The Polish mining industry needs to be drip fed yet again. Over the past 25 years, the coal sector has been receiving numerous subsidies from the government, amounting to at least US$35 billion. Michal Olszewski explains what is going on.
It’s already been two years since the publication of one of the most significant documents to show the behind-the-scenes workings of Polish coal mining policy. In 2014, the economic think tank WISE (Warsaw Institute for Economic Studies), presented a report entitled “Analysis of economic support for the coal-based power industry and coal mining in Poland”. According to the analysts, we have been supporting coal mining in a plethora of ways over the last 25 years. Money has been channelled not only into necessary restructuring (at the beginning of the 1990s coal mines employed approximately 400,000 people, compared to their 100,000 employees today), but it also financed mine shutdowns and sizeable severance payments for miners. The authors of the report also pointed out that public institutions redeemed or postponed the payment of huge coal-related liabilities, i.e. taxes, social security payments and mining damage fees. According to WISE’s estimates, between 1990 and 2003, subsidies for the industry amounted to 2% of Poland’s GDP, five times more than the budget’s expenditure on research and innovation over the same period.
Of course, this was the radical consequence of a clearly defined social policy which treated the coal mining industry as an object of special care that the state should provide for. Arguing about the extent to which these exceptional support activities were justified is not of great significance now, as we have already passed their peak. Nevertheless, the state is still unable to amend the preferential system of pensions for retired miners. According to official estimates, in 2013 each złoty contributed by a miner to the Social Security Institution (ZUS) was counterbalanced by 1.8–1.5 złoty (depending on the particular job position) of social security spending, while in general the ratio for other industries is a neat 1:1 złoty. Assuming WISE’s estimates were correct, the official data soon proved to be underestimated: the Institute’s economists calculated the actual difference between contributions and payments, and it did not amount to PLN 0.8 (US$ 0.2) in favour of the employees of the mining industry – in fact, the figure was as much as PLN 1.52 (US$ 0.39). The reason for this was the duration of the pension drawdown period for miners (on average 9 years longer than for other beneficiaries), and the relatively early retirement age for the group (48). The salary increases in the industry and the extended life expectancy of workers didn’t improve the situation, either. The sheer scale of the phenomenon is shown by the fact that between 1990 and 2012 subsidies for the sector amounted to a total of PLN 136 billion (US$ 35,26 billion). On top of that there was also additional support for coal-fired power stations hidden in our electricity bills. In the years 2005-2012 this amounted to ca. PLN 42 billion (US$ 10,89 billion).
There have been other similar analyses in recent years, and politicians haven’t been able to find a way to question their results because the authors have typically been renowned experts in their fields. For example, geologist Michał Wilczyński has warned (based on data from government agencies and mining companies) that economically viable coal deposits in Poland won’t last beyond 2040. It’s highly likely that the cost of coal mining in Poland will remain high: deposits are located deep underground and are therefore hard to access. Furthermore, local communities often protest against the construction of new mineshafts in economically viable locations – as is the case, for example, in Przeciszów near Oświęcim, where the mining company Kopex is planning to build a new mine.
It turns out that there is more to expect in the cost column. There have been no noticeable changes in Polish coal mines over the last two years and, consequently, the industry has been going to rack and ruin. At the same time, the politicians representing Poland’s major political parties, on both the left and the right, have consistently emphasized that coal has been and will be part of Poland’s reason of state – unlike renewables, which are treated with distrust, as an element of an alien, German mode of thinking about energy supply. What are the results of such an approach? Over the two years since the publication of the report, no one has even attempted to argue against the document; no one has taken a close look at the spending, the core of which has remained the same. Heaps of unsold coal have grown ever higher, just like the debts of mining companies. Meanwhile, miners keep hearing from politicians that their sector will remain intact. Sometimes it seems to me that the ostensible inertia of politicians is a veil for hidden agendas that they don’t verbalize in public. Poland’s mining industry is slowly shrinking, the process not troubled by social unrest. Beyond doubt, more radical Thatcher-style actions would lead to revolt. However, the price of keeping society calm is very high: the mining industry needs to be drip-fed and resuscitated, over and over again. Sometimes support reaches the industry via by-passes: by terminating thermal insulation or air quality programmes (the governing Law and Justice party has just terminated the “Kawka” and “Ryś” schemes for individual applicants). The budgets of these green programmes were intended to accelerate the replacement of old coal burning stoves and furnaces with other sources of heat, and also to facilitate the thermal insulation of buildings. However, neither an improvement in air quality nor savings in the energy sector are in the short-term interests of those in power: combating smog at the level of individual households would have led to a limiting of the sale of the dirtiest sorts of coal, which are responsible for a great deal of air pollution (and the market for such coal is huge, with coal wholesalers selling approximately 900,000 metric tons of the poorest quality slack coal and culm per year). Limiting energy use, in turn, is a problem for power companies which live off electricity sales, not savings in electricity. Although the benefits of broadly implemented thermal insulation seem obvious, in Poland it is difficult for them to sink in as the lobbying of power companies is more effective than the efforts of environmentalists and organisations from the construction industry, for whom insulation programmes are perceived as a development opportunity.
Another example of hidden subsidies is the plan to increase electricity prices, as recently revealed by the daily newspaper Gazeta Wyborcza. For years, electricity prices in Poland have been close to the EU average. Electricity in Poland for individual customers is two times cheaper than in Germany. However, wholesale prices are 1.5 times higher in Poland. The amendment to the act on renewable sources of energy, currently being prepared by the government, contains a provision which increases the so-called transfer fee (present on each electricity bill) from PLN 3.87 (US$ 1.0) to PLN 8 (US$ 2.07) (gross). The money is meant to support power companies which need to modernise their old facilities and build new coal-powered generation units. After 2020, when the BAT (Best Available Technologies) guidelines come into force in Poland, emission norms will become stricter. This, in turn, will necessitate the closure of outdated power units. Two numbers are enough to reveal the scale of the problem: approximately 40% of Polish power units are 40 years old or older. The modernisation costs are estimated at as much as PLN 16 billion (US$ 4,1 billion), a gigantic amount that the government will need to shell out in order to avoid the looming threat of blackouts, and to protect the mining sector. This money will not fuel the development of renewable sources of energy, co-generation or gas-powered units. Instead, it will be spent on rescuing power generation based on coal. And Poland’s coal deposits (or hard coal deposits, at least), as I’ve already mentioned, are not going to last much longer. After the project to build Poland’s first nuclear power plant was suspended (due to excessive costs), and after power was seized by politicians who are even more distrustful of renewables than the previous government, there now seem to be two potential methods for avoiding power shortages: the construction of new coal-fired power units (e.g. in Ostrołęka), or negotiations with Brussels in the hope of delaying the implementation of BATs in Poland. A third option, i.e. purchasing energy abroad, is only considered an emergency solution.
Recently, Energy Minister Krzysztof Thórzewski complained on the pages of the pro-government, Catholic daily Nasz Dziennik about the fact that 12% of electricity bills support renewable sources of energy. Apparently the Minister did not wish to recall the WISE report: the think tank’s analysts revealed that accumulated financial support for the coal industry in the years 1990-2012 was 150 times higher than support for renewables over the same period.
This disproportionality will be further expanded by the planned price increase, an instrument aimed at rescuing coal-based power and mining industries.