Czech‘s biggest hard coal extractor OKD is facing an uncertain future


The Czech hard coal industry is going through hard times as its biggest extractor OKD (Czech: Ostravsko-karvinské doly, English: Ostrava-Karviná Mines)  is struggling with financial issues. Since the end of last year, suspicions were circulating that OKD would not be able to prevent bankruptcy. In May of this year, that inability became apparent: OKD could no longer settle its bills out of its own pocket and had to declare insolvency. Due to OKD’s relevance as the only producer of hard coal in the Czech Republic, this incident impacted the whole industry and necessitated the government’s involvement in this case.

OKD is a subsidiary of New World Resources, a hard coal and coke producer located in the Netherlands. In the Czech Republic, it is headquartered in the city of Ostrava and operates throughout the Moravian-Silesian region. Amongst other industries, OKD focuses mainly on the energy and steel-manufacturing sector.

The company is one of the largest private employers in the Czech Republic and the largest employer in the industrial region around Ostrava with what is currently about 12.000 employees, out of which 9.500 are the company‘s own employees and the rest agency workers and suppliers. Thus, together with the company, thousands of jobs would disappear.

On 3rd May 2016, the longstanding fears became reality when OKD’s executive director Dale Ekmark had to announce that the company’s financial resources had been depleted. Based on OKD’s own information, the debts exceed CZK 17 billion (EUR 630 million). Many blamed OKD’s former owner Zdeněk Bakala for this outcome. Bakala had surrendered his shares after not paying back his creditors which left them with no other option than to exchange their receivables for shares and become joint owners of the mines. In any event, Bakala’s legacy represented a company without value. Indeed, the shares of New World Resources which are traded on Prague and London stock exchanges are worthless. This is also the reason why the Czech industry Minister Jan Mládek rejected OKD’s nationalization offer worth EUR 120 million. The Minister commented that it would be reckless of the government to buy such worthless shares.

Following this rejection, OKD asked the government for a support of CZK 1 billion. After weeks of negotiations, the government decided at the end of July that it would lend the company CZK 700 million under the condition that OKD would undergo reorganization. OKD’s creditors came together in the beginning of August to discuss the company’s future. They agreed to the reorganization as well as to close the loss-making mines one after another. Some of the mines will be operating all the way until 2023. The staff will be dismissed gradually, too. With this reorganization, the company will continue operating and thus satisfy its creditors for some time yet. According to OKD’s representatives, the company could be able to make profit again in 2018. The governmental loan agreement was signed at the beginning of August and goes along with personnel changes, too, with the Czech government putting in place a new finance director as well as COO.

The Czech government appreciated this decision: the Minister of finance Andrej Babiš said that bankruptcy would lead to insecurity regarding unemployment and the Czech president Miloš Zeman announced that a reorganization could save at least parts of the company. 

However, it is unclear whether this loan will solve OKD’s problems. According to analysts, the money will last only for a couple of months and is not sufficient to bail the company out. Even OKD’s executive director implied the company might have to lend more money from the government in the following year.  

For now, OKD will continue to extract coal and make money but the company’s fate remains uncertain and to a large extent also depends on whether the price for coal will increase. Only time will tell whether the decisions made are adequate to ensure OKD’s existence.