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Tale of Two Polish Coal Miners Shows Woes of Biggest EU Producer

“I check the share price each day,” said Batyra, 39, a senior foreman at the mine run by Lubelski Wegiel Bogdanka SA, one of three coal companies in Poland not controlled by the government. “Everybody does in here.”

The performance of his employer compared with competitor Kompania Weglowa SA, the biggest producer in the European Union, explains why. Since debuting on the Warsaw Stock Exchange in 2009, Bogdanka has more than doubled in value as profits rose every year but one. It has done so even as the price of coal more than halved since 2008, when the global financial crisis took hold, pushing Kompania Weglowa to the brink of collapse.

Costly Illusions

“At such a level of prices and costs and without restructuring, we won’t survive,” Marek Uszko, 55, the acting chief executive officer of Kompania Weglowa, said on Nov. 19. “We all need to face the truth. Illusions will cost us dear,” he said at the company’s convention later that month.

For decades, that’s proved easier said than done for an industry that politicians have been unwilling to grapple with because of concern about strikes and civil unrest.

The Solidarity labor movement that helped bring down Poland’s Soviet-backed communist government led some protests. In 2005, it blocked government plans to raise the retirement age for miners after demonstrations turned into street fights.

While Bogdanka is based in eastern Poland about 200 kilometers from Warsaw, Kompania Weglowa is located in Silesia, the cradle of mining in eastern Europe and a region that produces more than a half of the EU’s hard coal.

“In Silesia, mining is put on a pedestal and any changes are difficult to execute,” Marcin Gatarz, an analyst at UniCredit SpA in Warsaw, said last week. “The government will do everything to save it. Failure to do so would cause a big social problem. It’s hard to foresee any government could afford it, especially that miners’ protests are usually violent.”

Historic Benefits

The coal price is forcing change in a country that relies on the fuel to generate 90 percent of its electricity.

Polish Prime Minister Donald Tusk has repeated his government’s commitment to the strategic importance of coal, saying on Dec. 4 miners are “needed now as much as ever.”

Meanwhile, Kompania Weglowa’s survival plan involves cutting 32 percent of its workforce by 2020, merging and selling mines and whittling some of the historic benefits for miners. When the company was created in 2003 after the merger of different state-owned mines, it employed 85,000.

Where the company is similar to Bogdanka is in rewarding miners with double-than-average pensions and two annual bonuses. The difference is the ability to afford them and whether miners at an unprofitable employer should be entitled to them.

Silesian Mindset

“What’s destructive for Silesia mines are two things: they are too involved in politics and they all think they deserve what their fathers and grandfathers got,” said Batyra, standing at the mine entrance underground with an industrial flashlight and dressed in a checked cotton shirt, rain boots and hard hat.

The workers at Bogdanka talk about 20 years ago, when the company almost went bankrupt, Batyra said. Being the least profitable of 71 Polish coal mines that year, Bogdanka had to fire about 3,000 employees.

“Sadly, only an extreme situation makes people open their eyes,” CEO Zbigniew Stopa, 54, said in an interview in Bogdanka on Nov. 21 “Here, people still remember 1993 and they have a different approach than in the Silesia region.”

It hasn’t all been a one-way trip for Bogdanka since then. Its share price fell 6.6 percent this year, valuing the company at 4.3 billion zloty. Coal prices for delivery next year dropped 20 percent to $82.40 a ton.

 

Source: Bloomberg