The lack of a strategy for the Polish mining industry will hurt the mines

Mysłowice-Wesoła coal mine, Mysłowice, Poland (Monisiolek, CC)

Each of Polish coal mining companies is trying to restructure itself. There are few good ideas but there is a lot of chaos as well.

 

Until 2015, there was a government strategy for the coal sector but at the present there is no such document. The only common element of the Polish governments’ activities is the rescue of the mining industry by the energy industry which could be damaging to the latter, if it is forced to finance non-restructured coal mines. For the time being, the money from the energy sector is used to patch-up the financial holes in the mining industry, for example to finance salaries. And time is of the essence in this case, because the industry’s losses reaching billions of PLN are becoming increasingly difficult to make up for.

The most urgent project is the rescue of Kompania Węglowa – currently known as Polish Mining Group (Polska Grupa Górnicza, PGG). The State Treasury, which owns the company, insisted on changing the company name, provided it with funds from the energy industry, and now thinks hot to restructure it.  

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Meanwhile European Commission is closely observing Polish efforts to rescue the mining industry, because in accordance with Directive 2010/787/EU public aid can only be provided to mines slated for closure. The company received support in the amount of PLN1.8bn (EUR417.8m) from the state-controlled energy industry companies (EUR116m each, from PGE, Energa and PGNiG Termika), Węglokoks and the state-owned Investment Fund of Polish Enterprises (Fundusz Inwestycji Polskich Przedsiębiorstw) – EUR69.6m. Banks, including those privately owned, did not agree to take up shares in PGG, and consented only to the rollover of bonds (some even for 10 years).

The situation in major coal companies

Katowicki Holding Węglowy (KHW) is working on the implementation of its restructuring plan. The entire management board of the company has just been replaced. We don’t know yet whether the new management will implement the ideas of its predecessors, or will start everything from scratch. There is little time left, because KHW needs to receive at least EUR116m, as soon as possible in order to maintain financial liquidity.

Jastrzębska Spółka Węglowa (JSW), on the other hand, is trying to sell of a large part of its assets. JSW is the largest producer of coking coal in the EU (PGG and KHW are mainly producing coal for the energy industry). This raw material is the base for the production of steel, thus steel sector depends on the condition of JSW.

The Bogdanka mine (which was, until recently, privately owned, and whose 60 per cent of stake is now owned by the State Treasury-controlled energy company, Enea) is tightening its belt, limiting production (its capacity is 11 million tons of coal per year, and in this year it will extract 8.5-9 million tons) and is doing relatively well on this difficult market.

Another company, Tauron Wydobycie, is facing restructuring. It belongs to another energy company Tauron, and is an owner of several coal mines, including Brzeszcze. This mine was intended for closure (according to the government’s plans as of January 2015), however, a decision was made to rescue the coal mine, which is located in the hometown of the Prime Minister Beata Szydło. First of all, because it is the main employer in the area but also because the mine has large coal deposits, although access to them is very difficult after an underground fire from a few years back.

PGG

In accordance with the agreement reached with the trade unions in April of this year, PGG is merging mines. In total the company took over 11 mines from Kompania Węglowa. In accordance with the plan, only some will remain independent. The remaining establishments will create three mega-mines. The goal of combining the mines is to reduce the unnecessary infrastructure, both underground and on the surface, which is supposed to lead to a decrease in the extraction costs.

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An important element of savings in the PGG will be the reduction of employment by over 11 per cent. Around four thousand people will go on coal miner’s leave envisaged in the Mining Act (i.a. for underground workers who have four years or less until retirement). In addition, the management board adopted the rules of collective redundancies for people who have acquired pension rights but choose not to retire (the record holder acquired pension rights in 2001). A total of 600 people may be ultimately let go in this way, and 286 people in the nearest future. Currently PGG employs 32,000 people.

KHW

According to the plans of the government, a new entity called Polski Holding Węglowy (PHW) is to be created on the basis of this company. In this case assistance will be provided primarily by Węglokoks supported by Enea. The Bogdanka mine, belonging to the latter, will maintain its independence.

JSW

Grzegorz Tobiszowski, the Deputy Minister of Energy, has emphasized that JSW needs at least EUR232m in order to fight for survival. The company is still involved in talks with banks. The government bondholders have bought out the yields from the private ING Bank Śląski which has been signaling since autumn that it wants JSW to redeem its securities early. This would lead to a bankruptcy. JSW ended 2015 with a loss of more than EUR696.2m (including write-offs for the value of its coal assets) but managed to reduce extraction cost by more than 10 per cent compared to 2014.

In addition, in the years 2016-2018, the company will not pay a number of social benefits to its workers (among others bonuses or the free coal allowance), what is supposed to give savings of EUR464.1.

In May, the Minister of Energy Krzysztof Tchórzewski did not rule out a new issue of JSW shares with pre-emptive rights for the existing shareholders (the State Treasury still has more than a 50 per cent stake in JSW), which led to an immediate 15 per cent drop in the value of the company’s shares. However, in June Minister Tobiszowski said the issuance has not yet been decided.

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