RESTRUCTURINGRESTRUCTURINGOF OF THE THE POLISHPOLISH HARDHARD COALCOALINDUSTRYINDUSTRY

• Viable reserves 15 200 mln ton

• Industrial reserves 6 800 mln ton

• Operational reserves 4 800 mln ton

• Easily accessible reserves 2 600 mln ton

HARD COAL RESERVES in POLAND as on 31.12.2003

COAL BASINS IN POLAND

STAGESSTAGESIN IN RESTRUCTURINGRESTRUCTURINGOF POLISH HARD COAL INDUSTRY OF POLISH HARD COAL INDUSTRY

I I -- stage covering 1989 stage covering 1989÷÷1993,1993, II II - - stage during 1994stage during 1994÷÷1995,1995,IIIIII - - stage covering 199 stage covering 1996÷6÷1997,1997,IV IV - - stage from 1998 till present.stage from 1998 till present.

Effectsof restructuringprocessesin 1990÷2002

Hard coal productionHard coal production in 2003 – 100,4 m tones

147,

4

140,

1

131,

3

130,

2

132,

7

135,

3

136,

2

137,

1

116,

0

109,

2

102,

2

102,

8

102,

1

0

20

40

60

80

100

120

140

160

180

200

[ m to

nes

]

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002

Domestic sale of hard coal in years 1990 – 2003 and domestic sale trend

SITUATION ON THE DOMESTIC HARD COAL MARKET

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

116.5 117.2 107.5 106.8 101.8 99.1 104.5 102.0 86.6 83.5 77.9 79.2 77.1 78.5

[ m tones ]

0,0

20,0

40,0

60,0

80,0

100,0

120,0

140,0

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

domestic sale domestic sale trend

Number of active mines of hard coal In 2003 – 40 mines

70 70 70 68 6865 63

57 5349 47

42 41

0

10

20

30

40

50

60

70

80

90

100

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002*

Employment in hard coal industryIn 2003 – 136,5 [thousand pers.]

41

5,9

38

7,9

35

2,9

33

6,4

31

9,6

29

1,9

27

4,9

25

9,1

23

8,0

20

6,2

17

1,2

15

5,0

14

6,0

14

0,7

0

100

200

300

400

500

[ T

ho

us

an

d p

ers

. ]

1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002*

PRODUCTIVITY

450 427380 379 390 407

455492

526 547505

567622

682 712 740

0

200

400

600

800

tones/person and year

THE POLISH HARD COAL INDUSTRYin 2003

and strategy of the sector for years 2004 - 2010

THE POLISH HARD COAL INDUSTRYin 2003

and strategy of the sector for years 2004 - 2010

ORGANISATIONAL SCHEME OFTHE HARD COAL MINING SECTOR

KHW SA

Kompania

Węglowa

S.A.JSWSA

Independent

mines

Non-productive

entities

SRKSA

otherstock

companies

BSRK Sp. z o.o.

liquidated mines

As at21.09.2004

Totally: 39 operating mines

LOCALISATION OF THE COAL PRODUCTION COMPANIES

HARD COAL PRODUCTION VOLUMEPRODUCTION OF SIZE GRADES’ VOLUME

2002 20030 2 3

1. Total production volume 102.1 100.4

2. Steam coal 86.2 84.3

lump coal 7.8 7.5

fine coal 73.0 71.9 3. 15.9 16.1

type 34 5.8 5.5 type 35 10.1 10.6

Coking coal

incl

.:in

cl.:

1

No. DetailsProduction volume [m tones]

The coal share in production of: electricity amounts to 92%,

with the hard coal share of approx. 55%,

heat amounts to approx. 77%.

THE COAL SHARE IN ELECTRICITY AND HEAT PRODUCTION

Structure of the domestic consumption of hard coal:

utility power plants and CHPs 52% heat only boilers, industry and other sectors 27% coking plants 15%

industrial power generation 6%

STRUCTURE OF THE HARD COAL SALE

2002 20030 2 3

1. Total sale 99.9 98.5 2. Domestic market 77.0 78.5

3. utility power generation 33.4 36.2

4.industrialpower generation

0.1 0.8

5. industrial and communal heat only boilers

2.4 2.0

6. other industrial receivers - 2.1

7. coking plants 11.5 13.4 8. other domestic receivers 29.6 24.0

Hard coal sale [m tones]

1

of w

hich

:

Eksport

No. Details

9. 22.9 20.0

10. steam coal 19.0 17.3

11. coking coal 3.9 2.7 of w

hich

:

Export

EMPLOYMENT RESTRUCTURING

Employment as at the end of 2003 amounted to 136,454 persons.

Decrease in employment in 2003 amounted to 4,263 persons.

31.12.2002 31.12.20032 3 4140 717 136 454 4 263

108 046 105 127 2 919

32 671 31 327 1 344

of which:coalprocessing

15 414 14 780 634

incl

udin

g:

on the surface

underground

1Totally

Employment in hard coal mining sector

Employment level as at:BalanceDetails

[pers.]

