.

157. While in some cases it could certainly be advisable to stagger closure of mines in a given location in order to mitigate the impact on the affected workers and the community, the argument referred to in the preceding paragraph often amounts to no more than an attempt to delay the inevitable. Failing to forestall the inevitable, this position results in increased financial and social costs of mine closure and consumes funds that could otherwise be used for mitigation programs. Far from being strengthened, the level of social protection of workers at uneconomic mines is usually eroded under such circumstances (bad management, for example, gives rise to wage arrears) while the fundamental economic problem of the loss-making mine remains. The case of Rostovugol in Russia illustrates this well. Having resisted the comprehensive restructuring that was being carried out in the rest of the industry (for several years, Rostovugol produced about 1-2% of total production but received up to 25% of the total subsidies for lossmaking production), as a result of a recent Government decision the company now faces extensive restructuring. Wage arrears are very high at the loss-making mines that were kept functioning and that are now slated for closure.

158. While a case-by-case approach is obviously called for in such circumstances, given the high return to the budget of eliminating production subsidies, a rationale generally exists for increasing the support directed to communities without undermining the overall economic rationale of sector restructuring. The actual form of the assistance is a matter for policy, judgment and negotiation. In view of the inevitable period of adjustment and the "learning curve", it is likely greater value to the community would come from extending assistance over time. In the cases under consideration here, the review of the situation five years after mine closure in three different countries indicates that the coal municipalities need additional targeted assistance before being mainstreamed into existing national programs of inter-governmental transfers.

159. This general recommendation has some important practical policy applications, including: (i) broaden the base of eligibility for social protection benefits (i.e. severance, participation in job-creation programs, etc.) to mitigate the negative employment impact of mine closure on dependent industries (possibly using an approach based on demonstrated proportional dependence, as in the Russian experience), and (ii) recognize the role and potential of the municipality in mitigating the impact of sector restructuring on the entire community. In all cases under review here control over the funds intended for local mitigation efforts has been an 46
issue in relations between regional and municipal<sup>authorities. Whileregional authoritiescan</sup> play a crucially supportive role, the experience<sup>at variouspointsin timesinvarious locationshas</sup> been that funds targeted for assistance to mining<sup>towns have beencapturedat the regionallevel</sup> and used for other purposes (and here it is worth<sup>recallingthat theconcentrationof themining</sup> industry is highly localized, and the priorities of<sup>theregionalgovernmentare oftendifferent from</sup> those of the local administralions of the mining<sup>towns).The fundsprovidedfor solvinglocal</sup> problems are ultimately more effectively used if<sup>theyare allocateddirectlytothecommunities,</sup> with the important proviso that this be done in the<sup>context of appropriatepoliciesand procedures</sup> exist, and that training and capacity-building be made<sup>availableover time.</sup> 160. The experience of Russia in the final four years of<sup>theexistenceof productionsubsidies</sup> illustrates the disparity between the subsidies<sup>providedtoloss-making minesandthesubsidies</sup> provided to municipalities for local development<sup>programs,anddemonstratesthateveninthis</sup> case of a relatively high level of support to<sup>impactedcommunities,the loss-makingminesin the</sup> coal industry received higher levels of support.<sup>In1998,subsidiesinsupportof loss-making</sup> production exceeded the support to local development<sup>programsbyafactorof6.</sup> In the following year, this ratio was reduced to about<sup>3.By 2000,theratio wasreducedtoabout1.3,</sup> and then in 2001, the last year of production<sup>subsidies,to less than1. Viewedover the four-year</sup> period, the subsidies in support of loss-making<sup>production werealmostexactlydoublethe</sup> subsidies devoted to local development<sup>programs.3 6</sup> Viewed over the entire period of restructuring, the ratio would be far greater<sup>than2:1infavorofloss-making production</sup> subsidies, as these existed for many more years<sup>than localdevelopment programsandsubsidies</sup> to. the sector in the period 1993-97 exceeded<sup>US$10 billion, mostof whichwent tosubsidizing</sup> loss-making production and inefficient investments.

