26 October 2017

Russia’s next revolution: how technology came to the mines

Russia’s next revolution: how technology came to the mines

Automation is about to catapult an economy long tied down by the Soviet legacy into the 21st century

When Yevgeny Kosmin walked out into the daylight on a bright summer morning, his face was black but he was smiling. In July, the 31-year-old miner and his brigade had dug more than 1.5 million tons of coal out of the ground — more than had ever been cut from a single coalface in a month anywhere in Russia.

In the Kuzbass, the southern Siberian region that accounts for 60 per cent of Russia’s coal production, the chubby young man is now a celebrity. He is hailed as a new Alexei Stakhanov, the worker who, in 1935, mined 14 times his quota and became an example for the entire Soviet Union, giving rise to a communist-era cult of attempts to smash industrial production targets.

But today’s Stakhanovite has a secret. Unlike his predecessor, who had little more than a drill in his hands and the encouragement of Joseph Stalin in his ears, this modern-day miner and his 80-strong team work to the beats of an increasingly smart machine. Kosmin’s mine is one of Russia’s most technologically advanced. Manual tools have been replaced by a semi-automatic, German-built device that shears chunks of coal from the tunnel walls.

Big-data systems pump information from 200m below the ground via the internet, while an array of sensors built into the workers’ white helmets allows engineers on the surface to track their every move along the tight, sloping tunnels.

“A few years ago, all this was done blindly,” says Kosmin, a local lad from a mining family, who has worked underground since he turned 18. “The master had to ring from the longwall and tell people up there what was happening — nobody could see anything.” Last year he received a “Hero of the Kuzbass” medal for his endeavours, a title created in the proud Soviet tradition of glorifying socialist model workers.

Across the world, companies have jumped on the bandwagon of the “fourth industrial revolution”, which promises jumps in growth through automation and big-data-led efficiency. Such transformation has long proved disruptive, rendering massive numbers of workers obsolete. But in Russia, where years of under-investment mean equipment lags far behind that of the west, the vast leap required could shatter entire regions, many of which have changed little since the collapse of the USSR more than a quarter of a century ago.

Kemerovo, the administrative region around the mine where Kosmin works, is a territory the size of Hungary. Some 3,600km from Moscow, it provides a stark reminder of how deep Soviet roots still run in the Russian economy. Most of its 2.7 million people live in towns built by government decree for the sole purpose of settling a workforce for the thousands of local coal mines.

Russia has more than 300 such “monotowns” — settlements in which a single industry or employer dominates the local economy. All in all, they are home to 14 million people, about one-tenth of the country’s total population. The lion’s share of resource industry jobs are in these towns, putting them at a heightened risk of upheaval as the industrial revolution gathers pace.

Suek, the coal-mining group that runs Kosmin’s mine, is currently rolling out big-data tools and automation across its 26 mines in Kemerovo and elsewhere in Siberia. In some mining operations, it is even experimenting with completely replacing workers with machines. “There are a lot fewer people needed down there now,” says Kosmin. “I saw how my dad worked, and heard his stories. They needed a bunch of people just to get the drive going, and they were still working with shovels. Now I just push a button.”

This drive to modernise has backing from the top. As the country crawls out of a two-year recession, President Vladimir Putin’s economic advisers warn that Russia will fail to catch up with average global growth unless Moscow changes the way the country is run — and its biggest companies follow suit. “The main challenge is to participate in the global trends of technological revolution. It can bring completely new levels of productivity, which we lack,” says Alexei Kudrin, a former finance minister. now working on Putin’s next economic development plan.

In Kemerovo, local residents register such rhetoric with trepidation. The region is home to a third of the 15 towns across the whole country most dependent on a single employer, according to Natalia Zubarevich, an expert on the economy of Russia’s regions. In these super-monotowns, between 40 and 80 per cent of the workforce rely on the main employer. When those factories or mines start replacing people with robots or circuit boards, there is nowhere else to go. 

“Our local economy is 82 per cent dependent on coal, and two-thirds of our people depend on it for employment,” says Dmitry Titov, a former coal miner who is now mayor of Beryozovsky, one of those super-monotowns. “If there’s a problem with the coal industry, the town is dead.”

Home to 47,000 people, Beryozovsky has already learnt what happens when the jobs go. One of its four settlements has practically been abandoned since the mine it was built around closed a few years ago, its low-rise buildings, pedestrianised streets and flowerbeds now the remnants of a place carefully designed to provide comfortable living for its workers. 

