Europe's largest hard coal miner, Poland's Kompania Weglowa (KW), agreed a deal late Tuesday with representatives from its 13 trade unions over pay cuts which paves the way for a rescue plan to save the company from imminent bankruptcy.
Union leaders agreed to suspend payment of an annual monthly bonus to workers in 2017-18, which will result in estimated savings of Zloty 200 million ($52.8 million).
They also agreed to a management plan to merge some of the company's mines and transfer unprofitable assets to the state mining restructuring company SRK, which would affect up to 4,000 workers.
KW's chief executive, Tomasz Rogala, said the agreement opened the path to a rescue plan, which involves rebranding KW as the Polish Mining Group (PGG) and getting three of the country's state-controlled energy companies to invest Zloty 1.5 billion in PGG.
It also involves getting state-owned and private banks that hold KW bonds to convert up to Zloty 500 million of the company's debt into PGG shares.
"It is a very important day as it enables the completion of the investor process, preparing the entire documentation to launch PGG," Rogala said after the signing of the agreement.
Solidarity trade union leader, Boguslaw Hutek, said the agreement had been a "very difficult compromise", adding that unions would not agree to further wage cuts.
Low coal prices and high production costs -- labor costs account for 60% of KW's costs -- caused KW to record losses of more than Zloty 750 million in the first six months of last year.
The state-owned Katowice-based miner, which has debts of Zloty 8.5 billion, is set to run out of cash by the end of the month. Poland's pro-coal PiS government and KW management have set a deadline of May 1 to set up PGG.
State-controlled utilities, PGE and Energa, as well as the power subsidiary of the country's dominant natural gas producer, PGNiG, agreed last month a non-binding deal to invest up to Zloty 1.5 billion in PGG.
All three companies' offers were conditional on several points including that KW is restructured to guarantee that when it is rebranded as PGG it will be profitable and generate positive cash flow to equity.
The restructuring of KW's debt must be carried out in a way to minimize the risk of the investment being considered unlawful state aid. The new PGG's business plan must assume that the companies should not be asked to provide additional capital through 2026.
KW will meet prospective PGG investors, creditor banks and unions next Tuesday to sign an agreement launching PGG.
The new entity will take over KW's 11 mines, which employ 32,500 workers, and produced 26 million mt of hard coal last year. The business plan for PGG assumes that the company will break-even in late 2017.
The rescue plan will also have to be green-lighted by the European Commission, which will scrutinize it to see it does not contravene EU state aid rules.