161. Because of the sectoral approach that dominates<sup>in theprocessof thedevelopmentof</sup> industrial restructuring programs, it is not common<sup>practicetoviewthetwotypesofState</sup> support (subsidization of a loss-making industry<sup>versussupport to the municipalitiesin whichthe</sup> industry is located) as constituting a trade-off.<sup>Asageneralframework,however,foran</sup> approach to industrial restructuring, this view<sup>mayhelpnational governmentsto buildsupport</sup> and understanding for the need to carry out restructuring<sup>andtoarticulate moreclearlythe high</sup> cost to the communities themselves of perpetuating<sup>theuntenablesituationofsubsidizationof</sup> loss-making mines. In this, the government will face the challenge<sup>ofthewidelyvarying</sup> attitudes and capacities on the part of different<sup>playerson theregional andlocal levels.Public</sup> information campaigns and continuous social<sup>dialogueareimportant instrumentstohelpmeet</sup> this challenge.

162. **Build canacity on the community** level. Communities<sup>inwhich mines areclosedare</sup> confronted with an array of new problems<sup>forwhichthe capacityandskillsembodiedinthe</sup> various local response systems are inadequate.<sup>Assuringadequacyof financingisanecessary</sup> but not sufficient condition for the proper<sup>managementof the consequencesof mine closureon</sup> the local level; measures to build capacity are necessary<sup>toensurethat thelimitedfinancingis</sup> put to its best use. Capacity-building in this context<sup>isrelevantfor localgovernmentand also for</sup> the various non-governmental organizations that<sup>constitutecivilsocietyandthatcanmakean</sup>

> **36** Budget financing of repair of social infrastructure,<sup>housing,etc.is not countedhere astheseareformalliabilities</sup> recognized under mine closure plans, as opposed<sup>to thelocaldevelopmentprograms whicharemitigation programs,</sup> the financing of which is entirely the prerogative of<sup>theGovernment.</sup>

47
important contribution to the development of adequate institutions on the local level. As has been seen, civil society in the mining communities is relatively weak; indeed, the concept of civil society and the recognition of its potential are often poorly developed at the local level. Equally important is supporting the creation of a mechanism that ensures the adequate and meaningful interaction of municipal government and civil society (as illustrated, to some extent, by Russia's Local Oversight Councils.) 163. Given the long-term nature of the impact of mine closure and the local response to it, it would be appropriate for governments and international lenders and donors engaged in supporting coal sector restructuring to plan long-term provision of technical assistance to communities. Because the capacity and needs of municipalities will differ and evolve over time, these programs should include an array of options that can be tailored to individual municipalities and that are re-visited periodically to confirm their continued relevance. In general, there is a high need for training municipal governments in a comprehensive approach to strategic municipal development. Effective and relatively low-cost technical assistance can be offered through seminars that bring together representatives of municipalities for an exchange of experience. Most important is to recognize the leading role of municipal governments in directing the response to the dramatically changed conditions of the life of the community (including critically in such disparate areas as the management of social assets and local economic development) and to provide the staff of the municipal governments with the knowledge and skills they need for managing these complex processes.

164. Organizations representing civil society are many and varied. Some function at a high level of professional competence, sometimes with the benefit of donor-financed training. Others, in contrast, function on a strictly local level with a local focus and with limited financing and capacity. Two types of potential beneficiaries of capacity-building measures are of particular note in the present context: (i) groups focused on local business development, and (ii) groups that carry out social work of various kinds. The groups that fall into the first category will often be directly involved in the sorts of activities reviewed in the discussion of the local economic development response, such as the promotion of small business through business incubators. But the capacity of business development groups can also be developed in ways that are not as obvious and that have important social dimensions. For example, the TACIS-MERIT programs sponsored by the EU in Russian coal towns included components dedicated to increasing the representation of women and youth among local entrepreneurs.

165. While the NGOs and other groups that provide social services of various kinds perform a very different function, they too can benefit from basic training in how government works, how to write grant proposals, and so on. With strengthened capacity, some of the groups mentioned in the course of the research could begin to play, for example, valuable roles as monitors of the environmental and social impacts of mine closure.

