70
1
1
2
Selected consolidated financial data of PGE Polska Grupa Energetyczna S.A. Capital Group
9-month period ended 9-month period ended
September 30, September 30,
2013 2012 2013 2012
(not audited) (not audited) (not audited) (not audited)
data restated data restated
PLN thousand EUR thousand
Sales revenues 22,581,580 21,847,591 5,347,157 5,208,256
Net profit from operating activities 4,674,964 4,766,055 1,106,998 1,136,182
Gross profit (before taxation) 4,656,128 5,011,166 1,102,538 1,194,614
Net profit for the reporting period 3,790,287 4,001,630 897,513 953,950
Net profit attributable to equity holders of the parent company
3,763,816 3,956,661 891,245 943,230
Total income 3,791,197 4,000,411 897,728 953,660
Net cash from operating activities 5,795,021 5,989,767 1,372,220 1,427,903
Net cash from investing activities -4,304,112 -1,253,852 -1,019,183 -298,906
Net cash from financial activities -1,147,712 -3,948,237 -271,770 -941,222
Net change in cash and cash equivalents
343,197 787,678 81,267 187,775
Net earnings per share (in PLN/EUR per share)
2,01 2,12 0,48 0,51
Diluted earnings per share (in PLN/EUR per share)
2,01 2,12 0,48 0,51
Weighted average number of shares (issued ordinary shares used for calculation of EPS)*
1,869,760,829 1,869,760,829 1,869,760,829 1,869,760,829
* without treasury shares
3
As at September
30, 2013 As at December
31, 2012 As at September
30, 2013 As at December
31, 2012
(not audited) (audited) (not audited) (audited)
data restated data restated
PLN thousand EUR thousand
Non-current assets 47,219,708 45,406,411 11,199,324 11,106,700
Current assets 13,231,933 13,396,629 3,138,281 3,276,902
Total assets 60,451,641 58,803,040 14,337,604 14,383,602
Equity 43,271,261 41,116,586 10,262,852 10,057,381
Equity attributable to equity holders of the parent
42,970,502 40,820,721 10,191,519 9,985,011
Share capital 18,697,608 18,697,608 4,434,601 4,573,555
Long-term liabilities 9,908,596 8,499,581 2,350,069 2,079,052
Short-term liabilities 7,271,784 9,186,873 1,724,684 2,247,168
Number of shares as at the end of the reporting period
1,869,760,829 1,869,760,829 1,869,760,829 1,869,760,829
Book value per share (in PLN/EUR per share)
22,98 21,83 5,45 5,34
Diluted book value per share (in PLN/EUR per share)
22,98 21,83 5,45 5,34
4
Selected standalone financial data of PGE Polska Grupa Energetyczna S.A.
9-month period ended 9-month period ended
September 30, September 30,
2013 2012 2013 2012
(not audited) (not audited) (not audited) (not audited)
data restated data restated
PLN thousand EUR thousand
Sales revenues 9,208,306 7,560,143 2,180,461 1,802,265
Net profit from operating activities
709,000 422,867 167,886 100,807
Gross profit (before taxation) 2,227,043 838,420 527,348 199,871
Net profit for the reporting period
2,048,679 675,748 485,113 161,092
Total income 2,048,658 676,524 485,108 161,277
Net cash from operating activities
364,441 -114,335 86,297 -27,256
Net cash from investing activities 1,015,373 3,790,958 240,433 903,728
Net cash from financial activities -737,066 -3,425,724 -174,532 -816660
Net change in cash and cash equivalents
642,748 250,899 152,198 59,812
Net earnings per share (in PLN/EUR per share)
1.10 0.36 0.26 0.09
Diluted earnings per share (in PLN/EUR per share)
1.10 0.36 0.26 0.09
Weighted average number of shares (issued ordinary shares used for calculation of EPS)*
1,869,760,829 1,869,760,829 1,869,760,829 1,869,760,829
* without treasury shares
5
As at September
30, 2013 As at December
31, 2012 As at September
30, 2013 As at December 31,
2012
(not audited) (audited) (not audited) (audited)
data restated data restated
PLN thousand EUR thousand
Non-current assets 27,811,298 26,952,688 6,596,138 6,592,801
Current assets 3,585,905 3,394,050 850,486 830,206
Total assets 31,397,203 30,346,738 7,446,625 7,423,007
Equity 29,694,301 29,253,343 7,042,739 7,155,556
Share capital 18,697,608 18,697,608 4,434,601 4,573,555
Long-term liabilities 1,091,727 88,752 258,930 21,709
Short-term liabilities 611,175 1,004,643 144,955 245,742
Above financial data for the 9-month period ended September 30, 2013 and September 30, 2012
were converted into EUR according to the following rules:
particular items of the assets and liabilities – according to average exchange rate published
by the National Bank of Poland as of September 30, 2013 – EUR/PLN 4.2163 and
as of December 31, 2012 – EUR/PLN 4.0882;
particular items of statement of comprehensive income and statement of cash flows –
according to the exchange rate constituting an arithmetic average of average exchange rates
set out by the National Bank of Poland at the end of every month of the reporting period
from January 1, 2013 till September 30, 2013 – EUR/PLN 4.2231, and for the period from
January 1, 2012 till September 30, 2012 – EUR/PLN 4.1948.
6
CONTENTS
1. ORGANISATION OF THE CAPITAL GROUP................................................................................... 8
1.1. DESCRIPTION OF ORGANISATION OF THE CAPITAL GROUP ...................................................................... 8
1.2. CHANGES IN ORGANISATION OF THE CAPITAL GROUP .......................................................................... 11
1.2.1 Changes in organisation of the Capital Group in the 9-month period ended September 30, 2013 ........................................................................................................................ 11
1.2.2 Changes in the organisation of the Capital Group after the balance sheet date ......... 18
1.3. MAJOR PROJECTS UNDERTAKEN BY THE CAPITAL GROUP IN THE 9-MONTH PERIOD ENDED SEPTEMBER 30, 2013 .......................................................................................................................................... 19
1.3.1 Project of preparation of the Strategy for PGE Group for 2013-2020 .......................... 19 1.3.2 Project of building PGE Capital Group Operating Model ............................................. 19 1.3.3 Implementation of SAP system in PGE Capital Group .................................................. 20 1.3.4 Shared Services Centre Development in PGE Capital Group ........................................ 21 1.3.5 Program of Optimisation of Conventional Generation business line ........................... 21 1.3.6 Program of Optimisation of Distribution business line with regard to OPEX and CAPEX
management ................................................................................................................ 22 1.3.7 Program of integration of wind assets within PGE Capital Group structure ................ 23 1.3.8 Program of restructuring of PGE Capital Group disposal of assets .............................. 23
2. ACTIVITY OF PGE CAPITAL GROUP ........................................................................................................ 25
2.1. FACTORS AND EVENTS AFFECTING RESULTS ........................................................................................ 25
2.1.1 Macroeconomic situation ............................................................................................. 25 2.1.2 Tariffs ........................................................................................................................... 26 2.1.3 Electricity prices ............................................................................................................ 28 2.1.4 Allocation of free allowances for the years 2013-2020 ................................................ 35 2.1.5 Prices of CO2 emission rights ....................................................................................... 36 2.1.6 Balance of energy of PGE Capital Group ...................................................................... 38 2.1.7 Sales of heat ................................................................................................................. 41 2.1.8 Termination of long-term contracts (LTC) .................................................................... 42 2.1.9 Fuel purchase costs ...................................................................................................... 43
2.2. FINANCIAL RESULTS OF PGE CAPITAL GROUP .................................................................................... 44
2.3. BUSINESS SEGMENTS ..................................................................................................................... 49
2.3.1 Conventional Generation ............................................................................................. 51 2.3.2 Renewable energy ........................................................................................................ 53 2.3.3 Wholesale trading ........................................................................................................ 54 2.3.4 Distribution ................................................................................................................... 54 2.3.5 Retail Sales ................................................................................................................... 55 2.3.6 Other Operations .......................................................................................................... 56
2.4. PUBLICATION OF FINANCIAL FORECASTS ............................................................................................ 56
2.5. OTHER SIGNIFICANT EVENTS OF THE REPORTING PERIOD, SUBSEQUENT EVENTS AND DESCRIPTION OF MATERIAL
AGREEMENTS ............................................................................................................................... 57
2.5.1 Legal aspects ................................................................................................................ 57 2.5.2 Co-operation with administrative authorities governing electricity market in Poland 58
7
2.5.3 Activities related to nuclear energy.............................................................................. 58 2.5.4 Signing of the Letter of Intent on joint participation in preparation, construction and
exploitation of the first Polish nuclear power plant. .................................................... 60 2.5.5 Decisions of the President of the Energy Regulatory Office related to realisation of LTC
Act ................................................................................................................................ 61 2.5.6 Agreement on the exploration for and extraction of shale gas ................................... 62 2.5.7 Project of construction of power units in PGE Górnictwo i Energetyka Konwencjonalna
S.A. Branch Elektrownia Opole. .................................................................................... 63 2.5.8 Conclusion of material agreement on hard coal supply for period 2014-18 ................ 64 2.5.9 Conclusion of material agreement for coal supply for the needs of Investment Project
Opole II ......................................................................................................................... 65 2.5.10 Conclusion of an agreement for the construction of CCGT unit in Gorzów CHP.
