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Restructuring the hard coal mining industry in Poland
Resources Policy 1994 20 (3) 19S197
Restructuring the hard coal mining industry in Poland Eugeniusz Morawski Polish Foundation,for Management Promotion, ul. Wroclawska 62, 41-902 Bytom, Poland This paper discusses the present status and future of the hard coal mining industry in Poland. It assesses changes in production volume, production potential, and employment and financial performance during the period 1989-93. It then describes the ongoing restructuring of the industry - organizational solutions, technical considerations and economic aspects.
The hard coal mining sector in Poland requires restructuring to function in a free market economy. The principal, accepted objectives of the restructuring programme are: to facilitate financial profitability by the sector; to promote international competitiveness; and to determine an appropriate means to finance needed investments in the mines. Specific programmes to achieve these objectives have gone through several stages of development. Initial work on restructuring the sector began in late 1992 and early 1993 in the Ministry of Industry and Trade in cooperation with trade unions and employer associations. In March 1993 a programme for restructuring emerged under the title Restructuring the Hard-Coal Mining Sector in Poland: Realization of the First Phase in 1993 within the Framework of the Statei Financial Capabilities. The programme, a set of basic objectives for the mining sector, was a significant advance. Unfortunately it was not been equipped with the financial resources necessary to support its realization. By July 1993, the financial state of the hard coal sector had worsened, and another programme was prepared to address the problems of the sector: Programme to Stop the Move Toward Bankruptcy of the Polish Hard-Coal Mining Sector (Ministry of Industry and Trade, 1993a). Responsibility for executing the programme was given to the general meetings of the coal companies (executed by the Minister of Industry and Trade) and the boards of directors of these companies. This programme was terminated at the end of 1993, replaced with a third programme, Restructuring Hard-Coal Mining: Realization of the Second Phase in 19944995 (Ministry of Industry and Trade, 1994). A draft of the programme was presented at a discussion forum on 11 December 1993, at the Murcki mine, a meeting attended by representatives of the national government, members of Parliament and senators from the Katowice and Walbrzych regions, and represen030l-4207/94/0301
93-050 1994Butterworth-Heinemann
Ltd
tatives of coal company boards of directors, trade unions, and other institutions operating either in or for the hard coal sector. The programme was subsequently revised in light of comments made at the discussion forum and then considered by the Council of Ministers, which on 29 March 1994, accepted the basic direction and plans of the programme. The Council authorized the Ministry of Industry and Trade to present the programme to the Parliament of the Republic of Poland.
General characteristics of hard coal mining and phase I restructuring, 1989-93 During the period 1989-93, domestic sales and exports both declined sharply (Table I). Falling domestic sales and exports, combined with the need to adjust production levels to the needs of markets, resulted in falling revenues and - at some mines - rising unit costs of production. The principal reasons behind falling exports were the lack of coordinated marketing and Polish-Polish competition among individual mines to capture foreign sales. Employment fell during the same time period, while productivity fell initially before rising (Table 2). The financial performance of the industry deteriorated (Table 3). Subsidies were reduced and then completely withdrawn after the first quarter of 1992. The surplus of liabilities, loans and bank credits over receivables increased. Net income became increasingly negative. This difficult situation was worsened by the hard coal price policy of the time. Under the policy, local treasury offices controlled coal prices, while simultaneously the prices for nearly all inputs (ie goods and services used by the coal mining sector) were liberalized; as a result, input costs increased proportionally more than coal prices. The profitability of the hard coal mining sector was significantly lower than profitability of other sectors, such as 193
Restructuring coal mining in Poland: E Morawski Table 1 Hard coal production
and sales, 3989-93 (Mt)
Production
Sales
Export
111.6 147.4
174.2 144.9
29.0 28.4
1991
141.0
137.5
20.3
I992
131.3
126.2
18.7
1993
130.2
131.2
24.5
1989 1990
Table 2 Employment 1989-93
in hard coal mines and general productivity
Total employment (thousand persons) 1989 1990 1991 1992 1993
415.7 387.9 352.9 336.4 316.9
Surface employees General productivity (thousand persons) (kg per man shift) 135.7 125.4 109.1 99.9 90.7
2066 1866 1971 1946 2035
brown coal, electric power generation, power distribution and heat generation. The deteriorating situation in the hard coal industry suggested that a thorough restructuring of the industry was necessary. The idea of restructuring was further supported by the need to provide energy security for Poland, as well as other social and political reasons. It also should be stressed that the cost of obtaining (or producing) 1 GJ of energy in Poland is lower using hard coal than any other fuel source, except brown coal. In 1993, considerable structural and organizational changes were implemented in the hard coal sector. On 1 March the Minister of Industry and Trade, representing the State Treasury, transformed the state hard coal enterprises into the following independent coal companies:
(1) (2)
6 multimine coal companies, with a total of 49 mines (joint stock companies wholly owned by the State Treasury); and 14 single mine companies (also joint stock companies wholly owned by the State Treasury).
