Polish and Czech dispute over Polish lignite mine and power plant
Poland has some of the worst air quality in the European Union, so it is no wonder why Poland’s planned expansion of its Turów lignite mine on the Czech border is straining bilateral ties and raising questions about compliance with European Union regulations.
Turów’s licence expires in April and Polish state-owned utility PGE hopes extraction will continue until 2044 and expand to within 100 metres of the Czech Republic’s border and close to German territory.
In Bogatynia, the Polish town closest to the mine, PGE is the largest employer.
PGE’s 1.3-gigawatt power belches pollution across the border and a new 450-megawatt plant is due to begin operations this year. The site supplies approximately 8 per cent of Polish electricity.
Environmentally ruinous coal currently makes up about 80 per cent of Poland’s energy generation – the highest coal dependency in the EU – and it is only expected to fall to 50 per cent by 2040. According to the European statistics agency, Eurostat, renewables made up 10.9 per cent of Poland’s energy mix in 2017, which will need to increase to 15 per cent this year to comply with the EU’s environmental targets.
It has been estimated in a European Commission report that around four-fifths of Polish coal mines are unprofitable.
The populist Law and Justice Party administration has maintained support for the coal sector and provides government subsidies to preserve the industry.
Rising carbon emission costs and volatility in the energy market, however, have made that commitment less popular among voters.
The municipal government in Liberec on the Czech side of the border said the brown-coal, opencast mine and plant endangered the water supply for 30,000 Czechs. It has filed a complaint in Brussels that says the site contravenes EU trans-boundary environmental rules and that PGE has failed to consider Czech interests.
“The water crisis caused by decades of Turów mining activity is already happening. The prolongation of mining can make it significantly worse,” said Martin Puta, the Liberec governor. PGE was playing “roulette with our water resources”, he added.
PGE said it monitored groundwater and water in the Czech border town of Uhelná “may be impacted”. The firm added that it was working on a subterranean cut-off wall to “limit the impact of the opencast mine on this water intake”.
Residents in the German border town of Zittau also say PGE has failed to address cross-border pollution and noise from the mine and power station.
“In our opinion, this environmental impact assessment wasn’t made to fulfil laws, it was just made up,” Zittau’s mayor Thomas Zenker told the media.
“We try to be honest, but not too harsh. Because the problems on our side are not comparable to the Czech side. So we try to support the Czech side without taking away from the Polish side every chance for development,” the mayor added.
How valuable is Kosovo’s mineral wealth?
One of the present myths in the public is that NATO countries have supported the war in Kosovo in order to own the inexhaustible Kosovo mineral resources. This is based on the view that if the state recognizes Kosovo’s independence, the state of Serbia would lose enormous money that would be obtained by exploiting ores.
How valuable is Kosovo’s mineral wealth?
We have no idea. A google search, except for obscure nationalist sites that mostly repeat similar figures and not citing sources, does not provide information on Kosovo’s mineral resources. (A good example is a Facebook reporter who, as one of the arguments in favor of the claim that Germans buy vineyards in Metohija, enclose that they are mentioned in Roman records as wines from Dardania as higher quality than wines from Gaul).
Also, there is no information on the website of the Ministry of Mining and Energy and the Geological Survey of Serbia. But one can find the Mineral Deposits of Serbia Ministry of Mines study on the Internet.
If we accept these claims fully, then we are facing a mineral wealth of perhaps as much as $ 1,500 billion. To put this figure in perspective, it is more than the GDP of Spain and Russia, and roughly the GDP of Canada. So we should certainly take this projection not with the pinch, but with a ton of salt.
This sum is doubtful because when you look at the figures, something is missing. It is stated that there are 2.5 million tonnes of nickel in Kosovo; 4.5 million tonnes of magnesite; 400 thousand tons of zinc, lead and bauxite each. If we multiplied this amount of ore by the value of these metals on the stock market, we would get a total sum of only 28 billion, which is far, very far from the initial 1,500.
Mining sources in Kosovo agree that coal deposits are the most important and that there are about 15 billion tonnes of lignite coal in Kosovo. Lignite is a type of coal with the lowest energy value, except peat (it receives less energy from its combustion than other types), and since transport costs are high, lignite is not traded at all, but is most commonly used to produce electricity near the site of exploitation.
This is why EPS built its power plants Nikola Tesla and Kostolac near coal mines.