Conclusion of a material agreement for gas supplies. ................................................. 65 2.5.11 Changes in the composition of the Management Board of PGE S.A. ........................... 66
3. FACTORS, WHICH IN COMPANY’S OPINION, WILL AFFECT THE RESULTS WITHIN AT LEAST THE NEXT
QUARTER. .................................................................................................................................... 67 4. SHAREHOLDERS HOLDING DIRECTLY OR INDIRECTLY BY SUBSIDIARIES AT LEAST 5% OF THE TOTAL VOTES
AT COMPANY’S GENERAL MEETING AS AT THE DATE OF THE QUARTERLY REPORT. ...................................... 68 5. NUMBER OF SHARES OR RIGHTS TO SHARES OF THE COMPANY HELD BY COMPANY’S MANAGERS AND
SUPERVISORS, AS OF THE DATE OF SUBMISSION OF THE QUARTERLY REPORT ............................................... 69 6. INFORMATION ON ISSUE, REDEMPTION AND REPAYMENT OF DEBT SECURITIES AND OTHER SECURITIES. 69 7. INFORMATION ON GRANTING BY THE COMPANY OR ITS SUBSIDIARY OF LOAN SECURITIES OR GUARANTEES
– JOINTLY TO A SINGLE ENTITY OR ITS SUBSIDIARY, IF THE TOTAL VALUE OF THE EXISTING SECURITIES OR
GUARANTEES IS EQUIVALENT TO AT LEAST 10% OF COMPANY’S EQUITY. .................................................. 69 8. INFORMATION CONCERNING PROCEEDINGS IN FRONT OF COURT, BODY APPROPRIATE FOR ARBITRATION
PROCEEDINGS OR IN FRONT OF PUBLIC ADMINISTRATION AUTHORITIES. ..................................................... 69
8
1. Organisation of the Capital Group
1.1. Description of organisation of the Capital Group
Capital Group of PGE Polska Grupa Energetyczna S.A. („PGE Capital Group”, the „Group”,
„PGE Group”) currently organizes its activities in five main business segments:
Mining and Conventional
Generation („Conventional
Generation”)
Includes extraction of lignite and generation
of electricity and heat from conventional
sources and distribution of heat.
Renewable Energy
Includes electricity generation
from renewable sources and in
pumped storage power plants.
Wholesale Trading
Includes trading of electricity,
related products and fuels.
Distribution of electricity
Retail sales of electricity
9
Additionally, the Group also comprises of company, whose main activities are preparation and
execution of project of construction of nuclear power plants within First Polish Nuclear Power Plant
Program, companies providing IT and telecommunication services and supporting services
to companies from the energy and mining sectors like: building, renovation and modernization works
and investments in electricity equipment, comprehensive diagnostic tests and measurements
of electro energy machines and equipment, management of by-products of coal combustion,
development and implementation of above technologies usage as well as rehabilitation of degraded
areas.
Detailed description of the organization of the PGE Capital Group and the full list of entities subject
to consolidation are presented in Note 1 and 3 to the consolidated financial statements.
10
Companies comprising the main business segments of PGE Group as at September 30, 2013:
Segment Company
Conventional Generation 1. PGE Górnictwo i Energetyka Konwencjonalna S.A. („PGE GiEK S.A.”)
2. Przedsiębiorstwo Energetyki Cieplnej sp. z o.o.
Renewable Energy 3. PGE Energia Odnawialna S.A.
4. Bio-Energia S.A.
5. Pelplin sp. z o.o.
6. Żuromin sp. z o.o.
7. Elektrownia Wiatrowa Baltica-1 sp. z o.o.
8. Elektrownia Wiatrowa Baltica-2 sp. z o.o.
9. Elektrownia Wiatrowa Baltica-3 sp. z o.o.
10. Eolica Wojciechowo sp. z o.o.
11. PGE Energia Natury S.A.
12. PGE Energia Natury sp. z o.o.
13. PGE Energia Natury Karnice sp. z o.o.
14. PGE Energia Natury Bukowo sp. z o.o.
15. Omikron sp. z o.o.
(currently PGE Energia Natury Omikron sp. z o.o.)*
16. PGE Energia Natury Kappa sp. z o.o.
17. PGE Energia Natury PEW sp. z o.o.
18. EPW Energia Olecko sp. z o.o.
19. EPW Energia sp. z o.o.
Wholesale Trading 20. PGE Polska Grupa Energetyczna S.A. („PGE S.A.”)
21. PGE Trading GmbH
Distribution 22. PGE Dystrybucja S.A.
Retail Sales 23. PGE Obrót S.A.
* The change of firm of the company was registered on October 9,2013
11
1.2. Changes in organisation of the Capital Group
1.2.1 Changes in organisation of the Capital Group in the 9-month period ended
September 30, 2013
The changes, which occurred in the Group’s structure during the 9-month period ended
September 30, 2013, are presented in Note 3 to consolidated financial statements and described
below.
Shares in subsidiaries and associates
During the 9-month period ended September 30, 2013 PGE Polska Grupa Energetyczna S.A. changed
its equity interest in the following entities:
on January 17, 2013, the Extraordinary General Meeting of PGE Energia Odnawialna S.A.
adopted a resolution to increase the share capital of the company from PLN 217,126,500.00
to PLN 308,500,000.00, i.e. by PLN 91,373,500.00 by issuing 9,137,350 inscribed shares
at a nominal and issue price of PLN 10 per share. All the shares of the company
in the increased share capital were acquired by PGE S.A. in exchange for a cash contribution.
On February 26, 2013, the share capital increase was registered in the National Court
Register.
on January 23, 2013 PGE S.A. purchased from a minority shareholder 3,885 shares of EXATEL
S.A., constituting 0.0465% in the share capital of the company.
After the above transactions PGE S.A. currently holds 99.98%
in the share capital of EXATEL S.A.
on March 27, 2013 PGE S.A. and PGE Górnictwo i Energetyka Konwencjonalna S.A.
(„PGE GiEK S.A.”) signed an agreement for sale of 100% shares of „PGE Gubin” sp. z o.o.
with its seat in w Gubin. On the ground of the agreement, the property right of 100% shares
of „PGE Gubin” sp. z o.o. was transferred to PGE GiEK S.A. as of March 27, 2013.
On April 8, 2013 PGE Obrót S.A. signed an agreement with a minority shareholder
on squeeze-out of 5,127 bearer shares (the „Agreement”), held by the minority shareholder.
The purchase of shares was made pursuant to art. 4181 of the Polish Commercial Companies
Code. As a result of the Agreement, on April 15, 2013 the company paid to the minority
shareholder the full buyout price for 5,127 shares. Following the execution
12
of the Agreement, all the shares of the Company have been bought out, and
PGE Polska Grupa Energetyczna S.A. became the sole shareholder of the company.
In connection with the above squeeze-out, the company holds 22,222 treasury shares
(constituting 0.45% in the share capital of the company), including 21,979 treasury shares,
which were purchased by the company through squeeze-out pursuant to art. 4181 § 4
of the Polish Commercial Companies Code and 243 shares not allotted to the shareholders
during the consolidation process of companies from PGE Capital Group in 2010.
In connection with the transactions, PGE S.A. currently holds 99.55% in the share capital
of PGE Obrót S.A., being the sole shareholder of the company.
On June 28, 2013 the Ordinary General Meeting of PGE Obrót S.A. adopted a resolution
on distribution of net profit for 2012 and allocation of part of reserve capital for dividend
payment. Part of the dividend was paid in form of dividend in kind through transfer
of 16,865,600 shares of PGE Górnictwo i Energetyka Konwencjonalna S.A. by PGE Obrót S.A.
to PGE S.A. On July 1, 2013 the ownership right of shares of PGE GiEK S.A. was transferred
to PGE S.A.
As at September 30, 2013 PGE S.A. held 93.62% in the share capital of PGE GiEK S.A.
On June 28, 2013 PGE S.A. and Energa Hydro sp. z o.o. (subsidiary of Energa S.A.) concluded
with Dong Energy Wind Power A/S („DONG Energy”) on June 28, 2013 acquisition agreement
of shares in companies operating wind farms and developing portfolios of wind farms
in Poland.
Concluding of the agreement resulted from conditional agreement concluded on February
19, 2013 and a further approval for concentration issued by the President of the Office of
Competition and Consumer Protection dated June 4, 2013 (see Note 3.1. and 3.2.
to the consolidated financial statements).
On the ground of the acquisition agreement, as of June 28, 2013 the ownership rights
of the following companies were transferred to PGE S.A.:
Dong Energy Polska S.A. (currently PGE Energia Natury S.A.) - 100%;
Dong Energy Renewables Polska sp. z o.o. (currently PGE Energia Natury sp. z o.o.) -
100%;
Dong Energy Karnice III sp. z o.o. (currently PGE Energia Natury Karnice sp. z o.o.) -
100%;
13
Dong Energy Bukowo sp. z o.o. (currently PGE Energia Natury Bukowo sp. z o.o.) -
100%;
Dong Energy Olecko sp. z o.o. (currently EPW Energia Olecka sp. z o.o.) - 81%.
PGE Energia Natury S.A. is the sole partner in the following companies: PGE Energia Natury
Kappa sp. z o.o., PGE Energia Natury Omikron sp. z o.o. oraz PGE Energia Natury PEW sp.
z o.o.
On July 30, 2013 Assembly of Partners of PGE Energia Natury Karnice sp. z o.o. (subsidiary
of PGE Polska Grupa Energetyczna S.A.) adopted a resolutions on increase of the company’s
share capital from PLN 1,000,000 to PLN 2,500,000, i.e. by PLN 1,500,000, through issue
of 1,500 new, equal and undivided shares at a nominal and issue prices of PLN 1,000 each.
All newly issued shares were acquired by PGE Polska Grupa Energetyczna S.A. in exchange
for cash contribution. On September 23, 2013 the share capital increase was registered
in the National Court Register.
On July 31, 2013 PGE S.A. jointly with Energa Hydro sp. z o.o. (subsidiary of Energa S.A.)
concluded with Iberdrola Renovables Energía, S.A.U. and European Bank for Reconstruction
and Development („EBRD”) two agreements for acquisition of 100% shares in Iberdrola
Renewables Polska Sp. z o.o. (currently EPW Energia sp. z o.o.) - a company that manages
a wind farms portfolio in Poland. The signing of the above agreements is a consequence
of the conditional agreements concluded with Iberdrola on February 26, 2013 and with EBRD
on June 21, 2013 and obtaining approval for concentration from the President of the Office
of Competition and Consumer Protection on June 4, 2013. As a result PGE S.A. acquired
292,461 shares in Iberdrola Renewables Polska Sp. z o.o. constituting 32.7% in the company’s
share capital and Energa Hydro sp. z o.o. acquired 601,915 shares constituting 67.3%
in the company’s share capital (see Notes 3.1. and 3.2. to the consolidated financial
statements.
on July 31, 2013 the District Court of the City of Warsaw, XII Commercial Division
of the National Court Register registered the merger of PGE with its subsidiary PGE Energia
Jądrowa S.A. ("Acquired Company"). The merger of the companies was carried out by course
of art. 492 § 1 p. 1 in connection with art. 515 § 1 and art. 516 § 5 and 6 of Code
of Commercial Companies i.e. through transfer of all assets of the Acquired Company to PGE
(merger through takeover) without raising the share capital of PGE and without the exchange
of Acquired Company’s shares for PGE’s shares. PGE Energia Jądrowa S.A. was a subsidiary
14
of PGE that was responsible for preparation of project of construction of nuclear power
plant. PGE held 100% of the Acquired Company’s shares, giving 100% of votes on its General
Meeting. The Acquired Company held 51% of shares in PGE EJ1 sp. z o.o. - a special purpose
vehicle responsible for preparing the investment process and construction of the first nuclear
power plant in Poland (remaining 49% were held by PGE). After the merger PGE holds 100%
shares in PGE EJ1 sp. z o.o.
