RESTRUCTURING OF THE POLISH HARD COAL INDUSTRY

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RESTRUCTURINGOF THE POLISH HARD COALINDUSTRY

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HARD COAL RESERVES in POLAND as on 31.12.2003

• Viable reserves 15 200 mln ton
• Industrial reserves 6 800 mln ton
• Operational reserves 4 800 mln ton
• Easily accessible reserves 2 600 mln ton

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COAL BASINS IN POLAND
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Effectsof restructuringprocessesin 19902002
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Hard coal production Hard coal production in 2003
100,4 m tones
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SITUATION ON THE DOMESTIC HARD COAL MARKET
Domestic sale of hard coal in years 1990 2003
and domestic sale trend
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Number of active mines of hard coal In 2003 40
mines
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Employment in hard coal industry In 2003 136,5
thousand pers.
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PRODUCTIVITY
tones/person and year
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THE POLISH HARD COAL INDUSTRYin 2003 and
strategy of the sector for years 2004 - 2010

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ORGANISATIONAL SCHEME OFTHE HARD COAL MINING
SECTOR
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LOCALISATION OF THE COAL PRODUCTION COMPANIES
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HARD COAL PRODUCTION VOLUMEPRODUCTION OF SIZE
GRADES VOLUME

Production volume m tones
No.
Details
2002
2003
1
0
2
3
102.1
100.4
1.
Total production volume
86.2
84.3
2.
Steam coal
lump coal
7.8
7.5
incl.
fine coal
73.0
71.9
15.9
16.1
Coking coal
3.
type 34
5.8
5.5
incl.
type 35
10.1
10.6
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THE COAL SHARE IN ELECTRICITY AND HEAT
PRODUCTION

• The coal share in production of

• electricity amounts to 92,

with the hard coal share of approx. 55,

• heat amounts to approx. 77.

Structure of the domestic consumption of hard
coal

• utility power plants and CHPs 52

• heat only boilers, industry and other sectors 27

• coking plants 15

• industrial power generation 6

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STRUCTURE OF THE HARD COAL SALE
Hard coal sale m tones
Details
No.
2002
2003
1
0
2
3
99.9
98.5
Total sale
1.
Domestic market
77.0
78.5
2.
3.
utility power generation
33.4
36.2
industrial
4.
0.1
0.8
power generation
industrial and communal
of which
5.
2.4
2.0
heat only boilers
6.
other industrial receivers
-
2.1
7.
coking plants
11.5
13.4
8.
other domestic receivers
29.6
24.0
Eksport
22.9
20.0
Export
9.
10.
steam coal
19.0
17.3
of which
11.
coking coal
3.9
2.7
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EMPLOYMENT RESTRUCTURING
Employment as at the end of 2003 amounted to
136,454 persons. Decrease in employment in 2003
amounted to 4,263 persons.
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BASIC ECONOMIC AND FINANCIAL INDICATORS
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AMOUNT OF LIABILITIES AND RECEIVABLES
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ECONOMIC AND FINANCIAL RESULTS OF HARD COAL
MINING SECTORwithin I X 2004
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BASIC ECONOMIC AND FINANCIAL INDICATORS FOR 10
MONTH OF 2004
No. Details Unit 2003 10 month2004 Dynamics43
0 1 2 3 4 5
1 Total production volume m tones 100.40 81.90 81.57
2 Total sale m tones 98.50 80.90 82.13
2 incl. domestic m tones 78.50 63.10 80.38
2 export m tones 20.00 17.80 89.00
3 Quantity of stock at the end of a period m tones 2.90 2.70 93.10
4 Result on sale m zl. 109.20 2,644.90 2,422.07
5 Wages of basic coal employees according to GUS zl/person 3,885.12 3,398.00 87.46
6 Net result m zl. 9,239.10 1,745.30 18.89
7 Receivables m zl. 2,456.60 2,268.60 92.35
8 Liabilities (long and short term) m zl. 8,641.20 7,121.10 82.41
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STRATEGY OF THE SECTOR TO YEAR 2010
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POLANDS HARD COAL DEMAND FORECAST
Polands hard coal demand forecast until 2010 m
tones
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REDUCTION OF PRODUCTION CAPACITY IN YEARS 2004 -
2006
Scenarios of reduction of production capacity
I scenario of production volume reduction by 14
m tones by the end of 2006 (the base case
scenario) target model

• Under the continuous upward market trends with
  respect to power coal and compliance by companies
  of specific economic conditions, realisation may
  be extended in time.

II scenario of less drastic reduction of
production volume by 7.8 m tones by the end of
2006 alternative variant.
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EMPLOYMENT RESTRUCTURING IN YEARS 2004 - 2006
Target model of employment changes until 2006
In the target model employment level will be
reduced by 25.5 thousand.
Alternative variant of employment changes until
2006
Zwolnienia
Employ-
Employ-
New
ment
Total
pakiet socjalny
ment
Year
other
recruits
reduction
reduction
miners
re-training
re-training
level
reduct.
benefit
scholarship
contract
136.5
01.01.2004
21.5
2.0
19.5
8.0
2.5
1.5
9.5
117.0
31.12.2006
In the alternative variant employment level will
be reduced by 19.5 thousand.
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RESTRUCTURING IN YEARS 2004 2006
RESTRUCTURING IN YEARS 2004 2006Objectives and
tasks

• Maintenance of the energy security of the country
  and co-operation in improving the standard of
  energy security of the European Union
• Maintenance by mining enterprises of sustainable
  profitability, economic effectiveness and
  competitive advantage on the uniform market of
  the EU
• Securing satisfactory level of financial
  liquidity and creditworthiness in order to ensure
  sustained operation and development of mining
  enterprises
• Balancing of funds so as to enable current
  payment of liabilities, in particular those due
  to public sector creditors
• Adjustment of production capacity to the local
  market demand and economically viable exports to
  the uniform EU market and elsewhere
• Adjustment of employment to the actual production
  needs, along with ensuring a greater productivity
  and efficiency
• Actions towards a rational cost structure
• Privatisation of mining enterprises.

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RESTRUCTURING IN YEARS 2004 2006

• Aims will be achieved among others by
• cost reduction in all business areas,
• conducting such a marketing policy that enables
  reduction of sale costs,
• reduction of production capacity to approx. 88 m
  tones in 2006 (target model),
• realisation of less drastic reduction of
  production capacity in the alternative variant,
  to the level not higher than 94.8 m tones by the
  end of 2006, provided the bullish market
  continues and mining enterprises retain
  sustainable profitability.

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RESTRUCTURING IN YEARS 2004 2006Target status

• Business entities will be economically effective
• Primary focus of mines and other entities of the
  industry will be able to meet the national demand
  for coal
• Exports by the industry entities will be
  economically effective
• Costs will match revenues
• Employment in the industry will match the
  production capacity, itself matching the market
  demand
• Entities of the sector will finance upgrade and
  capital expenditure projects with their own
  funds
• Mining entities will not benefit from any public
  assistance not allowed under international
  treaties
• Mining entities will comply with the environment
  protection and work safety standards.

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Thank you
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THE STRUCTURE OF PRIMARY ENERGY UTYLISATION

• Primary fuel 2002 year
• Hard coal 51.7
• Brown coal 12.7
• Oil 19.9
• Natural gas 10.8
• Renewable and waste energy 4.9