Then on 29 June 11 of these 14 mines were consolidated into the Katowice Coal Holding Company; 3 of the 14 single mine companies remain as independent operating companies, while one other mine is under construction and will operate as a single mine company. Five individual mines are in the closure process and have remained as state owned enterprises. In the area of marketing, the Home Coal Wholesaler (Centrala Zbytu Wegla) was transformed into the Weglozbyt Joint Stock Company on 4 June 1993 (wholly owned by the State Treasury). Coal sales sections also were established within individual coal companies. On 25 June the Foreign Trade Company Weglokoks was transformed into the Weglokoks Joint Stock Company (wholly owned by the State Treasury). 194
Table 3 Production subsidies and financial results of hard coal mines 19893 (million zloty) Production 1989 1990 1991 1992 1993
3316.7 9312.8 5075.4 697.9 _
subsidies
Financial result 342.9 415.9 -3 535.4 -12 581.8 -15 006.6
On 26 June the Coal Export Committee was established. From 15 July to 3 1 December 1993, the Progrumme to Stop the Move Toward Bankruptcy of the Polish Hard-Coal Mining Sector was in force. The general objectives were to halt the build up of financial losses and to create conditions in which the sector could return to profitability. The specific objectives of the programme were to: (1) complete the organizational restructuring of the industry begun earlier (and discussed above); (2) adjust production capacity to that required by market coal demand; (3) increase coal exports; (4) reduce employment and increase productivity; (5) reduce operating costs; (6) commence financial restructuring; and (7) prepare business plans for each coal company. The programme achieved the general objective of forestalling bankruptcy and the following specific results:
(1)
(2) (3)
(4)
(5)
(6) (7) (8)
Economically profitable exports rose from 18.7 Mt in 1992 to 24.5 Mt in 1993, due to coordination of export sales by newly formed organizational units and cessation of Polish-Polish competition in export markets. Long-term contracts were signed between coal companies and coal exporters. Production concentration factors improved. Daily output from a longwall rose to 12 19.1 tonnes in 1993 compared to 953.9 in 1992. Coal quality improved. In 1993, calorific value increased by 269 kJ/kg, mean ash content fell by 0.5% and sulphur fell by 0.02% as a result of new or retrofitted coal preparation and desulphurization plants. Polish coal, in general, is among the very best in the world in terms of quality. Productivity rose from 1946 to 2090 kg per man shift, although it is still low compared to UK or German mines with comparable mining and geologic conditions. Further productivity increases will require continuous and expensive investment. A system of social protection was prepared and negotiated. Employment at mines was reduced in 1993 by 22 900 people, without large-scale dismissals. Strict principles governing new workers were impleResources Policy Volume 20 Number 3 September
1994
Restructuring coal mining in Poland: E Moran&i
January
February
March
April
May
June
July
August
September
October
November
December
1993 Figure 1 Price, cost and accumulation on coal (63 mines)
(9)
(10) (11) (12)
(13) (14)
(15)
mented, and wage increases were linked to productivity improvements. Coal prices for domestic sales were stabilized at a level related to production costs but not to exceed the price of comparable imported coal. Production costs were reduced after August 1993 (Figure I). Revenues began to exceed costs in the fourth quarter of 1993 (Figure I). Considerable progress was made in restructuring the coal companies financially by entering into agreements with customers, using the courts to obtain debt settlements, and using unconventional forms of debt write offs and liability compensation agreements. Work was begun to define property rights. Mine closure is proceeding at ten mines deemed permanently unprofitable, including the Barbara-Chorzow mine where production has ceased already. Personnel training was carried out, especially with the goal of creating leaders of the small and medium-sized companies established during restructuring. A training programme for managerial staff was prepared with the participation of foreign partners.