166. **Enhance the private sector development component of the local development response.** Programs that support the development of the SME sector are a staple of the local development policy response. These programs have a significance that extends beyond their actual weight in the local economy because they send a powerful and optimistic message of the possibility of positive change. At the same time, policy-makers should recognize the limited potential of small and medium-sized businesses to provide jobs for workers who are made 48
redundant as a result of mine closure, at least over the 5-year period that served as the basis for this research.

167. Mitigation strategies sponsored by governments and supported by the World Bank tend to refrain from advocating large-scale enterprise development in the local development response, partly because of well-founded concerns that the coal industry could highjack the process, and partly because of the sheer difficulty of carrying too many development initiatives at once. But unless restructuring is carried out in an environment of growth that is sufficient to absorb the shed labor, most of the jobs that are destroyed through mine closure will not be re-created through programs supporting individual and small businesses. In the contracted, highly competitive labor markets that follow mine closure, workers less able to compete are likely to suffer from long periods of unemployment or under-employment and to be more vulnerable to abuse of the legal and social safeguards that have been established to protect workers. Facilitating the growth of jobs at larger enterprises could also be particularly helpful in reintegrating into the labor force vulnerable groups, including laid-off workers with employment prospects limited either by age, skills or other factors, and new entrants to the labor force, such as women who did not work before mine closure and youth, who are disadvantaged by their lack of experience and skills.

168. A private sector development component could consist of provision of business consulting/technical assistance to (i) existing large enterprises that are already major employers (assuming such exist in the municipality, which is typically the case in Russia and Ukraine and less so in Romania), (ii) medium enterprises that are seeking to grow (for example, through assisting them in identifying a. strategic marketing plan to allow them to grow beyond the local market), and (iii) local and regional governments that are seeking to enhance the role of the private sector in the economic development of their respective territories.

169. The provision of assistance to existing large enterprises has certain potential pitfalls that should be guarded against, notably SOEs that are themselves in need of restructuring. In any event, it should be stressed that the larger, existing enterprises should not be eligible to compete for the limited investment funds made available to support individual and small business through local development programs. The risk that a large enterprise will absorb large amounts of finance without creating jobs is great. Rather, the assistance should be streamlined to consist of strategic business advice, which can be just as relevant to a large, established enterprise as to a small entrepreneur who is just starting out.

170. Local and regional governments can benefit from policy advice directed at strengthening the investment climate, increasing local/regional business competitiveness, private provision of housing and other municipal network-borne services and so on. Where long-term strategic development plans give an important role to infrastructure-intensive projects, such as the development of a tourism industry (as, for example, is often proposed for Romania's Jiu Valley), the scale of required investments is clearly beyond the capacity of any level of government and underscores the relevance of a sustained effort to work with municipalities and regions in order to attract investors, work with banks, etc.

