September 24, 2015 / 9:12 AM / 4 years ago

UPDATE 1-Poland drops rescue plan for miner Weglowa to avoid European probe

(Adds details, background)

WARSAW, Sept 24 (Reuters) - Poland has withdrawn a rescue plan for coal miner Kompania Weglowa (KW) as the European Commission (EC) is unlikely to approve it, the treasury ministry said on Thursday.

The Polish government earlier this month approved a plan to transfer part of its stakes in gas group PGNiG, utility PGE and insurer PZU into an investment fund that would use those stakes as collateral to raise cash for KW.

“The EC signalled there is high risk of launching a probe against Poland due to illegal public aid,” the treasury ministry said in a statement, confirming what a source familiar with the situation earlier told Reuters.

The treasury said launching the probe could mean that the EC would expect the transaction to be cancelled, which could in turn result in KW’s bankruptcy.

The ministry added that since KW supplies around half of the coal burnt in the country’s power stations, its collapse could be a threat to the functioning of Poland’s electricity system.

Analysts said the government would likely not allow KW’s bankruptcy ahead of parliamentary elections set for October, since it needs to attract votes from miners in their stronghold of the Silesia region in the south of Poland.

Yet a miners’ strike may prove unavoidable, given major trade unions had already threatened protests from October if the government fails to find investors for KW by the end of September as promised in a January agreement.

The miner needs around 1.5 billion zlotys ($399 million) of capital from new investors, with 800 million needed by the end of this year.

KW is working on a bridge financing deal through prolonging a “standstill” agreement with the banks, aiming to win more time to find investors.

The treasury noted a recent offer by state-run power firm Enea to buy Bogdanka, arguing this proved that merging a power and a mining company could be viable.

The ministry had already tried to lure power companies into investing in KW, but the utilities refused to do so, fearing they might be accused of acting against their interests after the election. (Reporting by Agnieszka Barteczko; Editing by Adrian Krajewski)

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