Wojciech Kość in Warsaw -

The Polish government has started dropping hints that it may finally grasp the nettle of restructuring the country’s huge and loss-making coal industry. “Reforming the coal mining sector will not be possible without retiring unprofitable coal mines,” Janusz Piechociński, Poland’s deputy prime minister and minister of economy, told a press conference in late August.

Poland’s coal mining sector posted a loss of close to PLN1.2bn (€287m) for the first half of 2014, as compared with a minute profit of PLN64m in the first half of 2013, according to economy ministry data, with Kompania Weglowa, Europe’s largest coal producer, as well as JSW the biggest loss-makers. 

Miroslaw Taras, chief executive of state-owned Kompania Weglowa, told Bloomberg last month that the miner needs to cut its workforce by more than a third while maintaining output to avoid bankruptcy. He said the company plans to continue producing about 30m tonnes of coal annually, while its workforce should fall by 20,000 from 55,000 through retirements, voluntary departures and the sale of four of its 14 mines. The unions have instead suggested merging  Kompania Weglowa and two other firms, Katowicki Holding Weglowy and Weglokoks, but have refused to consider closures. 

“Restructuring of the mining sector cannot happen without a far-reaching compromise that all involved parties need to agree on,” says Tomasz Chmal, of the Sobieski Institute think-tank. “That is the only way to save some of the coal mines and mining jobs as well as keep Poland energy secure.” 

Chmal adds that reaching an agreement is urgent, not just because of the industry’s problems, but also because the market is becoming increasingly difficult. “Taking no action now could spell the end of the Polish mining sector, owing to the EU climate policy and the growing imports of energy and fuels,” he says. 

The European Commission has proposed that the EU cut greenhouse gas emissions by 40% by 2030, which, if agreed by member states, poses a huge challenge for Poland, which relies on coal for 85% of its energy. The Polish government believes coal will remain the staple of the Polish energy mix, and that it will still produce about 60% of its electrical power in 2050. The question of greenhouse gases emissions will be tackled, the government strategy says, by efficient coal-fired power plants and investment in carbon capture and storage facilities, though the EU’s pilot CCS programmes have proved disappointing so far.

Falling prices

The industry also faces the challenge of growing imports from cheaper foreign producers and sluggish European demand, which have helped push average global coal prices for delivery next year down by 11%, according to Bloomberg. Poland – which has one of Europe’s largest coal reserves – imported 11m tonnes of coal in 2013, mostly from Russia, which has led to massive stockpiling of domestic coal. At the end of May, Polish coal mines had stockpiled as much as 8.3m tonnes of unsold coal, despite the sector’s output dwindling to 29m tonnes, a drop of 6% on the same period of 2013. 

“Russian coal became even more competitive after the ruble was devalued by 10% in the first quarter of 2014,” said Economy Minister Piechociński. “Australia repealed its carbon tax, causing the price of Australian [coal] to drop as well,” he said, adding that Polish mining companies need to come to terms at last with the fact that the coal market is global. “Let’s make it clear: if costs are not reined in, coal mines are going to lose out.” 

Coal production in some Polish regions can, nevertheless, be efficient. In the eastern region of Lublin, the region’s sole coal mine, known as Bogdanka, has posted  profits for several years, while its market share in coal production is expected to reach 12% at the end of 2014.

Apart from Bogdanka, new modern coal mines are being built from scratch in the region. Two Australian companies, Prairie Mining, subsidiary of Prairie Downs Metals, and Global Mineral Prospects, a subsidiary of Balamara Resources, are in the process of getting  permits to start mining in a few years. “There’s a favourable geology, the area is less urbanised, and there’s an enormous need for jobs in the region,” says Ben Stoikovich, CEO of Prairie Mining.

The company has only spent some PLN36m to date doing exploration work to assess the coal reserves, but the investment is set to balloon to PLN2.4bn-3bn once the construction of a coal mine gets under way. “We will start construction in mid-2016 and production of coal will begin in mid-2020,” says Stoikovich. 

He says that there is hope for the country’s other mines but closures are inevitable. “They need to modernise their assets and improve labour productivity,” says Stoikovich. “Many of those mines are also old and are mining too deep, which is too costly to justify production.