Coal Energy GAS LNG Norwegian Corridor 11 August, 2022 7:30 am   
Editorial staff

Łukaszewska-Trzeciakowska: Fear mongering on the natural gas and coal market (INTERVIEW)

baltic pipe

“I am concerned that some are pushing for speeding up the negotiations at the expense of worse contract terms for Polish companies. They are using fear,” says Anna Łukaszewska-Trzeciakowska, Deputy Minister of Climate and Environment in an interview for when commenting on those who are warning about natural gas and coal shortages in Poland.

Anna Lukaszewska-Trzeciakowska. Picture by Ministry of Climate and Environment. Why aren’t there any income criteria for recipients of the government fuel allowances, like in the case of, e.g. the inflation allowance?

Anna Lukaszewska-Trzeciakowska: The justified embargo on coal from Russia affects all households. Yet, the fact is that the new support largely coincides in terms of addressees with the inflation allowance. However, because we need to assure our citizens as quickly as possible, we have put in place a solution that, on the one hand, supports our citizens and, on the other hand, does not force the local governments to verify who can receive the support, as it would result in the allowance reaching the people in January or February. Another factor is the cost of carrying out the income analysis of the beneficiaries of the coal allowance. It is more important that everyone is covered by the allowance, and that the aid is granted before the heating season.

The amount of the other subsidies is determined by the calorific value of the fuel, so that all increases are limited to a relatively similar level. We took into account the caloric content and prices in each case, assuming that a similar area and number of people, i.e. about 70 sq meters and four people per household, need the heating allowance. We assumed that the increase in the bill can not exceed 40 percent as in heating. We want to soften the price increases. Otherwise, they’d be much bigger. The gas sector has been supported since January of this year. We reduced the VAT and tariff for end users, vulnerable consumers and households. The tariff still costs the state budget almost PLN 5.9 and we gave that difference to the gas sellers. 

How will the 40% reduction in heat prices work?

The mechanism we proposed is based on the average heat prices in 2021. We assumed that the prices of heat generation may increase. The prices for heat generation are allowed to go up by about 60 percent in comparison to the prices published by the Energy Regulatory Office President in 2021. Considering the fact that the cost of generation impacts the consumer’s bill at about 70 percent, the increase in prices for the consumer should be limited to about 40 percent. However, these values may vary for different fuels, and we have different fuel mixes in heating plants and different tariffs. District heating is extremely complex. This means that a significant group of recipients will not be affected by such high increases and, consequently, will not reach the level requiring state intervention, i.e. the potential increases at those plants will be lower. There will also be those who, without the intervention of the government, would have had much larger increases and they will receive this support, so that in the end the citizen does not pay the full rate resulting from the costs of the heat producer. The draft law on special solutions for certain heat sources in connection with the situation on the fuel market is practically ready. We hope the Council of Ministers will adopt it in August, and we want to proceed with it at the first session of the Sejm in September. 

First the coal allowance was adopted, but now you are extending the benefit to all fuels. Why?

From the beginning, we have been aware that we may have to face increases in the heating industry in Poland, which is the most extensive in Europe. Coal prices required state intervention. First we dealt with the fuel covered by the embargo, because we wanted the citizens who use coal to heat their houses, to be assured that they will buy it efficiently. These are the most economically vulnerable recipients, they needed this support very quickly. Then, we had to deal with other energy carriers and heating, which is a very complex system, where there are small heating plants that don’t have licenses as well as large CHP plants in regional capitals. On top of those differences, there are also various fuels for heat generation. As much as 70 percent of the Polish heating industry is coal-based, but it is rare that a given heating plant uses only one type of fuel. Other sources of heat may include biomass, mine methane, natural gas, heating oil. These mixes are complex, price levels vary, and therefore the procedure for setting the tariff by the Energy Regulatory Office, or the price list for non-licensed entities is not easy to estimate. In result, it took more time to come up with the right solutions. 

In the second step, we decided to deal with the remaining heat carriers, knowing that the most vulnerable customers are those who could not or did not have time to replace the furnaces, who could not use help from the National Fund for Environmental Protection and Water Management (NFOŚiGW), and did not have money for their own contribution. Only in the last round of legislation have the subsidies been increased enough to allow virtually every household to benefit from programs to replace a heating source or insulate a house, and be certain they will be able to purchase the fuel.

Do you know how much the second stage of support costs?

This is approximately PLN 9 billion 200 million with an established reserve.

What is a good balance between social assistance of this kind and the budget?

This is not social assistance, it is state intervention in a situation where energy prices are not market-based. The disruption of the market due to climate policy, the rebound after the COVID-19 pandemic and the decline in gas supplies through Nord Stream 1, and the main factor – Russia’s attack on Ukraine. It’s a black swan, or a whole flock of them, which no one expected. The whole market for fuels and energy carriers is severely disrupted by it and hence these high prices. Thus, state intervention is being introduced, not a social shield. It is designed to manipulate market sentiment and compensate for market disturbances. The state needs to intervene.

