January 28, 2016 / 7:39 PM / 3 years ago

Head of ailing Polish coal giant in battle to convince Brussels

WARSAW (Reuters) - The head of the European Union’s biggest coal producer, Kompania Weglowa, aims to convince EU regulators next week he has a viable plan to turn round the ailing company, but will face scepticism about funding carbon-intensive, uncompetitive mines.

Miners walk out of a lift after finishing their shift about 500 meters underground at the Boleslaw Smialy coal mine, a unit of coal miner Kompania Weglowa (KW), in Laziska Gorne, Silesia, southern Poland, in this September 11, 2015 file photo. REUTERS/Kacper Pempel/Files

The government has put together a plan to rescue Kompania Weglowa, which has been driven to the verge of bankruptcy by low coal prices and rising labour costs.

Its Chief Executive Krzysztof Sedzikowski attends talks in Brussels next week, where he faces a daunting task of convincing the European Commission to support the plan.

“We have to prove to the Commission that this business case is positive. Improving results is the most important. We’re improving the sales force, reducing costs, labour costs,” Sedzikowski told Reuters in an interview.

EU efforts to phase out coal, the most polluting of the fossil fuels, make state aid for the sector highly problematic.

European Competition Commissioner Margrethe Vestager has already said uncompetitive coal mines can only get state help on condition that the mines are phased out.

The Commission can also investigate state aid if it judges that it distorts competition.

Poland’s energy minister Krzysztof Tchorzewski told Reuters this month that the Commission had initially accepted a plan to create a new company out of Kompania Weglowa, called NKW, which would include the new investors, by mid-2016.

Sedzikowski said the company needed 1.5 billion zlotys ($368 million) from investors, but predicted state-owned coal trader Weglokoks would provide up to one third of this sum.

He said a final agreement with investors, which would also include Polish state financial institutions and state power companies, could be signed within two months.

Kompania Weglowa operates 11 mines in southern Poland after putting four of the most inefficient into a special state vehicle.

Over the last year, Kompania Weglowa’s production costs have fallen to 250 zlotys per tonne from 300 zlotys and the aim is to reduce them to 210 zlotys within a year.

That compares with 180 zlotys per tonne at Polish coal miner Bogdanka (LWBP.WA), according to estimates from industry analysts, who say Bogdanka is among the most efficient.

Poland’s conservative Eurosceptic government, led by Prime Minister Beata Szydlo — a miner’s daughter — won a majority in October, partly on promises to leave the powerful mining sector intact.

Sedzikowski said he saw Kompania Weglowa’s annual coal output stable at around 28 million tonnes per year by 2020, but added it would have to be adjusted “to market conditions and our results”.

In an emailed statement, the European Commission said only it was in contact with the Polish authorities.

Analysts say Poland’s difficulties in persuading the Commission to allow its plans to fund its mining sector had increased since the EU began an inquiry into whether the Polish government breached EU standards by wresting increased control over the media and judiciary.

additional reporting by Alissa de Carbonnel in Brussels; editing by Adrian Croft

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