COAL BURNS A FISCAL HOLE FOR RUSSIANS.

Byline: Michael R. Gordon The New York Times

Faced with the slow, agonizing decline of one of its vital industries, Russia has begun an ambitious attempt to rescue its failing coal mines.

In the dank, serpentine tunnels of the Yuzhnaya mine here in southern Russia, where miners toil amid rickety scaffolding, it is clear that the industry is crumbling.

Decades of mismanagement and unfulfilled reforms have created a kind of permanent crisis for Russia's 800,000 beleaguered but still politically potent coal workers.

And the stakes go far beyond coal.

With the financially stretched government doling out billions of dollars in subsidies, the restructuring of the coal industry is central to Russia's efforts to contain spending and inflation. It could involve closing half of Russia's 261 mines, laying off tens of thousands of workers, cutting back on subsidies and encouraging competition.

The overhaul also provides an important test of President Boris Yeltsin's election year promises of continued economic reforms in the face of stiff resistance from managers determined to maintain their control of Russia's smokestack industries.

The restructuring is being carried out under the watchful eyes of the World Bank, which has promised a $500 million loan on the condition that the reforms proceed and that an adequate social safety net be set up for the laid-off miners.

The loan, unlike the new $10.2 billion loan from the International Monetary Fund, would be specifically earmarked for creating a smaller but more viable coal industry.

"The most difficult thing is to change the mentality," said Yuri Dashko, a Russian mining expert who has been been working closely with the World Bank. "Money alone won't solve the problem."

The results of the old mentality are very much in evidence at the Yuzhnaya, or Southern, mine in this hardscrabble mining area 600 miles south of Moscow.

Wearing padded uniforms and carrying small oxygen tanks that hold an hour and a half's supply of air - a precaution against cave-ins - miners crowd into a shaky elevator for the long descent.

After a jarring train ride through several miles of tunnels, another steep descent in a second train and a final march through pools of dank water and clouds of acrid dust, the miners begin their six-hour shift, scraping coal out of deep, but narrow, crawl spaces.

They do it for the same reasons that their fathers did. It is practically the only job in town.

"If you don't know a trade or steal, what else is there to do?" said one miner, 35-year-old Vyacheslav Samoilov.

The problems have been long in the making. While other countries have also been forced to shrink their coal industries, Russia's distress is heightened by decades of Soviet rule.

Under communism, the emphasis was on achieving maximum production, not on efficiency. The government pampered the mines with large subsidies and let them transport their coal on the railroads for nominal charges.

But Russia's industrial decline has lowered the demand for energy. The coal industry is losing business to natural gas. Rail costs have soared. More than half of Russia's mines may be inefficient, Russian experts say.

The Soviet style of management lingers on. Many of the critical decisions - which mines to close, which customers to sell to and how much to charge - are not made by local mine officials.

"We practically do not make any decisions," Gennady Semashko, the union leader for the Yuzhnaya mine, said as he waited for the elevator to take him to the surface.

Instead, the decisions are made in Moscow by managers at Russian Coal Co., the state-owned concern that controls virtually every facet of the industry, including the distribution of subsidies.

For their toil, miners here may receive $200 a month or even more, depending on their years of service and the difficulty of their job. That is more than double the wage for local schoolteachers.

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Photo It's break time in the Yuzhnaya mine 600 miles south of Moscow. The New York Times