In period January 1, 2013 – September 30, 2013 PGE Polska Grupa Energetyczna S.A.
purchased from minority shareholders – on ground of share sale agreements - a total
of 4,489 shares of PGE Górnictwo i Energetyka Konwencjonalna S.A., constituting 0.000645%
in the share capital of PGE GiEK S.A.
On March 5, 2013 PGE Inwest spółka z ograniczoną odpowiedzialnością II S.K.A. in liquidation
with its seat in Warsaw was deleted from the National Court Register as a result of liquidation
proceeding. PGE S.A. held 100% in the share capital of the company. PGE Inwest Sp. z o.o. was
a working partner of the company.
On April 12, 2013 ELECTRA Bohemia s.r.o. in liquidation with its seat in Prague (Czech Republic),
was deleted from the entrepreneurs’ register as a result of the liquidation proceeding. Decision
on deletion of the company from the register became final on April 28, 2013. PGE S.A. held 100%
shares in the share capital of the company.
In the 9-month period ended September 30, 2013 PGE Group companies changed their capital
exposure in the following entities:
On January 7, 2013 the Extraordinary Meeting of Shareholders of Bio-Energia S.A. adopted
a resolution on merger of Bio-Energia S.A. (acquiring company) with Biogazownia Łapy
sp. z o.o. and Biogazownia Wożuczyn sp. z o.o. (acquired companies) and on changes
to the Statutes of the acquiring company pursuant to art. 516 of the Polish Commercial
Companies Code. The merger of the companies was registered in the National Court Register
on January 31, 2013.
On January 8, 2013, a conditional sale agreement was signed with regard to the acquisition
of shares of Eolica Wojciechowo sp. z o.o. with its seat in Czymanów by the company
Greentech Energy Systems A/S. Pursuant to an agreement for sale of shares concluded
on January 24, 2013, Greentech Energy Systems A/S sold 9,550 shares to PGE Energia
Odnawialna S.A., which constituted 50% of the Eolica Wojciechowo sp. z o.o. share capital.
15
Under the transaction PGE Energia Odnawialna S.A. acquired 100% of shares in the share
capital of the company concerned.
On February 19, 2013 PGE Energia Odnawialna S.A., as the sole partner of the company,
on the ground of the resolution of the Extraordinary Assembly of Partners contributed
to Eolica Wojciechowo sp. z o.o. a surcharge in the meaning of art. 177 of the Commercial
Companies Code in the aggregate amount of PLN 59,999,976, i.e. PLN 3,141.36 to each share
of the company.
On January 10, 2013, a conditional agreement was signed by PGE Energia Odnawialna S.A.
and “BE-BETON” sp. z o.o. for the sale of 100% of Budownictwo Hydro - Energetyka Dychów
sp. z o.o. shares owned by PGE Energia Odnawialna S.A. On February 21, 2013, the title
to 100% of Budownictwo Hydro – Energetyka Dychów sp. z o.o. shares was transferred
to the company “BE-BETON” sp. z o.o. under a conditional sale agreement.
On December 21, 2012 PGE GiEK S.A. set up MegaSerwis sp. z o.o. with its seat in Zgorzelec.
PGE GiEK S.A. took up 100% in the share capital of that company. The share capital
of the company in amount of PLN 100,000 was paid on January 31, 2013. On March 21, 2013
the company was registered in the National Court Register.
On March 26, 2013 the Extraordinary Assembly of Partners of MegaSerwis sp. z o.o. adopted
a resolution on increase of the share capital of the company from PLN 100,000
to PLN 2,100,000, i.e. by PLN 2,000,000, through issue of 2,000 new shares with a nominal
value of PLN 1,000 each. All newly issued shares were acquired by PGE GiEK S.A.
The company started its operations as of April 1, 2013.
On June 19, 2013 the Extraordinary Assembly of Partners of the company adopted
a resolution on change of the act of incorporation of the company involving change of the
seat of the company from Zgorzelec to Bogatynia. On July 18, 2013 the change was
registered in the National Court Register.
On March 25, 2013 the Extraordinary Assembly of Partners of ELBEST sp. z o.o. adopted
a resolution on change to the articles of partnership, consisting in deletion of some
of the types of company’s activities. The above changes were registered in the National Court
Register on April 2, 2013. As of March 31, 2013 the company abandoned activities
in the services area and handed over 891 employees to MegaSerwis sp. z o.o., on the ground
of art. 231 of the Labour Law.
16
On April 25, 2013 District Court in Rzeszów decided to repeal the settlement approved
on October 11, 2011 by the Meeting of Creditors of MEGA sp. z o.o. with its seat in Miłocin
and approved by the decision of October 19, 2011 and to open bankruptcy proceeding
involving liquidation of assets of the MEGA sp. z o.o.
On June 3, 2013 District Court in Wrocław registered the merger of „ELTUR-WAPORE”
sp. z o.o. with its seat in Bogatynia (acquiring company) with „EPO” sp. z o.o. with its seat
in Opole pursuant to art. 492 § 1 p. 1 of the Polish Commercial Companies Code,
i.e. by transfer of all assets of EPO sp. z o.o. to "ELTUR-WAPORE" sp. z o.o.
As a result of the merger the share capital of the acquiring company amounting
to PLN 22,631,500 was raised by PLN 9,350,000 i.e. to PLN 31,981,500, through issue
of 18,700 new shares with a nominal value of PLN 500 each.
After the merger, the firm of the acquiring company was changed from Przedsiębiorstwo
Produkcji Sorbentów i Rekultywacji „ELTUR-WAPORE” sp. z o.o. to EPORE sp. z o.o.
PGE GiEK S.A. holds 54,613 shares in EPORE sp. z o.o. with a nominal value
of PLN 27,306,500 constituting 85.38% of the share capital.
on September 23, 2013, orders for purchase and sale of 14,181 inscribed shares of ENERGO-
TEL S.A. with a seat in Warsaw, constituting 48.9% in the company’s share capital, were
concluded via the brokerage house. Niezależny Operator Międzystrefowy sp. z o.o. with
a seat in Warsaw was the seller of the shares of ENERGO-TEL S.A. and EXATEL S.A. with a seat
in Warsaw was the buyer. Following the transaction, EXATEL S.A. became the sole
shareholder of ENERGO-TEL S.A.
In period from January 1, 2013 – September 30, 2013 PGE Górnictwo i Energetyka
Konwencjonalna S.A. purchased from minority shareholders a total of 959,044 treasury
shares, constituting 0.138% of the company’s share capital, in way of squeeze-out pursuant
to art. 4181 § 4 of the Polish Commercial Companies Code
On January 7, 2013 the Extraordinary Assembly of Partners of BESTGUM POLSKA sp. z o.o.
adopted a resolution on change to the Deed of Foundation of the company, consisting
in expansion of activities by rehabilitation and other service activities connected with the waste
management. Above change was registered in the National Court Register on January 23, 2013.
17
On August 19, 2013 E-Connections S.A. in liquidation with a seat in Warsaw, as a result
of the liquidation proceeding, was deleted from the National Court Register. EXATEL S.A. held
49.47% shares in the share capital of the company.
18
1.2.2 Changes in the organisation of the Capital Group after the balance sheet date
On August 8, 2013 the Extraordinary General Meeting of PGE Obrót S.A. adopted a resolution
on redemption of 22,222 treasury shares and decrease of the share capital of PGE Obrót S.A.
by the value of the redeemed treasury shares. The share capital of PGE Obrót S.A. will be decreased
by sum of nominal value of redeemed shares, i.e. by PLN 2,222,200 from PLN 494,862,600
to PLN 492,640,400.
Currently, pursuant to art. 456 of Code of Commercial Companies, PGE Obrót S.A. carries out
a convocation proceeding connected with the decrease of share capital. The registration of decrease
of the company’s share capital shall be performed after statutory 3-month period provided
for execution of the convocation proceeding. The shares will be redeemed when a Court will register
the decrease of the share capital of PGE Obrót S.A.
As a result of the treasury shares redemption and decrease of the share capital, PGE Polska Grupa
Energetyczna S.A. will hold 100% shares of PGE Obrót S.A.
On October 17, 2013 Energetyczne Towarzystwo Finansowo - Leasingowe „ENERGO-UTECH” S.A.
(entity jointly controlled by PGE Energia Odnawialna S.A.) and Przedsiębiorstwo Usługowe „UTECH”
sp. z o.o. with its seat in Poznań concluded an agreement for sale of 100% shares in Energoutech 2
sp. z o.o. with its seat in Poznań. On the ground of the agreement for sale of shares, the ownership
of 100% shares was transferred to Przedsiębiorstwo Usługowe „UTECH” sp. z o.o.
as of October 17, 2013.
19
1.3. Major projects undertaken by the Capital Group in the 9-month period
ended September 30, 2013
In 2013 the PGE Capital Group series of projects have been carried out with regard to improvement
of operational efficiency and creation of value of shareholders.
1.3.1 Project of preparation of the Strategy for PGE Group for 2013-2020
Due to changing electricity market and increased generation from renewable sources, the key factor
for keeping the competitive advantage is the preparation of the strategy – coherent, with clearly
defined targets to achieve within the Group, allowing flexible actions and focused on increasing value
for shareholders through efficient investments and achievement of operational perfection.
PGE S.A. began to work on the Strategy for PGE Group for 2013-2020 through launching Project
of preparation of the Strategy for PGE Group for 2013-2020.