These in brief were some of the tasks accomplished in 1993 in phase I of the restructuring programme, despite the lack of outside financial support for the programme. These accomplishments set the stage for further restructuring in phase II (1994-95) and phase III (199&2000).
Phase II restructuring,
(1) to reach profitability in 1994 and maintain it in 1995; (2) to preserve the international competitiveness of Polish coal; (3) to complete the process of debt settlement; (4) to obtain the financial resources necessary to invest in replacement equipment and mine modernization; (5) to create the necessary conditions for higher wages through higher labour productivity; (6) to reduce the uncertainty within the mining community with regard to job losses in the mines. The second phase of restructuring ing precepts:
(1) The state is responsible (2) (3) (4)
(5)
(6) (7)
1994-95 (8)
The objectives of the second phase of restructuring into account the results of the first phase and are: Resources Policy Volume 20 Number 3 September 1994
take
starts with the follow-
for the closure of permanently unprofitable mines. Prolonging the period of social protection is a condition of the programme’s realization. No production subsidies for hard coal mining. During the first quarter of 1994 coal companies will conclude long-term marketing agreements with the major domestic and foreign coal customers. Domestic coal prices are free to fluctuate with changing market conditions but must remain at or below the import parity level. Economically justified exports will be stabilized in 1994 at about 28-30 Mt. No privatization during 199495 is envisaged, except for the privatization of surface departments and buildings which either are or used to be the property of a mine but which were not directly connected with production (eg cafeterias). The programme will be coordinated with the industry restructuring programme in Upper Silesia and Walbrzych, which applies to all sectors of the economy.
195
Restructuring coal mining in Poland: E Morawski Table 4 Production
and sales of hard coal during 1993-2000 (Mt)
Specification
Production in 1993 (actual)
Production Salt% Home
Forecast 1994
130.2 131.3 106.8
Export
24.5
106.6 Sales steam coal 24.1 Sales coking coal Creation of coal strategic reserves included in home sales Strategic reserves of coal at the year end
1995
1995
2000
2000
135.3 134.8 107.2 27.6 107.1 27.7
135.4 134.2 106.6 27.6 104.6 29.6
132.4 130.9 105.9 25 102.1 28.8
131.7 130.7 104.6 26.1 102 28.7
120.9 119.7 107.2 12.5 93.4 26.3
4
6
_
4
10
_
10
Basic activity c
Business plans of coal companies
Programme of hard coal mining restructuring
I *I
I_
I ,
Realization
and responsibility
I
Coal companres, rndrvrdual manes
Adjustment of production to home market b needs and exports. Conclusion of long-term agreements
Government
I
Creation of political support for coal mining restructuring programme. Acceptance oi assumptions and objectives of the restructuring and mines closure programme
with main coal customers
) Stabilization of coal prices on home market below the import parity level
,
Financing unprofitable
Gradual and systematic reduction of own coal production costs by: a) employment reduction in mines b) replacement and modernization of technical equipment in mines for production concentration and productivity increase c) closure of permanently unprofitable mines
4
Introduction of incentive based wages b system in mines within an Unlimited General Labour Agreement
’
Figure
196
2
of social protection system
of coal companies
Supporting the programme of new workplace creation beyond the coal mining sector
Investments in mines targeted at coal quality improvement
Proecological b standard of mining areas
’
Prolongation
Support for restructuring
Financial restructuring in coal companies and mines not integrated into companies
F
of closure of permanently mines of their sections
investments the natural
Privatization of departments the mine surface
Elements of hard coal restructuring
to improve environment
Establishment
the in
and buildings on
,
+
of state reserves of hard coal
Acceptance of the draft of a decree of hard coal mining restructuring
process during 1994-95
Re.wurce.~ Policy Volume 20 Number 3 September 1994
Restructuring coal mining in Poland: E Morawski Table 5 Planned structure of investment in 1995 (%) Mine workings Purchase of ready-made Ecology Other Total
investment goods
1994
1995
14.0 43.8 26.0 16.2
21.3 39.4 21.1 18.2
100.0
100.0
