COAL PRICING IN POLAND – IMPORT PARITY

In 1997 for the first time to establish the base price of normative coal experts had to set the import parity, which was the average price of coal hypothetically imported to Poland using sea freight, from the countries that were the main importers at the moment. The price was based on so called “franco” delivery terms to one of the Polish ports (not determined which one) and then calculated to respond with the quality parameters of coal used by Polish power sector. It was assumed that “loco” price of Polish coal in the mine could not at be any point higher than import parity, because it would lead to consumers buying foreign coal (if of course freight costs will be economically justified).

Import parity was expressing the border price for Polish coal and was always an element of negotiations between sellers and buyers until mid 2000s, when it was replaced by actual coal from import. In 2008 Poland became net coal importer and the hypothetical import of coal was now the real situation verifying domestic coal prices. Also, unlike in 1990s, after 2000 the ownership structure on the coal market determined some changes in coal pricing. Although majority of mining companies were still state owned (except for LW Bogdanka and ZG Siltech), energy groups were already partially privatized and what is more – listed on the stock exchange. That is why, these companies had to run individual fuel purchasing policies. Consumers were no more interested in the coal origin (domestic or foreign) and all they cared for was the price (with adjusted freight costs). Therefore, each facility was treated from now on individually when it came to calculating the import parity. Its methodology was consulted between the sides of the agreement, sometimes also adjusted during the contract to respond to the changing market conditions.

Today Polish producers are little less endangered by the threat of imported coal taking over their market, but there are other hazards, like EU anti-carbon policy, which leads Poland to look for other energy fuels producing low emissions. One of these fuels could be natural gas, today too expensive to replace coal from many facilities, but if however it prices would start decreasing at some point, Polish mining industry would have to compete with it using similar tools to import parity. In 2014 Z. Grudziński from IGSMiE PAN introduced his idea of creating such a “gas parity”, which might be useful with falling prices of natural gas.

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