Six Polish state-controlled companies, including the utilities PGE and Energa, agreed to invest Zloty 2.417 billion ($624 million) into a newly established state coal mining group, PGG.
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This is part of a rescue plan to save the EU's largest hard coal miner Kompania Weglowa (KW) from bankruptcy.
Low coal prices and high production costs - labor expenses account for 60% of KW's costs - caused KW to record losses of more than Zloty 750 million in the first six months of last year, Platts reports.
The state-owned Katowice-based miner, which has debts of Zloty 8.5 billion and which produced 26 million mt of coal last year, was set to run out of cash by the end of the month if no rescue plan was agreed.
Under the plan PGG will take over KW's 11 mines, which employ 32,500 workers. According to the business plan PGG will break even in late 2017.
Among the six investors, PGE, Energa and Polish gas company PGNiG each agreed to buy Zloty 500 million in minority equity stakes in PGG. State-owned hard coal trader Weglokoks will invest Zloty 217 million in PGG, while state investment funds TF Silesia and FIPP will invest Zloty 400 million and Zloty 300 million respectively.
Six state-controlled and privately-owned banks declined a government offer to convert the KW debt they hold into PGG shares. Instead, the banks, as well as Weglokoks, will subscribe for new bonds worth Zloty 1.37 billion.
Poland's previous PO-led government failed to agree a rescue plan for KW involving the country's state utilities, which all use hard coal as feedstock, after many months of trying.
The country's new PiS government, which is even more pro-coal than its predecessor, finally persuaded the energy companies following management reshuffles to help prop up KW. Poland's prime minister, Beata Szydlo, and energy minister, Krzysztof Tchorzewski, were present at the signing of the agreement in KW's Katowice headquarters.
Last week labor unions agreed to wage cuts to sign up to the PGG rescue plan. Union leaders agreed to suspend payment of an annual monthly bonus in 2017-2018, which will result in estimated savings of Zloty 200 million. They also agreed to a management plan to merge some of the company's mines and transfer unprofitable assets to the state mining restructuring company, SRK.
With some many state companies involved in the rescue package, the plan will face scrutiny by the European Commission to see whether it does not violate EU state aid rules. ■