171. **Deepen efforts to rationalize housing stock and social infrastructure.** The intractable problems of housing and social infrastructure are found in municipalities throughout the transition economies, but they assume a particular significance in mining towns, both for the 49.
historical reasons as described earlier and because the<sup>rateofpopulationdeclineinthese</sup> communities is likely to exceed the national average.<sup>Asignificant implicationof thisisthe</sup> continued decline of already highly depressed local housing<sup>markets (whichin turnconstitutea</sup> major constraint to individuals and families considering<sup>out-migration.) Thiscondition,inturn,</sup> argues against investments in the housing stock of<sup>mining communitiesbeyondwhatis</sup> necessary for basic maintenance and to ensure<sup>a basiclevel of safety.</sup> 172. As populations decline and age, the need for certain<sup>typesof socialinfrastructurealso</sup> declines. The research found that in recent years, many<sup>municipalitieshaveunderstoodtheneed</sup> to rationalize these expenditures through closing kindergartens,<sup>consolidatingschoolsandso on.</sup> In the more positive cases, this process of rationalization<sup>isaccompaniedbyimproved</sup> maintenance of the remaining assets. 173. The rationalization of the housing stock, while generally<sup>of greater significance fromthe</sup> point of view of the impact on the municipal budget,<sup>is a considerably greater challengethan the</sup> rationalization of public buildings, however, for<sup>threemajorreasons.</sup> First, ownership of housing is sometimes legally ambiguous, as when there<sup>isa privateownershipat theapartment</sup> level and municipal ownership (by default) at the building<sup>level.Second,reliableinformationon</sup> building occupancy is typically lacking. While a large<sup>number of apartmentsmight be emptyfor</sup> months on end (as indicated by the survey carried out<sup>in Ukraine),themunicipalityusually does</sup> not know whether an apartment has been abandoned,<sup>or whethertheowner/occupantintendsto</sup> return (indeed, the occupants themselves may not<sup>knowthiswhen they leave).Third,effortsto</sup> rationalize the housing stock are complicated by the partial<sup>occupancy of many buildings.Given</sup> equal claims on replacement housing of comparable<sup>quality,municipalitiesfacethedifficult</sup> question of determining which buildings will<sup>be demolishedand who will be relocatedfirst.</sup> 174. Some mining municipalities have had a positive<sup>experiencein rationalizingthe municipal</sup> housing stock and related services, particularly<sup>whenthemunicipalityincludesmining</sup> settlements that are spread out over a large territory.<sup>Where sponsoredmigrationprogramsexist</sup> (such as from Russia's Far North), municipalities<sup>havea chanceto realizegainsby closing down</sup> the mining settlements, compacting the physical<sup>infrastructurethat was extended over kilometers</sup> to serve the settlements, and providing improved<sup>living conditionsto those who remain, whoare</sup> relocated into better quality apartments that<sup>havebeenvacatedbyofficial migrants.But such</sup> clearly defined situations are rare.

175. Capturing the gains from the rationalization of the municipal<sup>housingstock is notan easy</sup> task, for the economic, social and political reasons<sup>toucheduponhere.Atthesametime,most</sup> municipalities cannot afford to disregard the huge<sup>potentialof reforms in this area.In order to</sup> help, ensure the successful continuation of efforts to<sup>rationalizethehousingstockand related</sup> social infrastructure, municipalities should strengthen<sup>their informationbase of the housing stock</sup> by working closely with neighborhood groups or (where<sup>they exist) building-level associationsto</sup> identify apartments that are unoccupied. If financing can be made available, a program<sup>of</sup> municipal "buy outs" of unoccupied apartments could<sup>benefitthemunicipalityaswellasthe</sup> seller. Reducing the number of unoccupied apartments<sup>wouldalso be a positivesteptowards the</sup> reduction of non-payments for utility services that were<sup>reportedin townsthat have experienced</sup> high levels of migration.

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176. **Enhance niaration and transportation suDDort to households.** It is unlikely that direct financial support for migration could be made available to match the demand that exists for such support in many communities in which mines have been closed. There are also compelling social and political reasons why governments would be disinclined to provide this support. At the same time, recognizing that in certain cases labor migration is a phenomenon of enormous significance to the present and future of a mining town, there are social and economic gains to be had through strengthening local capacity to provide migration support to interested households (along the lines, for example, of the support provided in Novoshakhtinsk.) Efforts should be strengthened to remove barriers to migration, for example, housing or transportation. In cases of short-term, temporary or seasonal labor migration, municipalities and civil society groups can help protect the interests of the people living in the mining towns by coordinating information on employment prospects (which could lead to a more optimal matching of jobs with job-seekers, e.g. over a smaller geographic territory than is the case when individuals seek to resolve this problem on their own) and taking steps to confirm the legitimacy of employment offers that are extended from other locations.

177. When families have decided to migrate permanently, or are considering permanent migration, municipalities can capture gains through better tracking of the housing stock and apartments that are potentially abandoned, and possibly purchasing apartments from families wishing to migrate, as described in the previous paragraph. In view of the transportation constraints that exist in many areas, a less radical solution to balancing the local labor market would be to provide subsidized transportation for workers willing to travel to other cities for employment.

