Annual Report and Accounts 2010

Poland represents a very promising market for investment considering its size and the progressive development of its economy. Poland was the only country in the European Union to avoid a recession in 2009 and also recorded stronger GDP growth than most countries during 2010. The government continues with its agenda of economic reforms and liberalisation, including its privatisation programme, which saw a number of companies join its stock exchange in 2010. The country’s manufacturing base, which is a supplier to German producers, has rebounded strongly in 2010 on the back of Germany’s export driven recovery. Construction demand is also robust due to a large infrastructure programme and in preparation for Poland’s co-hosting of the UEFA European Football Championship in 2012.

The strong demand for coal remains, as heavy industry continues to play an important role in the economy with increasing steel and electricity demand. Electricity production is still almost exclusively generated from hard coal. However, coal production in Poland has been steadily declining in recent decades since many inefficient mines have come off-line as the industry brings itself up to international competitive and environmental standards. Poland has, therefore, started to import more coal to meet its domestic requirements.

Most coal companies in the country are still state owned but are part of the government’s wider plans for privatisation. Such privatisations represent promising opportunities to invest in the modernisation of Poland’s coal industry and to tap into its continued development.

Although more economically and politically challenging than Poland, the Ukrainian coal market also offers a promising investment opportunity. The country possesses large deposits of coal with the World Energy Council estimating total coal reserves at 52 billion tonnes, the 8th largest in the world. As in Poland, coal production has been declining since the 1990s as the country embarked on large-scale industrial reform following independence. However demand for both thermal and coking coal have not fallen to the same extent, since steel production and electricity demand have been growing as the economy expands. Domestic coal production no longer keeps up with demand, leading Ukraine to import 25% of all its coking coal requirements in 2010.

The Ukrainian economy is expected to show strong levels of growth in the coming years since the country is still in the early stages of development. Domestically, large infrastructure programmes will require increasing amounts of steel whilst heavy industry should continue to reap the benefits of low costs whilst serving large export markets to the east and to the west. Such growth and development should increase further the demand for thermal and coking coal.

The country’s coal mines are still predominantly publicly owned and considered quite inefficient and underdeveloped. The average age of mines exceeds 50 years with very few new mines brought into operation in the last 20 years. The government has recently declared its commitment to the modernisation of the coal sector in partnership with private investors to substantially increase production. This investment friendly environment presents a good opportunity to take part in the development of the Ukrainian coal industry.