German energy trader to dig deep in Poland | Business| Economy and finance news from a German perspective | DW | 26.07.2016
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German energy trader to dig deep in Poland

German energy trader HMS Bergbau has said it will invest more than 100 million euros to begin output from a mine in southern Poland by 2018. It will be the first new mine in the coal-rich country for 40 years.

HMS said it plans to open its mine in Orzesze in the Silesian coal basin in southern Poland two years after it receives a license.

"The projected capital expenditure amounts to significantly more than 100 million euros ($110 million), but the investment depends on when the mining license is granted and is currently projected to end in 2018," Dennis Schwindt, head of business development at the Berlin-based trader, told DW.

Coal to stay king

Poland has more than 100,000 coal and lignite miners, the most in the 28-nation EU. The last mine to start producing the fuel was KWK Morcinek near the border with the Czech Republic, where construction began in 1978.

Coal is a key sector for Poland's energy security, producing about 80 percent of its electricity. The Law and Justice (PiS) government elected last year said recently it plans to maintain the industry for years to come, having bailed out the country's largest miner Kompania Weglowa (KW) in April. KW became Polska Grupa Gornicza (PGG), with the government pushing state-controlled firms to invest 3.5 billion zlotys (800 million euros) in the new company. A similar process is expected soon for coking-coal producer JSW.

Development Minister Piotr Naimski has said that Poland will remain dependent on coal in the foreseeable future. "Our power industry relies on coal and this will remain so for more or less 30 years. Any actions aimed at ruling out this kind of energy are against our interests," Naimski said.

Meanwhile recently passed laws on renewable energy and wind power in particular are seen likely to weaken competition for coal and bolster cogeneration with biomass.

Polish coal mine

Poland is the ninth-largest coal producer in the world

A confident start

"We believe in thermal coal in general as - at least mid-term - an important component of the region's energy mix," Schwindt said.

"An efficient mine design in an as yet untouched deposit, with the use of the most modern mine technology as well as the establishment of an organization with processes focused on efficiency will ensure that output costs will be competitive even at lower price levels," he added.

Asked if low coal prices were a worry, he replied: "We naturally prefer higher price levels as a price taker in a highly competitive market."

European prices fell for a fifth year in 2015, with a low price of coal on international markets compounding the problem. Poland lost almost 30 zlotys on every ton of coal its mines produced last year, according to industry figures.

The HMS unit aims to produce 3 million tons of steam and coking coal annually, or about 4 percent of Poland's output in 2015. It will be sold in Poland and possibly also to the Czech Republic, Germany and Austria.

Financing the deal

Financing would be concluded after the company received a mining license. Financing will be provided through equity, loans and possibly bonds.

Dennis Schwindt

Dennis Schwindt from HMS

The company benefits from having no liabilities from an existing workforce - as is the case in most Polish mines - and hopes to cut costs by agreeing with JSW's neighboring Krupinski mine to use its above-ground equipment and mine shaft, which would save HMS digging as deep as 1,000 meters to access the fuel.

State-controlled JSW said in November it was not considering Bergbau's offer to invest, and Schwindt declined to comment.

Not the only one

Australia's Prairie Mining also plans to start a mine near Lublin in 2020. The company sold shares in its Polish unit to finance the project and forecast that coal would rise to $76.40 a ton by 2020, according to a presentation in March.

Part of Poland's problem is the depth of the seams- up to 1,200 meters compared to 465 meters on average in China, the world's biggest coal producer and consumer. Deeper pits are more costly because more energy and time is required to extract coal and cool the shafts to make working conditions bearable.

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