Rift over coal charges opens up between Czech ministers

Czech ministers have fallen out over hiked charges on coal mining companies. The charges would just target brown coal, or lignite, companies, which appear to be holding up a lot better than their hard, or black coal, counterparts.

Photo: Tomáš Adamec

Deal or no deal, not the world hit television game show but rather the play out Wednesday of a battle between Czech ministers over how much to hike up state charges on coal companies for digging the stuff out of the ground. Minister of Industry and Trade Jan Mládek dealt first in this small domestic drama with an announcement that he had sealed a deal with Finance Minister Andrej Babiš under which the current mining charges (of 1.5 percent of the market price of coal) would be doubled from mid-2015.

But a denial that anything of the like had been thrashed out came within a few hours from the ANO party leader. Babiš originally came up with the idea that there should be a ten-fold rise in the mining charges - a move which the country’s four biggest mining companies say is out of the question - with most of the extra cash raised flowing into the state coffers. So it now looks likely that the Cabinet will have to decide how high the new coal charge should be.

This is not the first time that the two ministers appear to have been speaking in different tongues and have come away from meetings with contrasting versions of what was agreed. Given that they are supposed to agree the Czech Republic’s long term nuclear policy by the end of the year, it does not bode too well. The hike in coal charges were solely aimed at brown coal or lignite, which is just as well since the signs for hard or black coal are far encouraging.

Jan Mládek, photo: Filip Jandourek

Prices for hard coal, mined by Czech company OKD in the far east of the country and mainly serving as the raw material for making coke for steel plants, are still at near six year lows according to international analysts. OKD itself says that prices for fourth quarter deliveries of coking coal rose by 4 percent from the third quarter to reach 85 euros a tonne, but this is hardly the hoped for rebound.

And there are other signs that demand and prices are not picking up fast with global iron ore prices at five year lows and demand from China, the biggest customer, depressed. OKD’s owner, New World Resources has been given a stay of execution from imminent collapse with a refinancing and restructuring approved by shareholders and creditors by there is still a big questionmark over the future of the Paskov mine after 2016.

Meanwhile, demand for brown coal is buoyant although wholesale prices were around 10 percent lower in August this year compared with a year earlier, according to the Czech Republic’s biggest electricity producer, state-controlled ČEZ. ČEZ, which owns the country’s biggest brown coal mining company SČD, expects its coal fired power stations, which overwhelmingly use brown coal, to produce just 1% less electricity this year than last.

Andrej Babiš, photo: Filip Jandourek

And the country’s second biggest energy company, Energetický a Průmyslovy Holding (EPH), which mines brown coal in Germany and has coal fired power stations on both sides of the Czech-German border, is now expanding into Britain with the purchase of a clapped out but large Yorkshire coal-fired power plant and its MIBRAG coal mining company is looking to buy up Vattenfall’s coal-fired power plants in Germany.

The Czech Republic’s richest man, Petr Kellner and his company PPF, has just exited its 44 percent in brown-coal based EPH with a net profit on the deal of around 10 billion crowns after paying just over 6 billion crowns for a 40 percent stake five years ago. So some parts of the coal business seem to be looking a lot rosier than others.