Gov't blames union wages for heavy coal sector losses

The hard-coal industry lost zł. 1.2 billion ($301 million) last year, overshooting the target of zł. 411 million ($102 million) in losses set by the government's Hard Coal Mining Restructuring Program, Deputy Economy Minister Marek Kossowski said last week. Kossowski blamed the losses on excessive wage settlements in the coal industry and growing prices that have opened the door to imports. The coal sector recorded a net profit of zł. 181.9 million ($45.5 million) on sales of 771.4 million ($193 million) in 2001, zł. 1.9 billion ($475 million) more than the previous year. But the industry's net result, which does not take into account liabilities written off by the government, showed a loss of zł. 1.2 billion ($300 million), more than zł. 410 million ($102.5 million) higher than the zł. 795 million ($198.75 million) planned in the 1999 restructuring program. Kossowski blamed pay increases in the coal industry, which amounted to 9% in some coal companies, the maximum allowable under the wage agreement struck between unions, employers and the government through the Tripartite Commission (KT) for 2001. "I am convinced that if pay increases had been held back more last year ... then the zł. 410 million would have been reduced to zero," Kossowski said. "This is a significant increase … yet in the mining sector, wages are still seen as being insufficient."

Drowning in debt Despite the ongoing restructuring of the Polish coal industry, which has seen its workforce reduced by 97,300, or 40% since 1997, the combined debt of domestic coal producers has grown from zł. 13.3 billion ($3.3 billion) in 1997 to zł. 21.4 billion ($5.3 billion) in 2001. But the government reduced subsidies to the coal sector in its budget for 2002 from zł. 1.96 billion ($490 million) to zł. 942 million ($235 million) and Kossowski said that no new mine closures would be announced this year, although "planning work is under way to adapt production capacity to the size of the market, which is continually shrinking." According to Kossowski, net profit growth in the industry was due to higher coal prices, which reached zł. 144.45 a tonne in 2001, compared to forecasts of zł. 134.50 in the government's restructuring program. But while helping to increase the profitability of the sector, growing prices encourage the growth of imports, which are already driving domestic coal out of markets in the north of the country. "Because the future of the industry depends to a large extent on coal prices and costs, the continuation of this trend would spell a grim future for the industry," Kossowski said. "Transporting (imported) coal from the northern ports within a 150-kilometer range is becoming cheaper than transporting 400 kilometers from Silesian mines ... (which) can cost up $12 a tonne." He added that exports from Russia, Australia, South Africa and America represented the biggest competition to domestic production. Increasing coal prices could spell trouble for the coal sector's major clients, including power generators, said Piotr Kapla, analyst at Bank Handlowy. "Hard coal represents 50% of costs for power plants," Kapla said. "If the government wants to increase the price of coal it will have a negative impact on the power sector, particularly generators."