Background
Energy Act amendments

The state-controlled part of the Polish hard coal sector has faced structural and financial difficulties for years. Problems have been mounting in recent months and the Polish government has decided to take steps to tackle them.

Background

The state-controlled hard coal sector is in difficulty. The amount of exploited hard coal and profitability are constantly decreasing. Sixty-two million tonnes of hard coal were exploited in the 10 first months of 2013, only 58 million tonnes of hard coal were exploited in the same period in 2014. Average net profitability amounted to minus 2.9%. The average loss on each tonne of exploited hard coal amounts to PLN34 (approximately €8.50). During the first nine months of 2014, hard coal sales amounted to PLN13.8 billion (approximately €3.45 billion), while the costs of exploitation amounted to PLN15.4 billion (approximately €3.85 billion). It appears that 2015 will not be any better. It is estimated that prices for hard coal will decrease slightly during 2015 and may start to increase only thereafter.

There are heated discussions regarding the reasons behind this dire situation (the private sector is much more successful and not as constrained as the state-controlled part). Three main arguments have been presented by the different parties active in the state-controlled part of the sector.

  • overemployment and overly generous remuneration and social security packages inherited from Communist times and not significantly or effectively altered during the intervening 25 years;
  • difficult geological conditions which require increasingly in-depth exploitation works; and
  • excessive imports of hard coal into Poland, in particular from Russia.

Interestingly, climate change-related issues do not seem to have registered to any significant extent in these discussions.

In order to tackle the difficulties and make the sector viable and profitable again, the government intends to present a plan for remodelling the sector in late 2014 and early 2015. As a first step, the government has introduced administrative measures to address hard coal import matters. However, it is debatable whether these administrative measures will solve or at least ease the problems of the state-controlled part of the hard coal sector. Further, it seems that such measures may negatively affect the private part of the sector.

Energy Act amendments

On November 7 2014 the Lower Chamber of Parliament adopted amendments to the Energy Act. On December 4 2014 the amendments were approved by the Higher Chamber of Parliament, subject to several further changes. The amendments will need to be signed by the president and then promulgated, and will come into force within 14 days of proclamation.

Irrespective of the motives behind their preparation, the amendments will affect both the state-controlled and private companies engaged in hard coal trading.

The main features are as follows:

  • Trading in hard coal will generally require a concession issued by the president of the Energy Regulation Office.(1) The only anticipated exception concerns companies with an annual turnover value amounting to less than €1.2 million.
  • A concession for trading in hard coal from abroad may be issued subject to providing security ranging from PLN1 million (approximately €250,000) to PLN20 million (approximately €5 million), depending on the type of hard coal imported. Failure to maintain this security will result in the concession being revoked.
  • A concession for trading in hard coal from abroad may be issued only if the imported hard coal is acquired from an entity that fulfils the environmental protection requirements and has a certified integrated quality and environment management system. Failure to meet these requirements will result in the concession being revoked.
  • The president of the Energy Regulation Office may refuse to grant a concession for trading in hard coal from abroad if it would endanger state security.
  • Hard coal concessionaires will be obliged to pay annual fees, to be defined under separate regulations.
  • The formal requirements for a concession for trading in hard coal from abroad will be more stringent; in particular, these requirements will include the provision of information on shareholders that possess over 10% of the voting rights or the right to appoint or revoke members of the management or supervisory boards.

Entities trading in hard coal will be required to file motions for concessions within three months of the amendments' entry into force. Otherwise, such trading will be prohibited.

As an additional administrative measure, the government intends to regulate and standardise the quality requirements for hard coal. The relevant regulation should be ready in late 2014 or early 2015.

For further information on this topic please contact Adam Kozlowski at Norton Rose Piotr Strawa and Partners LLP by telephone (+48 22 581 4900), fax (+48 22 581 4950) or email (adam.kozlowski@nortonrosefulbright.com). The Norton Rose Fulbright website can be accessed at www.nortonrosefulbright.com.

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Endnotes

(1) Defined as economic activity consisting of wholesale trade or retail trade in fuels or energy. 'Fuels' are defined as solid fuels, liquid fuels and gaseous fuels, being chemical energy carriers.