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Russian mine disaster highlights safety woes

Russian mine disaster highlights safety woes

A recent deadly coal mine explosion in Siberia—now reported to have been caused by the deliberate blockage of methane gas detectors—underscores the need for improvements in risk management in the industry, experts said.

An investigators' report earlier this month revealed that the detection system at the Ulyanovskaya mine in Novokuznetsk, Russia had been tampered with, and that this caused a build-up of methane gas that led to the March 19 explosion that killed 108 people—including miners and company management.

The tragedy should propel the Russian mining industry to increase its risk reduction efforts, said John Bacharach, director of IMC Montan, a mining consultancy based in Moscow.

"Since the accident, I have been talking to various people in the industry and my feeling is this accident has really shaken them up," said Mr. Bacharach.

"This is a new mine and people are asking themselves: 'If this can happen in a new mine, it isn't due to Soviet equipment and worn-out facilities. There must be something to learn from this. Things will have to change."' The mine reportedly opened in 2002.

A colleague of Mr. Bacharach, Ian Robertson, a British senior mining engineer with IMC, was among those killed in the explosion. At the time, Mr. Robertson was conducting a technical inspection of the mine's coal reserves, Mr. Bacharach said.

Beyond Russia, there are signs that in Eastern Europe, mining companies are also taking risk reduction seriously, said Tom Niemi, president of Euromines, the European association of mining industries, based in Brussels. Russian companies are not part of the association.

Former Eastern Bloc countries are "extremely willing" to learn how to develop their mining activities "so that they will be acting in a more sustainable way," said Mr. Niemi, who is deputy chief executive officer of Boliden A.B., a mining and smelting company, based in Stockholm, Sweden.

"Poland is a good example where they are flooding Euromines with questions: 'How can we do this better?' Of course, in the background, they are thinking in financial terms, to make more money, but they also understand now that for them to be able to operate in the future they have to be thinking in a different way than they were thinking during the Soviet era."

It means reducing risk on all levels—operational risks, worker safety and environmental risks, Mr. Niemi said. While insuring some of these risks is possible, it is not always easy, experts said.

There is "limited capacity," especially for underground coal mines, and deductibles can be "very high," said Martin Galea, an executive director and deputy mine practice leader at Willis Group Holdings Ltd. in London.

The tightening market, which began in the mid-1990s, has since stabilized, but remains difficult in some areas, he said. Because of the tight capacity and premium cost, some mines self-insure, he added.

"There is insurance but it's selective; it's for the ones that are well risk managed," Mr. Galea said. "Mining is a complex area, and a lot of factors get involved, whether something is insurable or not," namely geology, risk management, and safety procedures.

Rates for underground coal mines can be as high as 1% of the total insured value.

From a global perspective, "there is a reasonable appetite (from insurers) for mining accounts," said John Lambert, senior underwriting specialist at Zurich Global Energy in London, part of Zurich Financial Services.

That is due to the "relatively high premiums and good levels of technical information available." However, so-called "soft rock" exposure, meaning coal, is "currently being referred to the head office (for approval)."

By contrast, mines are typically not insured in Russia because of the rather low margins and high insurance costs. Information on whether the Ulyanovskaya mine was insured was not available.

"Mining business is considered to be a business of extremely high exposure," said Dennis Kuzalev, director of corporate insurance at OJSC ROSNO, the Moscow-based insurer that is majority-owned by Allianz S.E. "Therefore, the market is very careful...especially with regard to underground equipment."

According to Russian media accounts, a preliminary investigation found that mine managers were allegedly complicit in tampering with methane sensors in order to increase coal production. Evidence has been passed on to criminal prosecutors, the press reports added.