"Bury the coal" – the free market economy. 1989-2000 At the end of the 80s the first PCs appeared in Węglokoks. In the beginning there were a few of them brand Feranti, with a stunning 20 MB of disk space. – They served more as typewriters, rather than computational machines. For these tasks Węglokoks used one large machine Date Point 5500. It served the entire billing of socialist countries – says Jerzy Galemba, who at that time was responsible for computerization of "Węglokoks".

Soon after "Węglokoks" signed a contract with the French company Bull, for the computerization of the company, it was followed by the appearance of new experts –computer scientists in "Węglokoks". Computerization was only a prelude to great changes which were brought by the beginning of the 90s. Until 1990, "Węglokoks" was not only the sole exporter of hard coal and coke, but it was also the exclusive importer of natural gas from the former Soviet Union. In 1990, "Węglokoks" was responsible for the delivery of more than 8 billion cubic meters of Soviet gas. Polish Oil and Gas Mining then was responsible only for the technical collection of the gas. But not everyone knows that already in the 70s the subject of diversification of sources of supply of natural gas was undertaken in Poland, including liquefied form. And it was "Węglokoks" that got the task to discern possibilities of buying this resource from sources alternative to Soviet Union. – While pursuing this matter, I conducted first conversations to probe into the subject in Norway and Algeria jointly with representatives of the Ministry of Foreign Trade and the Ministry of Chemical Industry – says Henryk Siaszkiewicz, who was responsible for the above issues in "Węglokoks". In 1990, as the result of the de-monopolisation of trade, "Węglokoks" lost the position of the sole exporter of solid fuels, which from now on could be sold by other entities, including directly by the mines and coking plants. And those were fighting for survival at that time.

The condition of hard coal mining prior to the economic transformation in Poland, at the end of 1989, was almost disastrous. In the socialist economy for propaganda purposes, the principle was adopted to convince the public about the cheapness of Polish coal. Therefore so-called "official" price of coal was kept at a relatively low level. Such conduct, not having much in common with the economic reality, was the cause of frequent coal waste and lack of propositions to use energy-efficient technologies in industry. Cases were listed, when for hardening of land in fuel depots operated at that time in the country by the "Samopomoc Chłopska” (a farmer's cooperative) fine coal was used instead of other mineral aggregates. For this recklessness, mining industry had to pay in the free market economy.

In 1989, the basic production units, such as mines, were managed by Wspólnota Węgla Kamiennego (Hard Coal Union). This was done by means of intermediate structures, which at that time were the Coal Mining Enterprises. The process of transforming centrally planned economy to a market economy launched at the end of 1989 had to extend to reach the hard coal mining industry as well. It was decided to liquidate all five Coal Exploitation Enterprises, a few months later Hard Coal Union ceased its operations. The basic production units – coal mines in April 1990 became independent state-owned enterprises.

The purpose of these changes was the expected increase in economic efficiency of the mines and bringing them to function in a market economy. In practice, however, it turned out that the mines acting alone were not prepared for effective economic activity. The beginning of their independence coincided with a period of very large decrease in demand for coal. As a result, in 1992, extremely difficult economic situation took place in the mines, threatening the loss of financial liquidity for a significant number of them.

"The directors of several mines are thinking with fear about the next payday. They are frantically trying to obtain surety credit. If there is no money, then strikes are certain. (...) Nearly 11 million tons of accumulated coal, it’s a year-round production of three or four mines. Many directors and unionists blame previous governments for the origin of such reserves. They argue that this is a result of bad policy on the export of coal. They say that 30–35 million tons of exports would be able to save Polish mining industry. The snag is that now contracts which were concluded in the past year must be carried out. So far less than 7 million tons were sold abroad. Andrzej Lipko, former head of the Ministry of Industry from the 9th of July lifted limits on the exports of coal. But no one says how much coal can be quickly pushed abroad" – the daily paper "Gazeta Wyborcza" described the situation of the industry then.

A significant drop in exports in the early 90s is largely due to fall in "rouble" supplies, to the former Comecon countries. Back in 1990, "Węglokoks" sold 10,4 million tons of coal to the former Comecon, a year later, only 4,3 million tons. Settlement system in the Comecon countries was not favourable, especially for the sellers. Under this scheme purchases were much more profitable. It relied on equalizing the price changes by reference to the five-year world prices base converted respectively by the transfer rouble. It is worth noting that the conversion of transfer rouble was much less favourable than the rate against the dollar.

Poland sold coal and coke for the transfer roubles, but from the east for the same currency natural gas, petroleum, iron ore were being sent. Therefore, our exports to the East should be viewed more broadly. – I am convinced that due to those facts Poland didn’t loose through those transactions – says Stanislaw Lesiuk, a member of the first board of "Węglokoks" S.A., currently head of the German section. In 1991 Lesiuk, then as an employee of the economic section, participated in negotiations with the Russians. The Russians said then that the persistence of this scheme is not profitable, so they proposed to lift the system and move to "hard" currencies, i.e. U.S. dollars.