Main assumptions of the strategy update were as follows:
Building scenarios of regulations, technology and economic background development;
Setting up long term strategic developments directions for PGE Group;
Determination of initiatives crucial for company’s growth;
Building a roadmap
Project of preparation of the Strategy for PGE Group for 2013-2020 was finished in April 2013 when
the strategy was submitted for approval of Supervisory Board of PGE Polska Grupa Energetyczna S.A.
1.3.2 Project of building PGE Capital Group Operating Model
A project launched in 2012 is to integrate business activities of business lines and corporate center.
The main target of the project is to improve operational efficiency through strengthening operational
activities on all Group levels through and thanks to synergies resulting from centralization
of management, decision making, planning and analytical functions. Moreover, new operational
model will allow for optimization of investment operations and proper coordination of margin
creation management in the Group’s chain value. In 2012 the first stage was completed –
the assumptions of the Operating Model were determined along with developing a vision
for functional areas. Until the date of this report, within the second stage, complete maps
of processes were created and the objectives and responsibility of Corporate Centre and particular
Business Lines were determined. At the same time, in the selected functional areas, a third and last
stage has been commenced. In the next months, the changes resulting from the new Operating
20
Model will be implemented in the whole Group and will be followed by the update
of the organizational structure of PGE Group’s entities and corporate documents.
1.3.3 Implementation of SAP system in PGE Capital Group
In June 2012, the PGE Capital Group launched the implementation of a centralised and integrated
information system of ERP class (Enterprise Resource Planning) designed by the SAP company.
Its implementation will provide more efficient management processes and decision making
on different organisational levels and will particularly allow for:
Increased operational efficiencies through standardization of processes and optimization
of technical assets employed;
Increased transparency through creating a common background and record of economic
developments as well as direct and quick access to management reporting;
Building a common base for further cost optimization processes in PGE Capital Group – such
as building shared services centres and integration of purchase systems.
The ERP Programme involves significant part of business processes in PGE Group starting from
financials (accounting, fixed assets accounts, cash management, controlling) through asset
management (storage management, sale, real estate management, investment management)
and human capital management to data consolidation, reporting and business analyses.
The programe covers all main companies of the PGE Capital Group: PGE Polska Grupa Energetyczna
S.A., PGE Górnictwo i Energetyka Konwencjonalna S.A., PGE Dystrybucja S.A., PGE Obrót S.A., PGE
Energia Odnawialna S.A., PGE Energia Natury S.A., PGE EJ1 sp. z o.o., PGE Systemy S.A., Exatel S.A.
SAP has been implemented in stages and will be realized over the next three years by PGE Systemy
S.A. and selected external sub-contractors.
A production start of so-called “Issue I” took place on 1st October 2013 at 14 branches
and subsidiaries in the PGE Capital Group, i.e. at PGE Dystrybucja S.A. Branch Warsaw, all branches
of PGE Obrót S.A., PGE S.A. , PGE Systemy S.A., PGE EJ1 sp. z o.o., headquarters of PGE GiEK S.A.
and headquarters of PGE Dystrybucja S.A.
21
1.3.4 Shared Services Centre Development in PGE Capital Group
Shared Services Centre Development („ICT SSC”) implements strategic targets of the whole Group
in the scope of consolidation of ICT services in PGE Systemy S.A. and telecommunication services
in Exatel S.A. Consolidation of these areas is aimed at achieving measurable business benefits –
through optimal use of technology and ICT resources of the Group.
The project will also result in higher quality of provided services – possible thanks to central
management by two above mentioned entities. All operations within the program are focused
on creation of new, efficient organisations and efficient implementation of the modified processes
with simultaneous assurance of continuity of services and their quality parameters.
First phase of the program, including development of concept, assumptions and operating standards
for ICT SSC, was finished in 2012 by adoption of the ICT Policy by the Group companies.
Currently a second phase has been commenced – transferring services and responsibilities from
particular companies to PGE Systemy S.A. and Exatel S.A. This stage is assumed to be finished
by the end of 2013.
Along with developing ICT CCS, PGE Systemy S.A. runs numerous other IT projects which are crucial
for the PGE Group. Key IT projects include: SAP system implementation, modernization
(centralisation) of corporate mail, print centralization, implementation of local IT support and Dom
Maklerski operational system implementation.
1.3.5 Program of Optimisation of Conventional Generation business line
Program of Optimisation of Conventional Generation business line assumes restructuring of PGE
Górnictwo i Energetyka Konwencjonalna S.A. group (PGE GiEK Group) and consists of 18 projects
covering headquarters and branches of the company as well as subsidiaries.
First of the projects - Turów Complex optimisation – has begun in January 2013 and its goal was
the determination of actions that would allow for increased competitiveness of Turów complex,
assurance profitability of the complex and creation of conditions for further development
and execution of new investments.
In August 2013 project Turów Complex optimisation has come into the implementation stage and
is continued through Program of Optimisation of Conventional Generation business line which covers
whole mining and conventional generation segment.
Currently, optimisation initiatives are being identified in all business operations of PGE GiEK Group.
Initiatives, identified up-to-date in the Efficiency Improvement Program will be transferred
22
to Program of Optimisation of Conventional Generation business line. The implementation stage will
begin in January 2014 and will last until the end of 2015.
The goal of the program is to achieve better EBIT in PGE GiEK S.A.
1.3.6 Program of Optimisation of Distribution business line with regard to OPEX and CAPEX
management
Optimisation and restructuring programs have been also executed in PGE Dystrybucja S.A.
At the beginning of the second quarter of 2013 a Program of Optimisation of Distribution business
line with regard to CAPEX management was launched. The program’s goal is to change
the investment process in such way which will assure increased efficiency of incurred expenditures.
It will be achieved owing to implementation of investment portfolio management through efficient
planning and proper prioritizing
In the third quarter of 2013 a Program of Optimisation of Distribution business line with regard
to OPEX management was launched. The program’s target is a complex improvement of operational
efficiency of PGE Dystrybucja S.A. in fields of quality of energy supplies and of operational expenses.
One of the results of these programs will be reducetion of interruptions in electricity supply (SAIDI
index).
Both programs are in the implementation phases. The implementation stage for Program
of Optimisation of Distribution business line with regard to CAPEX management is planned to be
completed yet in 2013.
The implementation stage for Program of Optimisation of Distribution business line with regard
to OPEX management in Branch Warsaw is also assumed to be completed by the end of 2013.
It is planned that the whole Program (implementation in all branches and in the headquarters
of the company) will be completed by December 2014.
23
1.3.7 Program of integration of wind assets within PGE Capital Group structure
The goal of Program of integration of wind assets with PGE Capital Group structure is to effectively
integrate newly acquired wind assets within PGE Capital Group structure, use potential feasible
synergies as a result of acquisition of assets and organizational structures including human capital
(competences, knowledge, experience and know-how of the team) and to increase operational
efficiency in the renewables segment of the Group. It is assumed that full optimization will
be achieved through economies of scale, optimization of wind farm maintenance and improvement
of quality of wind farms development. It is planned that the integration process and focusing
of renewables in one efficient competence centre within Group structure will be completed
by the end of the third quarter of 2014.
1.3.8 Program of restructuring of PGE Capital Group disposal of assets
On January 15, 2013 the Management Board of PGE S.A. decided to launch Program of restructuring
of PGE Capital Group disposal of assets. Program replaced the Non-Core Project, which had been
executed in the Group since 2009 and was aimed at transparent separation of core business activities
from other activities as well as disposal and restructuring of Group’s assets. The goal of the project
is achievement of the business effect through sale, liquidation and consolidation of selected
companies and assets. After business analyses, Program of restructuring of PGE Capital Group
disposal of assets was transformed into the Portfolio of Projects whose aim is the implementation
of approved recommendations. Portfolio of Projects covers 19 projects which are being carried out
in 28 companies.
Within the works executed in the first three quarters of 2013, analyses were carried out for all
companies included in the Program and implementation works were realized with regard to selected
entities, particularly the following actions were taken(see p. 1.2.1 of this report):
sale of 100% shares in Budownictwo Hydro – Energetyka Dychów sp. z o.o. to an external
investor;
sale of 100% shares in „PGE Gubin” sp. z o.o. within the PGE Capital Group;
sale of 48.9% shares in Energo-Tel S.A. within the PGE Capital Group;
sale of shares of few non-core companies;
reaching 100% ownership in PGE Obrót S.A.;
realisation of activities in order to reach 100% ownership in PGE GiEK S.A. by PGE S.A.;
24
merger of EPO sp. z o.o. with „ELTUR-WAPORE” sp. z o.o. under new firm – EPORE sp. z o.o.;
merger of E-Telbank sp. z o.o. with EXATEL S.A., motion for registration of the merger
was submitted to the National Court Register;
servicing operations were separated from ELBEST sp. z o.o. and transferred to MEGA-SERWIS
sp. z o.o.
The works are to be completed by mid-2015 and will result in generation of benefits for the Group,
both in form of income from the completed transactions and in form of reduction of costs due
to the implemented changes.
25
2. Activity of PGE Capital Group
2.1. Factors and events affecting results
2.1.1 Macroeconomic situation
The PGE Group runs its activities mainly in Poland. Therefore it has been and will be dependent
on macroeconomic trends existing in Poland. At the same time, in connection with the growing
integration, the domestic economy is more and more sensitive to the changes of the economic
situation in European Union as well as in the international markets. Condition of the European
economy, impact of future regulatory decisions and unstable legal environment makes assessments
of development prospects in the European energy sector subject to significant unpredictability.
As a rule, there is a positive correlation between the growth of electricity demand and economic
growth. Thus, the macroeconomic situation of Poland has an impact on financial results achieved
by the PGE Group. Falling electricity prices in Poland and in Europe as a consequence of weaker
demand for electricity and considerably higher share of subsidized renewable energy sources
in the total energy output reduced the profitability levels of conventional sources of electricity
generation, and in certain cases even led to their total elimination. This is particularly relevant
to gas-fired power plants and the least efficient coal-fired plants.
Continuing weak economic conditions in the 9-month period ended September 30, 2013 resulted
in sustaining low level of demand for electricity in the National Power System. Demand was
by approximately 0.4% higher in comparison to the 9-month period ended September 30, 2012.
26
Table: Key economic ratios connected with the Polish economy.
