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Duda Win Puts Ailing Coal Mines in Focus for Polish Utilities

Polish utilities risk becoming an unwitting casualty of Andrzej Duda’s victory in Sunday’s second-round presidential vote.

The prospect that Duda’s Law & Justice may triumph over the ruling party in fall general elections puts pressure on the coalition to speed up year-old plans to force the utilities to pitch in financially with the restructuring of the European Union’s largest miner and Poland’s third-biggest employer, Kompania Weglowa SA.

“The risk of utilities having to subsidize coal mines has increased after Duda’s victory,” Pawel Puchalski, head of research at Bank Zachodni WBK SA, said by phone on Monday. “It’s obvious already that both main parties will have to step up the fight for miners’ votes before parliamentary elections.”

Ties between utilities and coal mines are part of the plan to revamp Kompania and bring back to life an industry that employs about 100,000 Poles. The sector was hit by a supply glut and prices that have slumped to the lowest in at least eight years.

The company needs about 2 billion zloty ($534 million) of new cash to start generating profits, while the government has earmarked a similar amount within the budget to finance a cost-cutting plan in Kompania.

Andrzej Duda, who according to exit polls won elections by 52 percent to 48 percent by incumbent President Bronislaw Komorowski, has said during the campaign that Poland can’t shut coal mines and will keep the fuel as the key commodity for the economy. Poland relies on coal for about 90 percent of its electricity generation.
Utility Workers

Even so, the ruling authorities may still back down because utilities under threat of increased spending to help Kompania also employ tens of thousands of potential voters.

Treasury Minister Wlodzimierz Karpinski, a member of the ruling Civic Platform, has said he won’t force the four utilities, which employ about 80,000, to buy stakes in Kompania.

“A consolidation of coal mines with the utilities may remain on the table because this is one of the few options to help the coal industry, but it’s unlikely that Civic Platform will be pushing in this direction ahead of the elections,” Bartlomiej Kubicki, an analyst at Societe Generale SA, said by phone on Monday. “Utilities are against that and the industry also employs thousands of people.”

PGE SA, the largest of the power groups, said it’s “observing carefully” the Polish coal market industry. Tauron Polska Energia SA is in preliminary talks to buy one of Kompania’s mines and its investments will stop there, while Enea SA and Energa SA aren’t interested, they said.

“Saving Kompania is a burning issue and would help the ruling party win some votes in the elections,” Krzysztof Kubiszewski, an analyst at Trigon Dom Maklerski SA, said by phone. PGE and the state-owned PIR infrastructure fund will probably be on the short list for Kompania investors that the government plans to announce next month, he said.

source: http://www.bloomberg.com