Wednesday 7 October 2015

Kompania Weglowa ( Coal Company ): the biggest Polish coal miner continues to have financial problems

coal , EU , politics No comments :

Autumn last year, we reported about the problems which many of Polish coal mines were facing, causing many of them to close down. Fact that coal exploration is one of the most important branches of Polish industry and coal being the main energy resource in the country, puts financial problems of the mines in a completely different light. Despite government’s plans (and their actual implementation) of restructuring of the biggest mine holding (Kompania Weglowa, in short: KW), Onet.pl reported that labour unions are highly dissatisfied with the outcome of reorganisation and will discuss internally the next steps to be taken.

The main reason underlying dissatisfaction of the labour unions (mainly representing the miners) is the delay in the creation of the so-called “Nowa Kompania Weglowa” or “NKW” ( English: New Coal Company, ). The establishment of this new entity and transferring to it part of the current assets of Kompania Weglowa presupposes a government recovery plan implemented for the mining industry to the growing financial problems of the sector. Nowa Kompania Weglowa was supposed to be created on the basis of 11 mines located so far in the structures of KW and several other establishments of the company.

The state’s treasure expressed in a statement issued last week that NKW will be constructed in a way to not be challenged by the European Commission and that restructuring of its assets requires more time than initially estimated. In accordance with the agreement that the government signed with the unions, the new company would be created by the end of September. Now, however, it is clear that the KW’s mines cannot be transferred to the new entity.

Representatives of the mining labour unions have stated that they feel cheated by the Prime Minister Ewa Kopacz and her ministers. As Onet.pl reports, the head of Silesian Solidarity Dominik Kolorz pointed out a few days ago that the industry cannot operate based on a short-term solutions, as they have been running since the spring of 2014. The branch of the industry of the strategic importance have to operate with the wise, strategic mind-set.

Deputy Treasury Minister, Wojciech Kowalczyk, who has been in charge of restructuring of Kompania Weglowa reassured the labour unions during on September 24,2015 that the government undertakes the implementation of the January agreement. He stressed that the government will support the maintaining of liquidity and to find and develop a financial support to the company until the end of the first quarter of 2016.

Also the prime Minister, Ewa Kopacz, expressed in her numerous speeches that what Kompania Weglowa needs at the moment is patience and time. She highlighted that the work on the restructuring of the company is still in progress, but definitely is one of the positions on the government’s top priority lists.

Prime Minister, Ewa Kopacz, during her speech on the situation of KW on September 25,2015

Restructuring of the company is difficult because of the multiple problems that complicate re-inventing its assets. The main obstacle in the government’s involvement in the financial help is the European Union’s guideline regarding public help and alinement with lack of violation of the market competition. Consequently, the state cannot offer public help to the company which would be, later, the only player (or with significant market share, disabling fair competition) on the market. At the moment, European Commission investigates whether the plan of KW’s restructuring is compatible with EU state aid rules. For the public aid to be accepted by the commission, in the new structure (after the restructuring) of the company must be a private entity, for example: financial institutions ( banks included).

The state has to wait for the official statement from the European Commission (EC) before they proceed with the application of the restructuring plan. The risk related to start of restructuring ( to stick to the dates specified in the agreement) with eventual lack of the approval from the European Commission can be devastating to the state’s treasury.

Puls Biznesu ( one of the biggest opinion-making newspapers on the economic matters in Poland ) dedicated an article to the danger that EC’s disapproval on public aid can bring, published on September 28,2015. In the article the author points out the numerous warnings from lawyers about the high probability the European Commission would open judicial proceedings for the unlawful state aid. From the legal and strategic point of view, it is better to wait for the final approval instead of risking eventual financial penalties and obligation to cancel (and withdraw) already given state aid, what most likely would cause Kompania Weglowa to bankrupt.

Read articles on PEM about problems of Kompania Weglowa: