Russia steps in as job losses, closures ravage east Ukraine

Looks like I didn't explain it good enough.

Let's try again by example.

Let's say Ukraine can import coal for $80.

Let's also say the costs of extraction in Donbas (among the highest in Europe btw.) are $100 / ton.

So if Donbas companies sell coal at $100 they are running at positive zero. Nothing remains for the future investments. The only good thing is the people are kept employed.

Now a powerplant if allowed, will always buy by the cheapest price, that would be imported coal at $80. But the state doesn't want the coal mines to close down, so they pay whatever domestic coal consumer $30 / ton from of the public funds. Now the powerplant starts buying the coal Donbas offers for $110, and together with the subsidy, they are at the same price of $80.

So the Kharkiv powerplant isn't subsidised, because they came even, and would not get the money, if they bought the coal from abroad. Kapich?

The Donbas is subsidised so now they even have a slight surplus, and can invest, or pocket rather, that money.

Absolutely the same situation would be if the Donbas mines were directly subsided $30 by the ton they produced. With the costs the same, they can now sell at $75 and be profitable. So they do, and the power company buys their coal.

Again, everyone is happy, except for the taxpayer, who finance Donbas bosses and mafia, who pocket all surplus, instead of investing in upgrading production. Why would they invest in the future what they can pocket now, when they have a guaranteed sale and subsidies anyway. Plus if the government ever starts thinking about cancelling the subsidies, they can incite some unrest and protests a bit, and then after continue pocketing the money.

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