Coal Energy 5 August, 2020 10:00 am   

We need a plan for a just transition, not another coal sector restructuring proposal (ANALYSIS)

We are witnessing another chapter of the saga on restructuring Poland’s black coal sector, which has been taking place since the beginning of the 1990s. Every new government proposed a new strategy on how the industry should function. The visions were different, but they all had one thing in common: restructuring. Despite numerous attempts at reform, the situation of the bituminous coal sector in Poland is becoming increasingly difficult. Daniel Kiewra, PhD, an economist and Instrat’s expert on just transition explains what obstacles Poland’s coal industry needs to face.

First of all, the sector’s main issue is the growing extraction cost and its detachment from the situation on the market. In 2019 the average extraction cost was PLN 346 per ton, which was as much as 7 percent higher than the year before and 35 percent more than in 2016. One of the factors that contributed to boosting the costs for the industry is high employment in coal companies, which at the end of 2019 was at 83.3 thousand. In result, only between 2017 and 2019 Polska Grupa Górnicza (PGG) itself spent PLN 1.095 bn on its employees’ salaries and benefits.

Secondly, the sector is finding it difficult to sell coal. In 2019 the sales bottomed out at 58.4 million tons in comparison to 62.5 million tons in 2018. The companies’ basic business activities earned them only PLN 214.5 million in 2019, only a year before that figure was at PLN 1.3 bn and in 2017 their profit was over PLN 2.6 billion.
The sales volume was of course determined by such factors as prices and serious competition from imported coal, which since mid-2018 has been simply cheaper. As of 2017 the price of domestic coal has been systematically rising. The Polish Economic Institute and Instrat wrote a report titled “Poland’s Future Energy Mix – Determinants, Tools and Prognoses”. The document explains how the difference between the domestic and import prices is killing the sector.

The soaring coal prices contributed to 2018 becoming a record-breaking year with regard to imports of this raw material. As much as 19.3 million tons were bought abroad out of which 2/3 came from Russia. In 2019 the import dropped slightly, but nevertheless reached 14.9 million tons. Consequently, coal deposits located by the mines grew and at the end of 2019 reached 5.2 m tons, whereas deposits by power plants were almost two times bigger. These are record-breaking numbers, which means the deposited surplus is almost three times higher than quarterly extraction.

Poland’s coal sector has never been good at implementing strategies. As recently as in the fall of 2019, the Council of Ministers adopted an update of the “Program for black coal industry in Poland”, where only one out of three scenarios provided a drop in production, whereas the other two said the production level would be maintained, maybe even increased. According to that forecast, Poland would maintain its coal extraction at 57 m tons until 2030. Due to the crisis we may reach this level already this year, which PGG has already suggested. In the first six months of 2020 mines extracted 25.5 m tons, which is a 14 percent drop in comparison to the same period last year. Overestimating is like a tradition. In 2000 the plan was to extract 195 m tons, but the final amount was 102 m. Whereas in 2010 the expected output was 162 m tons, but the mines extracted only 76.2 m tons.

In result, coal extraction is becoming increasingly unprofitable in Poland. As of 2013 the black coal sector, apart from 2017 and 2018, has been recording losses. In 2015 the industry lost a record-breaking PLN 4.5 billion. Last year the loss was almost at PLN 1.1 bn.

The current situation is forcing the government to make a decision about the sector’s future yet again. However, this time the situation is a little bit different. The European Commission, which is acting in line with the Paris Agreement and the European Green Deal, is putting a lot of pressure on Poland. Because of that Warsaw needs to not so much restructure the coal sector, but to transform the entire industry or, even wider, the entire region of Upper Silesia.

The government’s restructuring plans, which the media reported on, were mostly about shutting down unprofitable mines. Such a scenario generates specific social and economic costs including unemployment, outflow of capital from the region, or even putting a stop to its economic development. This approach does not solve the issues plaguing mining, it actually looks like a short-term attempt at maintaining the status quo and putting off difficult decisions. Minister Sasin seemed to have confirmed this strategy when he recently stated that the Polish energy sector would stop relying on coal in 2050 or maybe even 2060.

However, if we are serious about a permanent change, we need a comprehensive and long-term transition strategy today. It should change not just the coal sector, but the economic map of Upper Silesia as well as its social and environmental aspects.

An unplanned and unprepared transition, which was not consulted with all stakeholders cannot be successful or just. And a just transition is one of the most important premises of the Paris Agreement from 2016, which in its introduction acknowledged “the imperatives of a just transition of the workforce and the creation of decent work and quality jobs in accordance with nationally defined development priorities”. This paragraph is an important reference to the position of the International Labor Organization, which said it was necessary to establish a comprehensive framework for the transition through social dialogue and strong social support. Such an approach is also reflected in the Silesian Declaration for Solidarity and Just Transition, which stressed the necessity to pursue social dialogue and the ability to create new jobs thanks to the transition.

However, to start a social dialogue the government needs to end the state of information asymmetry. Nobody in the mining sector knows as much as the government, because only ministries have full access to statistics on the energy and mining sectors. Instrat recently revealed that the way statistics from these sectors are produced and published is against domestic and European regulations. The branch of the Industrial Development Agency in Katowice demands exorbitantly high fees for access to basic data on the sector, which puts at a significant disadvantage social partners and experts, who were invited by the Ministry of State Assets to participate in the talks.

The bituminous coal sector in Poland has a long and established tradition of social dialogue, both when it comes to industrial dialogue, as well as tripartite dialogue with central and local governments. This is an opportunity to start talking about the future. The transition requires a cross-sectoral agenda that goes far beyond mining. It cannot be designed by this or that ministry and then presented for everybody else to agree. Successful transitions require a wide dialogue. It is imperative that the process of identifying challenges, planning actions and negotiating a consensus is determined not only by social partners, but also by a wide cross-section of stakeholders.

Such a broad dialogue is already happening, for instance, in eastern Greater Poland where the future of the region is discussed by representatives of the mining sector, trade unions, as well as local authorities and NGOs. Recently the Ministry of Development joined the talks on the transition plan for the region and declared its support. A similar scenario for Upper Silesia is also possible. However, we should stop talking about restructuring the mining sector, or a single company, even if it is Europe’s biggest coal company; and instead seriously start talking about a transition for the entire region. We are running out of time. Looking at the condition in which Poland’s mining sector is in today, we definitely do not have 40 years.