The restructuring programme takes place within the context of the state’s anticipated fuel energy balance and the role of hard coal in this balance. Hard coal production is and will continue to be of basic importance to the Polish economy because hard coal is both the country’s main source of energy and a major export item. About 60% of the country’s electricity is generated from coal, as well as over 80% of the heat for industrial and household needs. The steelmaking industry is based on hard coal. Forecast hard coal production for the period 1994-2000 is presented in Table 4 (Ministry of Industry and Trade, 1993b; Energy Problems Department, 1993). Worth mentioning is the creation of strategic reserves in hard coal. The legal basis, the idea behind their creation, and financing options have been prepared by the State Hard Coal Agency. Implementation of the restructuring programme rests with the coal companies themselves. All necessary tasks have been included in their business plans and are presented very briefly on the left side of Figure 2. The figure also presents the basic activity envisaged for the state. For the programme to be successful, support by the state is essential, both financial and legal. Investment in maintenance and restructuring is planned at a level of 7.3 billion zloty in 1994 and 7.6 billion zloty in 1995. The structure of planned investments is shown in Table 5. Worth stressing is the significant share of expenditures devoted to ecology in the mining sector, necessary to bring environmental practice in Polish coal mining up to world standards. Financial restructuring that began in 1993 continues in this second phase. Basic measures include: (1) debt agreement proceedings with suppliers of goods and services to the hard coal sector (negotiations both directly with the suppliers and using the courts as an intermediary); (2) other forms of debt settlement with federal and local governments; and (3) auxiliary instruments, such as compensation for liabilities and receivables, conversion of liabilities into equity shares, and use of goods certificates. One aspect of restructuring is closure of permanently unprofitable mines and of mines with depleted coal reserves. The accompanying paper by Karbownik and Stachowicz (this issue of Resources Policy) presents a timetable for the closure of permanently unprofitable Resources Policy Volume 20 Number 3 September
1994
mines and those with depleted reserves. The programme now in force identifies nine mines to be closed: Walbrzych, Nowa Ruda, Saturn, Sosnowiec, Zory, Barbara-Chorzow, Paryz, Siemianowice, and Pstrowski. However, it is expected that the Zory mine will be only partially closed and that the termination date of the Siemianowice mine will be delayed. In addition, partial closure of the following mines is anticipated in 1994 and 1995: Rymer, Jowisz, Jan Kanty and Porabka-Klimontow. These closures will require financial support from outside the sector (see the paper by Karbownik and Stachowicz). It also will be necessary to change a number of the legal rules, especially those regarding debt remittance, mine liabilities, and decrees on old age pensions for miners and their families (to include mining leaves and social allowance payments in the period of work experience for purposes of calculating pension benefits).
Conclusions More than 1 million people in the state of Upper Silesia in Poland depend either directly or indirectly on the coal industry for their livelihood. Restructuring and stabilization of the hard coal sector is a prerequisite for restructuring and stabilizing the entire economy of both mining regions and the country as a whole. The first phase in the restructuring programme, completed at the end of 1993, led to improvements in the financial state of the hard coal sector, evidenced by the return to profitability during the final quarter of the year. Coal companies and individual mines, operating as joint stock companies, have developed business plans to guide their activities. The results and experiences of the first phase of restructuring have been incorporated into the programme for the realization of the second phase (199495), accepted by the Council on 29 March 1994. Completion of the second phase, however, will require that the state secure funds to support the technical closure of mines, social protection for displaced miners from these mines, and the introduction of appropriate legal rules for the restructuring process.
References Energy Problems Department, Institute of Basic Technological Problems, Polish Academy of Sciences (1993)Energy Policy of Poland and Druf~ Programmes until 2010 Warsaw Ministry of Industry and Trade (1993a) Restructuring the Hard-Coal Mining Sector. Part I: Realisation of the Programme to Stop the Move Toward Bankruptcy of the Polish Hard-Coal Mining Sector, Warsaw Ministry of Industry and Trade (I 993b) Restructuring the Hard-Coal Mining Sector. Part Ill: Assessment of the Business Plans of Coal Companies and Individual Mines Operating as Joint-Stock Companies, Warsaw Ministry of Industry and Trade (1994) Restructuring the Hard-Coal Mining Sector. Part II: Programme for Realization During 1994.1995, Warsaw
197
Restructuring the hard coal mining industry in Poland Eugeniusz Morawski Polish Foundation,for Management Promotion, ul. Wroclawska 62, 41-902 Bytom, Poland This paper discusses the present status and future of the hard coal mining industry in Poland. It assesses changes in production volume, production potential, and employment and financial performance during the period 1989-93. It then describes the ongoing restructuring of the industry - organizational solutions, technical considerations and economic aspects.
