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Lubelski Węgiel
Lubelski Węgiel Bogdanka S.A.

Letter of the President of the Management Board to the Employees of LW Bogdanka

Tuesday, 2015-06-02

On 1 June this year, the President of the Management Board addressed the following letter to the employees of LW Bogdanka:

 

Dear Colleagues – Employees of the Bogdanka mine,

Lubelski Węgiel Bogdanka S.A. is the pride of all who have devoted part of their professional lives to make our Company successful. For many years we have been working together on the creation and retention of jobs and on ensuring a stable position of our Company in the coal market. The recently developed 2x2 Strategy seemed to guarantee development and security – it provided a positive outlook for a sustainable future.

Life, however, has quite unexpectedly verified not only the ambitious, but even the more conservative plans.

The current environment around Bogdanka is very different from that two years ago and no longer inspires optimism. Changes in the market have deviated from the expectations and forecasts of market experts. The prices of power coal in world markets have reached levels below USD 60, which is half of the value a few years ago.

By pumping billions of public money zlotys into Kompania Węglowa mines, the government wants to save tens of thousands of jobs in the Silesian coal mining industry, without taking into account the interests of other producers, including Bogdanka. It is hard to predict how long this dramatic situation may last.

Because of the state aid, the Silesian mines, while producing at a cost of more than PLN 300 per tonne, sell coal to our customers for as little as PLN 150 per tonne, that is for a price lower than our production costs, which are the lowest in Poland.

These actions weaken our position in the market and may squander our achievements or even eliminate Lubelski Węgiel Bogdanka from the market.

Coal dumps throughout the country, at mines and at customers – power plants and heating plants, are holding more than 20 million tonnes of coal. This is a significant surplus in the market, which is having a further adverse effect on the price of coal in Poland. This also affects the actions taken by our customers who are by all means trying to limit the purchases from Bogdanka, despite their contracts.

Until recently, we had plans to market more than 11 million tonnes of power coal from Bogdanka. We have implemented a production capacity expansion strategy to enable reaching these levels of yield, and the last link was an investment in the Mechanical Coal Processing Department. The gradual increase of production from 2010 has had a positive effect on our unit production costs. The Company has also increased its headcount from approx. 4 thousand in 2010 to 4.9 thousand employees today. We have made substantial capital expenditures, for which we took out loans, and 2015 was to be the first year of utilising our production potential and generating significant levels of cash.

On the one hand, we have spent money on development and we are ready to increase production, but on the other hand, the expected revenues from sales have decreased significantly.

The Management Board are constantly monitoring the situation, but the only thing we can do to secure the continued existence of the mine is to promptly adapt our organisation to the coal sales opportunities. At the same time, employees of the mine’s sales department are doing their best to maximise sales to new customers.

An opportunity for our Company is to implement a restructuring program in order to survive this difficult period. A radical change in the market situation compels us to take certain actions, which include :

  • enhanced measures to procure additional customers,
  • cut down in third-party investment and services,
  • limitation of working hours to five days a week,
  • organisational changes,
  • maintaining salaries at the current level,
  • reduction of employment.

We have repeatedly talked with the trade unions about the need to adapt employment to the Company’s production and sale capabilities. We appreciate that the unions have proposed solutions to protect as many jobs as possible – such as the retirement of those who have already acquired the right to do so.

Unfortunately, some of the employees on fixed-term contracts will not be offered a renewal. We hope that as soon as the situation in the coal market improves and the economic situation betters, they will be given the possibility of re-employment.

Lack of decisive action in this regard may, in a very short period of time, lead to a destabilisation of the Company’s financial standing and threaten the retention of the remaining 4 thousand employees.

I am confident that the employees of Bogdanka fully understand the seriousness of the current situation. At the expense of the necessary sacrifices, we have a chance to save our plant and as many jobs as possible. This is not the first time in the history of the mine when we have to fend for ourselves without any state aid.

I strongly believe that all employees of our mine, responsible for production, for sale as well as for the auxiliary processes, will be ready for joint steps aimed at retaining as many jobs as possible and maintaining the position of mine on the Polish economic map. I am sure that if we work together, our efforts will be successful.

 

God Bless!

Zbigniew Stopa
President of the Management Board
Lubelski Węgiel „Bogdanka” S.A.

 

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