Key data
3-month period ended September 30,
9-month period ended September 30,
2013 2012 2013 2012
Real GDP growth (% of growth)1 1.5* 1.3 - -
Annual CPI rate - - 1.0 3.8
(% of growth)2
Domestic electricity consumption 2.2 -1.1 0.4 -0.2
(% of growth)3
Domestic electricity consumption (TWh)3 37.8 37.0 116.5 116.0
* estimates by Bank Handlowy w Warszawie S.A.
Polish Central Statistical Office, real growth of GDP in constant previous year’s price, with
corresponding period of preceding year = 100; 2 Polish Central Statistical Office, inflation rate, with
corresponding period of preceding year = 100; 3 PSE S.A.
2.1.2 Tariffs
PGE Group companies earn part of their income based on tariffs approved by the President
of the Energy Regulatory Office:
I. tariffs for the sale of electricity to households (G tariff group);
II. tariffs of distribution system operators
III. tariffs for heat.
Sales of electricity
In the 9-month period ended September 30, 2013 sales of electricity to recipients from the G tariff
group, connected to the distribution network of PGE Dystrybucja S.A., was conducted as follows:
from January 1, 2013 till June 30, 2013 – on the basis of electricity Tariff approved by the
decision of the President of the Energy Regulatory Office
of December 16, 2011, whose validation was prolonged to June 30, 2013 by the decision
of the President of the Energy Regulatory Office of December 20, 2012. Approved Tariff came
into force on January 1, 2012 and no changes to the prices were introduced since then.
27
from July 1, 2013 till September 30, 2013 - on the ground of tariff set for PGE Obrót S.A. with
its seat in Rzeszów, approved by the decision of the President of the Energy Regulatory Office
of June 11, 2013.
In the 9-month period ended September 30, 2013 sales of energy to the corporate customers (key
and business) and to individuals (other than G tariff customers connected to the distribution network
of PGE Dystrybucja S.A.), took place on the basis of Tariff for customers from A, B, C and R tariff
groups, approved by the resolution of the Management Board of PGE Obrót S.A. and effective
from December 1, 2011, as well as on the basis of public promotional offers and individually
negotiated sale conditions.
Distribution of electricity
Methodology of and assumptions for tariffs determination were published in the document “Tariffs
for the DSO for the year 2013”, which were prepared by the President of the Energy Regulatory
Office and provided to distribution system operators.
Tariff of PGE Dystrybucja S.A. for 2013 was approved by the President of the Energy Regulatory
Office on December 19, 2012. Tariffs for 2013, according to resolution of the Management Board
of PGE Dystrybucja S.A, dated December 21, 2012, came into force on January 3, 2013 except
for the transition fee (according to the decision of the President of the Energy Regulatory Office,
the transition fee has been in force since January 1, 2013).
Distribution tariffs for 2012 approved by the President of the Energy Regulatory Office, contributed
to changes in average payments for customers in particular tariff groups in comparison to year 2012:
A tariff group – decrease by 0.31%;
B tariff group – increase by 1.42%;
C+R tariff group – increase by 1.97%;
G tariff group – increase by 1.39%.
An average price of energy distribution services in comparison to last tariffs binding in 2012
increased by approximately 1.10 %.
During the reporting period the approved tariffs for distribution services were not subject
to any changes.
28
Tariff for heat
Pursuant to art. 47 sections 1 and 2 of the Energy Law, energy companies, which hold licences, set
tariffs for heat and propose their duration. Submitted tariff is subject to the approval
by the President of the Energy Regulatory Office, provided that it is consistent with rules
and regulations referred to in art. 44-46 of the Energy Law. Detailed rules for tariffs determination
are defined in the Regulation of the Polish Minister of Economy of September 17, 2010 on detailed
rules for calculation of tariffs and on settlements with regard to heat supply. Conduction
of proceedings concerning heat tariffs approval lies within the competence of regional Branches
of Energy Regulatory Office.
At present, costs recognized by the President of the Energy Regulatory Office as justified costs
to calculate tariffs for PGE Group companies are lower than costs actually incurred by these
companies.
2.1.3 Electricity prices
Domestic market
In the third quarter of 2013, analogically to the first half of the year, electricity market, in a regulated
segment, was based on the operation of power exchanges and trading platforms. After Warsaw
Stock Exchange stopped the trading of commodities as of March 31, 2013, exchange trading
of electricity has been concentrated on Towarowa Giełda Energii („TGE”). According to TGE data,
in the third quarter of 2013 total sales of electricity in spot and forward transactions amounted
to 55.6 TWh what means 71% growth; sales on spot market amounted to 5.4 TWh and was by 29%
higher as compared to the corresponding period of 2012, while sales on futures and forward market
amounted to 50.2 TWh what means 77% growth in comparison to the third quarter of 2012.
In the period January-September 2013 futures and forward trading on TGE accounted for almost 72%
of the organised futures and forward market, while in the period January-September 2012 it reached
almost 49%.
The SPOT market on TGE is based on the Day Ahead Market and the Intra Day Market, where
transactions for hourly contracts and block transactions in baseload, peakload and off-peak hours
are concluded.
29
The futures and forward market is the basic trading place on the regulated energy market. On TGE,
market participants can make futures and forward contracts with deliveries in periods throughout
the year, each quarter, month or week. Furthermore, trading platforms enable deliveries
at the weekend or on any particular day.
Table: Trading volume on individual markets in years 2010-2013.
Trading volume Unit 9M
2013 9M
2012 %
change 2012 2011 2010
SPOT market, of which: TWh 16.4 15.7 4% 21.3 21.6 13.3
TGE 16.0 13.9 15% 19.1 19.7 7.6
Futures and forward market, of which:
TWh 155.6 110.5 41% 184.9 155.2 114.0
TGE 112.0 53.6 109% 112.9 106.9 74.1
Balancing market
In the period January-September 2013 the trading volume on the Balancing Market reached 2.7 TWh
and was slightly different than in the corresponding period of the previous year. In 2012, the energy
volume provided and received on the Balancing Market amounted to 3.7 TWh.
Trading volume on Balancing market in the third quarter of 2013 rose by 0.5% as compared
to the third quarter of 2012. Still the energy supplied by the market participants (620.0 GWh)
is higher than energy collected from the market (187.4 GWh). Average price for the third quarter
of 2013 reached 162.47 PLN/MWh and was by 12 % lower than in the analogical period of 2012.
30
Demand in the National Power System in years 2010-2013
SPOT market
Third quarter fof 2013 showed continuing trend of low prices on spot market as compared
to the analogical period of the previous year. Average price in base deliveries amounted
to 160.65 PLN/MWh and was lower by 16.45 PLN/MWh than the previous year average. In July 2013
prices were lower by 17.78 PLN/MWh, in August and September 2013 were lower by respectively
18.05 PLN/MWh and 13.40 PLN/MWh. Analogically, lower prices were recorded in peak prices:
average price in the third quarter of 2013 amounted to 183.57 PLN/MWh i.e. was lower
by 13.75 PLN/MWh than in previous year. With account taken to monthly averages, there’s a visible
bounce in prices after reaching lowest level in May 2013.
SPOT market prices are still largely affected by increasing share of wind generation. In the third
quarter of 2013 1 TWh of energy was generated from wind, what means 29% growth as compared
to the analogical period of the previous year. Moreover, due to the low spot prices on German
market, export from Poland was significantly reduced. Despite slight growth of domestic electricity
consumption (by 2.2% - third quarter of 2013 in relation to third quarter of 2012), above factors
along with lower costs of CO2 and hard-coal purchases in 2013, resulted in maintaining of low energy
prices on Polish market.
31
Prices on the German market dropped by almost 11% in the third quarter of 2013. Average price
amounted to 38.76 EUR/MWh in that period. Hot summer of 2013 caused a growth of supply
of energy generated from solar collectors forcing out energy from conventional plants. Energy prices
in peak hours in Germany were lower than in Poland. As a result energy export from Poland
to Germany was reduced. After reaching this year’s minimum in June 2013, the prices were higher
and higher in following months (July 2013: 36.42 EUR/MWh, August 2013: 38.23 EUR/MWh,
September 2013: 41.71 EUR/MWh). Energy prices on Polish market were also in an upward trend
in the third quarter of 2013.
Chart: Daily and quarterly baseload prices in SPOT transactions in 2012-2013 (TGE)*.
* arithmetic average price from all power exchange transactions concluded at the session and calculated according to delivery date (index IRDN24)
32
Chart: Daily and quarterly peak prices in SPOT transactions in 2012-2013 (TGE)*.
* arithmetic average price from all power exchange transactions concluded at the session and calculated according to delivery date (index IRDN8.22)
Futures and forward market
Futures and forward market was characterised by stable prices in July and August. In the first decade
of September 2013 the spot prices increased due to numerous repairs and breakdowns in power
plants in the electro energy system what indirectly affected the growth of prices of instruments like
BASE_Y_14 and BASE_Y_15. The prices growth was also supported by German market where prices
of BASE_Y_14 exceeded level of 39.00 EUR/MWh reaching the maximum at 39.63 EUR/MWh.
Growth of prices of BASE_Y_14 and BASE_Y_15 on the German market was caused by increase
of EUA prices from 4.53 EUR/CO2 ton to 5.81 EUR/CO2 ton and oil prices on global markets
to 119.10 USD/barrel.
July 2013 started an intensive time of contracting instruments with delivery date in 2014, starting
the growth of the prices from lowest recorded level of 146.93 PLN/MWh (average weighted
by trading volume of TGE settlement prices). In contrary to downward trend of year 2012 in which
realised SPOT prices affected the decrease of prices of yearly products, growth on the SPOT market
visible from June 2013 supports the increase of prices of BASE_Y_2014.
33
The graph below shows volatility of prices of BASE_Y_2014 in particular months of 2013 in relation
to prices of BASE_Y_2013 in particular months of 2012.
Chart: volatility of prices of BASE_Y_2014 in particular months of 2013 in relation to prices
of BASE_Y_2013 in particular months of 2012.
