(Corrects date to April 26)
* New funding for coal-burning utility agreed in February
* Warsaw's commitment to coal expansion lowers risk for
* Lenders have pledged to shun coal for sake of climate
* But coal-burning utilities can still borrow for other
By Agnieszka Barteczko and Barbara Lewis
WARSAW/LONDON, April 26 Many Western banks and
finance institutions have pledged to divest from coal, but this
has not stopped at least one Polish utility that is expanding
its use of the fossil fuel from securing funding through banks
and the European Investment Bank.
The institutions say the money will not be used for
coal-related projects, but campaigners say it will in effect
free up other funds to go into expanding coal-fired power
stations, making a nonsense of the pledges.
Furthermore, the difficulty of making a profit from
coal-fired electricity appears to play little or no role in
lending decisions, reflecting the fact that Warsaw has set
coal-burning targets for the utilities as a way to protect
80,000 jobs in Poland’s coal mines.
Public pressure in the West to stop funding the most
polluting of fossil fuels was at its greatest around the time of
the U.N.-sponsored Paris Agreement on climate change in December
2015, resulting in numerous pledges to quit coal.
On the surface, this was a blow to the newly elected Law and
Justice government's plans to support the building of new
coal-fired power stations.
But the government's commitment to its coal sector, which
shows no sign of diminishing, has in effect reduced the risk of
investing in it.
The power company Energa, which is reviving a
project to build a 1 GW coal-fired power plant in Ostroleka,
northeast Poland, issued a 300 million euro ($324 million)
eurobond in February, with the help of JP Morgan Chase and BNP
JP Morgan Chase said it had stated the bond could
not be used for coal, while BNP Paribas did not
respond to a request for comment.
BNP Paribas has previously said it will no longer finance
coal-fired power plants in high-income countries, and will only
support coal in emerging economies on certain conditions.
Asked if the borrowing would help to build the Ostroleka
plant, which would power 200,000 apartments, Energa said it
would be spent on "general corporate needs" and distribution.
It also said it was planning to issue hybrid -- debt and
equity combined -- bonds, backed by the European Investment
The CEE Bankwatch Network, a non-government body that
monitors financial institutions' activities in central and
eastern Europe, says there is no guarantee that Energa's bonds
will not be used for coal-burning.
"The EIB loan could eventually help the company finance its
controversial new 1,000 MW coal-fired power plant in Ostroleka,"
It has written to the EIB asking it not to finance Energa
unless the company shelves plans to build Ostroleka, which will
burn up to 2 million tonnes of coal a year from the state-run
mining firm PGG, Poland's biggest.
But an EIB spokeswoman told Reuters the bonds had been
approved by the bank's board of directors and should be signed
off in the coming weeks.
She said the financing was exclusively for the modernisation
and extension of Energa's distribution network in 2017-2019.
This is before the planned start of construction on the
Ostroleka plant, which is due to come online in 2023.
"BANKS HAVE THEIR GOALS"
Several European banking sources, who spoke on condition of
anonymity, said it was clear that lending to one part of an
integrated utility could free up funds in another.
"Banks agree to provide financing for energy groups only on
condition that it will be spent on distribution networks or
renewables. But this helps the energy companies to find money
for the coal projects," one of the sources said.
"The people working in banks have their goals, too. If they
have an opportunity to win a big financing project, they often
go for it, especially since there is plenty of money on the
market that needs to be spent."
And the economics of coal appear to play only a secondary
role for the banks.
Bartlomiej Kubicki, analyst with Societe Generale, said
that, with current carbon emission permit prices, electricity
would have to fetch 200 zlotys ($50.58) per megawatt hour for a
coal-fuelled power plant to break even in Poland, well above the
current power exchange price of around 160 zlotys ($41.22).
But at a conference last month, Deputy Energy Minister
Grzegorz Tobiszowski said: "We promised that we will make coal
mining, which is and for years will remain the basis of Poland's
energy, profitable, competitive and developing. We believe that
Polish coal mining has the potential to become the basis for a
modern Polish economy."
To encourage utilities to invest in new coal-fuelled power
stations, Poland has announced plans for a "capacity market",
effectively a subsidy that rewards power producers not only for
the electricity they generate, but for the capacity they hold.
A draft law on the plan is expected to be ready around June,
although it could run into opposition from the European Union.
PGE, Poland’s biggest power company and owner of
the world's biggest lignite-coal-fuelled power plant in
Belchatow, has a 34 billion zloty ($8.7 billion) investment
plan, which includes the construction of a 1.8 GW coal power
plant in Opole by 2019.
The firm, whose operations also include power distribution,
secured a large amount of funding just before the Paris
Agreement was signed, in the form of two bonds program worth 2
billion euros and 5 billion zlotys ($1.3 billion) in 2014 and
September 2015 respectively.
But even since Paris, PGE spokesman Maciej Szczepaniuk said
that, "despite the intensive black PR, we have not observed a
deterioration in our cooperation with banks".
PGE and the state-dominated gas company PGNiG were
among state-run companies that last year helped to bail out PGG,
the coal miner.
PGNiG chief financial executive Michal Pietrzyk said the
move "did not have a negative impact on our relations with
However, there are some signs that foreign investors cannot
always be won over.
The utility firm Tauron, admittedly Poland's most
indebted energy firm and the one with the oldest assets, says it
has begun to find financing difficult.
"Whenever we approach a financial institution, the first
question is about coal," said its chief financial officer, Marek
He said the company had turned to environment-linked "green
bonds" to finance wind farms and distribution links.
"Our aim is to improve our image outside Poland, as we
realise we are not positively perceived."
(Additional reporting by Marcin Goclowski in Warsaw and Susanna
Twidale in London; Editing by Kevin Liffey)