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Poland shelves plan to save coal miner Kompania Weglowa

Poland's Treasury Ministry confirmed Thursday it has shelved a rescue plan to save Europe's largest hard coal miner Kompania Weglowa (KW) because the European Commission would likely rule the plan constitutes illegal state aid.

"The European Commission has indicated there is a high risk of launching legal action against Poland because of the use of illegal state aid," the ministry said in a statement, confirming earlier reports in the dailies Rzeczpospolita and Puls Biznesu.

State-owned KW employs more than 40,000 workers and the ministry said it "does not intend to expose the company to a high risk of repayment of unlawful state aid solely in order to achieve political expediency."

The government had been keen to resolve the crisis surrounding KW before parliamentary elections next month.

Earlier this month the Treasury Ministry announced a plan to prevent KW from going bankrupt that involved creating a Zloty 1.4 billion ($372 million) state investment fund, TF Silesia, to invest in the miner.

The ministry planned to transfer small stakes in three state-controlled companies -- the country's largest utility PGE, the dominant natural gas group PGNiG and state insurer PZU -- into the fund, which would then be used as collateral to raise cash for KW.

Katowice-based KW is struggling with low coal prices and high production costs and made a net loss of Zloty 2.4 billion last year. The company has already spun off some of its most loss-making mines for restructuring.

According to KW's management, the miner needs about Zloty 1.5 billion of capital from new investors to stay afloat. Under the ministry's plan a restructured and recapitalized KW would be rebranded and launched as New Kompania Weglowa (New KW), comprising 11 mines.

The ministry said KW would now seek an alternative plan and use the delay in launching New KW to continue further restructuring of the company.

"Kompania Weglowa's management wants to secure bridging financing, e.g., by extending its standstill agreement with banks to give it more time to launch the new company," the ministry said. "The company will continue to function normally and service its current obligations, including towards its workers. The miners' salaries, together with all earlier secured benefits, will be protected."

source: http://www.platts.com