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# **Parting Thoughts: Looking to the Future**

178. Mining towns and other towns dominated by a single<sup>industryare oftendescribedas</sup> "dying towns" after the closure or significant downsizing<sup>of thedominantindustryin thelocal</sup> economy. This term has been avoided throughout this report,<sup>asitcarriesrathernegative</sup> implications usually without a corresponding analytical<sup>basis for thisdesignation.And whileit</sup> seems that the population of mining towns will continue<sup>tocontract(as will populationsoverall</sup> in EE/FSU, at least in the medium term), it is important<sup>to keepin mindthe short "shelf life"of</sup> some of the more grim prognoses of decline in<sup>regionsthathavesufferedlarge-scalejob-</sup> destruction as a result of industrial restructuring.<sup>It istrue that the processof recovery is a long</sup> and arduous one. One way or another, however, most<sup>municipalgovernmentswillcomearound</sup> to dealing with the problems that confront their communities.<sup>If they can be aidedin thisprocess</sup> by national and regional governments and other concerned<sup>groups,such as NGOs,that sharea</sup> vision of coal sector restructuring and implement<sup>itconsistently,financialand human costs can</sup> be reduced.

179. There is an important role to be played by makers<sup>andimplementersof policyin helping</sup> to prepare municipalities for the difficult adaptation<sup>thattheyfacewhenminesare closed,</sup> including first and foremost minimizing the period of<sup>the adaptation(whichoften includesa</sup> phase of resistance to the restructuring policy, or a<sup>phaseof simply not knowingwhat to do)so</sup> that resources may be employed more effectively and<sup>the various componentsof themitigation</sup> strategy put into operation as soon as possible.

180. The town of Stakhanov, one of the research sites in<sup>Ukraine,isa noteworthyexamplein</sup> this regard. All of the mines in Stakhanov have been<sup>closedand, asdescribedearlier,thereis</sup> evidence of a high level of out-migration from the<sup>town.The localdevelopmentresponsehas</sup> been slow to come, protracted, perhaps, by the<sup>on-goingambivalencetowards coalsector</sup> restructuring from the national level down. At the same<sup>time,for thefirst timeinmanyyears,</sup> recent assessments of Stakhanov's future prospects<sup>containa glimmerof encouraging news.A</sup> comprehensive report on Stakhanov's economic and<sup>socio-culturallifethat was preparedby the</sup> city government in 2001 details a number of positive<sup>developments,includingthe resumptionof</sup> growth of industrial production, improved tax collections,<sup>thegrowthin thenumber of individual</sup> and small enterprises, a doubling of the average monthly<sup>number of vacanciesin the employment</sup> service, and so on. Of particular interest is the description of an investment<sup>projectunder</sup> implementation by a domestic investor that is<sup>convertingwaste fromcoalminingintoa</sup> marketable product that is sold as fuel to power stations.<sup>An environmental problemhas been</sup> turned into a business opportunity.<sup>37</sup>

> **37** Stakhanov, Ukraine (2001).

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181. The optimism of the ]local administration is echoed in the words of an entrepreneur in Stakhanov who participated in. the research: _[Business people] are thying to fill all the niches for the things necessary in life... Just this last year there's been a real leap forward.. People who, for example, began to work with wood and metal now have businesses installing doors with codes. New kinds of activities are starting up in the city, people are beginning to use services... There really is competition here now. People come here from all over the region to have weddings, celebrate birthdays and special occasions. The thing is, the absence of jobs and the closure of the mines really forced people to try to survive. And we allfeel this and we know that if we're going to do something, we have to do it right, it's a matter of conscience. And the pecple who take up [business] are the people who know how to do something._ Entrepreneur, cable and satellite TV systems, Stakhanov, Ukraine 182. The report prepared by the Stakhanov city government also noted that a business incubator had been opened in the town in 2001, with the help of a Lugansk Oblast organization dedicated to the support of entrepreneurship. One cannot help but note the contrast with Novoshakhtinsk, a coal town of about the same size, equally hard-hit by mine closure, and a short distance away on the other side of the Ukrainian-Russian border. Novoshakhtinsk opened its first business incubator in 1996 and has since gained recognition as one of the more progressive small towns in Russia in this field. Much remains to be done to diversify the local economy and establish an economic base that is independent of the coal sector, and in the meantime there is, inevitably, some dislocation and, social cost, as workers leave Novoshakhtinsk in search of gainful employment. At the same time, it is reasonable to suppose that the combination of a realistic vision on the local level and adequate support from above has helped shorten the adaptation period and to facilitate the town's progression into the constructive phase of response to the closure of the mines that were once the lifeblood of the town.

