The Issue of Extraction Limits

Territorial environmental limits on brown coal mining are guided by Government Resolution No.

444/1991 on territorial environmental limits on brown coal mining in the North Bohemian Basin of Oc-tober 30, 1991. This resolution specifi ed the binding lines of limited mining and landfi ll in the quarries Merkur, Brezno, Libour, Sverma, Vrsany, CSA, Lezaky, Bilina and Chabarovice and in Ruzodolska and Radovesicka landfi lls as well as the limit values of air pollution in basins in the regions of Chomutov, Most, Teplice, Usti nad Labem and Louny (see Vláda České republiky [VČR], 1991). The idea behind these lim-its was to provide the regions with some sort of government guarantee that the city environment would not worsen and provide the inhabitants a stable grounds for local investment, reconstruction, etc. The topic of territorial environmental limits on brown coal mining has been appearing on the political scene for years now. The urgency of the issue, however, has been rising in relation to how close private coal companies are getting to these limits. In the next few years, they will gradually extract brown coal to its limits, and so the local power and heating plants will with great likelihood be without an inexpensive source of energy.

That is the reason why they have from about 2003 started emphasizing (sometimes somewhat feverishly) the increasing risk of a power crisis, giant blackouts and collapses of power supplies.

The Government’s position on the problem of extraction limits can be illustrated on the basis of its policy statements. In 2006, the Government declared that it would maintain the territorial limits on brown coal mining and that it would not pursue the construction of new nuclear blocks (see VČR, 2006, p. 13). In 2007, the Government once more declared that it would maintain the territorial limits on brown coal min-ing. Accordingly, it announced that it would not plan nor support the construction of new nuclear blocks and that it would, based on the consensus of all three political parties in the Government and after the consultation with the opposition, set up an Independent Expert Commission to assess the long-term energy needs of the Czech Republic (see VČR, 2007, p. 9). In the most recent policy statement of 2010, the Gov-ernment announced that it would urge the maintenance of the territorial limits on brown coal mining and their legal specifi cation, however, the Government gave notice of the proposal of a new mining act, which would set a condition of an economic exploitation of raw materials reserves. And this time, it did declare the support of the construction of new blocks to the Temelin nuclear power plant and modernization of the Dukovany nuclear power plant, including the associated transmission lines (see VČR, 2010, p. 37).

The above-mentioned Independent Expert Commission for assessment of the long term energy needs of the Czech Republic (the Pačes Commission) declared in 2008 that “… it was likely that the existing mining limits would be, sooner or later, breached as far as to the limits given by the geological stability of the region, because we produce electricity from brown coal at a cost of approximately 60 % of the EU average and because emissions charges would not arrive before 2012. Disproportionately large-scale min-ing and the export of electricity was therefore, accordmin-ing to the Commission, profi table, accountmin-ing for approximately the equivalent of 20 million tonnes of brown coal per year, which would rapidly bring us

closer to the limits and push the coal companies to breach them” (see ÚVČR & NEK, 2008, p. 65). The Pačes Commission supported the government program, which did not recommend breaching the coal lim-its, but only pointed out that due to the trend in the Czech energy sector, mining beyond the limits should be expected sometime soon. In that context it also recommended considering whether to give an advantage to the use of local coal for the production of heat (see ÚVČR & NEK, 2008, p. 65).

On the basis of standpoints on mining limits, the Czech political scene can be divided into three groups.

The fi rst group has an entirely clear stance in opposing the breach, consisting of the Czech Green Party, the Christian and Democratic Union – Czechoslovak People’s Party and recently, based on their policy state-ments, also TOP 09 and the political party Public Affairs. The second group is, on the contrary, a proponent of the mining limits breach and mainly for social aspects in terms of unemployment in the region rather than for energy policy reasons. The representative of this group is the Communist Party of Bohemia and Moravia.

Finally, the third group does not have a clearly defi ned stance, sometimes acting even entirely inconsistent, gathered around the Civic Democratic Party and the Czech Social Democratic Party.

It goes without saying that by far the greatest opponents of breaching the limits are, aside from the affected municipalities, environmental organizations. Their argument is based both on the potential per-ceived in renewables, decentralization, insulation and savings, diversifi cation and cogeneration (see Pola-necký, Rovenský, Sequens, Sedlák, & Kotecký, 2009) as well as on legal aspects. Among other issues they point out that government resolutions are according to Competition Law binding and that the limits cannot just simply be breached (see Nezhyba & Kotecký, 2006, p. 18). They also criticize that following approval of the resolution, the inventory write-off procedure was not executed, which is why it still counted on the coal beyond the limits (see Nezhyba & Kotecký, 2006, p. 6-9). Some of the substantiated positions are that the potential breach of limits will not at any rate resolve the problem of the shortage of coal which the plants are experiencing, because it is for appropriation and other permit processes unrealistic to launch mining before 2023 (see Baroch, 2011b). The Academy of Sciences also expressed support for mainte-nance of the territorial environmental limits (see Komise pro životní prostředí Akademie věd ČR, 2010).