“My father was head of the district many years ago, and he helped build all this,” says Svetlana Popury, a town official. “It was so beautiful!” Now, the stucco ornaments are falling from the façades and the quiet streets are overgrown with weeds. In the playground, where the equipment is modelled on mining machinery, cows roam between the swing and the see-saw.

The threat of job cuts hangs over many Kemerovo towns like a layer of industrial smog — a fear that dates back to the waves of lay-offs that people have endured since the Soviet Union went under in 1991. “At the end of the 1980s, up to 330,000 people were employed in the coal industry in Kemerovo Oblast, but now this number is down to 91,000,” says Yuri Shevelyov, a mining professor and adviser to the region’s deputy governor. 

Eleven of those geologically difficult mines have been closed in the past three years, forcing many workers to sign up for jobs hundreds of kilometres away. One of them is Yuri Berdin from Belovo. He now drives a 90-ton dump truck transporting coal at an open-pit mine in Mezhdurechensk, 200km from home. The broad-shouldered young man does 12-hour shifts for a week, stays in a dormitory at the pit and then goes home for a week off. Berdin, who takes pride in his massive vehicle, doesn’t believe that he is at risk of being replaced by a robot. “Men are reliable, machines are not,” he says.

His confidence is understandable. Despite the Kemerovo region’s travails, a significant proportion of the monotowns the government has categorised as economically stable are backed by large mining companies. But experts warn that this is about to change as Russia’s leading miners aggressively push automation.

In Polysaevo, a super-monotown not far from the mine where Kosmin works, signs of decline are so far absent. Two open pits and two underground mines, one of them run by Suek, ring the settlement of 27,000, providing 43 per cent of all local jobs. Women thread in and out of supermarkets, boutiques and furniture shops. On the main street, a delicatessen has just opened, where patrons can sip espresso at the counter on bar stools behind a floor-to-ceiling window — a scene reminiscent of Moscow.

But the comfort is only skin-deep. “Eventually, machines will replace all of us,” says Anatoly, 60, an electrical machinist who maintains the ventilation system at one of the largest coal mines in Polysaevo. Having worked underground for 41 years, he laughs bitterly as he says that the only jobs being created are “for accountants”. In the past, he explains, “being a miner was like, wow, a miner, proud. No more. Now it’s something below average. In the past, we would be walking around like real men. Now people say, ‘What for?’ It’s no longer a prestigious profession.”

Over the past two years, Suek has piloted Russia’s first fully automated longwall in Polysaevo, trying to cut coal underground without a single worker on site. Although company executives say the project has shown that its mines are not ready for full automation, the experiment has spooked the locals.

Yana Lill, 20, a kindergarten teacher, says all her neighbours are talking about job cuts at Suek, her father’s former employer. “They want people to go to the Far East, and if you don’t go, then that’s your problem.” Leaning out of the window of her ground-floor flat in one of the town’s drab prefab apartment buildings, Lill clowns around with Alexei Lobanov, her 22-year-old husband.

The couple have a nine-month-old son, she loves her job and they get by on Lobanov’s salary from road construction. Lill believes the town is going nowhere, but says she would never leave. “Where should I go? I don’t even know what I could do anywhere else,” she says. “But my son will not live here when he grows up. I hope he will go somewhere else. There is nothing for him here.” 

Indeed, it is places such as Polysaevo that have the most reason to worry for their future, experts say. “The fallout from the modernisation of the mining industry on the labour market is the most acute question for those monotowns that look stable right now,” says Dmitry Zemlyansky, an expert on Russian monotowns at Moscow State University. 

In the boardrooms and corporate offices of Russia’s industrial groups, the revolution is already well under way. Steel giant Severstal recently conducted an internal study comparing its performance over the past 20 years with that of its international peers. “We […] saw that we were very often lagging behind,” says Alexei Mordashov, its chairman and Russia’s second-richest man. Stating baldly that his company is neither agile nor innovative, he says the rise of automation technologies offers a chance to catch up: “It is a kind of threat and also an opportunity. If you change, you have a decent chance to succeed, not just survive.”

