Coal’s Slump Leaves Czech Town Facing Mass Unemployment

Most mornings, Lubomir Nevrly drives past a forest of grimy chimneys and steel-mill towers spewing smoke over the eastern Czech city of Ostrava. He doesn’t want them to stop operating.

“If they close another coal mine it will be a catastrophe for the region,” said the 60-year-old Ostrava native who spent two decades working as a miner. “Crime will go up, people will start drinking. Soon we’ll be afraid to go out on the streets.”

The specter of mass unemployment hangs over the Czech Republic’s Moravia-Silesia region, an industrial hub that flourished during the Austro-Hungarian Empire and the Communist regime. New World Resources Plc, its biggest employer, will close its unprofitable Paskov mine next year, raising fears of more worker dismissals and an erosion of living standards in a region with the country’s second-highest jobless rate.

Ostrava’s plight stems from a glut of metallurgical coal from West Virginia to Australia that has cut prices by more than half since 2011 to $152 a metric ton, as supply exceeded demand from a steel industry constrained by Europe’s economic slump. Czech plants run by ArcelorMittal and Evraz Plc curbed output this year because carmakers and other factories cut orders.

Located 20 minutes from Ostrava, the Paskov mine employs about 2,500 people. Every miner’s job loss threatens about four other ancillary and service-related positions in the region, according to Yvona Jungova, director of Ostrava’s labor office.

Ripple Effect

“We’re not talking only about the miners and foundry workers,” Jungova said in a telephone interview. “There are people who clean for them, cook for them, provide various services, and they suddenly won’t be needed.”

Miners at NWR’s main OKD unit threatened to strike as talks over a 2014-2018 collective wage agreement have dragged on between unions and management for more than a year, CTK newswire reported today, citing union leader Rostislav Palicka.

Ostrava has seeped into the election campaign before the nation votes on Oct. 25-26. The Social Democratic party, which has been leading in opinion polls since Prime Minister Petr Necas’s pro-austerity government collapsed in June, said it won’t burden the state budget to save Paskov jobs.

President Milos Zeman called on NWR’s biggest shareholder, billionaire Zdenek Bakala, to keep Paskov open and finance the operation out of his own pocket. He criticized NWR for not having created cash reserves in the years it posted profits.

NWR will submit a proposal to the government on Oct. 18 on how to shut the Paskov mine and conduct its other mining operations, CTK new agency reported yesterday, citing Czech Industry and Trade Minister Jiri Cienciala.

While Paskov produces high-quality coal, it’s losing so much money that NWR is determined to close it by the end of 2014 unless the state agrees to subsidize the jobs, Marek Sibrt, a company spokesman, said Oct. 3.

Family ‘Disaster’

That will be a “disaster” for most of the miners who earn above-average wages and will have a hard time finding work elsewhere, said Jindrich Lettovsky, the work security inspector and union leader at Paskov.

“Most of the guys have families, they’re the primary breadwinners, and they have mortgages to pay,” he said, sitting in the crowded union office above the mine pit. “If 10,000 families stop spending money it will create a chain reaction for the whole region.”

Paskov incurred an $80 million loss last year as difficult geological conditions made extraction unprofitable at current commodity prices, NWR’s Sibrt said.

The company, which operates three other active mines in the region, posted losses this year as demand for coal from steelmakers and other industrial clients fell. The junk-rated miner agreed to sell its OKK coking plant for 95 million euros ($129 million) and negotiated waivers and amendments to its debt covenants for the second time this year.

Industry’s Roots

The Moravia-Silesia region, the Czech Republic’s most densely populated after Prague, has been heavily industrialized since the Austro-Hungarian empire as the abundance of both thermal and metallurgical coal encouraged the construction of foundries and steel mills. Thermal coal is used in power plants, while metallurgical can be burned to make steel.

Europe’s economic crisis has taken a toll on heavy industry in the region. Evraz shut down its steel mill for more than a month in the previous quarter because of a lack of demand, and the company is looking to sell the entire Czech unit.

The region’s August unemployment rate, at 9.8 percent, was higher the country’s overall rate of 7.6 percent. The labor office paid out more in housing support in the first eight months of this year than all of 2012, Jungova said.

Violent Backlash

NWR’s decision to shut Paskov sparked violent demonstrations in the city, when about 3,000 miners marched to the company headquarters Sept. 17, broke in and had to be evicted by riot police. A few days later, several hundred supporters of the extreme right-wing Workers Party clashed with riot police as they tried to attack a neighborhood inhabited mainly by the ethnic Roma, or gypsies.

“People are scared of the future,” Paskov union leader Jaromir Pytlik said in an interview. “No wonder some become aggressive. This could become a huge security problem.”

There is another issue, his colleague Lettovsky said. Young people are fleeing the region to find well-paying jobs in the service industry, including his own daughters: one of them lives in Italy, another in Prague, and the youngest will soon leave for Prague as well.

“Soon there will be only old people left here,” he said. “All the young ones are running away.”

Before it's here, it's on the Bloomberg Terminal.