The hard coal mining sector in Poland requires restructuring to function in a free market economy. The principal, accepted objectives of the restructuring programme are: to facilitate financial profitability by the sector; to promote international competitiveness; and to determine an appropriate means to finance needed investments in the mines. Specific programmes to achieve these objectives have gone through several stages of development. Initial work on restructuring the sector began in late 1992 and early 1993 in the Ministry of Industry and Trade in cooperation with trade unions and employer associations. In March 1993 a programme for restructuring emerged under the title Restructuring the Hard-Coal Mining Sector in Poland: Realization of the First Phase in 1993 within the Framework of the Statei Financial Capabilities. The programme, a set of basic objectives for the mining sector, was a significant advance. Unfortunately it was not been equipped with the financial resources necessary to support its realization. By July 1993, the financial state of the hard coal sector had worsened, and another programme was prepared to address the problems of the sector: Programme to Stop the Move Toward Bankruptcy of the Polish Hard-Coal Mining Sector (Ministry of Industry and Trade, 1993a). Responsibility for executing the programme was given to the general meetings of the coal companies (executed by the Minister of Industry and Trade) and the boards of directors of these companies. This programme was terminated at the end of 1993, replaced with a third programme, Restructuring Hard-Coal Mining: Realization of the Second Phase in 19944995 (Ministry of Industry and Trade, 1994). A draft of the programme was presented at a discussion forum on 11 December 1993, at the Murcki mine, a meeting attended by representatives of the national government, members of Parliament and senators from the Katowice and Walbrzych regions, and represen030l-4207/94/0301
93-050 1994Butterworth-Heinemann
Ltd
tatives of coal company boards of directors, trade unions, and other institutions operating either in or for the hard coal sector. The programme was subsequently revised in light of comments made at the discussion forum and then considered by the Council of Ministers, which on 29 March 1994, accepted the basic direction and plans of the programme. The Council authorized the Ministry of Industry and Trade to present the programme to the Parliament of the Republic of Poland.
General characteristics of hard coal mining and phase I restructuring, 1989-93 During the period 1989-93, domestic sales and exports both declined sharply (Table I). Falling domestic sales and exports, combined with the need to adjust production levels to the needs of markets, resulted in falling revenues and - at some mines - rising unit costs of production. The principal reasons behind falling exports were the lack of coordinated marketing and Polish-Polish competition among individual mines to capture foreign sales. Employment fell during the same time period, while productivity fell initially before rising (Table 2). The financial performance of the industry deteriorated (Table 3). Subsidies were reduced and then completely withdrawn after the first quarter of 1992. The surplus of liabilities, loans and bank credits over receivables increased. Net income became increasingly negative. This difficult situation was worsened by the hard coal price policy of the time. Under the policy, local treasury offices controlled coal prices, while simultaneously the prices for nearly all inputs (ie goods and services used by the coal mining sector) were liberalized; as a result, input costs increased proportionally more than coal prices. The profitability of the hard coal mining sector was significantly lower than profitability of other sectors, such as 193
Restructuring coal mining in Poland: E Morawski Table 1 Hard coal production
and sales, 3989-93 (Mt)
Production
Sales
Export
111.6 147.4
174.2 144.9
29.0 28.4
1991
141.0
137.5
20.3
I992
131.3
126.2
18.7
1993
130.2
131.2
24.5
1989 1990
Table 2 Employment 1989-93
in hard coal mines and general productivity
Total employment (thousand persons) 1989 1990 1991 1992 1993
415.7 387.9 352.9 336.4 316.9
Surface employees General productivity (thousand persons) (kg per man shift) 135.7 125.4 109.1 99.9 90.7
2066 1866 1971 1946 2035
brown coal, electric power generation, power distribution and heat generation. The deteriorating situation in the hard coal industry suggested that a thorough restructuring of the industry was necessary. The idea of restructuring was further supported by the need to provide energy security for Poland, as well as other social and political reasons. It also should be stressed that the cost of obtaining (or producing) 1 GJ of energy in Poland is lower using hard coal than any other fuel source, except brown coal. In 1993, considerable structural and organizational changes were implemented in the hard coal sector. On 1 March the Minister of Industry and Trade, representing the State Treasury, transformed the state hard coal enterprises into the following independent coal companies:
(1) (2)
6 multimine coal companies, with a total of 49 mines (joint stock companies wholly owned by the State Treasury); and 14 single mine companies (also joint stock companies wholly owned by the State Treasury).