– Those were tough negotiations. For Poland gas purchases for dollar were a terrible shock. In addition, it coincided with the attack on Kuwait and Iraq, the war in the Middle East. Oil and gas prices have risen sharply. Until the times of "price-creation" it was worth for Comecon to buy resources, rather than sell them. After 1991, when we began to settle accounts in dollars, it stopped to be profitable for the Russians to buy coal and coke from us, because at that time, resources prices in the international market were high. The Soyuzpromexport – a company that carried out imports of resources from Poland in the Soviet era –reaction to our offer was immediate: "At that prices we will buy coal and coke somewhere else."

The Russians did not want our coal anymore, anyway, what we sent to the east was incomparably worse than what we sent to the second area of payments, that is to the West. This was mainly steam coal of the 19–21 range of calorific value, which also dominated the domestic market. About the coal, which was sent to the east, a joke was being passed that one time the Russians have come forward to complain, because supposedly one of the wagons caught fire as a result of spontaneous combustion, to which they heard that it's impossible, "you would need to pour it with something for it to catch fire".

At the end of 1992, the government took steps to halt the bankruptcy of hard coal mines. Economic Committee of the Council of Ministers on the 15th of March 1993 adopted, as mentioned earlier, the first government program for restructuring entitled "Program for restructuring of hard coal mining in Poland – the realization of the first stage within the financial capacity of the state”. In March 1993, six mining companies were created out of 49 mines – one-man companies of the Treasury. Soon after, on the 1st of September 1993 "Węglokoks" was transformed into a one-man company of the Treasury, changing the name from the CHZ "Węglokoks" to "Węglokoks" S.A. (Joint Stock Company), in which 100% of shares belongs to the Treasury.

After an initial period of vigorous competition between independent mines and countless companies involved in coal trading, the coal trade sphere organization began. – A way to organize the coal trade had to be – taking it by large, economically strong and organizationally efficient operators. The inclusion into the national sphere of coal trading was a matter of time – notes already cited, Stanislaw Lesiuk. In 1996, the company created a national sales section. "Węglokoks" sells about 400 thousand tons of coal on the domestic market already in the first quarter. That way the company makes up, though partially, for the loss associated with losing the coke market (because in 1996 “Polski Koks” a company specializing in coke trade was created). "Węglokoks" initially also lost some of the steam coal market to private entities, but not logistically difficult marine markets, just those which were the easiest (rail supplies to countries neighbouring with Poland), which could bring the biggest profit.

– Competition was supposed to force producers to higher quality output and thus increase exports, but, paradoxically, led to the collapse of the reputation and credibility of Polish coal suppliers in the world. "Węglokoks" lost many regular customers in the 90s. There were disadvantageous phenomena like lateness of supplies, impaired quality of coal – admits Lesiuk. The new economic reality at the same time creates the conditions for far greater diversification of economic activities, what "Węglokoks" takes advantage of. In 1996, the company becomes in involved in leasing of machinery and mining equipment for mines, especially all kinds of coal processing equipment (sifters, flotation machines etc.). Transactions with the mines were concluded within the framework of compensating transactions, through the delivery of coal supplies destined for export. But the real "bull's eye" for "Węglokoks" was when it became involved in the creation of mobile operator Polkomtel. Slightly more than 4 percent of shares, which became the property the company proved to be a great investment in the years to come, giving an injection of cash each year. Investment on a smaller scale, but equally successful was the participation in the formation of Górnośląskie Towarzystwo Lotnicze S.A. (The Upper Silesian Aviation Group), the company managing the airport in Pyrzowice.

Thanks to investments, external financing, "Węglokoks" was able to organize huge funding for the entire mining industry, necessary because of the lack of liquidity of many mines. – We organized the financing in banks, the banks for our heaps, gave the pledge of credit and the money went in the form of prepayments for the mining industry. It was a huge credit union – says one of the “Węglokoks” workers. Stanisław Lesiuk confirms that in emergency situations the company rescued with the finances of mining companies. – Early agreements provided for a relatively short payment terms. But there were emergencies when the payment had to be sped up, because the mines didn’t have money for "13s" or "14s" (additional annual bonuses). We did everything we could because we knew it was our role, our job.

