November 21, 2014 / 9:18 AM / in 4 years

UPDATE 1-Foreign firms sue Poland over access to mine concessions

(Releads to add second miner taking legal action)

* Two firms tangled with KGHM over access to mining permits

* KGHM is one of Poland’s biggest companies

* It denies trying to push aside competition

By Adrian Krajewski and Anna Koper

WARSAW, Nov 21 (Reuters) - Two foreign-owned mining firms have filed legal complaints against Polish government over what they see as the unfair allocation of key permits in the country, in favour of state-controlled miner KGHM.

KGHM, Europe’s second-largest copper producer and an industrial champion for Poland, wants to boost resources and reserves. It bought Canadian miner Quadra almost three years ago, hoping to boost production with projects like Sierra Gorda in Chile — but it has also sought to lift output at home.

Poland’s environment ministry, which allocates concessions, denied that it gave preferential treatment to KGHM over Canadian Miedzi Copper or British firm Darley Energy. KGHM, 31.8 percent owned by the state, said it did not limit competition.

Whatever the outcome, the cases filed by the two developers could rattle much-needed foreign investment into Poland’s ageing mining industry, at a time of weaker demand for copper and coal in particular - among Poland’s top commodities.

Miedzi Copper filed a case with a local court after two copper concessions were awarded and then withdrawn following a challenge from KGHM.

The ministry said the bidding would be rerun as bidders had insufficient information. KGHM said the permit granted to Miedzi Copper was part of a deposit it had previously invested in.

“The only other place where I had such a negative experience was Russia,” Ross Beaty, the main shareholder in Miedzi Copper, told Reuters. “I’ll never go back to Russia and I’m afraid that I’m starting to feel the same with Poland right now.”

Darley Energy said separately that it had submitted an appeal to over the ministry’s decision to deny it a permit to mine for fertiliser ingredient potash, in favour of KGHM. It said it may now lodge a complaint with the European Commission.

In the Darley case, the ministry said KGHM won because its bid was stronger, and denied manipulation. KGHM declined to comment on Darley’s allegations of irregularities.

Darley bid for a potash mining concession in the Baltic coast town of Puck in 2012 and says it should have been granted access by May last year.

An environment ministry spokesman said an offer from KGHM, which materialised later in the process, was favoured because it envisaged a wider scope as KGHM planned to mine copper, silver and salt in Puck, in addition to potash.

On Miedzi Copper, however, the Polish miner said it was down to the environment ministry to explain why Miedzi was given access to a concession where KGHM had already done work.

“It came to be accepted in this sector that grown-up mining organisations do not cross each other’s paths,” Artur Tarnowski, head of KGHM’s investor relations, said. “Competition is welcome in our opinion. But let it work on a healthy basis.”

An environment ministry spokesman said the bidding process was invalidated because companies taking part were not given necessary details about what the state required. (Writing by Adrian Krajewski; Editing by Clara Ferreira Marques)

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