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13-01-2020

Planned Złoczew open-pit mine increasingly controversial

After an article by Reuters Polish corespondent Agnieszka Barteczko at the end of December 2019 informing that planned Złoczew open-pit mine is close to being scrapped and response from the Polish Ministry of State Assets that it is still actively pursuing the project also shareholders of Polish Energy Group (PGE) - express their uneasy about the project. In a letter sent to the company CEO and management about the extraction of lignite from Zloczew today a minority shareholder expressed concerns with continued effort by PGE to secure a mining licence for Złoczew lignite open-pit mine valued at over 12 billion PLN (just under 3 bln euro).

 

The lignite open-pit mine would be the deepest lignite mine in Europe. The reason for the mine's construction is to prolong past 2036 the operation of the Bełchatów coal power plant, the biggest lignite plant in Europe and the EU's biggest CO2 source. The mine is estimated to cost 12 billion zloty. This estimate does not include the cost of building a railway line to the Bełchatów power plant or road infrastructure for transporting coal to the Bełchatów. The transport of the coal will significantly increase operating costs. It is highly doubtful whether generating electricity at the Bełchatów power plant based on coal from the Złoczew lignite open-pit mine after 2035 will be economically profitable, because of the forecast EUA prices and raising operational costs.

 

The opening of the Złoczew is estimated to last 11 years from obtaining the brown coal mining license, and the target production capacity will be reached seven years later, i.e. at the turn of 2038 and 2039 - assuming that the license would be issued in the coming months. Meanwhile, the European Union has agreed to limit greenhouse gas emissions to close to zero by 2050, and Poland is required to implement the goals contained in the climate package and to achieve the objectives of reducing greenhouse gas emissions by 2030. In the current situation, due to the need to take urgent action to combat climate change it is necessary to quickly carry out the energy transformation and decarbonisation of the Polish and European economy. PGE needs to divest from coal, but the company has still not ruled out construction of new coal power plants. The company also does not have a coal phase out policy. The transition to other, more economically profitable and less harmful energy sources is an inevitable future.

 

Investing billions of zlotys in the lignite open-pit mine, which will bring losses to the company, is destroying shareholder capital. Hence, the pursuit of exploitation of the Złoczew is undoubtedly an activity that can significantly affect the financial situation of the PGE capital group, and reduce its results and its profit, including shareholders' profit. The allocation of financial resources for the development of the lignite open-pit mine not only delays the inevitable transition to a low-carbon or even renewable energy sources, but also causes the lack of funds for green, environmentally friendly investments that are increasingly profitable.

 

In Polish and foreign media there are more and more reports about harmful - both environmentally and economically - activities of PGE, which is widely commented by experts. On 8th October 2019 was published the IEEFA (Institute for Energy Economics and Financial Analysis) report, which analyzes the past, present and future strategies of the PGE group. It was pointed out that the decision to invest in power plants and coal mines was taken at the worst possible moment due to the increase in the costs of greenhouse gas emission allowances. The strategy of replacing old lignite mines with a new mine in Złoczew is against current European trends. There is no prospect of EU funds supporting increased lignite production. The delay of PGE in investing in energy from renewable sources and continuing to base its strategy on fossil fuels and investing funds in an investment such as the new lignite open-pit mine in Złoczew is an irrational action, which expose the company to financial losses. It is even more important that these losses may increase significantly, considering that the project is subject to economic, geological, environmental and social problems.

 

Further investing in an economically unprofitable investment make no sense economically. Steps must be taken immediately to prevent these activities and not to destroy the shareholders' capital by investing in an unprofitable investment, which will also bring huge losses.

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