Coal in the Lungs, Money in the Holding

How Yakutugol financed Mechel at its own expense and to the detriment of the region

Yakutugol, once a stable enterprise in the Sakha Republic (Yakutia) and a cornerstone of the local economy on which thousands of people depend, is now polluting air and water, struggling to make compensation payments to workers and carrying multi-billion debts to suppliers.

Based on an analysis of both public and non-public financial statements,this investigation by Arсtida shows how the holding’s management used Yakutugol for years to service the group’s debts, draining its liquidity, turning it into a hub for accumulating liabilities, and depriving the company of any real chance of recovery. We also assessed how the lack of funds for production modernization is negatively affecting both the company and the region.

Toxic Trail of Debt

In May 2025, an explosion rocked the Neryungrinskaya coal preparation plant owned by Yakutugol Holding Company. One person was killed and three were injured. By that time, Yakutugol was already in deep crisis. In 2024, its net loss reached 9.97 billion rubles. The company had accumulated nearly 10 billion rubles in debt to suppliers, some of whom have publicly recommended working with Yakutugol only on a 100% prepayment basis.

At the same time, Yakutugol employees are forced to work with worn-out equipment, workplace safety regulations are widely violated, and the company delays payments. Following the explosion at the Neryungrinskaya plant, prosecutors identified 280 violations of industrial safety requirements, while Yakutugol’s recent litigation record includes dozens of lawsuits from individuals seeking unpaid wages and compensation. Workers who lost their ability to work due to occupational diseases are fighting for legally owed payments through the courts.

The environment is also suffering.

Arctida found that Yakutugol is the largest air polluter among all coal mining companies in the Sakha Republic.

According to the regional government’s 2025 report, the company’s emissions of pollutants into the atmosphere from stationary sources amounted to 9,518 thousand tons per year. Reporting data show that this figure remained unchanged from 2021 to 2024. Altogether, Yakutugol accounts for around 40% of emissions from the region’s coal industry — an outsized share for a company that produces three to five times less coal than industry leaders Kolmar and Elgaugol.

“Yakutugol operates older and more worn-out infrastructure compared to its competitors. If the company has not had the opportunity to invest in equipment modernization, this naturally affects the volume of pollutants released into the environment,” explains Arctida climate and environmental analyst Raya Levashova.

These problems concern not only air pollution but also the handling of industrial waste and the treatment of oil-contaminated wastewater.

“The data on pollutant emissions reported by Yakutugol also raise concerns: identical figures are listed for every year from 2021 to 2024. Even setting aside how statistically unlikely that is, Yakutugol remains the ‘dirtiest’ enterprise in the republic, and it is located in close proximity to residential areas,” the Arctida analyst says.

Indeed, in the settlement of Dzhebariki-Khaya, where Yakutugol operates an open-pit coal mine, coal dust settles in a black layer along the roads, on the Aldan River, and near residential homes by the boiler plant, as is visible even in satellite imagery.

Toxic components of coal dust can cause cancer and mutations. The greatest danger comes from fine particulate matter ranging from 2.5 to 10 micrometers in size, which can accumulate in the lungs. Prolonged exposure can lead to severe diseases such as anthracosis.

Coal Dust Turning into Gold

Mechel became the full owner of Yakutugol in 2007. At that time, it was a profitable and stable enterprise, but everything changed within just a few years. Starting in the early 2010s, Yakutugol began to be used as collateral for the holding’s debts, with its assets pledged against loans taken out by other companies within the group.

Igor Zyuzin

Source:Artyom Goloshchapov / Forbes

As a result, by 2014 the enterprise had effectively become technically insolvent. Yakutugol was forced to pledge stakes in its subsidiaries mining coal at the Elga deposit, one of the largest coking coal reserves in the world.

In 2017, amid mounting financial problems, 15.5 billion rubles were injected into Yakutugol’s balance sheet, formally returning the company to profitability. As a result, Yakutugol remained profitable through 2021. That year, the company reported 16 billion rubles in net profit while carrying debts of 33.2 billion rubles. It was a moment when the enterprise could have at least partially escaped its debt trap and nearly halved its liabilities, but that did not happen.