In the third quarter of 2013, TGE recorded 31.87 TWh in BASE_Y_2014 contracts and 4.30 TWh
PEAK5_Y – 14 contracts (yearly 15-hour peak for 2014). Total trading volume for these products
amounts to 77.29 TWh and 6.57 TWh since the beginning of the trading thereof. At the quarter-end
settlement price of BASE_Y_2014 amounted to 155.21 PLN/ MWh. The maximum price for the period
amounted to 161.30 PLN/ MWh, while the minimum 145.35 PLN/ MWh, while the price in Germany
amounted to 38.29 EUR/MWh (BASE_Y_2014 settlement price on the European Energy Exchange
("EEX ") at the end of the quarter).
Valuation of BASE_Y_15 on the Polish market from beginning of August 2013 was lower than
in the German market - a trend that was reversed, however, and the price finally reached
164.12 PLN/MWh on the Polish market (TGE settlement price for BASE_Y_15 at the end
of the quarter ) to 38.14 EUR/MWh on the German market (EEX settlement price for BASE_Y_15
at the end of the quarter) . The volume of the energy contracted on TGE during the period amounted
34
to 4.55 TWh. The maximum price for the period was 170.00 PLN/MWh , while the minimum price
was 149.65 PLN/MWh.
Trading volume on BASE_Y_16 reached 0.7 TWh during the third quarter of 2013, which is the result
of low liquidity of the product on the Polish market.
International market
Based on past experiences, conditions on electricity markets in countries interconnected with Polish
electro energy system have a significant impact on the Polish electricity market. Price levels, their
mutual links and availability of electricity exchange determine the domestic market situation in terms
of prices. The demand and supply of energy on the domestic market are influenced by active
cross-border connectors. Price levels and demand for energy imported from neighbouring countries
favours a rise in prices in Poland, particularly in periods when PSE S.A. offers large capacities
for cross-border exchange on daily auctions. Furthermore, energy imports from Sweden and Ukraine
could effectively reduce price levels.
In the first two quarters of 2013, similarly to the Polish market, price levels on the German market
were significantly lower compared to prices in the corresponding period of 2012. Falling demand
for energy, increased generations from renewable sources and the drop
in prices of CO2 emission rights were the reasons of these changes. In the third quarter of 2013
the average price on the German market rose by almost 19% as compared to the second quarter
of 2013. This growth caused that price on the German market after three quarters of 2013 was lower
by approximately 12% than the analogical price in the previous year. The biggest increase in the third
quarter of 2013 was recorded in September what might have been caused by the improving
macroeconomic situation in Germany and Eurozone, as well as political situation both internal
(German parliamentary elections) and external – conflict in Syria that affected the commodities
market.
The Scandinavian market was affected by the decreasing level in water reservoirs and dry and frosty
winter, what resulted in upward trend of prices from the beginning of the year. At the end
of the second quarter level in water reservoirs rose significantly, what caused the observed
correction. Average price for the first half of 2013 reached 40.33 EUR/MWh. Average price after
three quarters of 2013 reached 40.31 EUR/MWh and was similar to the value for the first half
of 2013.
After three quarters of 2013 Scandinavian market was characterized by a higher average price than
the same period in 2012, in which the average price was 33.11 EUR/MWh.
35
Chart: Comparison of SPOT electricity prices on TGE and international markets.
Price structure during the first three quarters of 2013 years caused that from January to September
2013 the foreign trade balance was positive and amounted to 3.2 TWh in relation to 2.0 TWh
in 2012, what means an increase in dynamics of trade by approximately 60%. Along with the increase
in prices in the Scandinavia and the increase in exports to Sweden, energy imports from that
direction decreased. Compared to the period January - September 2012, imports from Sweden
in the first three quarters of 2013 decreased by approximately 1.3 TWh (ca. 64%), and energy
imports from Ukraine rose by approximately 0.2 TWh (ca. 35%).
2.1.4 Allocation of free allowances for the years 2013-2020
For the settlement period 2013-2020 the official final allocations approved by the European
Commission are still not known. Emission rights for the third settlement period (2013-2020) will
be granted on the ground of Regulation of the Council of Ministers. As at the day of this report,
the European Commission did not issue an official decision with regard to granting free allowances
to particular installations. The final date of the European Commission approvals for the whole
European Union was not published.
36
The following table presents data concerning CO2 emission from major Group installations
in comparison to the estimated allocations.
Table: Emission of CO2 from major Group installations in the 3-month period and 9-month period
ended September, 30 2013 in comparison to the estimated allocation of CO2 emission rights (in Mg).
Operator
CO2 emissions in 3-month
period ended
September 30, 2013
CO2 emissions in 9-month
period ended
September 30, 2013
Allocation of CO2 emission
rights for 2013*
PGE GiEK Branch Elektrownia Bełchatów 9,531,153 27,624,161 16,769,794
PGE GiEK Branch Elektrownia Turów 2,566,719 7,532,506 6,761,106
PGE GiEK Branch Elektrownia Opole 1,712,143 4,909,524 3,882,897
PGE GiEK Branch Zespół Elektrowni Dolna Odra 1,440,226 4,228,971 3,231,860
PGE GiEK Branch Zespół Elektrociepłowni Bydgoszcz 116,248 605,463 798,364
PGE GiEK Branch Elektrociepłownia Gorzów 70,723 299,970 333,312
PGE GiEK Branch Elektrociepłownia Lublin Wrotków 43,641 302,492 439,808
PGE GiEK Branch Elektrociepłownia Rzeszów 18,262 171,391 189,650
PGE GiEK Branch Elektrociepłownia Kielce 15,209 143,019 153,644
PGE GiEK Branch Elektrociepłownia Zgierz 3,448 62,188 70,478
TOTAL 15,517,771 45,879,684 32,630,913
* estimated allocations for particular installations, not approved by the European Commission as at the publication date
of this report.
2.1.5 Prices of CO2 emission rights
Three types of emission rights can be found on the market – EUA (European Union Allowances),
CER (Certified Emission Reductions) and ERU (Emission Reduction Units) allowing for the emission
of one tonne of CO2. CER-type and ERU-type rights may be redeemed by business operators only
to a limited extent, in settlement period 2008-2012 up to 10% of allocations granted under the NAP,
and they are insignificant to the financial standing of PGE Capital Group. In the next settlement
period (years 2013-2020) the generators may also use CER and ERU, however only up to 1%
of the allocations for years 2008-2012.
The number of CO2 allowances initially granted to the installations Poland within the National
Allocation Plan of CO2 Allowances is lower than demanded by the Polish industry sector. Business
operators are obliged to purchase the difference between the demand resulting from CO2 emission
levels and allowances granted for free under the framework of the so-called European Emissions
37
Trading Scheme (EU ETS). The purchasing cost of lacking allowances is therefore a significant factor
determining the financial results achieved by PGE.
Prices of CO2 emission rights were as follows:
Since the beginning of the year, the market of CO2 emission rights was characterised by high volatility
of prices. Until the last decade of April 2013 the market was in a downward trend, reaching lower
and lower price levels. Starting from the last week of April 2013, there has been a reversal
of the trend. Despite the reversal of the trend in the market of CO2 emission rights, year 2013 is
a reflection of the market trend, which is characterized by low prices of emission allowances.
EUA in the first nine months of 2013 were quoted in the range 2.70-6.37 EUR/t, and CER in the range
0.08-0.71 EUR/t, while ERU in the range 0.04-0.42 EUR/t.
Among significant factors determining the prices of emission rights and in the first nine months
of 2013 there were:
oversupply of emission rights on the market;
decreased demand from the industry sector for emission rights due to economic slowdown;
lack of coherent attitude of European Commission with regard to backloading, i.e.
reallocation of part of allowances for 2013-2015 to 2019-2020.
As at the publication date of this report, the European Commission’s eventual intervention
on the market of CO2 emission rights was still undecided, what largely contributes to volatility
38
in prices of emissions rights. As at the preparation date of this report, the decision on backloading
is still awaited to be taken by the European Council after prior acceptance by the European
Commission and European Parliament.
2.1.6 Balance of energy of PGE Capital Group
Sales of electricity
Table: Sales of electricity outside the PGE Capital Group (in TWh).
Sales volume
3-month period ended %
change
9-month period ended %
change September 30 September 30
2013 2012** 2013 2012**
Sales in TWh, including: 27.87 22.73 23% 81.14 70.51 15%
Sales to end-users * 9.49 7.73 23% 27.33 23.91 14%
Sales on the wholesale market, including: 17.99 14.66 23% 52.66 45.52 16%
Sales on the domestic wholesale market – power exchange
13.87 12.63 10% 40.30 39.63 2%
Other sales on the domestic wholesale market 3.95 1.86 112% 11.60 5.15 125%
Sales to foreign customers 0.17 0.17 0% 0.76 0.74 3%
Sales on the Balancing Market 0.39 0.34 15% 1.15 1.08 6%
* after elimination of internal sales within PGE Group
** data restated for comparability with regard to the consolidated entities
In the third quarter of 2013 and 2012 the Group sold respectively 27.87 TWh and 22.73 TWh
of electricity. In the third quarter of 2013 electricity sales grew by 23% as compared to the analogical
period of the previous year. It resulted mainly from increase of sales to the end users and of sales
on the wholesale market. Sales on the balancing market also increased.
In the period January-September 2013 the Group sold respectively 81.14 TWh and 70.51 TWh
of electricity (growth of sales by 15%). It results mainly from increase of sales to the end users and
of sales on the wholesale market. Sales to end users were higher by 14%. Within sales on the
wholesale market, significant increase was recorded in other sales on the wholesale market (OTC).
Increased sales on the wholesale market results from intensified trade operations. Sales
on the balancing market also increased.
39
Purchases of electricity
Table: Purchases of electricity from outside of the PGE Capital Group (in TWh).
Purchases volume
3-month period ended %
change
9-month period ended
% change September 30 September 30
2013 2012 2013 2012
Purchases in TWh, including: 14.11 10.07 40% 41.48 30.74 35%
Purchases on the domestic wholesale market 11.51 8.49 36% 34.16 25.43 34%
Purchases on the domestic wholesale market, other
1.34 0.48 179% 3.26 1.49 119%
Purchases from abroad 0.07 0.05 40% 0.30 0.31 -3%
Purchase from the Balancing Market 1.19 1.05 13% 3.76 3.51 7%
In the third quarter of 2013 and 2012 the companies from the Group purchased respectively 14.11
TWh and 10.07 TWh of electricity from outside the PGE Group. The purchase of electricity rose
by 40% in the third quarter of 2013 as compared to third quarter of 2012.
