Dependence of Total Production Costs on Production and Infrastructure Parameters in the Polish Hard Coal Mining Industry

Abstract

European hard coalmining is a declining industry, despite the use of hard coal for energy in several countries. Industry restructuring and public subsidies have failed to stop this industry’s decline. The largest hard coalmining sector, the Polish sector, has faced an obstacle to its survival: How to reduce production costs to compete with less expensive imported hard coal? This article aims to identify and analyze the dependence of the total production costs representing production and infrastructure parameters of the Polish hard coalmining industry. The parameters are divided into three groups: (1) the cost of employees and the production volume; (2) the number of longwalls, the length of a longwall, the daily longwall advance and the preparatory work advance; and (3) the number of levels in exploitation, the number of layers in exploitation and the number of shafts. The findings indicate that, even in well-functioning coalmines, there are many economically irrational relationships, especially regarding employment and infrastructure size. This study shows that employment, which is a significant cost component of the production and infrastructure parameters of the examined Polish hard coalmines, is not economically rational in terms of its proportion to the total production costs. As a result, even a considerable reduction in employment or infrastructure does not influence the unit costs of mining production, which could only be partially explained by the high level of fixed costs. There are also no appropriate relationships between infrastructure parameters and the total production cost. Under these irrational conditions, a reduction in the production costs of hard coalmining enterprises is difficult, but unproductive costly activities could prevent an improvement in production efficiency. Only restoring the proper relationship between economic and infrastructure parameters and the total production costs can ensure a return to price competitiveness. Those actions are crucial for the Polish hard coalmining industry, because the research focused on successful hard coalmines that were not declining indicate it should be able to implement cost improvements.