Coal Age

AUG 2016

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44 www.coalage.com August 2016 eastern europe continued some officials said it's time to give up. The government, however, is not giving up on the industry, supporting the new agree- ment and indicating that coal still ac- counts for 85% of its power generation. According to the Polish government's plans, the remainder of Kompania We- glowa's debt will be distributed over at least seven years. At the same time, the goal is to improve the profitability of the company. For instance, last year, only three of Kom- pania Weglowa's 11 mines were profitable. The plan also considers mining new de- posits with better coal quality, manage- ment improvements, entering a six-day work week and suspending bonuses to miners for two years. Despite these measures, the future of the Polish coal industry remains unclear. According to Michael Vilchinsky, former chief national geologist and former deputy environmental minister, Poland's coal on the open market would currently sell for $45/mt, while production costs average $65/mt and there is no sign the prices will improve anytime soon. Once taxes and transportation are factored into the mix, some mines are producing coal at a loss of PLZ 120/mt ($30/mt). According to Vilchinsky, the future of at least five out of 11 PGG coal mines remains uncertain. He said the industry should focus on the most prof- itable assets and discontinue loss-making production. Andrei Barzhak, an economics profes- sor at the University in Katowice, suggest- ed that new PGG management should be willing to conduct real reforms and close unprofitable assets to reduce the supply for the domestic market and improve pric- es. Simply injecting more money, in his opinion, with no real actions to improve profitability means that PGG will face the same financial fate as Kompania Weglowa two years from now. At the same time, the report from Warsaw Institute of Economic Studies (WiseEuropa) suggested that PGG should conduct large-scale restructuring, cutting the volume of coal mining by 40% or 16 million mt and dismiss up to 50% of staff or 15,000 employees. Otherwise, PGG risks bankruptcy or applying for more large- scale subsidies, according to Mazei Bu- kowski, president of WiseEuropa. At the same time, huge political and socioeco- nomic risks could make implementation of real reforms impossible. Despite the heavy poor market condi- tions, Poland's coal industry still may have another new, huge project come online as Australian Prairie Mining in 2017 is going to apply for a license to construct the Jan Karsky mine in the Lubelskim coal basin. With an overall investment of $632 million, it is expected to produce 6.3 million mt of coal and employ 2,000. The average cost of production here would be $25/mt, almost three times lower than PGG mines. The reserves of the licensed area, es- timated at 700 million mt, are enough to maintain mining for at least 25 years. Some officials have already declared this deposit as the biggest undeveloped coalfield in Eu- rope. As Ben Stoikovitch, CEO of Prairie Min- ing, explained, his company plans to export most of the coal and he sees huge potential for the European coal market, as it still con- sumes nearly 700 million mtpy. Germany alone accounts for 230 million mtpy. For now, PPG will focus on the domes- tic market and export some coal to nearby countries. With the insolvency of Czech coal producer OKD, several Czech steel producers have been talking to PPG about sustaining their supply. Czech Republic Not Supporting OKD The situation in the Czech Republic is more complicated. With a debt of CZK 17 billion ($700 million), the largest coal producer OKD filed a petition for insolvency. Unlike Ukraine and Poland, the Czech government hasn't shown much of an intention to save the coal mining jobs. The Czech Minister of Industry Jan Mladek, speaking about the OKD situation, has stated that it is clear that coal mining in Ostrava (the main coal pro- ducing region) will end. The only question he said is: "When it will take place? It could be 2020, 2022 or 2024." He explained that the government should now make a gradual shift away from coal over this period. Czech Prime Minister Bohuslav So- botka supports Mladek and has expressed The Bilina mine is the largest open-cut lignite mine in Central Europe. (Photo courtesy of Severoceske doly) The Bilina mine is the largest open-cut lignite mine in Central Europe. (Photo courtesy of Severoceske doly) Igor Nasalik, Ukraine's energy minister. Jan Mladek, minister of industry, Czech Republic. Jan Mladek, minister of industry, Czech Republic.

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