Czech state bids to take over OKD mining company

The Czech state is in the running to buy up the country’s sole hard coal, or coking coal, company, OKD, which is now under insolvency administration. A bid of 1.0 crown was submitted by the state company Diamo on December 16.

Photo: archive of OKD

That was one of the main takeaways from a press conference by Minister of Industry and Trade Jan Mládek on Tuesday in response to the demand from OKD for a chunk of state aid, this time totalling 723 million crowns. An operating loan of 700 million was already made in the middle of the year to keep the mining company going.

Diamo is, apparently, one of around 10 bidders which has so far expressed interest in taking over OKD to the insolvency manager, Lee Louda. The business daily Hospodářské Noviny reported Wednesday that a series of Czech coal company bosses who previously expressed interest in a buy- out are not among the list of 10 so far.

Minister Mládek, and his stand was echoed by finance minister Andrej Babiš, argued that Diamo’s bid for OKD would cover the pay off costs of miners and the environmental costs of closing mines. The Paskov mine will be the first to close at the end of March next year with the loss of around 1700 jobs. Any state financing in the meantime would just worsen Diamo’s prospects in a possible takeover and improve the chances of a private investor, he added.

The Czech state is supporting what it describes as a soft landing for the OKD mines in the far east of the country. It would like the remainder of them to stay operating until at least 2020 and hopefully for a few years longer until 2023 to buy time for the region to adapt to the loss of its biggest employer with around 12,000 direct jobs at the mines.

One of the main factors for the crisis at OKD was the sharp drop in coking coal prices during 2015 and the start of 2016. Coking coal is used both in the steel industry and in power plants with OKD’s production was traditionally split almost half and half between the two.

Jan Mládek, photo: Marián Vojtek

But the hard coal market has transformed in the last nine months, world prices have soared three-fold – sometimes almost fourfold – from their January 2016 levels of around US 75 metric tonne thanks in part to problems in the Australian mining industry, curbs on Chinese coal use, and the closure of many mines worldwide.

OKD outlined in a letter to minister Mládek that around a third of the sought after 723 million crowns is needed to meet the social costs of closing mines and laying off workers. The remaining 477 million will be needed for shutting down the mines themselves and avoiding the likelihood of environment risks and pollution.

A total of 30 million crowns is needed to be set aside every year for the conservation of the Frenštát mine where there are massive potential reserves of coal but no decision yet to exploit them. OKD’s current management would like to spin off both the Paskov and Frenštát mines into a separate company so that their costs would no longer impinge upon the operational mines.