Black gold trading under control – changes to the law governing solid fuels | Energy and Natural Resources Newsletter

After the fuel package, the time for the coal package project has arrived. Its entry into force will significantly limit the availability of types of coal which are currently used by industry and the power sector. The legal changes which await the sellers and the consumers of solid fuels are discussed by Dominik Strzałkowski and Milena Kazanowska-Kędzierska in this energetics alert.

On 1st February 2017, i.e. more than two years following the entry into force of the amendment of the Fuel Quality Monitoring and Control Act of 10th October 2014, which introduced the definition of solid fuels, the draft executive regulations which implement the first provisions to limit Poland’s coal trade have been published on the Government Legislation Centre’s website (Rządowe Centrum Legislacji). This article discusses the most important of those regulations, i.e. the regulation of the Minister of Energy on the quality requirements for solid fuels.

The origins of the reform and the basis for introducing new regulations

It is worth recalling that the aforementioned amendment initiated the reform of the regulation of solid fuel trade in Poland. The amendment was justified on the basis that it was necessary to ensure better quality control of solid fuels, especially hard coal. The amendment introduced a definition of solid fuels which stated that they should be understood as comprising:

• hard coal, briquettes, pellets containing at least 90% of hard coal, coal muds and flotoconcentrates,
• solid fuels obtained in the process of hard coal thermal processing at temperatures above 450°C.

In addition to providing a definition of solid fuels, the amendment also authorized the Minister of the Economy (and now, following the reorganisation of ministerial portfolios, the Minister of Energy)  to issue three regulations, respectively on:

• quality requirements;
• sampling methods; and
• methods of quality testing solid fuels.

The adopted solution aimed to structure the rules of coal trading and to limit coal imports, especially of unsorted coal, into Poland. Although the amendment entered into force on 14th November 2014, none of the abovementioned regulations has actually been adopted to date. This means that, given the absence of implementing regulations, until now the trade in solid fuels was practically free of restrictions.

Quality requirements for solid fuels

Firstly, it should be noted that the regulation under discussion lays down the applicable quality requirements for solid fuels that are assigned for use in both the professional and industrial energy sector (power plants, heating plants), and by private consumers. This means that the regulation will apply to all solid fuels that are traded, regardless of the status of the buyer or the form of sale (e.g. wholesale or retail).

The draft regulation introduces twelve groups of coal products that are authorised for market trade. Furthermore, it is worth noting that, according to the new regulation, all fuels will also have to comply with certain minimal parameters including: appropriate heating value, ash content, sulphur content, volatiles content, total moisture and grain size.

Unsorted coal outside the market

It is noteworthy that the catalogue of 12 coal products does not include unsorted coal (i.e. mixtures of fuels that have different grades). This means that unsorted coal will not be capable of being traded in Poland. The justification for the draft legislation demonstrates that the exclusion of such fuels from the market is expected to produce tangible benefits in the form of reduced emissions of dust, sulphur and other harmful substances. However, it is worth recalling that unsorted coal is the most frequently imported solid fuel into Poland.

Inspections and penalties

The entry into force of the coal regulations package will entail the creation of a quality control system for solid fuels. Inspections will be conducted by the Trade Inspectorate and the Office of Competition and Consumer Protection.

Any failure to comply with the requirements laid down by the new coal law may result in severe penalties being imposed. Anyone who places fuel onto the market that does not comply with the relevant quality standards will be punished in accordance with the penal provisions laid down in the Fuel Quality Monitoring and Control Act. The Act provides for the following penalties:

• a fine of between PLN 50,000 – PLN 500,000 or imprisonment for a period not exceeding three years for placing onto the market, importing or exporting any solid fuels which do not comply with the quality requirements; the fine is reduced to between PLN 25,000 – PLN 250,000, if the wrongdoer acted unintentionally when doing so
• a fine of between PLN 100,000 – PLN 1,000,000 or imprisonment for a period between three months and five years, if the solid fuels in question have a “significant value” (as defined in the Criminal Code);
• a fine of between PLN 10,000 – PLN 25,000 for infringements of “lesser significance” (as defined in the Criminal Code).

Given the strict nature of these sanctions, entrepreneurs who trade in solid fuels should ensure that their products comply with the applicable standards. In the event that entrepreneurs trade in coal which does not meet the regulation’s requirements, they will commit a fuel crime.

Effects of the new regulation’s entry into force

According to the draft legislation, the regulation will enter into force 30 days after its publication. This means that coal-trading entrepreneurs, including those who place solid fuels on the market in Poland, will have 30 days to adjust their business activities to the new legal regulations. It is worth noting that entities which purchase solid fuels, especially from the professional and industrial energy sector (heating plants and power plants) should also amend the contents of their existing contracts, offer inquiries to the applicable law. For example, entities that purchase unsorted coal will be obliged to adjust the content of their existing or future coal contracts to the new legal requirements, which do not envisage the sale of unsorted coal.

Authors:

Dominik Strzałkowski, Partner, Attorney at law

Milena Kazanowska-Kędzierska, Assocciate