Nine hundred metres below ground, an automated plough is crunching its way horizontally across a coal seam at Poland’s privately owned Lubelski Wegiel Bogdanka mine in Puchaczow, in the southeast. Once extracted, the coal hurtles away down a conveyor belt. There are only a handful of miners overseeing the operation.

The coal seams in the Lublin basin are almost all horizontal so, in 2010, Bogdanka invested in the automated system. It broke the world record in 2011 for daily longwall production – a mining process whereby operators cut through the coal seam in slices.

This geological structure gives the highly mechanised Bogdanka a huge advantage over the Upper Silesian heartland of Polish coal mining.

Poland is Europe’s largest coal producer, but output has been steadily declining from more than 178m tonnes in 1980 to 78m tonnes last year. However, Bogdanka is bucking that trend and plans to increase its output, from between 8.4m and 8.6m tonnes this year to 12m tonnes in 2016, by investing 600m zlotys ($191m) a year.

Bogdanka is planning to eat into its Silesian rivals’ market share to increase its slice of the country’s thermal coal sales market from 14 to 20 per cent over three years. Polish miners have a captive market. In 2012, 58 per cent of the country’s electricity was produced by burning hard coal. About 90 per cent of Bogdanka’s thermal coal production is sold under long-term supply contracts to power plants.

Zbigniew Stopa, Bogdanka’s chief executive, says: “We’re talking about increasing volumes to clients with whom we already have contracts. We also want new customers, not only from the energy sector, but chemical companies too. We have increased sales to smaller clients and we’re seeking more individual customers.”

Bogdanka almost closed 20 years ago because of low profitability, but the sale of non-productive assets and employee lay-offs have seen it generate profits and increase production. Its mining costs per tonne are 40 per cent lower than state-owned Silesian competitors, Kompania Weglowa (KW) and Katowicki Holding Wegiel (KHW), whose management has been reluctant to restructure, because of strong trade unions, while increasing salaries.

coal-processing factory
‘We do have a serious problem and it’s not because our coal reserves are depleting rapidly’

Pawel Puchalski, head of equity research for BZ WBK Brokerage, says: “Poland does have a serious problem and it’s not because coal reserves are depleting rapidly. Here and now, the problem is the very high employment cost. Prime Minister Donald Tusk has just said coal will remain Poland’s key fuel. It’s not a good idea to start cutting miners’ wages before elections, so there is deadlock.”

Silesia’s mines employ more than 110,000 people and successive Polish governments have concluded that restructuring would be political suicide.

Miners have also been hit by low-cost coal imports; it is cheaper to transport Russian coal to northern Poland than Silesian coal. In addition, a slowing economy has led to falling demand; as a result, stockpiles at collieries have reached record levels.

Silesian miners doubled their exports in the first half of this year to reduce those stocks and the country may become a net exporter of coal in 2013 for the first time in six years.

However KW, Europe’s largest coal miner, made a net loss of 295m zlotys in the first three quarters of 2013. The company plans to reduce its 15 mines to eight through mergers and lay off administrative staff. Management has promised miners will not lose their jobs.

KW’s smaller rival KHW may end the year with a small profit as falling production is offset by increased sales of premium coal grades.

Silesia’s other big miner, the publicly listed Jastrzebska Spolka Weglowa, expects to break even this year, but this is primarily because its coal is mainly used in the production of coke, a key ingredient in steel manufacture.

When economic times are good, JSW can sell more coal than it can produce.

Mr Stopa believes there is potential for growth in the Polish market. “Poland’s production potential is sufficient to meet the needs of the whole energy sector. The problem in Polish mining is posed by the large mining companies, KW and KHW, which face serious restructuring problems.

“Efforts should be taken to remedy these problems, but will those efforts happen soon? Frankly speaking, it’s a political decision, because they are state-owned companies.”

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