Mining coal in Yakutia appears to have transformed from a win-lose situation.
Yakutia's Coal Mining: Current State vs. Past Debates
Yakutia, Russia, has had confusing conversations about its coal mining industry for quite some time now. The debate initially centered around the idea that coal production brought little benefit to the region, making it a "zero" industry for the republic. However, today, the situation appears to have shifted dramatically. Senior officials in Yakutia are enthusiastically declaring that coal is, in fact, everything for them. But is this really the case?
To explore this incongruity, YI decided to take a closer look at the financial aspects of Yakutia's coal mining giants – "Yakutugol," "Kolmar," and "Elga."
Controversial Statements from the Past
During a 2018 meeting at a discussion platform, Il Tumen deputy Victor Fedorov and the then-acting minister of Yakutia's economy, Dennis Belozorov, made some controversial statements that are now considered significant. In response to a question about coal mining in Yakutia, Belozorov remarked that, in 2018, nearly half of the coal mining volume in the republic was due to regional investment project participants and TOR residents, which meant that no profit tax or mineral extraction tax (MET) was collected from these operations.
In the same year, journalist Vitaly Obedin pointed out that Yakutia had lost roughly 800 million rubles in profit tax alone by creating the TOR "Southern Yakutia" for the company "Kolmar." This was during the tenure of Yakutia's former chief Egor Borisov.
Later Developments
A year after Borisov's departure, with the arrival of Aisen Nikolaev to power, the Ministry of Economy stated that the situation had changed significantly. Then-minister of Yakutia's economy, Maya Danilova, claimed that the decrease in tax revenues due to the reduction of tax benefits was a misconception, asserting that the data showed the opposite.
Danilova compared three coal mining companies in Yakutia – "Mechel" (now known as "Yakutugol"), "Kolmar," and "Elga." At that time, all three were employing three different tax regimes. "Mechel" was under the KUN regime (consolidated groups of taxpayers), now abolished. "Kolmar" was a TOR resident with a reduced tax regime, while "Elga" used the tool of a regional investment project (special regime with a reduced rate).
Danilova stated that the TOR route was most advantageous for the republic's budget, as the republic would have received nothing if it weren't for this project in Southern Yakutia and would have faced problems with employment there.
This begged the question: what is the current state of taxation for these companies five years later?
Revisiting the Financial Impact
In response to our inquiry, the current minister of Economy of Yakutia, Pavel Popov, revealed that 38.5 million tons of coal were mined in the republic in 2023. Coal production had risen by 1.7 times compared to 2019, resulting in increased tax payments.
The minister mentioned a 7.2 times increase in tax revenues from coal mining companies to the consolidated budget of the Republic of Sakha (Yakutia) for the period from 2019 to 2023, amounting to 11.2 billion rubles in 2023. However, specific tax payments from individual companies were not disclosed due to confidentiality under Article 102 of the Russian Tax Code.
Investments and Job Creation
Popov also noted that companies in the Advanced Special Economic Zone "Southern Yakutia," such as "Kolmar," invested 17.5 billion rubles in 2023 (compared to 15.4 billion in 2022). Since the introduction of preferences, the total investments reached 94 billion rubles, and 6,440 new jobs were created (compared to 6,020 in 2022).
Regarding companies participating in regional investment projects, such as "Elga Coal," investments totaled 33 billion rubles in 2023, with 1,858 new jobs being created since 2019.
Conflicting Opinions and Unanswered Questions
While coal mining in Yakutia is no longer an industry with "zero indicators," it remains unclear whether it would have paid more in taxes if it weren't for the special regimes. Detailed numerical comparisons between tax reductions before and after the introduction of special regimes were not available.
In conclusion, the coal mining industry in Yakutia presents a complex picture. While the TOR and RIRP regimes have indeed provided incentives for investment, job creation, and growth, they have also resulted in reduced tax burdens in the short to medium term. The debate over whether TOR is the most advantageous regime remains inconclusive.
Despite the significant increase in coal production and tax payments in Yakutia, it remains uncertain whether the special financial regimes, such as TOR and RIRP, have truly maximized tax revenue for the region. The debate between conflicting statements from past officials and the current minister of Economy of Yakutia, Pavel Popov, on the positive impacts of these special regimes reveals an ongoing question about the financial benefits for the business and industry sector in Yakutia.
