Polish utilities on alert as govt returns to drawing board on coal rescue

By bne IntelliNews September 24, 2015

bne IntelliNews -

 

The Polish government has withdrawn its plan to rescue ailing coal miner Kompania Weglowa (KW) in the face of likely objections from the European Commission, the Ministry of Treasury said on September 24. The announcement will strike fear into the hearts of the country's state-controlled companies and their shareholders, as it shifts the onus back on them to bail out the mines.

The withdrawal of the plan means a restructured Nowy Kompania Weglowa (NKW) will not now be created before the general election on October 25, previously a priority for the ruling party Civic Platform (PO) due to its chase of hundreds of thousands of votes in Poland's mining hub Katowice region. There's little doubt that Law and Justice (PiS) – the populist opposition party leading in the polls – will subject the move to fierce criticism.

Meanwhile, Poland's 100,000 or so miners face an increasingly uncertain future. On the other side of the equation, so too do shareholders in Poland's large state-controlled utilities and energy companies, which PO has been trying to push into driving the rescue.

KW has consistently warned it is on the edge of bankruptcy and needs PLN1.5bn (€355mn) swiftly. However, Warsaw has grown increasingly desperate as a series of schemes to raise the cash have foundered one after the other.

Stiff resistance from the state-controlled companies to direct investment into KW mines, and the subsequent collapse of a plan to get them to invest via a state fund, saw the government move in early September to transfer small stakes held by the state gas company PGNiG, utility PGE and insurer PZU, to the state investment fund TF Silesia. The shares, worth a total of PLN1.4bn (€330mn), would then have been sold to gain funds to help KW directly or use them as security to obtain loans.

However, hints from the European Commission that it would reject the plan as illegal state aid saw the treasury ministry announce on September 24 that it will now look for yet another strategy.

“NKW will be created in a way that will not be questioned by the European Commission, which will require more time than agreed [with the mining unions] date of September 30,” the ministry said in a statement. Warsaw cannot “allow the uncontrolled bankruptcy of KW... which would endanger jobs or the country’s energy security,” it added.

The utilities remain on the frontline however, according to Deputy Treasury Minister Wojciech Kowalczyk. Chasing short-term financing to buy time find a private investor and pre-payments for coal deliveries from state-controlled power sector firms are clear options, he said, according to PAP news agency.

However, that may be the least of shareholders' worries, with the issue now looking to be taken out of PO's hands. PiS is almost certain to take power after the October 25 vote, and the party, which is already targeting banks and retailers to fund its populist programmes, said in the wake of the treasury ministry's announcement that it has its own strategy.

That, MP Grzegorz Tobiszowski said, assumes a short-term financial “by-pass” in order to avert bankruptcy. A long-term investment plan for the best mines, and support for coal exports, will follow, he pledged, without discussing where the funding would be sourced from. 

"It will be the next government that will have to take [the problem] on, but it will not have any options other than those tried by the current government," forecasted Zbigniew Porczyk at DM Trigon. "There are three options: restructuring, which PiS is unlikely to do; keeping the sector alive somehow – which increases the danger of an eventual uncontrollable bankruptcy; and integrate mining with the energy sector."

"So far, the power companies have said no to the latter, but managements and supervisory boards are replaceable," he added, ominously. 

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