In 2021 alone, the company issued 18.3 billion rubles in loans to three companies within the group and paid 37.9 billion rubles in dividends. These actions may violate the federal law “On Joint Stock Companies”. The dividends paid in 2021 were 2.3 times higher than the company’s net profit, collapsing retained earnings from 12.2 billion rubles to negative 9.7 billion rubles. In this context, Yakutugol invested only 338.6 million rubles in equipment repairs and modernization* that year. According to the Sakha Republic government report, it was also in 2021 that the company’s atmospheric pollutant emissions increased fourfold.

Coal mining at the Neryungrinskoye deposit

Source:Roman Zaryshnyuk

It is worth noting that the 56.3 billion rubles withdrawn that year had a negative impact not only on Yakutugol but also deprived regional and federal budgets of potential tax revenues.

These unrealized tax revenues could have helped cover part of the Sakha Republic’s needs for social infrastructure, such as a modern hospital complex in the Arctic zone of Yakutia, estimated at 1.1 billion rubles.

The Cyprus Carousel: Where Yakutugol’s Dividends Went

In October 2021, a Cessna 560XL business jet landed at an airport in Cyprus carrying Mechel owner Igor Zyuzin, along with his security guard and confidant Ivan Bershadsky. Around the same time, the Cypriot company Zoneline Ltd was conducting a series of transactions between subsidiaries of the Mechel group.

Arctida found that these operations were part of a financial scheme tied to the record 37.9 billion rubles in dividends paid out by Yakutugol. We traced the path of these funds, routed in 2021 through Mechel’s key bank, Uglemetbank, and identified signs of “circular cash flow,” or a “debt carousel.”

According to information obtained by Arctida, a significant portion of Yakutugol’s dividends (23 billion rubles) was immediately transferred in mirrored tranches from Mechel-Mining to its Cypriot subsidiary Zoneline Ltd. According to financial statements, this company did not conduct substantive business activity; instead, it functioned for years as a conduit for massive intra-group loan flows, contributing to the accumulation of debt.

When the debt burden became excessive, it was written off through share issuance. This is exactly what happened with the 23 billion rubles: Zoneline issued an equivalent number of shares with a nominal value of 1 ruble to its sole shareholder, Mechel-Mining. The real value of these shares was close to zero, but such operations allowed the holding to inject funds without paying taxes or attracting regulatory scrutiny.

Zoneline then distributed the funds to service intra-group debts and interest payments. A substantial portion of the “real” cash — $105 million (approximately 7.6 billion rubles at the time) — was used to repay debt to the group’s Swiss subsidiary, Mechel Carbon AG. The loop was closed: intra-group liabilities were settled, improving the group’s financial statements without incurring additional tax costs.

It is also worth noting that after these transactions, Zoneline retained an outstanding VAT liability of $369,625. Instead of paying it to the Cypriot budget, the company simply wrote it off in violation of local legislation. Auditors from HLB Cyprus flagged this unlawful write-off for two consecutive years, but their warnings were ignored. In May 2024, Zoneline Ltd was liquidated.

Carousel Spinning, Profits Shrinking

In 2022, the financial draining of Yakutugol intensified, directly affecting its profitability. Despite high coal prices pushing revenue to a peak of 48.6 billion rubles, net profit fell by half. A key factor was the sharp increase in so-called “other expenses,” including the cost of servicing debt obligations.

Yet Yakutugol’s primary function remained to serve the interests of the holding. Circular payments involving Cyprus continued. These were supplemented by a scheme in which Yakutugol purchased unspecified “goods” from Mechel-Mining for 9.1 billion rubles, provided $62.7 million in financial assistance to the Swiss subsidiary Mechel International Holdings GmbH, and engaged in a 3.9 billion ruble “debt carousel” with another group subsidiary, Caroleng Investments, registered in the British Virgin Islands.

The volume of guarantees issued by Yakutugol for Mechel group companies steadily increased. By the end of 2023, it had reached 199.1 billion rubles, equivalent to 78.8% of the group’s total debt. In effect, the majority of the holding’s liabilities were legally backed by the assets and future revenues of Yakutugol alone. The holding itself was in crisis: due to accumulated losses from previous years, massive interest expenses, and foreign exchange losses, Mechel ended 2023 with negative equity of 77 billion rubles.

Under these conditions, the group aggressively extracted resources from its subsidiaries to prevent a default by the parent company on its bank obligations.