Then on 29 June 11 of these 14 mines were consolidated into the Katowice Coal Holding Company; 3 of the 14 single mine companies remain as independent operating companies, while one other mine is under construction and will operate as a single mine company. Five individual mines are in the closure process and have remained as state owned enterprises. In the area of marketing, the Home Coal Wholesaler (Centrala Zbytu Wegla) was transformed into the Weglozbyt Joint Stock Company on 4 June 1993 (wholly owned by the State Treasury). Coal sales sections also were established within individual coal companies. On 25 June the Foreign Trade Company Weglokoks was transformed into the Weglokoks Joint Stock Company (wholly owned by the State Treasury). 194
Table 3 Production subsidies and financial results of hard coal mines 19893 (million zloty) Production 1989 1990 1991 1992 1993
3316.7 9312.8 5075.4 697.9 _
subsidies
Financial result 342.9 415.9 -3 535.4 -12 581.8 -15 006.6
On 26 June the Coal Export Committee was established. From 15 July to 3 1 December 1993, the Progrumme to Stop the Move Toward Bankruptcy of the Polish Hard-Coal Mining Sector was in force. The general objectives were to halt the build up of financial losses and to create conditions in which the sector could return to profitability. The specific objectives of the programme were to: (1) complete the organizational restructuring of the industry begun earlier (and discussed above); (2) adjust production capacity to that required by market coal demand; (3) increase coal exports; (4) reduce employment and increase productivity; (5) reduce operating costs; (6) commence financial restructuring; and (7) prepare business plans for each coal company. The programme achieved the general objective of forestalling bankruptcy and the following specific results:
(1)
(2) (3)
(4)
(5)
(6) (7) (8)
Economically profitable exports rose from 18.7 Mt in 1992 to 24.5 Mt in 1993, due to coordination of export sales by newly formed organizational units and cessation of Polish-Polish competition in export markets. Long-term contracts were signed between coal companies and coal exporters. Production concentration factors improved. Daily output from a longwall rose to 12 19.1 tonnes in 1993 compared to 953.9 in 1992. Coal quality improved. In 1993, calorific value increased by 269 kJ/kg, mean ash content fell by 0.5% and sulphur fell by 0.02% as a result of new or retrofitted coal preparation and desulphurization plants. Polish coal, in general, is among the very best in the world in terms of quality. Productivity rose from 1946 to 2090 kg per man shift, although it is still low compared to UK or German mines with comparable mining and geologic conditions. Further productivity increases will require continuous and expensive investment. A system of social protection was prepared and negotiated. Employment at mines was reduced in 1993 by 22 900 people, without large-scale dismissals. Strict principles governing new workers were impleResources Policy Volume 20 Number 3 September
1994
Restructuring coal mining in Poland: E Moran&i
January
February
March
April
May
June
July
August
September
October
November
December
1993 Figure 1 Price, cost and accumulation on coal (63 mines)
(9)
(10) (11) (12)
(13) (14)
(15)
mented, and wage increases were linked to productivity improvements. Coal prices for domestic sales were stabilized at a level related to production costs but not to exceed the price of comparable imported coal. Production costs were reduced after August 1993 (Figure I). Revenues began to exceed costs in the fourth quarter of 1993 (Figure I). Considerable progress was made in restructuring the coal companies financially by entering into agreements with customers, using the courts to obtain debt settlements, and using unconventional forms of debt write offs and liability compensation agreements. Work was begun to define property rights. Mine closure is proceeding at ten mines deemed permanently unprofitable, including the Barbara-Chorzow mine where production has ceased already. Personnel training was carried out, especially with the goal of creating leaders of the small and medium-sized companies established during restructuring. A training programme for managerial staff was prepared with the participation of foreign partners.