Mordashov, who, according to Forbes’ annual rich list, built a personal fortune worth $17.5bn in the chaotic years after the collapse of the USSR, is one of the most committed devotees of Russia’s new industrial revolution. He litters speeches to his steelworkers with digital terminology and futuristic schemes, and encourages them to take risks in search of new ideas — anathema to those used to the classic post-Soviet corporate approach.

At Severstal’s vast plant in Cherepovets, 500km north of Moscow, things are changing fast. The plant is a sprawling monument to a bygone age of Russian industry. An archetypal monotown, it was founded by a decree by Stalin in 1940. Encompassing 30 sq km, it once employed about half the local population; the plant was the city, and the city the plant. That legacy continues: Severstal still owns the airline that runs flights to Moscow, sponsors the ice-hockey team and operates the city’s water park. 

Yet, even a year ago, deputy smelting shop director Vitaly Popovich would use handheld calculators and printed reference posters to work out the quantities of different substances to be added to the vats of white-hot molten steel. “Sometimes people would press the wrong button. We were even using a Chinese calculator,” he laughs. “Now, it’s all automated. First, the human factor is excluded. Second, we operate using the minimum amount of material required. Third, knowing exactly how much material we need increases the quality of the steel. And fourth, and most importantly, this makes our work more comfortable.”

The calculator has been replaced by Olga, a computer system designed by Severstal’s in-house innovation team and named after the wife of the program’s lead developer. “Sure, this is long overdue,” says Popovich, as we peer at vast steel vats filled with bubbling metal so hot that you need to wear special tinted glasses to look at them. “Our infrastructure is from the 1980s. So we need to use our initiative to utilise best what we have.”

But by the end of 2018, all quality-control processes will be carried out without human intervention, says Denis Ivanov-Pavlov, the in-house software developer married to Olga. “We are probably 20 per cent towards where we need to be.” 

Elsewhere, computer programs now control the plant’s main blast furnace — the largest in Europe — replacing the workers who used to shout down crackly telephone lines and scribble in vast notebooks. Another program, to monitor equipment usage in real time, has cut the machinery failure rate from about two to three stoppages per month to one in the past six.

For many years, there was little incentive for Russian resource companies to invest in new machinery, let alone automate. In the early years after the Soviet Union collapsed, tycoons such as Mordashov were busy securing private control of former state assets and extracting quick profits from oil wells, mines or mills.

As owners concentrated on defending their assets from domestic rivals, investment was a distant thought. Meanwhile, the glitzy future promised by capitalism lured many would-be engineers away from the plants and mines that needed their expertise.

“During the 1990s, a huge number of potential mining engineers were lost,” says Sergei Dyachenko, chief operating officer of Norilsk Nickel, the world’s largest nickel producer. “It was a time when the younger generation did not want to go to mining institutes. They saw that salaries were not paid on time . . . and companies were in something of a crisis. It was easier for people to go to the banking industry or to the street market to make easy money. That has created a gap that we feel even now.” 

Nowhere is that gap more pronounced than in mining and resources, the bedrock of the Russian economy. A massive survey by the Centre for Strategic Research (CSR), a think-tank headed by Kudrin, found that the average age of the equipment in Russian oil production is 19 years, in metallurgical plants 17 years and in mining of resources other than oil 16 years. 

“On one side you have old legacy assets, on the other side there is potential in the ground for another 100 years,” adds Dyachenko. “You won’t be able to live with first-class resources underground, while still using old technology.”

Russian industrial companies must also compete with global rivals, many of whom introduced new technologies years ago.

“We did the comparison with peers, and were a little surprised at how the resources and infrastructure were not sufficiently utilised, how much potential was still hidden in the system, how much fat there was that could be optimised,” says Pavel Grachev, chief executive of Polyus, Russia’s largest gold producer.

Even getting close to global trends could have enormous repercussions. Russia today counts just three industrial robots per 10,000 workers, compared with a world average of 69 and more than 100 in advanced economies, according to the International Federation of Robotics.

Gold production is up as much as 30 per cent in two years at some of Polyus’s mines thanks to new digital tools. But automation comes at a price. “In the long term, an excessive head count is not just an issue of salaries, but a matter of keeping people busy. People can create unnecessary work and processes,” says Grachev. “There’s still a lot of things in the processing plants that have to be automated in the short term before we get to things like self-driving trucks. And, of course, that will release lots of people. Definitely, there will be cuts.” 