Breaching the brown coal mining limit is, or respectively was, to a certain degree an issue of greater importance for Czech politics than for the Czech energy industry as such. We can basically say that in the previous government a decision to breach the mining limits was blocked by the Czech Green Party and the Christian and Democratic Union – Czechoslovak People’s Party. It,, turned out however that removing the opponents of breaching of the mining limits from the Chamber of Deputies did not automatically mean its approval. It turned out that the Civic Democratic Party, a group with an unclear stance on this, came to agreement with the new coalition partners, Public Affairs and TOP 09, to vote against the breaching of territorial mining limits. The only opponent was the Communist Party of Bohemia and Moravia. It appeared that the stance of the three long-term strongest parties (the Civic Democratic Party, the Czech Social Democratic Party, Communist Party of Bohemia and Moravia) was in the fi nal count in the period 2006-2010 rather inclined to approve breaching the limits. Whether the left or the right won the elections, decision making would mainly rely on the formation of government coalitions, on the political strength of smaller parties and on the general distribution of political power during the election period (see Černoch, Zapletalová, & Vlček, 2010, p. 275).

The problem of the Czech coal (and, therefore, heat supply) sector lies not primarily in the territorial environmental limits on brown coal mining, but in the unpreparedness of users, including heating plants in the fi rst place. They speak of basic uncertainty regarding the behaviour of mining companies and the future of coal prices. The mining companies, however, behave relatively predictably as they follow market principles. Coal arrives slowly, so the rise in its price is to be logically expected, since not even a twen-ty-year period from 1991, when the approval of the limits was passed, was suffi cient for the majority of heating plants to prepare and replace their fuel bases. That means that unprepared heating plants have to

buy coal, which plays right into the hands of the mining companies. They can afford not to prolong long-term contracts, which are mostly about to expire, and offer coal on the market on a short-long-term basis and in smaller volumes. It is, therefore, likely that mining companies will in this situation greatly benefi t from setting the coal price on an auction basis. Moreover, if the heating plants do not buy coal, there are always steam power plants which are also interested in energy coal. At auction in May 2009, a tonne of several sorts of brown coal was sold for 1,696 CZK⁶⁷, while the price of brown coal based on the place of origin, calorifi c value and category regularly ranges between 1,740 and 3,690, or respectively 5,000 (briquettes) CZK per tonne (see “Přehled cen”, 2011). It means that auction trading has not raised the coal price at all.

The policy of not prolonging contracts with heating plants comes from the Czech Coal Group. It mines the coal in CSA Quarrel, which has the biggest volume of coal beyond the limits. Should the lim-its be maintained, the Czech Coal Group will be without coal in CSA Quarrel by 2021 and in Vrsany by 2058, while should the limits be breached, mining in CSA Quarrel will be prolonged until 2068 in the fi rst stage, 2115 in the second and 2145 in the third phase (see Skupina Czech Coal). Both state companies, Severoceske doly, a.s., and Sokolovska uhelna, pravni nastupce, a.s., extract coal and through their own-ers accordingly own coal power plants and heating plants. On the one hand, they have sure sales of coal, while, on the other hand, they are not able to supply free coal to the market.

The Czech Coal Group refuses to prolong existing contracts with users, does not close new ones⁶⁸ and offers its coal on the market in an effort to lift the price of coal as much as possible. Accordingly, it is strug-gling to acquire its own power plant or heating plant to increase the value of its coal. The biggest dispute is between the Czech Coal Group and the CEZ Group. The Czech Coal Group, originally Mostecka uhelna, a.s., terminated a contract on a future contract with CEZ to provide it with coal for the coming decades, which then led to the complaint of the CEZ Group (see Adámková, 2010a, p. 68). In 2009 the struggle to reach a solution out of court was interrupted by the European Commission’s inspection for suspicion of possible manipulation of the market relevant for both companies in the form of the replacement of the CSA Brown Coal Basin for Opatovice power plant, which would resolve the problem of both subjects (see Adámková, 2010a, p. 69).

It would therefore be best to divide the entire issue into the territorial environmental limits on brown coal mining, the future of the coal sector, the heat supply industry and State Energy Concept on one side and the business strategies of Czech Coal Group, which deeply sank on the wave of territorial limits, on the other. Unfortunately, it seems that the Ministry of Industry and Trade to a degree has bowed before the lobbying pressure from the Czech Coal Group as well as from the Association for District Heating of the Czech Republic.

The shortage of coal is in the long term an issue which can certainly be resolved, for example, by im-ports, priority heat production, exploitation of biomass, development of nuclear power or the waste-to-en-ergy method. It is unfortunate that the mentioned companies did not address this problem already in 1991 when the territorial environmental limits initially entered into effect.

67 Calculated as an arithmetic average.

68 The company’s argument is that, due to the limits on mining from 1991, there is a lack of coal for all interested parties (see Adámková, 2010a, p. 68).