These in brief were some of the tasks accomplished in 1993 in phase I of the restructuring programme, despite the lack of outside financial support for the programme. These accomplishments set the stage for further restructuring in phase II (1994-95) and phase III (199&2000).
Phase II restructuring,
(1) to reach profitability in 1994 and maintain it in 1995; (2) to preserve the international competitiveness of Polish coal; (3) to complete the process of debt settlement; (4) to obtain the financial resources necessary to invest in replacement equipment and mine modernization; (5) to create the necessary conditions for higher wages through higher labour productivity; (6) to reduce the uncertainty within the mining community with regard to job losses in the mines. The second phase of restructuring ing precepts:
(1) The state is responsible (2) (3) (4)
(5)
(6) (7)
1994-95 (8)
The objectives of the second phase of restructuring into account the results of the first phase and are: Resources Policy Volume 20 Number 3 September 1994
take
starts with the follow-
for the closure of permanently unprofitable mines. Prolonging the period of social protection is a condition of the programme’s realization. No production subsidies for hard coal mining. During the first quarter of 1994 coal companies will conclude long-term marketing agreements with the major domestic and foreign coal customers. Domestic coal prices are free to fluctuate with changing market conditions but must remain at or below the import parity level. Economically justified exports will be stabilized in 1994 at about 28-30 Mt. No privatization during 199495 is envisaged, except for the privatization of surface departments and buildings which either are or used to be the property of a mine but which were not directly connected with production (eg cafeterias). The programme will be coordinated with the industry restructuring programme in Upper Silesia and Walbrzych, which applies to all sectors of the economy.
195
Restructuring coal mining in Poland: E Morawski Table 4 Production
and sales of hard coal during 1993-2000 (Mt)
Specification
Production in 1993 (actual)
Production Salt% Home
Forecast 1994
130.2 131.3 106.8
Export
24.5
106.6 Sales steam coal 24.1 Sales coking coal Creation of coal strategic reserves included in home sales Strategic reserves of coal at the year end
1995
1995
2000
2000
135.3 134.8 107.2 27.6 107.1 27.7
135.4 134.2 106.6 27.6 104.6 29.6
132.4 130.9 105.9 25 102.1 28.8
131.7 130.7 104.6 26.1 102 28.7
120.9 119.7 107.2 12.5 93.4 26.3
4
6
_
4
10
_
10
Basic activity c
Business plans of coal companies
Programme of hard coal mining restructuring
I *I
I_
I ,
Realization
and responsibility
I
Coal companres, rndrvrdual manes
Adjustment of production to home market b needs and exports. Conclusion of long-term agreements
Government
I
Creation of political support for coal mining restructuring programme. Acceptance oi assumptions and objectives of the restructuring and mines closure programme
with main coal customers
) Stabilization of coal prices on home market below the import parity level
,
Financing unprofitable
Gradual and systematic reduction of own coal production costs by: a) employment reduction in mines b) replacement and modernization of technical equipment in mines for production concentration and productivity increase c) closure of permanently unprofitable mines
4
Introduction of incentive based wages b system in mines within an Unlimited General Labour Agreement
’
Figure
196
2
of social protection system
of coal companies
Supporting the programme of new workplace creation beyond the coal mining sector
Investments in mines targeted at coal quality improvement
Proecological b standard of mining areas
’
Prolongation
Support for restructuring
Financial restructuring in coal companies and mines not integrated into companies
F
of closure of permanently mines of their sections
investments the natural
Privatization of departments the mine surface
Elements of hard coal restructuring
to improve environment
Establishment
the in
and buildings on
,
+
of state reserves of hard coal
Acceptance of the draft of a decree of hard coal mining restructuring
process during 1994-95
Re.wurce.~ Policy Volume 20 Number 3 September 1994
Restructuring coal mining in Poland: E Morawski Table 5 Planned structure of investment in 1995 (%) Mine workings Purchase of ready-made Ecology Other Total
investment goods
1994
1995
14.0 43.8 26.0 16.2
21.3 39.4 21.1 18.2
100.0
100.0