Operations at the Neryungrinskoye coal deposit

Source:Mechel social media

Unsurprisingly, in 2024 Yakutugol remained both a donor and a holder of effectively interest-free loans totaling 15.7 billion rubles. At the same time, the company borrowed at high interest rates, spending 3.7 billion rubles annually just to service its own debt.

All these financial operations resulted in a cash shortfall of 1.6 billion rubles for current payments. When the company’s revenue declined in 2023–2024, it had no financial cushion left; Yakutugol faced a liquidity deficit. This became evident in mounting debts to suppliers, as well as insufficient funds for production modernization and environmental obligations.

Yakutugol’s position became significantly worse than in the 2010s: the company now carried a substantial portion of the entire holding’s debt burden, while Russia’s coal industry itself entered a period of crisis.

Industrial Giant on Feet of Clay

The systematic concentration of the holding’s debt on Yakutugol can be explained by several factors. Economics and management expert Tatyana Pankova notes that

- first, this makes “the rest of the group’s companies look more stable by comparison”;

- second, it may be seen as a tax optimization strategy: “the larger the loss, the lower the profit tax”;

- third, concentrating all risks within a single entity “creates the possibility of a ‘controlled’ collapse: if the situation deteriorates, such a company can be deliberately driven into bankruptcy.”

“The enterprise can be declared bankrupt at any moment, all massive debts written off, while dividends have already been routed where needed. Value will be extracted through subsequent asset sales, and all liabilities will remain with that legal entity,” Pankova explains.

Another contributing factor may be Yakutugol’s socio-economic importance. The company is a cornerstone of the economy of the administrative center of the Neryungrinsky District. It is the second most populous district in the Sakha Republic, accounting for 98% of the region’s coal production.

“When a major company in a town-forming industry remains in a constant pre-bankruptcy state, banks and creditors are not interested in pushing it into insolvency and are willing to restructure, extend, or even write off debts,”

For years, Mechel’s owner Igor Zyuzin has balanced on the edge of bankruptcy, with the holding’s net debt reaching 279.3 billion rubles. Yet each time, the government, personally Vladimir Putin, and state banks step in to support the group belonging to the “poorest oligarch.” Yakutugol plays a key role in this dynamic.

In 2020, key creditors Gazprombank and VTB forced Igor Zyuzin to sell stakes in three companies involved in developing the Elga deposit to A-Property, owned by Albert Avdolyan. The deal was worth 89 billion rubles. In effect, Yakutugol paid off Mechel’s debts with its key asset.

Albert Avdolyan

Source:RBC

To maintain credibility with creditors and demonstrate stability, the company’s management even resorted to using deferred tax assets. This allowed Yakutugol to reduce its reported losses on paper by billions of rubles.

Сreditors eventually allowed Mechel to optimize its loan repayments and defer principal payments until 2027. In June 2025, the holding even received a three-year deferral on tax and social insurance payments totaling more than 13 billion rubles as a targeted state support amid the broader crisis in Russia’s coal industry.

Nevertheless, Mechel’s latest financial report shows the group is in the most severe phase of its crisis.

Beyond the Carousels

In both global and Russian practice, subsidiaries providing guarantees for their parent holding is standard.

However, in Yakutugol’s case, the scale of such obligations goes far beyond normal boundaries, according to experts.

The company’s off-balance-sheet liabilities are so vast that it is effectively cut off from market financing and forced to rely on short-term, high-cost borrowing, which surged by 568.7% in 2024.

Moreover, problems in any other division of Mechel could trigger Yakutugol’s bankruptcy, even if the company itself operates efficiently. The key risk lies in the potential activation of these guarantees.

“As long as they are not enforced, the enterprise continues to operate, generate revenue, and take on new intra-group loans. It essentially serves as the cash source for the entire structure. But once the guarantees are triggered, there will be an immediate collapse: a complete loss of financial independence, followed by the breakdown of operational activity,” explains Tatyana Pankova.

Even without such a scenario, the negative consequences are already visible. In 2025, auditors from Energy Consulting described Yakutugol’s debt burden as an “important factor” that raised “significant doubt about the company’s ability to continue.” Even without that formal assessment, the problems are clear and range from industrial accidents and systemic safety violations to escalating environmental and social risks for the Sakha Republic.

Authors:

Alena Alekseeva

Investigator at Arctida