The Polish Prime Minister Beata Szydło has announced a milestone on the path towards saving Poland’s mining industry: on May 1, a company called ‘The Polish Mining Group’ (PGG) was established. It will take over 11 coal mines, four bankruptcy-threatened plants and debts of mines and plants. Michał Olszewski takes a look. 

(Photo by MaKa~commonswiki, modified, CC BY-SA 3.0)

The Polish Prime Minister Beata Szydło has proudly announced a milestone on the path towards saving Poland’s mining industry: on May 1, a company called ‘The Polish Mining Group’ (PGG) was established. It will take over 11 coal mines and four bankruptcy-threatened plants operated by Kompania Węglowa, which employs in total over 30,000 people. Notably, PGG has also taken over the liabilities of Kompania Węglowa, Europe’s largest producer of hard coal. Having previously adopted a hard-line approach in negotiations, coal miners have now agreed to the temporary suspension of their so-called ‘fourteenth salary’.

Furthermore, the new company will take over the debts of mines and plants. And this is where we enter the sphere of highly creative coal accounting: over PLN 600 million (approx. 135 million EUR) worth of debt owed to five banks will be converted into shares in the new company. The real story of the negotiations is shrouded in secrecy, but it is a mystery to me how the government managed to convince the banks to agree to take part in this endeavour. Beyond any doubt, the banks will receive bad shares in a company which is, and will likely remain, in deep crisis.

It appears that the banks have decided to engage in charity – the decision to take over these assets can hardly have any other description. It also seems that these banks have downplayed forecasts published by institutions such as Goldman Sachs. As readers may remember, GS reduced steam coal price forecasts, drawing attention to the oversupply of the commodity and the declining investment in coal-fired power plants. The conclusion here is fairly pessimistic: according to GS, a decline in long-term demand for steam coal seems inevitable.

Is the emergence of PGG indeed a breakthrough or, rather, a propaganda trick to cover up the sad fact that the Polish coal market needs to resort to accounting tricks in order to squeeze water from a stone? Polish coal will not become more competitive by virtue of the simple fact that PGG has been established. What is being presented as a breakthrough in fact has more in common with a classic attempt to let a matter lie dormant: while the company has won two years of peace (during this period miners will not make any new financial demands), no clear restructuring concept is in sight.

Polish hard coal is still not competitive against the cheaper supply from places like Siberia, which often also has superior quality. Over the next two years Polish coal deposits, located at a great depth, are unlikely to come closer to the surface. Moreover, within the unfavourable business environment, there are no signs of any potential improvement for Polish coal mining in the near future: the global market has more than enough ‘black gold’ from Russia, Indonesia, India and South Africa.

The Polish government is in a very difficult situation: Law and Justice, the ruling party, gained power with the support of major trade unions, including the most powerful umbrella organisation for mining trade unions. As such, the party cannot make any radical moves as this would inevitably stir up conflict. Instead of deep and genuinely painful restructuring, which is a prerequisite for the Polish mining industry pulling out of the dire straits it finds itself in, the government would rather stir the unsweetened tea vigorously in an attempt to make it sweeter. And there is more to the story. Recent months have seen a number of spectacular decisions that have significantly undermined the existing anti-smog policy.

One of the key demands put forward by activists opposed to air pollution in Polish cities is to ban the sale of the worst sorts of coal to private users. Annually, single-family homes in Poland heat their homes using approx. 800,000 tons of coal slurry, a low-calorie, heavily polluted waste product. The closure of this market would deliver another blow to the Polish coal sector. The government has also dismantled environmental programmes aimed at reducing emissions and improving the poor thermal upgrading indices of Polish households, apparently coming to the conclusion that fewer coal-fired boilers and houses with holes in their walls spell trouble for Polish miners.

However, there is light at the end of that tunnel. Recently, the right-wing website Fronda proudly announced that Poland has managed to square the circle: we will burn away coal while fighting global warming. How is this possible? Well, the answer is quite simple: by just planting some more forest. However, Fronda forgot about the IPCC report which states that Poland would need about 38 million hectares of forest to balance off its carbon emissions, a figure more or less equal to the total area of the country. Not surprisingly then, creative coal accounting seems to be a more alluring option for the time being.