This makes it a little more difficult to estimate the value of coal. In 2008, the Economist newspaper (domestic, not foreign) estimated the value of this lignite at $ 85 billion. However, in an era of decarbonisation, where there is increasing insistence on producing electricity from renewable sources and reducing greenhouse gas emissions, the question is how much of this coal will actually be exploited.
There are coal mines in Western Europe that have not been exploited for decades, although there are technical possibilities. Considering that it takes time to bring these coal deposits to use, as well as the relatively small capacity to consume electricity in Kosovo (and it is almost impossible to store it), it is likely that this coal will never actually be exploited, except in a small measures for the needs of the local energy market.
Revenue is not the same as profit, so the price of the ore is not the same as its value
The value of these mineral resources is calculated in inscriptions by multiplying the amount of ore by the value of tons of metal on the stock market. But it is only income, not profit. It occurs when expenses are deducted from income.
RTB Bor produces a large amount of ore (mainly copper, but also silver and gold), but it was until recently a loser who lived off subsidies (both capital for investments in a new smelter and indirect ones for regular business by not paying taxes and suppliers from the ranks of state-owned enterprises, eg electricity).
So, the fact that the ore is in the soil does not guarantee that it will bring us some positive value, otherwise we would all benefit from RTB Bor instead of it being our humpback for years.
Almost everywhere in the world, the largest mines are not state-owned but private: the ore itself is owned by the state, which gives mining companies a concession for the exploration and exploitation of the ore for a fixed period. Mining companies pay the state rent for this privilege.
In Serbia, mine rent is 7% of mine revenue (except for the privileged NIS, due to an international agreement with Russia, it is 3% for them). So, in this most favorable case, these initial unrealistic $ 1,500 billion is actually the same unrealistic $ 105 billion, and these more conservative $ 28 billion becomes actually $ 2 billion.
The ore lying in the ground is worth nothing
One of the main arguments against the aforementioned views lies in the fact that nobody exploits these ores for almost 20 years after the war. Only small lignite mines for the Obilic, Kosovo and Trepca thermal power plants are functional from the mines.
Of course, there is the Trepca mine, which is active, but on a much smaller scale than it was at the time of the SFRY. If this was the goal of military intervention in Kosovo, I guess the first thing the international administration would do was split concessions and start digging.
Whatever the political status of Kosovo, the protection of civilizational assets such as the private property of its citizens in the territory of Kosovo (land, buildings and other movable and immovable property) should be of Serbia’s greatest interest.
Discourse on Kosovo’s mineral resources and how it should be protected should not be a primary topic.
How long will Santander continue to profit from Polish coal expansion?
The Spanish bank’s use of ‘ESG loans’ for companies with fossil fuel expansion plans is part of a dangerous new trend
Poland’s fiercely pro-coal Law and Justice (PiS) party may have been returned to power following general election, but already a vigorous coalition comprising local and regional authorities, farmers, NGOs and grassroots groups, business associations and local communities has succeeded in thwarting the new government’s reckless coal ambitions.
Faced with vocal opposition from across the country to PiS’s proposed legislation, which would have allowed Warsaw to open new coal mines around the country without the approval of local authorities, yesterday the head of the Polish parliament threw out reading of the special mining bill during the final day’s session of the old parliament.
Should the government re-table the bill in the coming months of the new parliamentary session, it will only escalate tensions between Poland and the EU over climate policy and land the national authorities in further hot water with Brussels. Environmental lawyers in Poland maintain that the proposed mining law would violate EU law.
As this blog explores, with the Polish state’s gung-ho approach to coal intensifying, for how much longer can financial institutions such as Santander maintain their credibility as supposedly ‘responsible’ banks if they are prepared to continue funding Polish companies which are going all out to prolong and expand their coal fleets?
All in for coal
PiS officials have not been shy about disclosing one of the most pressing reasons for trying to introduce the new radical mining legislation, a highly unusual and controversial move even by the standards of the ‘Coal is King’ mentality so dominant in the right-wing party.
The mining bill was intended to assist development of the planned lignite open-pit mine at Złoczew, which stands to become the country’s deepest ever open-pit mine, would displace over 3,000 people and destroy 33 villages. A concession to open the Złoczew mine is being sought by the state-run energy group PGE to fuel its Bełchatów power plant for the next several decades.
Bełchatów, Europe’s biggest power plant, is notorious for being the continent’s single largest source of carbon emissions.
