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poland Polish Coal Industry Faces Tough Decisions Accustomed to the props of socialism, mine operators are finding it hard to compete in the domestic market they used to serve BY VLAIDSLAV VOROTNIKOV A longwall shearer operator cuts coal in Poland. (Photo credit: Kompania Weglowa) coal prices in the region dropped by more than 12%. Coal sales have dropped more than 5% during the first half of 2013 compared to the same period of 2012. As of September 2013, the level of stockpiles reached record heights of 9 million mt. According to the ministry, Poland will continue to burn coal until 2050, despite the domestic situation. So with an insufficient level of domestic production, Poland will import. "We cannot work without coal. So it is time to begin the work that will guarantee Polish coal in the long term. If we do not have it, then we will be forced to import coal from abroad," said Maciej Kalinski, director of the Mining Department of the Ministry of Economy of Poland. There is also a prevalent political fear. Becoming dependent on coal imports to Russia could put Poland in a similar situation as Ukraine, which is dependent on Russian gas. Poland may find the situation hard to avoid as Russian companies increase production and coal exports. Should Poland Invest? Poland's coal industry faces a serious crisis. In 2012-2013, market conditions worsened for the largest players as cheap imports applied downward pressure on coal prices. Coal production is declining and becoming less profitable. The level of industry income is falling extremely fast. In the first quarter of 2013, it dropped to PLN 1.7 billion ($556 million) from PLN 3 billion ($982 million) in the first quarter of 2012. The representatives of the largest state-owned coal companies say future coal exports will improve profitability, but that makes no sense, as Polish coal is losing the competition with foreign companies at home. Poland consumes 77 million metric tons per year (mtpy) of coal, which makes it the 10th largest coal consumer in the world and the second largest in the European Union, after Germany. In 2012, 92% of electricity and 89% of heat in Poland was generated from coal and, according to the official Polish Government Energy Policy Strategy, coal should remain the key element of the country's energy security until at least 2030. Despite all attempts by the government to stop it, production levels have been falling steadily since 1989. Today, Polish coal operators produce 60 million mtpy of brown coal and 70 million mtpy of black coal. The coal industry failed to adapt to capitalism. During socialism, the state usually paid for coal at a much higher price than it actually costs to produce. However, those days are gone and today experts agree that Polish coal miners will be unable to escape this cycle. The problem is that coal seams in Poland are too deep to mine cost effectively. By 2030, there will be no more than 10 to 15 working mines in Poland, and production of black coal will drop to 33 million mtpy. Representatives of the Ministry of Energy are seriously concerned about the situation. According to official statistics, coal mining costs increased by more than 5% last year, while thermal 32 www.coalage.com The government still has not decided if it should allocate any additional support for the existing coal mines to modernize and purchase new equipment, as well as for construction of new mines. Researchers in Krakow have developed two different future scenarios for the country's energy needs with and without state support for coal industry. In one scenario, the government invests in the construction of new mines. The country will be using about 50 million mt of brown coal (up to 2035, consumption could reach 86 million mt) and 44 million mt of black coal produced domestically. The other scenario does not provide any increase in investment in coal mining. By 2050, Poland will stop production of brown coal while black coal mining in Poland will amount to 22 million. Consequently, 44 million mt of black coal and all brown coal, according to this scenario, will have to be imported to Poland from abroad. According to experts, the demand for coal in Poland to 2050 will exceed the current domestic production capacities, and therefore, Synthetic Picture of the Coal Industry in Poland Since 1990 January 2014