"Węglokoks" was still a reliable partner for the financial market – with a turnover of several billion dollars per year, throughout the whole 90s, the company ranks as the top positions in ratings of Polish companies (such as in "Polityka", "Rzeczpospolita"), not to mention ratings of the largest Polish exporters, where the company from Katowice was at the forefront long after 1989. But the problem is that hard coal mining in Poland, despite attempts to revive increasingly tumbles down, carrying the hump of a multi–billion debt on its back. The times when the mining industry was the supporter of the Polish economy, went into oblivion. Mining industry and coal alone are not cherished by the public opinion. Mirosław Orłowski – former economic adviser to the President of Poland – in "Gazeta Wyborcza" in the "Solutions for mining industry" section in the article entitled "Bury the coal" refers to the works of Johan Maynard Keynes, who, decades ago, half-jokingly suggested that the government can stimulate demand in the economy even in a seemingly absurd way, by burying money in the land and then selling concessions to extract them from the ground. Based on this example, prof. Orłowski suggests that: "If the miners want to mine more coal than people are willing to buy, maybe you could just let them do it while contracting for companies that would take care of burying part of the coal back into the earth?" – "And it is only 38 million Polish taxpayers who have a loosing business in form of mining industry, which they are so accustomed to pay for". The bad condition of the mining industry, will sooner or later begin to have an impact on the export of Polish coal. At the end of the 90s Poland still manages to sell on in the world, mainly in Europe approximately 23–24 million tons of coal. The main but not the only exporter of Polish coal is "Węglokoks", which in 1997 came down to a record low share in exports of about 63 percent. In subsequent years, the company manages to regain some of the lost market. But it is not an easy trick – in 1999, the Association of British Coal Producers submitted a request to initiate anti-dumping proceeding against "Węglokoks" in Brussels, accusing Polish exporter of selling coal at below the cost of production what is detrimental to local producers. If British complaint was recognized, punitive duties would be imposed on coal and coke exported by Poland, not only to Britain but to all EU countries, where we exported approximately 18 million tons of coal, at that time. Therefore, representatives of "Węglokoks" have started talks with representatives of British companies RJB Mining and Scottish Coal.

– We do not want any trials. We are ready to give up part of the export of steam coal, but we would not like to lose lump coal, because we sell it at 60–80 dollars per ton –the Vice-President Michael Sobel convinced then. British importers of coal came to aid "Węglokoks". They wrote, in a letter to the Deputy Prime Minister Janusz Steinhoff: "British mines were never interested in selling coal to British power stations. We would like to ask Węglokoks not to stop the coal supply to the UK. The quality and parameters of Polish coal are most appropriate for our power stations.” Importers have announced that they would support Poland in the dumping case in the European Commission. After several months the complaint was withdrawn from Brussels. It was a time when both the price of steam coal and coking coal in Europe dropped to the lowest level in years. At the end of the 90s steam coal prices in ARA ports (6000 kcal/kg) went below the $ 30 threshold. More and more is being said about the deficit of coal exports in Poland. This is reflected in the government's programme of restructuring of the coal mining industry in 1998–2002.

"Due to the low efficiency of Polish coal exports it should also be taken into account that the we need to accelerate withdrawal from the export of coal to the level of 16 million tons in 2001 and 10 million tons in 2002" (...) "in the case of restrictions on export sales volumes in the year 2001 for about 6 million tons and about 10 million tons in 2002 further liquidation of mines with a total capacity of 10 million tons will be necessary in 2001–2003" – says the government's adjustment program adopted by the Council of Ministers on the 21.12.1999

Ultimately, the reduction was not so drastic, but – in fact – it is a turning point for Polish coal exports. In subsequent years, decline in exports was taking place, mainly due to lack of supply of coal on the domestic market. Decline in the importance of exports of Polish coal became the fuel for the discussion on the future of "Węglokoks". In 2004, at the government–level the idea of combining "Węglokoks" with the producers of coal started circling (a similar idea firstly appeared as early as 1994, but has not gained the approval of the owner).

This time the concept was adopted by the Council of Ministers. It assumed that privatisation of "Węglokoks" would be preceded by a process of recapitalisation of coal producers with “Węglokoks” shares. 45 percent shares would go to Kompania Węglowa, Katowicki Holding Węglowy would get 10 percent receive, and KWK "Budryk" –2 percent. This division corresponds roughly with the structure of coal purchases made by "Węglokoks".

At first, voices erupted, that this is an attempt to deprive autonomy of "Węglokoks". – "Węglokoks" is a well-known brand in the world, it means reliability, punctuality and professionalism. If it is included in the capital structure of the producer, all these attributes will be squandered. When there have been problems with collecting money for payments, "Węglokoks", as an independent entity, concluded credible international agreements, had the ability to guarantee loans incurred by the coal companies and thus payments have been paid. Now, it would not have this ability, thou it could continue to guarantee loans, especially investment loans that are so much needed in Polish mines – what was emphasized in public discussions.

In these debates, the word "agent" was heard, which determined the role of "Węglokoks". – Activities of a typical agent consist of that – on the one hand – it has the invoice of purchase, and – on the other hand – a sales invoice and the difference between these amounts is its income. To say that we are a typical agent, is therefore extremely simplistic. "Węglokoks", buying coal from the manufacturer, simultaneously arranges the entire logistics process – rail, ships, and it is not that simple, because these are thousands of ships per year, each of which requires documentation and billing. It provides full comprehensive control of coal. Each ton of Polish coal is precisely diagnosed. In contrast to the classical agent it optimises the sales goals of Polish coal – said vice president Michael Sobel, while stressing that there is no other company which could use hedging instruments in Poland, whether futures or foreign currency.

Recognizing these problems, "Węglokoks" came up with ideas for reorganization of the mining sector. Specifically, it was about the possibility of purchasing a few mines by Katowice exporter, to create it’s own resource base. Ultimately, none of those ideas were ever implemented. Like the later concepts of capital ties with the Południowy Koncern Węglowy and the last – the connection with the Katowicki Holding Węglowy.

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