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# **Annex 1. Description of research sample**

A. **Phase 1 Indicative Sample.** The following indicative<sup>samplewas used todevelopthe</sup> sample in each country, with variations<sup>introducedasappropriateineachresearchlocation.</sup>

## **I. National-level officials working at**<sup>**national level**</sup>

1. Deputy minister (Department head) of Mining/Energy<sup>Ministry or Mine ClosureAgency.(Morethan</sup> one official is possible depending on nature of<sup>expertise.)</sup>

2. Deputy minister (Department head) of the Ministry<sup>of Finance.</sup> 3. Deputy minister (Department head) of the Ministry of<sup>Health.</sup> 4. Deputy minister (Department head) of<sup>the Ministryof SocialDevelopment/ Labor.</sup> 5. Government official overseeing regional/municipal<sup>development.</sup> 6. Member of parliament from coal mining<sup>region.</sup>

## **II. National-level officials working at**<sup>**locallevel**</sup>

_Officialfrom local branches of:_ 7. Employment Service.

8. Health service agency.

9. Education agency.

10. Social protection agency.

11. Environmental agency.

## **III. National-level non-2overnmental**<sup>**(civilsocietv)groups**</sup>

12. Representative of coal trade union.

13. National association of mining municipalities<sup>(alternativelymunicipalitiesin general.)</sup>

### **IV. Local officials**

_Municipal government officials:_ 14. Mayor.

15. Deputy mayor for social issues (social<sup>protection,health,education,etc.)</sup> 16. Deputy mayor for social assets (if applicable).

17. Deputy mayor for economics/economic development.

## **V. Other local experts and rePresentatives of civil**<sup>**societygroups**</sup>

18. Managers of job-creation programs, business<sup>incubators,etc.</sup> 19. Local union representative. 20. Local NGOs and other civil organizations. 21. Leaders of the informal groups in the community.

22. Director (deputy director) of large or growing<sup>non-coalenterprisethat employs former miners (or</sup> potentially could).

23. Local religious leader (if appropriate and<sup>significant for community.)</sup> 54
# **VI. Independent Experts (national and/or local)**

_Experts in the areas of:_ 24. Education.

25. Health, including stress-related mental and physical illnesses.

26. Child and youth problems.

27. Social deviations such as crime, drug abuse and other socially destructive behavior.

28. Family issues.

# B. **Phase 2 Sample - Members of the PoDulation**

Following is the description of the Phase 2 sample for each municipality; in each municipality, approximately 30 interviews were sampled, for a total of 60 per country (90 in Romania).

|**X2**|**Descriptionofsamplegroup(foreachmunicipality)**|**Indicative**<br>**Quantity**<br>_I(+-_<br>1okay)|
|---|---|---|
||**TOTALin eachmunicipality**|**30**|
|**1**|Coalminersfirstlaid-offin1997(1998latest)andpresently<br>unemployed orunderemployed.|_5_|
|2|Wives(or widows)ofune:mployed/underemployed miners.<br>Note:Notwivesofrespondentsfromothergroups.|5|
|3|Coalsectorworkerslaid-offin1997(1998atlatest)andpresently<br>employedinthe coalindustryinanycapacity.<br>Note:Including workingpensionersuptotheageof60.Ifrelevant,okaytoinclude<br>oneortwo"professional migrants"- i.e.coalminerswhoregularlytravel toothercoal<br>regionsorcountries(e.g.fromIJkraine toRussia)towork in the coalindustryandwho<br>aretemporarilyathomeonleave- butonlyiftheyreallyareemployed.|6|
|4|Unemployedyoungpeople(notformerminers),age20-30.<br>Note:donotincludestudentsorindividualswithhighereducation.Conceptually the<br>ideaistofindindividualswhomostlikelywould havefound employmentinthecoal<br>sectorinthepast,beforecoalsectorrestructuringandthegeneralcontractionofthe<br>economyinthetransitionperiod.|4|
|_5_|Formercoalminerswho receivedprofessional retraininginanother<br>profession.<br>Note:Itisnotnecessaryfortheserespondentstohavefoundemploymentintheir new<br>profession,theimportantpointis thefactthatthey received retraining.|3|
|6|Localindividualentrepreneurswhohaveusedtheservicesoflocal<br>businessincubatorsand/orreceivedmicrocredittoopentheirown<br>businesses.<br>Note:Self-employedorwithno morethan3employees,andnotnecessarilyformer<br>coalsector workers.Respondentscanincludeindividualswhoengageinpettytrade<br>butthe emphasisshouldbe onthose whohaveplanstodeveloptheirbusiness,not<br>thosewhoareengagedinpettytrade"simplytosurvive".|5|
|7|Localentrepreneurswith10or moreemployees<br>Note:Givepreferencetorespondentswhostartedtheirbusinessesin1997orlater.|2-3|