The restructuring programme takes place within the context of the state’s anticipated fuel energy balance and the role of hard coal in this balance. Hard coal production is and will continue to be of basic importance to the Polish economy because hard coal is both the country’s main source of energy and a major export item. About 60% of the country’s electricity is generated from coal, as well as over 80% of the heat for industrial and household needs. The steelmaking industry is based on hard coal. Forecast hard coal production for the period 1994-2000 is presented in Table 4 (Ministry of Industry and Trade, 1993b; Energy Problems Department, 1993). Worth mentioning is the creation of strategic reserves in hard coal. The legal basis, the idea behind their creation, and financing options have been prepared by the State Hard Coal Agency. Implementation of the restructuring programme rests with the coal companies themselves. All necessary tasks have been included in their business plans and are presented very briefly on the left side of Figure 2. The figure also presents the basic activity envisaged for the state. For the programme to be successful, support by the state is essential, both financial and legal. Investment in maintenance and restructuring is planned at a level of 7.3 billion zloty in 1994 and 7.6 billion zloty in 1995. The structure of planned investments is shown in Table 5. Worth stressing is the significant share of expenditures devoted to ecology in the mining sector, necessary to bring environmental practice in Polish coal mining up to world standards. Financial restructuring that began in 1993 continues in this second phase. Basic measures include: (1) debt agreement proceedings with suppliers of goods and services to the hard coal sector (negotiations both directly with the suppliers and using the courts as an intermediary); (2) other forms of debt settlement with federal and local governments; and (3) auxiliary instruments, such as compensation for liabilities and receivables, conversion of liabilities into equity shares, and use of goods certificates. One aspect of restructuring is closure of permanently unprofitable mines and of mines with depleted coal reserves. The accompanying paper by Karbownik and Stachowicz (this issue of Resources Policy) presents a timetable for the closure of permanently unprofitable Resources Policy Volume 20 Number 3 September
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mines and those with depleted reserves. The programme now in force identifies nine mines to be closed: Walbrzych, Nowa Ruda, Saturn, Sosnowiec, Zory, Barbara-Chorzow, Paryz, Siemianowice, and Pstrowski. However, it is expected that the Zory mine will be only partially closed and that the termination date of the Siemianowice mine will be delayed. In addition, partial closure of the following mines is anticipated in 1994 and 1995: Rymer, Jowisz, Jan Kanty and Porabka-Klimontow. These closures will require financial support from outside the sector (see the paper by Karbownik and Stachowicz). It also will be necessary to change a number of the legal rules, especially those regarding debt remittance, mine liabilities, and decrees on old age pensions for miners and their families (to include mining leaves and social allowance payments in the period of work experience for purposes of calculating pension benefits).
Conclusions More than 1 million people in the state of Upper Silesia in Poland depend either directly or indirectly on the coal industry for their livelihood. Restructuring and stabilization of the hard coal sector is a prerequisite for restructuring and stabilizing the entire economy of both mining regions and the country as a whole. The first phase in the restructuring programme, completed at the end of 1993, led to improvements in the financial state of the hard coal sector, evidenced by the return to profitability during the final quarter of the year. Coal companies and individual mines, operating as joint stock companies, have developed business plans to guide their activities. The results and experiences of the first phase of restructuring have been incorporated into the programme for the realization of the second phase (199495), accepted by the Council on 29 March 1994. Completion of the second phase, however, will require that the state secure funds to support the technical closure of mines, social protection for displaced miners from these mines, and the introduction of appropriate legal rules for the restructuring process.
References Energy Problems Department, Institute of Basic Technological Problems, Polish Academy of Sciences (1993)Energy Policy of Poland and Druf~ Programmes until 2010 Warsaw Ministry of Industry and Trade (1993a) Restructuring the Hard-Coal Mining Sector. Part I: Realisation of the Programme to Stop the Move Toward Bankruptcy of the Polish Hard-Coal Mining Sector, Warsaw Ministry of Industry and Trade (I 993b) Restructuring the Hard-Coal Mining Sector. Part Ill: Assessment of the Business Plans of Coal Companies and Individual Mines Operating as Joint-Stock Companies, Warsaw Ministry of Industry and Trade (1994) Restructuring the Hard-Coal Mining Sector. Part II: Programme for Realization During 1994.1995, Warsaw
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