How long will these disturbances last?

Hopefully as shortly as possible, we are not able to predict this at the moment. As long as the war continues, the supply chains will be under too much strain, but still manageable. We will be responding as quickly as the situation will let us. I hope that the sanctions will work and this war will end for Ukrainians and us well.

Some are concerned that there won’t be enough coal in Poland due to infrastructural bottlenecks at Polish harbors and railways. Is that probable?

An inter-ministerial team meets three times a week to monitor the situation. Some measures are already being taken to increase port capacity. This was stated by the Deputy Minister of Infrastructure Marek Gróbarczyk, who made available another quay that previously did not handle coal, but now does. It will not be an easy process, but we are doing everything to ensure that there is enough coal. Polska Grupa Górnicza (PGG, Polish Mining Group), Bogdanka and Tauron are also increasing their output.

In the worst-case scenario – could we run out of coal? 

We do not anticipate that there will be a shortage of coal in Poland. Incidentally, some MPs argue that PGG does not have coal in depots. However, the company changed the way it distributes coal. The most efficient way to order the fuel is PGG’s online store, which makes speculation more difficult. The coal is transported to the depot so that households and the retail buyer can buy it without hindrance. If a citizen buys the coal online, they will be able to pick it up from the depot after several hours. The new distribution model has changed the amount of coal in depots for intermediaries. The goal is to exclude a possibility where someone will buy at the depot large amounts of coal to sell with a higher margin later on.

Will we need specific EU coordination in order to use ports in Germany, the Netherlands, which are not limited by smaller tonnages of ships like the ports behind the Danish straits, i.e. in the Baltic?

If we now want to use the ARA exchange or the German ports, it may be a problem, because Germans are starting more coal power plants, so they are also bringing coal. We focus on improving the capacity of Polish ports, because there is still room for action. Three elements need to be coordinated: the ship that arrives on time, the port with the infrastructure, and the railway that carries the coal, so that it does not lie in the ports. It is the same infrastructure, although the supply vector needs to be changed. We have already exported coking coal, so there is infrastructure in the Tricity and Świnoujście. Ports may also organize new infrastructure, if needed.

Will a separate institution be needed for coordination?

Actually it has become part of our job to focus on coordinating all activities and verifying them from time to time. 

In view of the fact that the Baltic pipeline is not fully contracted, it has been said that someone has made a mistake, that we should have orders for full capacity, and former PGNiG vice-president Marek Kosowski has even called for a commission of inquiry into the matter. Is there anything to be afraid of?

The assumption was that the Baltic Pipe would start at the end of the year, when the Yamal contract ends. It has changed dramatically, because the Russians cut us off, but nothing happened, it turned out that we had gas, that we are increasing the supply. The law on this issue passed without much coverage, despite the fact that it introduces important solutions: the possibility of suspending the gas obligation, extending the time for which reserves need to be gathered from 40 to 50 days, and it also regulates tariffs at a lower level until 2027. When it comes to contracting, it is primarily about deliveries from January next year, but I cannot and do not want to comment on the PGNiG negotiations. I can only reveal that they are advanced. Their effects will probably be announced soon. However, I am concerned some entities are pushing for speeding the negotiations up at the expense of worse contract terms for Polish companies. They are using fear, for instance when it was alleged that Tauron would soon turn off the Jaworzno Power Plant, because it has run out of coal. Such news reverberates, meanwhile we are negotiating with our partners. When I hear that the Baltic Pipe contracts have not been concluded, that there will be no gas in the Baltic Pipe, I have the impression that there is an element of a business game, in which some members willingly enter. It is no secret how negotiations under the pressure of one’s own community end. These are too big contracts to talk about publicly at the negotiation stage.

Should we wait for the news until the new year?

I can’t comment on that. We have fully filled the gas storage facilities, and even began to pump in more and prepare for expanding the depots. We have deliveries on a regular basis from different directions, we have gas connections, we have our own extraction. This is well planned, so let us let the negotiators work within the framework of trade secrets, let us not use a panic narrative unnecessarily, so that the agreements are better and safer, rather than as quick as possible. 

Is it possible to negotiate Baltic Pipe package contracts using the argument of offshore wind energy in Poland?

This is a question outside the scope of my competencies at the Ministry.

Will there be restrictions on gas consumption in Poland if no Russian gas is available in Poland?

No, at the moment we do not foresee this possibility at all, we are safe and many people are working to make us even safer in the medium and long term.

Will we share gas with the neighbors?

We believe that real solidarity is needed. We want Europe to show it to us. We are in talks about reforming the EU Emissions Trading System, at least suspending it and removing speculation. We believe that solidarity should apply above all to the weak. We have made a written statement that we are against the mandatory reductions in gas consumption proposed by the European Commission, and it has resonated. The most important thing is safety, so that Poles have gas, so that we are safe. 

Interview by Wojciech Jakóbik