• PG Silesia says state competitors will require more help
  • Miners have to ‘put a jigsaw puzzle together,’’ official says

Poland won’t avoid shutting down some of its ailing mines as the money funneled into them by the state-run companies won’t be enough to compensate for still-depressed fuel prices, according to the country’s biggest private coal producer.

The nation of 38 million, whose electricity comes mostly from the heavily polluting fossil fuel, has been draining profitable power producers since 2015 to help shore up loss-making miners. Earlier this year, the country’s three utilities agreed to pour 1.5 billion zloty ($386 million) into Polska Grupa Gornicza, the European Union’s biggest coal producer, with assurances that more cash injections won’t be required. That helped the company avoid bankruptcy and the cabinet to keep election promises not to close mines.

“Everyone knows that the issue will re-emerge in the next 12 months,” said Michal Herman, the head of PG Silesia Sp. z o.o. “Again, the source of investment will have to be the power companies, only this time they will need to be more selective, but that’s good. That means that the best mines will survive and the least efficient ones will be closed.”

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Coal companies worldwide have endured the worst downturn in decades as a result of stringent environmental rules and a supply glut that sent prices plunging to a multi-year low while pushing some of them, including Czech miner New World Resources Plc, to the brink of bankruptcy.

The Polish government, a vocal defender of coal in the EU, should help the entire industry, for example by lowering the fees and taxes, PG Silesia CEO Herman said in a phone interview. “Everyone is fighting for survival and we are all focusing on what will happen in the next three months and not three years.”

The recent uptick in coal prices may not be enough to save Poland’s worst-performing mines as it will impact their long-term contracts in 2018 at the earliest, a respite that is needed now, according to Herman. He predicts that state-run mines have only one year to “improve themselves.” At least half of them will make it and coal output needs to slide as new coal-fired plants will consume less fuel.

“Eventually the market will find its balance and I don’t believe miracles will happen,” he said. Herman and Krzysztof Mejer, the deputy mayor of coal town Ruda Slaska, which is home to three of PGG’s 11 mines, see the only rescue for the troubled industry in higher coal prices and taking an axe to costs that are crippling their competitiveness.

Coal Puzzle

“It’s about cutting production costs,” Mejer said in an interview. “It will also depend on global prices of the fuel. If they go up, there’s a chance to stabilize the industry. But if the government is complacent about reducing PGG’s debt, the problem will return in three to four years.”

Ruda Slaska, lying at the heart of Silesia region, isn’t afraid of the shift that’s inevitably coming to the mining industry even as PGG’s three mines will merge into one as soon as next year raising the specter of a decline in the coal output, according to Mejer.

“The mining has been here for more than 200 years and we’ve been through many shake-ups and we’ve seen many mines being closed,” he said. “We’ll survive, it’s just a matter of putting all the pieces of the puzzle in order.”

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