Jan Cienski in Warsaw -

Poland's coal sector, which employs tens of thousands of workers organised into powerful labour unions, has made the hard hats a force to be reckoned with dating back to communist times. However, the centre-right government's attempts to rescue one part of the troubled industry has helped send one of the sector's few profitable companies into a tailspin.

Earlier this year, profitable coking coal miner Jastrzebska Spolka Weglowa (JSW) handed a break to loss-making peer Kompania Weglowa (KW) when it paid PLN1.5bn (€359m) for the Knurow-Szczyglowice mine. The largest coal miner in the EU, KW posted a PLN1bn loss last year. The purchase plan was dreamt up by the government - which owns KW and controls JSW - as a way of giving the former a much-needed cash injection.

The purchase was financed by the emission of PLN1.2bn in debt by JSW. While the investment may make sense in the long term - the mine is profitable - it has cut into JSW's investment plans for its existing operations, and opened a round of trouble with Knurow labour unions, which did not want the sale to go through. 

Added to that, the mine currently mainly extracts soft coal for power production. That means it will need investment to convert to the coking coal that is JSW's main line of business, notes Robert Tomaszewski at analysis firm Polityka Insight.

Meanwhile, as JSW struggles to cut costs to allow it to digest its new purchase, it is running into opposition from the unions at its current mines. Citi Research calls the acquisition a "financial stability risk" and says JSW "could … face major financial and restructuring challenges".

Worries over the purchase of Knurow have combined with broader problems in the coal sector to weigh on JSW's financial performance. Earlier this month, the company reported a first half net loss of PLN343m - a stark reversal from the PLN167m profit in the same period a year earlier. 

In the second quarter alone, production fell by 25% to 2.5m tonnes, sales dropped 24%, and the price it was able to fetch for its coal fell by 12% on an annual basis to $134 per tonne. Meanwhile, JSW also saw production costs rise. 

In combination with concerns stemming from the acquisition of Knurow that JSW is being run with political, rather than financial, interests at the forefront, the run of bad news has sent investors fleeing. JSW's share price has fallen by 58% over the last year.

Tomaszewski suggests the company's growing problems could force the government to step in. That would add to its headache caused by the coal sector, as it struggles to keep the sinking Kompania Weglowa afloat. All bad news for an increasingly unpopular government a year before the next parliamentary elections.