Poland's coal mines turn red again

By bne IntelliNews June 14, 2007

Jan Cienski in Warsaw -

Poland's coal mines did an unusual thing a few years ago – they started to make money - which is why they are now in serious trouble.

The problem is that the politicians who control the state-owned mines thought that the mines had permanently turned the corner. When Lech Kaczynski was campaigning to be president on Poland two years ago, he ridiculed the idea of selling off the mines because they were earning the state a fat profit.

Fast forward to this year and Kompania Weglowa, Europe's largest coal mining company with 17 mines, 70,000 employees and extraction of about 55m tonnes of coal a year, is back in the red.

Two smaller state-owned mining companies – saddled with fewer ancient and loss-making mines than Kompania Weglowa – are still making a profit, but the larger miner reported a loss of PLN61.8m (€16m) in the first four months of this year, and analysts fear that losses could come to as much as PLN200m this year. Losses last year were PLN73m.

Its two profitable years were 2004 and 2005, when it turned around years of losses and made a total profit of about PLN690m, much of which was handed over to workers in bonuses. But those two fairly fat years were an aberration that fooled the company's political masters and now the losses are mounting.

One big problem is the fast rising wage demands from miners, who are seeking an increase of 4.5% this year – coincidentally the same amount by which labour productivity in the mining sector has fallen over the last year.

Another is that demand for coal is falling, despite stable prices. Because the domestic market cannot absorb more coal, the company is subsidising coal exports, spending about PLN40 for every tonne shipped by sea to very wealthy countries like Belgium, Denmark and France. Losses for this sort of business activity are expected to come to PLN160m this year.

That sales strategy smacks of the business reasoning of communist Poland, where coal was one of the country's only sellable exports. In its hunger for foreign currency, needed to buy consumer goods to forestall a workers revolution, the Communist Party shipped enormous amounts of coal to the West at a loss.

The rest of Poland's economy has changed beyond recognition since 1989, but coal remains the same: inefficient, loss making, but politically very powerful.

Favoured class

During communist times, coal miners were the favoured proletarian class, with special shops that stocked goods unavailable in the rest of the country. They still have a way with politicians. In 2005, thousands of angry miners brandishing axe handles descended on the Polish parliament, prompting the cowed politicians inside to vote through a fat early retirement package that applies only to miners.

Since 1989, the government, together with institutions like the World Bank, has spent more than PLN4bn to restructure the industry. In 2003, PLN18bn of industry debt were remitted. But Kompania Weglowa still owes more than PLN4.5bn and has no money to modernize and upgrade its mines. Employment in mines was slashed from 400,000 and is now less than 100,000 and the number of working mines was cut from about 80 to 30.

But miners are resisting further cuts, and the government is doing little to push them. The governing Law and Justice party is distinctly wary of privatization, and has made it clear that only about 30-40% of the mining companies will be floated on the stock exchange. The first flotations were expected next year, but that now looks impossible because very little planning work has taken place.

The government is expected to release its long-term coal mining strategy later this month, but the plan is not expected to be at all radical. Kaczynski, now Poland's president, has very close contacts with miners' unions, who helped get him elected, and so, as with communist Poland's leaders who never dared cross miners, today's miners are likely to continue on the state dole for the foreseeable future.

That is a shame, because there are several foreign firms interested in taking over the mines and investing in them. One foreign investor that has expressed an interest is New World Resources, an energy holding company that is the sole shareholder in the Czech Republic’s largest hard coal mining company, OKD.

Send comments to The Editor

Related Articles

Drum rolls in the great disappearing act of Russia's banks

Jason Corcoran in Moscow - Russian banks are disappearing at the fastest rate ever as the country's deepening recession makes it easier for the central bank to expose money laundering, dodgy lending ... more

Kremlin: No evidence in Olympic doping allegations against Russia

bne IntelliNews - The Kremlin supported by national sports authorities has brushed aside "groundless" allegations of a mass doping scam involving Russian athletes after the World Anti-Doping Agency ... more

PROFILE: Day of reckoning comes for eccentric owner of Russian bank Uralsib

Jason Corcoran in Moscow - Revelations and mysticism may have been the stock-in-trade of Nikolai Tsvetkov’s management style, but ultimately they didn’t help him to hold on to his ... more

Register here to continue reading this article and 2 more for free or 12 months full access inc. Magazine and Weekly Newspaper for just $119/year.

If you have already registered, enter the information below with the same email you used previously and you will be granted immediate access.

IntelliNews Pro subscribers click here

Thank you. Please complete your registration by confirming your email address. A confirmation email has been sent to the email address you provided.

Thank you for purchasing a bne IntelliNews subscription. We look forward to serving you as one of our paid subscribers. An email confirmation will be sent to the email address you have provided.

To continue viewing our content you need to complete the registration process.

Please look for an email that was sent to with the subject line "Confirmation bne IntelliNews access". This email will have instructions on how to complete registration process. Please check in your "Junk" folder in case this communication was misdirected in your email system.

If you have any questions please contact us at sales@intellinews.com

Subscribe to bne IntelliNews website and magazine

Subscribe to bne IntelliNews website and monthly magazine, the leading source of business, economic and financial news and commentary in emerging markets.

Your subscription includes:
  • Full access to the bne content daily news and features on the website
  • Newsletters direct to your mailbox
  • Print and digital subscription to the monthly bne magazine
  • Digital subscription to the weekly bne newspaper

IntelliNews Pro subscribers click here

bne IntelliNews
$119 per year

All prices are in US dollars net of applicable taxes.

If you have any questions please contact us at sales@intellinews.com

Register for free to read bne IntelliNews Magazine. You'll receive a free digital subscription.

If you have already registered, enter the information below with the same email you used previously and you will be granted immediate access.

Thank you. Please complete your registration by confirming your email address. The confirmation email has been sent to the email address you provided.

IntelliNews Pro offers daily news updates delivered to your inbox and in-depth data reports.
Get the emerging markets newswire that financial professionals trust.

"No day starts for my team without IntelliNews Pro" — UBS

Thank-you for requesting an IntelliNews Pro trial. Our team will be in contact with you shortly.