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# **Annex 2. World Bank lending in support of coal**<sup>**sectorrestructuring in**</sup> **Eastern Europe and the former Soviet Union**

|**LoanAmount**<br>**(USDmillion)**|**LoanApproval**<br>**Date**|**LoanStatus**|
|---|---|---|
|X**Polsnd.**;<br>~<br>;<br>.<br>Hard Coal SECAL1<br>$300|June19999|ClosedSeptember2000.|
|Hard Coal SECAL2<br>$100|August2001|Closed December2001.|
|**Romiinanka.**<br>-<br>.<br>.<br>,<br>MineClosureandSocial<br>$44.5|.<br>_<br>August1999|Active(closing June2005).|
|MitigationProject|||
|<br>(Note:forcoalandotherminingindustries)|||
|CoalSE,,C-A-L-,,_1S'_<br>$500|June1996|ClosedDecember1996.<br>|
|Coal SECAL2<br>$800|December1997|ClosedDecember2001.<br>|
|CoalIAP(technical<br>$25<br>assistance)|June1996|Active(closingDecember<br>2002).|
|**Ukralne.**<br>i-<br>--|.<br>..|**-e**|
|CoalPilotProject<br>$15.8<br>|May1996<br>|ClosedDecember2000.<br>|
|CoalSECAL<br>$300|December1996|Closed December2000.|

56
Annex 3. Russia: Evaluaition Criteria for Local Development Programs

|Factor(criterion)|Weight|Rating|Value|
|---|---|---|---|
|1.**Financialpotential**||||
|1.1Profitabilityofown capital|.2|Negative<br>Zero|-1<br>0|
||.|Positive|+1|
|1.2Levelofborrowedcapital||High|-1|
||.2|Average|0|
|||Low|+1|
|1.3Periodofpaymentofaccounts payable.|.1|Early<br>Ontime|+1<br>0|
||.______|Late|-1|
|1.4Enterpriseabilitytopay|.3|Low<br>Optimal<br>High|-1<br>0<br>+1|
|1.5Existenceofundistributed profit|.2|Unstable<br>Neutral|-1<br>0|
|||Stable|+1|
|**2.Productionpotential**||||
|2.1Numberoftypesofactivity|.2|Itype<br>Less than3types|-I<br>0|
|||3ormoretypes|+1|
|2.2Volumeofproduction(dynamic)|.1|Fallingvolume<br>Stabile|-1<br>0|
|||Growing|+1|
|2.3Loadfactor|.3|Less than0.8<br>0.8|-1<br>0|
|||More than0.8|+1|
|2.4Norms forexpenditureofrawmaterialsand||Areabsent|-I|
|othermaterials|.1|Often used|0|
|||Areused|+1|
|2.5Profitabilityofproduced goods|.3|Negative<br>Less than10%|-I<br>0|
|||More than10%|+1|
|**3.Marketingassessmentofenterprise**||||
|3.1Potential scopeofmarket|.3<br>._<br>_ _ _ _<br>.|Non-perspective<br>Relatively perspective<br>Perspective<br>_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _|-1<br>0<br>_<br>+ 1|
|3.2Salesvolume||Small,local|-1|
||.2|Sufficient,local<br>Large,including salesin|0|
|||<br>otherregions|+1|
|3.3Competition|.3|<br>Veryhigh<br>Moderate|-1<br>0|
|||Verylow|+1|
|3.4Existenceofportfoliooforders|.1|<br>Noportfolio<br>Currentordersportfolio|-1<br>0|
|||Future ordersexist|+1|
|3.5Advertisingexpenses|.1|None<br>Lessthan10%ofsales<br>Morethan10%ofsales|-1<br>0<br>+1|

