What is happening to the Polish coal?
We have got used to define this raw material as ‘black gold’. Our coal industry was the basis of our export for many years and our energy security was based on it. Although the coal mines produce less coal than in the past years its resources are still big enough to meet our needs for years. That’s why we must be amazed to know that in 2008 Poland became a net importer, which means that we bought more coal from abroad than we sold it.
Polish energy industry is based on coal
Many bad things have been said about producing energy from coal, the main being the environmental pollution. Adjusting to the European norms Poland has actively realised various programmes that are to limit the emission of carbon dioxide. Spending big public money, both national and the EU, Poland has supported the change of the heating system in houses and small blocks of flats. Numerous people and communities have stopped using coal stoves and installed gas or rape oil heating systems. Similar solutions have been applied in the industry. Recently there have been hot discussions about the scale of the limits of the emissions of carbon dioxide into the atmosphere within the framework of international agreement called the Kyoto Protocol.
Yet coal is still the basis of the Polish energy system. Both big power plants producing energy to the national energy system and smaller plants producing energy for towns and housing estate areas use mainly coal. The price of electricity and heat delivered to houses and factories depend on the price of ‘the black gold.’ The more you pay for coal the more expensive energy is and its cost influences the prices of other things the production of which is dependent on energy. The situation on the coal market has a key meaning for our whole economy. And because of that it should be the object of our careful observation made by the government and its agencies like the Office of Energy Regulations, which is to react to the negative phenomena that disturb the functioning of the energy market.
Why do we import coal?
The main partners of mines are power plants as well as heat and power stations. Energy and heat are such products that are not delivered temporarily but permanently. They are sold on the basis of long term contracts for a year or a heating season. As far as the heat energy system is concerned the contracts are made in spring. The contracts define the amounts and prices of energy. Having such contracts the power engineers look for suppliers of coal that can ensure continual supplies of the material for a given price that guarantees the profitability of their own production. Therefore, long term contracts are fundamental in the coal trade. In 2008 the Polish economy ran at full steam and needed big amounts of energy. In order to meet the needs our power plants used most of the national coal and additionally, imported ca. 10 million tons. At that time the mines, realising the earlier obligations, exported less coal and for the first time in our contemporary history we became a net importer. The majority of coal recipients are in central and southern Poland, which is close to the mines. This is an essential advantage that decreases the cost of transport, which has a considerable influence on the price of coal. In spite of that the imported coal, even transported to central Poland, costs ca. 20 % less. It results partially from objective reasons. Most of our mines extract coal from strata located 1,000 meters or more under the earth surface. This coal has to compete with international coal extracted opencast, i.e. at much lower cost. One can understand that we cannot deliver coal to distant countries where the transport costs are big. But why do we lose competing on our own territory, within the radius of 100 km from the mineshaft?
We sell at a cheaper price; we buy at a bigger price
The situation of the year 2008 has diametrically changed this year. Economy has begun curbing rapidly. The use of energy has decreased and so has the demand for coal. Mine slag heaps have begun growing rapidly. In order to save their financial stability and having no more sites to store the extracted coal the coal companies have begun selling coal at the present prices on the international markets and the prices have considerably gone down because of the decrease in coal demand. Adding the cost of transporting the huge amounts of coal abroad the mines sell coal at almost half price than the one they sell to national recipients within the frameworks of earlier long term contracts. Therefore, from the point of view of economy the situation is absurd. The power plants in Poland import coal paying ca. 20 % less than for the national coal. At the same time the Polish mines export coal at the price of ca. 50% lower than on the national market. Consequently, it can happen that for example a clever tradesman from Hamburg imports the black raw material from Poland and immediately sells it to Poland, having 30% profit on such a contract. In concrete number: in the first four months of 2009 we exported ca. 2.5 million tons of coal at the market price, according to the Ministry of Economy. It means that we received ca. 150 zloty less for each ton than in the national market. It is estimated that this sale is to increase up to 6.5 million tons in the whole year, i.e. our coal industry will lose ca. 1 billion zloty (!!!). No one knows what will happen in the end because experts estimate that the surplus in production will be as big as 10 million tons, i.e. the amount of the import last year. One needs no special economic preparation to see the absurdity of this situation and know that the remedy would be to limit import. But the long term contracts are obstacles. Having guaranteed higher price from the Polish energy engineers for some part of their productions the Polish mines do not want to change this price. In turn the power plants, having only the expensive national coal, do not want to give up the cheaper supplies from the import. And the circle is closed and we all pay for more expensive energy, subsidizing the foreign economies with one billion zloty. The government should intervene in such cases. On the one hand, the government as the owner of most mines and power plants, and on the other hand, as a legal regulator of the market has proper tools to leave this powerless dance of the Straw Man. Using the administrative or ownership tools one should make both parties to renegotiate the long term contracts, improve the situation in the market and decrease the price of energy, which would have colossal meaning for the national economy and for our small family economies during the time of crisis. But for the time being the government of Donald Tusk does not manage to use such possibilities. It prefers fighting with the crisis through budget operations and selling out the national properties. These are easier operations but are they more beneficial for Poland?