For PGE, with no coal phase out policy in place, no Paris compliant decarbonisation goals and a 91% coal share of power production (according to the recently updated Global Coal Exit List), steamrolling over public health concerns, people’s houses and completely disregarding the global climate imperative is somehow par for the course. Flying in the face of economic reality to just keep on digging and burning more and more coal would also appear to be part of the PGE business model, according to an analysis published last week by the Institute for Energy Economics and Financial Analysis (IEEFA).
Assessing PGE’s ‘all in for coal strategy’ since 2015 (not the strategy’s actual name, but coal and lignite have accounted for 76% of its €8.5 billion capital expenditure and acquisition investment so far over four years), IEEFA’s view is that the financial performance of the company has been ‘woeful’ and that the current, hugely coal-intensive pathway is financially ‘unsustainable’.
The IEEFA analysis found that PGE’s cost of equity has exceeded return on equity for at least the last four years, and that it has performed poorly when compared with European electric utilities that have tilted towards renewables.
Of PGE’s proposed Złoczew lignite, one of the report’s authors Gerard Wynn reckons, “It’s a distraction which would inevitably create huge losses, ultimately paid by energy consumers or the Polish state. The time has passed for energy companies to replace old coal with new coal.”
Some banks refusing to get out of Polish coal
Steering clear of coal – and companies like PGE still looking to develop new coal projects – has also got to be a top priority for commercial banks. Yet just over a year ago, Spain’s Santander, Italy’s Intesa Sanpaulo and Japan’s MUFG opted to back PGE’s ‘all in for coal’ approach with a loan for the company of close to €1 billion.
Based on the environmental, social and financial risks which PGE’s stubbornly enduring, and potentially legally suspect, coal activities pose, these three banks – all of which recently signed up to the UN’s Principles for Responsible Banking, requiring them to align their business strategies with the Paris Agreement in the next two years – must now be prepared to jettison their recalcitrant Polish coal clients and, indeed, other clients still set on coal expansion.
Seeing no palpable signs of a transition out of coal taking shape in its Polish clients, this is in fact what French bank BNP Paribas announced it is doing at its annual shareholders’ meeting in May this year. Another French bank, Crédit Agricole, has also recently laid down a marker for the banking sector by announcing its commitment to fully phase out of coal, including an immediate end to business with companies planning to develop new coal projects.
However, just as they were signing the Principles for Responsible Banking at a launch ceremony in New York in September, two of PGE’s bankers, Santander and MUFG, signalled that they are prepared to give the Polish coal sector further financial leeway.
The two banks have signed off on a PLN 2 billion (approximately €465 million) ESG-linked revolving credit facility agreement with Energa Group, a majority coal-dependent company involved in trying to construct the last new coal power plant on EU soil – the €1.2 billion, 1000 megawatt Ostrołęka C coal plant.
One of the justifications from Santander for this loan (for ‘revolving credit facility’ read ‘company credit card’) is that the agreement with Energa “prohibits the use of loan proceeds for coal power”.
Energa does have business in renewable energy. Yet, according to an anonymous European banking source talking to Reuters about Polish coal power financing trends, “Banks agree to provide financing for energy groups only on condition that it will be spent on distribution networks or renewables. But this helps the energy companies to find money for the coal projects.”
Energa needs funding generally – to buy back domestic bonds this week, and to pay back €500 million worth of Eurobonds (an issue previously arranged in 2013 by BNP Paribas, Bank of America and HSBC) in March next year. And mounting Ostrołęka C construction costs are looming for Energa. The company has ‘stranded asset risk within a decade’ written all over it, chiefly because of its Ostrołęka C ambitions.
But what of the ESG (Environmental, Social and Governance) criteria attached to this Energa loan, which Santander is trumpeting as a first in Poland?
The extent of the interest payable on the loan will be determined by the bank’s assessment of Energa’s “care for the natural environment, social responsibility and corporate governance”. If Energa continues to pump capital into Ostrołęka C – and that is its plan – then under the ESG terms its interest payments on this loan are likely to rise, and hence Santander will profit further.
The emergence of ESG marked lending by banks for companies with explicit fossil fuel expansion plans is a dangerous new trend. If banks like Santander want to encourage companies – like Energa – which are dead set on firing up new coal plants not to do so, the risk of a couple of interest rate penalty points is not going to cut it, especially where state-owned companies such as Energa (and PGE) are concerned.
Rather than profiting by penalising the likes of Energa with exotic new ‘green’ financial engineering, Santander and others should penalise these companies by not funding them at all. Profiting from climate destruction is never going to be ESG-compliant, as much as the finance industry may want to spin it.