In the period January-September 2013 the companies from the Group purchased respectively 41.48
TWh and 30.74 TWh of electricity from outside the PGE Group (growth of purchases by 35%).
It results from the increased purchases on power exchange and other purchases on domestic
wholesale market, mainly due to increasing trade operations and optimisation of the purchase
portfolio. The drop was recorded in purchase of electricity from abroad by PGE Trading GmbH
and higher purchase from the balancing market was also observed.
40
Production of electricity
Table: Generation of electricity by the Group (in TWh).
Generation volume
3-month period ended %
change
9-month period ended %
change September 30 September 30
2013 2012 2013 2012
Total energy generation in TWh, including:
14.54 13.68 6% 42.78 43.06 -1%
Lignite-fired power plants 10.65 9.94 7% 30.81 30.65 1%
Coal-fired power plants 3.13 2.70 16% 8.89 8.84 1%
Coal-fired CHP plants 0.15 0.21 -29% 0.82 0.94 -13%
Gas-fired CHP plants 0.19 0.49 -61% 0.95 1.59 -40%
Biomass-fired CHP plants 0.11 0.14 -21% 0.34 0.34 0%
Pumped storage power plants 0.13 0.09 44% 0.34 0.26 31%
Hydroelectric plants 0.09 0.08 13% 0.40 0.37 8%
Wind power plants 0.09 0.03 200% 0.23 0.07 229%
In the third quarter of 2013 and 2012 the Group produced respectively 14.54 TWh and 13.68 TWh
of electricity, what means increase of production by 0.86 TWh i.e. by 6%.
The increase in electricity production in lignite-fired power plants mainly resulted from higher
electricity generation in Bełchatów power plant what is a result of stoppage of units 7 and 8 which
were in major overhaul in the third quarter of 2012. The increased electricity production in coal-fired
power plants resulted from higher generation in Opole power plant what is connected with higher
demand for electricity from the National Power System.
The decrease in electricity production in coal-fired CHP plants results from lower production
of electricity in Elektrociepłownia Pomorzany and in ZEC Bydgoszcz. Lower generation
in Elektrociepłownia Pomorzany results from stoppage of unit no 1 in major overhaul since June
2013. Lower generation in ZEC Bydgoszcz results from lower production of electricity
in co-generation with heat due to lower consumption by the one key customer.
In the period January-September 2013 and January-September 2012 the Group produced
respectively 42.78 TWh and 43.06 TWh of electricity, what means decrease of production
by 0.28 TWh i.e. by 1%.
The increase in electricity production in lignite-fired power plants mainly resulted from higher
electricity generation in Bełchatów power plant what is a result of stoppage of units 7 and 8 in 2012
41
due to complex reconstruction and modernisation (unit 7 from January till September 2012
and unit 8 from June 2012 till February 2013).
The increased electricity production in coal-fired power plants resulted from higher generation
in Opole power plant and in Dolna Odra power plant what is connected with higher demand
for electricity from Transmission System Operator (PSE S.A.).
Increased production in pumped storage power plants results from the character of work of these
units, which were used at higher degree by the Transmission System Operator (PSE S.A.)
in the period January-September 2013.
Increased production in hydroelectric power plants is a result of favourable hydrological conditions.
Increase of production in wind power plants is a result of commissioning of Pelplin wind power plant
from August 2012 and Żuromin wind power plant from October 2012 and power plants belonging
to PGE Energia Natury sp. z o.o. from July 2013.
The decrease in electricity production in coal-fired CHP plants results from lower production
of electricity in Elektrociepłownia Pomorzany and in ZEC Bydgoszcz. Lower generation
in Elektrociepłownia Pomorzany results from stoppage of unit no 1 in major overhaul since
June 2013. Lower generation in ZEC Bydgoszcz results from lower production of electricity
in co-generation with heat due to lower consumption by the one key customer.
The decrease in electricity production in gas-fired CHP plants, both in the third quarter and
in the period January-September 2013 is a result of ceasing production as of March 18, 2013
in combined cycle units in Elektrociepłownia Rzeszów and Elektrociepłownia Lublin- Wrotków due
to lack of law regulations with regard to support of electricity production in co-generation.
2.1.7 Sales of heat
In the third quarter of 2013 the heat sales in PGE Group totaled 1.64 GJ million and were lower
by 15.9% as compared to the third quarter of 2012.
In the period January-September 2013 the heat sales in PGE Group totaled 13.78 GJ million
and were lower by 3.0% as compared to the period January-September 2012. Lower sales resulted
mainly from lower consumption by the key heat off-taker of Elektrociepłownia Bydgoszcz.
42
2.1.8 Termination of long-term contracts (LTC)
Due to the termination of LTCs in accordance with The Act on coverage of stranded costs resulting
at generators in relation to accelerated termination of long-term contracts (“LTC Act”), the producers
being earlier the parties to such contracts obtained a right to receive compensations for the coverage
of so called stranded costs (capital expenditures resulting from investments in generating assets
made by the generator before May 1, 2004 that a generator is not able to recoup from revenues
obtained from sales of generated electricity, spare capacity and ancillary services in a competitive
environment after early termination of LTC). The LTC Act limits the total amount of funds that may
be paid to all generators to cover stranded costs, discounted as at January 1, 2007,
to PLN 11.6 billion, including PLN 6,317 million for PGE GiEK S.A.
Table: Key data relating to PGE Group generators subject to the LTC Act.
Generator LTC maturity Maximum amount of
stranded and additional costs
PGE GiEK S.A. Branch Elektrownia Opole 2012 PLN 1,966 million
PGE GiEK S.A. Branch Elektrownia Turów 2016 PLN 2,571million
PGE GiEK S.A. Branch Zespół Elektrowni Dolna Odra 2010 PLN 633 million
PGE GiEK S.A. Branch Elektrociepłownia Gorzów 2009 PLN 108 million
PGE GiEK S.A. Branch Elektrociepłownia Lublin Wrotków 2010 PLN 617 million
PGE GiEK S.A. Branch Elektrociepłownia Rzeszów 2012 PLN 422 million
TOTAL PLN 6,317 million
In the period provided for by the LTC Act, i.e. till December 31, 2007, PGE S.A. signed termination
agreements with generators being parties to the then applicable LTCs. Therefore generators
obtained a right to receive funds to cover their stranded costs.
The impact of LTC compensations on results achieved by the PGE Group is described in Note 26.1
to the consolidated financial statements.
43
2.1.9 Fuel purchase costs
Table: Volume and cost of purchase of fuels from third party suppliers in the 3-month period ended
September 30, 2013 and September 30, 2012.
Type of fuel
For the 3-month period ended September 30, 2013
For the 3-month period ended September 30, 2012
Volume Cost Volume Cost
(tons thousand) (PLN million) (tons thousand) (PLN million)
Hard coal 1,631 403 1,617 479
Gas (cubic metres thousand) 77,060 42 139,093 125
Biomass 289 81 363 137
Fuel oil (heavy and light) 11 23 17 40
TOTAL 549 781
Table: Volume and cost of purchase of fuels from third party suppliers in the 9-month period ended
September 30, 2013 and September 30, 2012.
Type of fuel
For the 9-month period ended September 30, 2013
For the 9-month period ended September 30, 2012
Volume Cost Volume Cost
(tons thousand)
(PLN million) (tons thousand) (PLN million)
Hard coal 4,216 1,131 4,968 1,445
Gas (cubic metres thousand) 304,817 239 436,561 397
Biomass 820 232 1,045 391
Fuel oil (heavy and light) 33 73 38 92
TOTAL 1,675 2,325
In the 9-month period ended September 30, 2013 the costs of purchasing primary fuels from
providers outside the Group amounted to PLN 1,675 million and were lower by approximately 28%
as compared to as compared to the 9-month period ended September 30, 2012. It is mainly
connected with lower volume of hard-coal purchases (by app. 15%), decreased use of gas (by 30%)
and biomass (by 22%). Lower prices of hard-coal (by 8%), gas (by 14%) and biomass (by 24%) also
affected the decreased costs of fuel.
Lower value of hard-coal supplies is connected mainly with the decreased generation in coal-fired
CHP plants. Lower value of gas supplies is connected with the change of energy production structure
through use of units with a lower purchase price.
44
In the 9-month period ended September 30, 2013 approximately 72% of the electricity produced
was obtained from internally sourced lignite, whose price is fully controlled by PGE Group in contrary
to cost of other fuels.
2.2. Financial results of PGE Capital Group
Consolidated statement of comprehensive income
Total sales revenues of the Group in the third quarter of 2013 amounted to PLN 7,480.7 million
as compared to PLN 6,933.5 million in the third quarter 2012, what means increase by 8%.
The biggest increase of revenues was recorded in revenues from sales of electricity what affected
the increased revenues from sales of finished goods and merchandise by PLN 426.3 million.
At the same time revenues from LTC compensations increased by PLN 126.0 million.
Increase in mentioned revenues was partly offset by lower revenues from sales of certificates
of origin.
Cost of goods sold in the third quarter of 2013 amounted to PLN 5,472.6 million, what means growth
by approximately 6% as compared to the third quarter of 2012. The increase of the cost of goods sold
was mainly caused by:
I. increased merchandise and materials sold;
II. increased costs of fees for CO2 emission.
This growth was partly compensated by:
I. lower costs of production fuel used;
II. lower personnel expenses;
III. lowers costs of external services;
IV. lower costs of transmission services.
Gross profit on sales in the third quarter of 2013 amounted to PLN 2,008.1 million as compared
to PLN 1,789.8 million in the third quarter of 2012, what means increase by approximately 12%.
In the third quarter of 2013 total distribution and selling expenses of PGE Group amounted
to PLN 460.2 million and were higher by approximately 26% as compared to the third quarter
of 2012. The increase of selling and distribution expenses was mainly associated with higher costs
of redemption of property rights incurred by PGE Obrót S.A.
45
In the third quarter of 2013 general and administrative expenses amounted to PLN 182.5 million,
what means increase by approximately 8% as compared to the third quarter of 2012.
Result on other operating activities in the third quarter of 2013 amounted
to PLN 142.2 million as compared to PLN 146.5 million in the third quarter 2012.
