June 2 (Bloomberg) -- Polish Premier Donald Tusk’s drive to break the ex-communist nation’s links to Russia’s energy chain by modernizing the domestic coal industry is giving Miroslaw Taras sleepless nights.
Tusk tapped Taras, a 59-year-old ex-miner whose leadership of publicly-traded Lubelski Wegiel Bogdanka SA made it profitable before he left in 2012, to do the same for state-owned rival, Kompania Weglowa SA.
Kompania, Europe’s largest coalminer, is buried in debt and teeters on bankruptcy at a time when the dispute between Russia and Ukraine risks disrupting the 89 billion cubic meters of gas shipped annually from OAO Gazprom through Ukraine, or 55 percent of its total exports to Europe. Tusk is betting Taras’s ability to fix Kompania and streamline its bloated workforce without slashing jobs will cushion energy shocks from the east.
“I feel damn responsible for all these people and each one individually,” Taras said in an interview on May 24. “I have a deficit of sleep, even on weekends.”
Taras’s first task is to persuade banks to continue financing the company and unions to become allies in his quest to mend Kompania, which employs more than 54,000 in the coal-mining region of Silesia in southern Poland. If the global coal market doesn’t collapse, Taras says he may be able to post a profit in three to four years.
Thermal coal for delivery in northwestern Europe next-year fell 40 percent since April 2011. Power plant fuel traded at $80.60 a metric ton today, near its lowest level since 2009, broker data on Bloomberg show.
Poland, one of the most outspoken countries against Russia’s annexation of Crimea and its part in the growing civil war in Ukraine’s eastern provinces, depends on Russia for more than 95 percent of its oil and two-thirds of its gas. Tusk has said the European Union urgently needs to wean itself from Russia with a profitable and sustainable energy policy.
Taras, who was hired April 26, spoke publicly for the first time as CEO of Kompania on May 8, saying he is up for the challenge.
“I used to be the chief executive of Poland’s best mine,” he quipped at a business conference in Katowice, a southern Polish town in Silesia. “Now, I’m in charge of the worst. But I’m an optimist.”
Still, the turn-around task may be more difficult with Kompania and Taras has to be assured of government backing as he moves forward, said Jerzy Buzek, who was premier during Poland’s first wholesale mining-industry restructuring between 1997 and 2001.
“Taras has to assess how deep the cuts need to be,” said Buzek in a May 20 interview. “But full government support is crucial for his mission.”
So far, he has it. Tusk spent three days in Silesia, where Kompania is based, in early May to urge power utilities to help the ailing coalmaker and assure miners worried about job losses.
“The premier’s promise lifted some pressure off me and will allow time for dialogue with unions on the necessary overhaul,” Taras said.
Additional proposals on how to rescue Kompania include cuts in cheaper imported coal and electricity and a roll-over of Kompania’s debt repayment obligations, according to a statement on the website of the National Secretariat of Mine and Energy Workers Union.
The draft resolutions for the sector, including measures allowing the sale of coal in new markets, will be ready on June 4, Jerzy Pietrewicz, the deputy economy minister, announced in parliament on May 29.
Taras, who spent the first 17 years working inside coal mines, beat two other candidates for the job because of his “terrific track record,” Deputy Prime Minister Janusz Piechocinski, who oversees the mining industry, said in a May 20 interview.
Bogdanka was the least profitable of 71 Polish coal mines in 1993, eventually shed 3,000 employees and cut benefits. Bogdanka shares, which started trading in June 2009 on the Warsaw Stock Exchange, are priced more than 2.5 times higher than the initial public offering.
“Twenty years ago, Silesian miners pointed to Bogdanka as the prime candidate for bankruptcy, Piechocinski said. ‘‘A successful overhaul and a reduction of labor costs changed the situation completely.’’
Taras is firm, sometimes short-tempered, and sticks to his views, though he’s also ready to reflect on others’ options, said Antoni Pasieczny, the head of Bogdanka’s Solidarity union.
‘‘Negotiating with four unions in Bogdanka was manageable,” Pasieczny said by phone on May 21. “In Kompania, it will be much more difficult.”
The ratio of membership in 161 trade unions grouping Kompania’s staff exceeds 100 percent, according to company’s website, implying that many belong to more than one organization.
Taras left Bogdanka after falling out with shareholders over an auditor’s recommendations to change outsourcing agreements. Taras rejected the recommendations and accused the supervisory board of defamation and influencing management’s operational decisions.
The Polish pension fund unit of Aviva Plc was one of those shareholders.
“We shouldn’t forget Taras wasn’t solely responsible for Bogdanka’s successful overhaul,” said the unit’s chief financial officer, Marcin Zoltek, in a May 21 phone interview. “I’m afraid the government in expanding its rescue activities for the mining industry may end up supporting unprofitable mines instead of a real overhaul.”
Bogdanka’s current chief executive officer, Zbigniew Stopa, said he supports measures that will lift the entire market in the long term. Kompania’s stockpile of 5 million tons of coal is putting “downward pressure on coal prices,” he said.
“If Kompania’s serious difficulties are solved on a market basis, it will bring positive effects to the whole industry,” Stopa wrote in e-mailed responses to Bloomberg questions on May 28.
Tusk and Taras must also consider the human cost, where thousands of jobs are at stake for miners, whose average pay was 1,630 euros ($2,215) a month in 2013, or 85 percent higher than the national average.
“Miners have sacrificed enough working underground to give any jobs or benefits,” Dominik Kolorz, the head of the Solidarity trade union in Silesia, told reporters on May 6 in Katowice before meeting Tusk.
Taras said the company lost an average $11 on each ton of the 36 million tons it produced last year, when coal prices reached a five-year low.
“One of Kompania’s biggest faults has been to ignore market conditions,” Taras said in the interview. “There is the need to watch trends over a decade.”
Unions plan to hold a demonstration in Warsaw on June 16 if government measures to save mines, expected to be ready this week, don’t satisfy them. Nine years ago, mass and violent protests succeeded in killing planned cuts in pension benefits.
To save jobs, Taras said he foresees shutting unprofitable mines gradually and increasing profitability in other units. At the same time, he said unions must also shoulder the burden of saving the industry.
“Unions will have the political, social and moral responsibility for the tragic consequences triggered by barring indispensable changes in the company,” Taras said. “They should be the co-authors of my plan rather than the critics.”