How to grapple with the social impact of this new industrial revolution is in many ways more difficult than deploying modern technology in Soviet-era factories. While demanding more efficiency, Russia’s government has long made it clear to oligarch-owned conglomerates that they are responsible for helping to keep the monotowns socially stable. Putin’s 17-year rule is built on the claim of having returned stability to a country rocked by the shocks of economic liberalisation and robber-baron capitalism in the 1990s. As such, he has kept close tabs on job security in the big monotowns, wary of potential sources of unrest.

In June 2009, in the depth of Russia’s previous sharp recession, Putin gave aluminium magnate Oleg Deripaska a public dressing-down after workers in the northern town of Pikalyovo, where his company is the main employer, took to the streets over production stoppages and unpaid wages.

“I must say that you’ve made thousands of residents of Pikalyovo hostages of your ambition, your unprofessionalism and maybe your greed,” the president told Deripaska in front of rolling cameras. As the tycoon hung his head, Putin asked why he had “neglected” his factory. Before the president had left town, Deripaska had ordered that all outstanding wages be paid.

“The effect of that show lingers until today,” says Zemlyansky. “After what happened in Pikalyovo, in all Deripaska towns, they keep on a certain number of employees even in companies that should be shut down, just because of the fear of Putin.” 

And the Kremlin is keeping a close eye on things. The National Guard, the police force in charge of riot control, monitors social stability in some monotowns. The federal government has also set up a system to collect more comprehensive data on their social and economic state. The statistics are kept secret, making it impossible even for local governments to assess the situation properly.

For more than two decades, Russia’s government has also attempted to cobble together a strategy to help manage industrial decline. A fund run by state-owned Vnesheconombank (VEB) offers loans and subsidies to rebuild infrastructure, foster businesses and retrain citizens. But according to Zemlyansky, that money has often gone into projects that would have happened anyway. “It would be more important to secure an orderly winding-down of the many towns that cannot survive,” he says.

Back in Beryozovsky, Mayor Titov says locals are barely using the government programmes. “Some give it a try . . . but it is so much more complicated than going down into the mine,” he says. “No matter if it’s selling PVC window frames or running a little café — you need to invest upfront and have to pay office rent and salaries every month, but revenue will trickle in only slowly, and sometimes there will be barely any money coming in at all. People just don’t have the financial reserves. So many give up quickly and come back to the mines, where pay is good and stable.”

Elsewhere, there has been some success in weaning cities off dependency on a single employer. In January, Irina Makieva, vice-president of VEB and head of the fund for the development of monotowns, said that at the end of 2018, 18 towns are expected to be taken off the government’s monotown list to reflect that “their economy has become sustainable”, with Cherepovets the first candidate. “We have no doubt that new projects will be realised in the city by 2018; the city is diversifying successfully,” she added. 

In 1999, Severstal employed 50,000 people in Cherepovets; today it is just half that number. Of those laid off, 4,500 found work at enterprises funded by the company, and 10,000 have jobs at new companies supported by the steelmaker’s business incubator, says Lyudmila Guseva, the company’s corporate social responsibility adviser. 

“I believe there is a sort of social contract in many companies,” says Mordashov, a local boy who grew up in the city. “I don’t pretend everyone is happy, not at all. But in general [Severstal] has a certain, I hope, social contract.”

Much painful restructuring is still ahead. Kemerovo itself has become one of the regions with the highest labour mobility in all of Russia, a sign that automation is weaning workers off Soviet-era habits. Experts predict that inequality will grow in those places where mining modernisation kills jobs, but so will opportunities for those with better skills. “In those places, we will see more pronounced social stratification, and there will be more people without income from regular work,” Zemlyansky says. “At the same time, in the monotowns with companies that modernise, employment is gradually going down, but average salaries are going up as productivity goes up.”

Yevgeny Kosmin believes that he will be among the winners. As Suek offers merit-based pay components, his record-breaking brigade’s modern mine has been a good place to work. In July, he took home Rbs183,000 (£2,400) — more than four times the salary ordinary workers in neighbouring mines say they get.

Such perks have won him over to a fundamentally different industrial economy. “Progress will not stand still. I think human labour will decrease — humans will just watch and control the technology,” he says. “Man will press a button, everything starts spinning, he sits, watches it work via a monitor. In a clean shirt, not smeared in dirt. I think it will come to that.”

Kathrin Hille and Henry Foy

Source: Financial Times
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