BASIC ECONOMIC AND FINANCIAL INDICATORS

0 1 2 3 4 5

1 Total production volume m tones 102.1 100.4 98.4

Total sale m tones 99.9 98.5 98.6

incl.: domestic m tones 76.9 78.5 102.0

export m tones 23.0 20.0 87.1

3 Quantity of stock at the end of a period m tones 2.4 2.9 121.8

4 Result on sale m zł 432.7 109.2 25.2

5Wages of basic coal employeesaccording to GUS

zł/person 3,775.00 3,885.12 102.9

6 Net result m zł -656.8 9,239.1 -

7 Receivables m zł 2,531.9 2,456.6 97.0

8 Liabilities (long and short term) m zł 22,846.9 8,641.2 37.8

DetailsNo. Unit

2002 2003

Dynamics%

4:3

2

AMOUNT OF LIABILITIES AND RECEIVABLES

22 846.9

2 531.9

20 315.0

6 184.6

8 641.2

2 456.6

0.0

5 000.0

10 000.0

15 000.0

20 000.0

25 000.0

As on 30.12.2002 As on 30.12.2003

m z

ł

Total liabilities(long and short term)

Receivables Surplus of liabilities over receivables

ECONOMIC AND FINANCIAL RESULTS OF

HARD COAL MINING SECTOR

within I – X 2004

BASIC ECONOMIC AND FINANCIAL INDICATORS FOR 10 MONTH OF 2004

No. Details Unit 200310 month

2004

Dynamics%

4:3

0 1 2 3 4 5

1 Total production volume m tones 100.40 81.90 81.57

2

Total sale m tones 98.50 80.90 82.13

incl.: domestic m tones 78.50 63.10 80.38

export m tones 20.00 17.80 89.00

3 Quantity of stock at the end of a period m tones 2.90 2.70 93.10

4 Result on sale m zł. 109.20 2,644.90 2,422.07

5 Wages of basic coal employees according to GUS zł/person 3,885.12 3,398.00 87.46

6 Net result m zł. 9,239.10 1,745.30 18.89

7 Receivables m zł. 2,456.60 2,268.60 92.35

8 Liabilities (long and short term) m zł. 8,641.20 7,121.10 82.41

STRATEGY OF THE SECTOR

TO YEAR 2010

Poland’s hard coal demand forecast until 2010 [ m tones ]

POLAND’S HARD COAL DEMAND FORECAST

2004 2005 2006 2007 2008 2009 2010

Utility power generation 42.0 40.5 37.2 36.4 35.6 34.8 34.1

Industrial power generation 4.5 4.4 4.3 4.2 4.1 4.0 3.9

Other receivers 20.2 19.3 19.0 16.7 15.9 15.2 14.6

66.7 64.2 60.5 57.3 55.6 54.0 52.6

Coking plants and steel plants 13.5 13.5 13.5 13.5 13.5 13.5 13.5

13.5 13.5 13.5 13.5 13.5 13.5 13.5

80.2 77.7 74.0 70.8 69.1 67.5 66.1

Groups of receivers

Total steam coal

Total coking coal

TOTAL HARD COAL

Under the continuous upward market trends with respect to power coal and compliance by companies of specific economic conditions, realisation may be extended in time.

REDUCTION OF PRODUCTION CAPACITY IN YEARS 2004 - 2006

Scenarios of reduction of production capacity

I scenario of production volume reduction by 14 m tones by the end of 2006 (the base case scenario) –

target model

II scenario of less drastic reduction of production volume by 7.8 m tones by the end of 2006 –

alternative variant.

In the alternative variant employment level will be reduced by 19.5 thousand.

In the target model employment level will be reduced by 25.5 thousand.

EMPLOYMENT RESTRUCTURING IN YEARS 2004 - 2006

Target model of employment changes until 2006

Alternative variant of employment changes until 2006

miners’benefit

re-training scholarship

re-training contract

01.01.2004 136.5

31.12.2006 111.0 27.0 1.5 25.5 12.0 4.5 3.0 7.5

Newrecruits

Employ-ment

reduction

Employ- mentlevel

Year

Redundancies

Social packageother

reduct.

Totalreduction

miners’ benefit

re-training scholarship

re-training contract

01.01.2004 136.5

31.12.2006 117.0

Newrecruits

Employ-ment

reduction

Employ- mentlevel

Year

Zwolnienia

pakiet socjalnyother

reduct.

Total reduction

21.5 2.0 19.5 8.0 2.5 1.5 9.5

RESTRUCTURING IN YEARS 2004 – 2006

Maintenance of the energy security of the country and co-operation in improving the standard of energy security of the European Union;

Maintenance by mining enterprises of sustainable profitability, economic effectiveness and competitive advantage on the uniform market of the EU;

Securing satisfactory level of financial liquidity and creditworthiness in order to ensure sustained operation and development of mining enterprises;

Balancing of funds so as to enable current payment of liabilities, in particular those due to public sector creditors;

Adjustment of production capacity to the local market demand and economically viable exports to the uniform EU market and elsewhere;

Adjustment of employment to the actual production needs, along with ensuring a greater productivity and efficiency;

Actions towards a rational cost structure; Privatisation of mining enterprises.

RESTRUCTURING IN YEARS 2004 – 2006Objectives and tasks

Aims will be achieved among others by:

cost reduction in all business areas,

conducting such a marketing policy that enables reduction of sale costs,

reduction of production capacity to approx. 88 m tones in 2006 (target model),

realisation of less drastic reduction of production capacity in the

alternative variant, to the level not higher than 94.8 m tones by the end of 2006, provided the bullish market continues and mining enterprises retain sustainable profitability.

RESTRUCTURING IN YEARS 2004 – 2006

Business entities will be economically effective; Primary focus of mines and other entities of the industry will be

able to meet the national demand for coal; Exports by the industry entities will be economically effective; Costs will match revenues; Employment in the industry will match the production capacity,

itself matching the market demand; Entities of the sector will finance upgrade and capital

expenditure projects with their own funds; Mining entities will not benefit from any public assistance not

allowed under international treaties; Mining entities will comply with the environment protection and

work safety standards.

RESTRUCTURING IN YEARS 2004 – 2006Target status

Thank you

Primary fuel 2002 year

• Hard coal 51.7%• Brown coal 12.7%• Oil 19.9 %• Natural gas 10.8 %• Renewable and waste energy 4.9 %

THE STRUCTURE OF PRIMARY ENERGY UTYLISATION