57
|Factor (criterion)|Weight|Rating|Value|
|---|---|---|---|
|**4.Socio-economicassessment**||||
|4.1Numberofjobscreated|.2|Fewerthaninplan<br>Asplanned<br>More thaninplan|-1<br>0<br>+1|
|4.2ofwhich,forformerminers|.2|Fewerthaninplan<br>Asplanned<br>More thaninplan|-I<br>0<br>+1|
|4.3Wage level|.2|Belowregional average<br>Regional average<br>Aboveregionalaverage|-1<br>0<br>+1|
|4.4Costs perjob-created|.3|More thanin plan<br>Asplanned<br>Lessthaninplan|-l<br>0<br>+1|
|4.5Qualificationofmanagement|.1|Low<br>Average<br>High|-1<br>0<br>+1|
|**5.Investmentpotential**||||
|5.1Assessmentoffutureinvestmentplans|.2<br>.__ _ _ _|None<br>Plansexistforcurrentyear<br>Plansexistformediumterm<br>_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _|-1<br>0<br>+ 1|
|5.2Existenceofownsourcesofinvestment|.2|None<br>Lessthan50%ofneed<br>More than50%|-1<br>0<br>+1|
|5.3Accesstocredit|.2|Creditinaccessible<br>Creditsaccessiblebutonly<br>up tohalfofneededamount<br>Access toanyvolumeof<br>credit|-1<br>0<br>+1|
|5.4Location(territory)|.2|Poor<br>Neutral|-1<br>0|
|||Advantageous|+1|
|5.5Environmental factor|.2|Poor<br>Neutral|-1<br>0|
|||Advantageous|+1|

58
# **Annex 4. Cost-benefit analysis of coal sector restructuring**<sup>**(VVorldBank projects)**</sup>

Country, Type of analysis Costs Benefits Results of Notes project (major items) (major items) **analysis** Romania, Mine Financial Severance, social Savings of labor FIRR 16.5% Closure and programs, mine costs and related Social Mitigation closure costs social fund in view of lack of reliable data. Project contributions Ukraine, Coal (i) Economic - ex Costs of coal Value of coal EIRR 55% The economic analysis compares Pilot Project (3 ante (appraisal) production, mine delivered to (overall; range mines) closure, coal imporis consumers, value from 20% to and social mitigation of output from re93%) (latter two only in employed miners "with project" (in "with project" scenario) scenario)

- FIRR 16.5% Benefits from microcredit and incentive schemes not quantified for purposes of analysis in view of lack of reliable data.

- EIRR 55% The economic analysis compares (i) costs and

- (overall; range benefit ofthe continued operation of<sup>the mines</sup> from 20% to during the project implementation period<sup>and</sup> 93%) during a post-project period limited by coal reserves at each mine, with (ii) the costs and benefits of closing these mines immediately.

The driver behind the results is reduction of cost of domestic coal production through mine closure in "with project" scenario.

Ul

- EIRR 47% Revisions of analysis at project completion was (overall) based on the following factors: (a) the cost of imported coal, which sensitivity analysis in the ex ante analysis showed to be the most important factor, did not change. Further, the cost estimates for mine closure were on target (even slightly lower than at appraisal);

(ii) Economic - ex (as above) (as above) post

- (b) however, social mitigation costs were higher than estimated at appraisal and creation of new employment was progressing slower.

(iii) Fiscal impact Coal industry Contributions to US$ 59 mln - ex ante subsidies, mine social funds, taxes incremental net closure, social impact on mitigation budget