Other operating revenues of the Group in the third quarter of 2013 amounted to PLN 205.2 million,
what means decrease by approximately 7% in relation to PLN 221.6 million achieved in the third
quarter of 2012. The decrease in other operating revenues is mainly associated with the fact that
in the third quarter of 2013 provisions reversed were lower by PLN 167.8 million than
in the corresponding period of 2012, what is connected with the reversal in 2012 of provision
for Alpiq Holding AG claims regarding costs of reservation of cross-border transmission capacities.
At the same time adjustment of settlements with regard to LTC compensations and compensations,
penalties and fines received are higher respectively by PLN 103.6 million and by PLN 43.5 million.
Other operating expenses in the third quarter of 2013 amounted to PLN 63.0 million as compared
to PLN 75.1 million in the third quarter of 2012, what means a decrease by approximately 16%.
Decrease mainly resulted from decrease in impairment allowances raised for other assets
by PLN 66.2 million. This drop was partly compensated by increase in other operating expenses
by PLN 50.3 million.
In the third quarter of 2013 result on financial activities amounted to PLN 32.8 million, as compared
to PLN 136.0 million in the third quarter 2012.
The Group’s financial revenues in the third quarter of 2013 amounted to PLN 57.0 million,
what means decrease by approximately 73% in relation to PLN 212.5 million achieved in the third
quarter of 2012. This decrease mainly results from:
I. revenues from foreign exchange translations on financial instruments lower
by PLN 65.0 million;
II. interest from financial instruments lower by PLN 54.5 million;
III. revenues from reversal of provisions lower by PLN 35.8 million.
The Group’s financial expenses in the third quarter of 2013 amounted to PLN 24.2 million, what
means decrease by approximately 68% in relation to PLN 76.5 million achieved in the third quarter
of 2012. Main reason was decrease of costs of foreign exchange translations on financial
instruments.
46
As a result of the factors discussed above, the gross profit of the Group in the third quarter of 2013
amounted to PLN 1,539.9 million as compared to PLN 1,519.5 million in the third quarter of 2012.
In the third quarter of 2013 gross profit margin of the Group (gross profit to total sales revenues)
decreased to 21% from 22% in the third quarter of 2012.
The net profit of the PGE Capital Group in the third quarter of 2013 amounted to PLN 1,265.3 million
as compared to PLN 1,265.1 million in the third quarter of 2012. Net profit attributable to the equity
holders of the parent company decreased in the third quarter of 2013 by PLN 0.4 million
as compared to the third quarter of 2012 and amounted to PLN 1,252.6 million.
Total comprehensive income of the Group in the third quarter of 2013 amounted
to PLN 1,264.6 million, as compared to PLN 1,264.3 million in the third quarter of 2012.
Consolidated statement of financial position
As at September 30, 2013 and as at December 31, 2012, non-current assets of the Group amounted
respectively to PLN 47,219.7 million and PLN 45,406.4 million.
Increase in value of non-current assets by PLN 1,813.3 million in the period ended
September 30, 2013 in comparison to the year ended December 31, 2012 was mainly caused
by increase of property, plant and equipment by PLN 1,255.1 million and intangible assets
by PLN 390.1 million. Changes of the mentioned items were mainly connected with the acquisition
of shares in companies managing the wind farms (see p. 1.2.1 of this report). Additionally, increase
by PLN 165.4 million was recorded in other long-term assets as a result of advances for tangible
assets.
Current assets of the Group as at September 30, 2013 and as at December 31, 2012 amounted
respectively to PLN 13,231.9 million and PLN 13,396.6 million.
The decrease of the value of the Group’s current assets by PLN 164.7 million in the period ended
September 30, 2013 in comparison to the year ended December 31, 2012 was mainly caused
by decrease in greenhouse gases emission rights by PLN 574.6 million, inventories lower
by PLN 466.3 million with simultaneous increase in cash and cash equivalents by PLN 343.5 million,
trade receivables higher by PLN 292.7 million, and other short-term assets higher by PLN 111.7
million and short-term financial assets at fair value through profit or loss higher by PLN 86.3 million.
Decrease in greenhouse gases emission rights mainly results from drop of prices for CO2 emission
rights.
47
Decline in inventories mainly results from lower value of energy origin certificates and repair
and exploitation materials and greenhouse gases emission rights intended for trade.
Growth of other short-term assets results from increased VAT receivables and deferred expenses
of Social Fund and real estate tax.
Growth of short-term financial assets at fair value through profit or loss is related to forwards related
to trading of greenhouse gases emission rights.
Cash and cash equivalents were described in the part relating to cash flow statement.
As at September 30, 2013 and as at December 31, 2012 total equity of the Group amounted
respectively to PLN 43,271.3 million and PLN 41,116.6 million. Non-controlling interest
as at September 30, 2013 and as at December 31, 2012 amounted respectively to PLN 300.8 million
and PLN 295.9 million.
The increase in total equity by PLN 2,154.7 million mainly results from recognition of the profit
for the period ended September 30, 2013 in amount of PLN 3,790.3 million. Total equity of the Group
was negatively affected by distribution of the profit for 2012 and allocation of part of the net profit
i.e. PLN 1,608.0 million for dividend payment.
The long-term liabilities as at September 30, 2013 amounted to PLN 9,908.6 million and were higher
by PLN 1,409.0 million than as at December 31, 2012. The change in long-term liabilities mainly
reflected increase of bank loans, borrowings, bonds and lease by PLN 931.1 million, deferred tax
liability higher by PLN 250.9 million and increased long-term provisions by PLN 196.5 million.
Growth of bank loans, borrowings, bonds and lease is associated with the issue of bonds in amount
of PLN 1,000.0 million.
Growth of long-term provisions results mainly from provision for recultivation costs higher
by PLN 167.1 million and actuarial provisions higher by PLN 29.5 million.
Short-term liabilities decreased from PLN 9,186.9 million as at December 31, 2012
to PLN 7,271.8 million as at September 30, mainly in connection with decline in short-term provisions
by PLN 1,203.7 million, short-term part of interest-bearing loans, borrowings, bonds and lower
by PLN 422.9 million, decline in other financial liabilities by PLN 334.7 million, trade liabilities lower
by PLN 284.1 million and income tax liabilities lower by PLN 94.1 million.
Decline in short-term provisions mainly results from provision used for purchase of CO2 emission
rights and provision used for property rights and provision used for contractors claims.
48
Decrease in short-term part of interest-bearing loans, borrowings, bonds results from lower value
of current account credits of the Group entities.
Decline in other financial liabilities results from lower value of investment liabilities and related
to LTC.
Deferred income and government grants (connected mainly with the settlement over the year
of greenhouse gases emission rights received under the National Allocation Plan) higher
by PLN 224.6 million and other non-financial liabilities (growth by PLN 233.0 million of VAT liabilities)
positively affected short-term liabilities.
Consolidated statement of cash flows
Cash and cash equivalents as at September 30, 2013 amounted to PLN 5,133.1 million and were
higher than at the end of the analogical period of 2012 by PLN 304.5 million.
The total net cash flow from operating activities for the period ended September 30, 2013 amounted
to PLN 5,795.0 million as compared to PLN 5,989.8 million for the period ended September 30, 2012.
Negative net cash flow from investing activities for the period ended September 30, 2013 amounted
to PLN 4,304.1 million as compared to negative net cash flow in amount of PLN 1,253.9 million
for the period ended September 30, 2012.
The level of cash flow from investing activities for the period ended September 30, 2013 was mainly
affected by expenses for the purchase of property, plant and equipment and intangible assets
in amount of PLN (-) 3,302.6 million and acquisition/sale of subsidiaries after deduction of acquired
cash in amount of PLN (-) 1,062.0 million.
Negative net cash flow from financial activities for the period ended September 30, 2013 amounted
to PLN 1,147.7 million as compared to negative net cash flow from financial activities in amount
of PLN 3,948.2 million for the 9-month period ended September 30, 2012. Balance of cash flow
from financial activities for the period ended September 30, 2013 was mainly affected by payment
of dividend for shareholders in amount of PLN 1,591.8 million, repayment of loans in amount
of PLN 752.1 million and issue of bonds in amount of PLN 1,000 million.
49
2.3. Business segments
Table: Key operational figures.
Key figures Unit
3-month period ended %
change
9-month period ended %
change September 30, September 30,
2013 2012 2013 2012
Lignite extraction Tons m 12.89 12.26 5% 37.97 38.16 0%
Net electricity production, including: TWh 14.54 13.68 6% 42.78 43.06 -1%
Production from biomass TWh 0.26 0.40 -35% 0.73 1.12 -35%
Heat sales GJ m 1.64 1.95 -16% 13.78 14.20 -3%
Sales to Final Customers * TWh 9.49 7.72 23% 27.34 23.91 14%
Distribution of electricity ** TWh 7.91 7.70 3% 23.51 23.32 1%
* sales by PGE Obrót S.A. with additional estimation and with taking into account the sales within PGE Group
** with additional estimation
Table: Breakdown of the Group’s income (including flows between segments), by business segments
for third quarter of 2013 and 2012
in PLN million
Total income
Q3 2013 % share Q3 2012 % share % change
Conventional Generation 3,059.6 27% 3,185.3 30% -4%
Renewable Energy 161.8 1% 135.9 1% 19%
Wholesale Trading 3,097.5 27% 2,501.1 24% 24%
Distribution 1,367.4 12% 1,340.7 13% 2%
Retail Sale 3,217.7 28% 3,010.7 28% 7%
Other activity 473.0 5% 438.9 4% 8%
Total 11,377.0 100% 10,612.6 100% 7%
Consolidation adjustments -3,896.2
-3,679.1
6%
Net income 7,480.8
6,933.5
8%
50
Table: Key indicators for each business segment for the third quarter of 2013.
in PLN million EBITDA EBIT
Capital expenditures
Purchase of PPA* net,
within purchase of new
companies
Assets of the segment **
Q3 2013
Conventional Generation 1,393.9 960.3 764.5 0.0 31,824.4
Renewable Energy 78.4 25.9 45.6 310.6 3,232.0
Wholesale Trading 233.7 229.3 4.3 0.0 1,356.7
Distribution 603.0 356.0 346.2 0.0 14,955.0
Retail Sale -47.1 -49.1 0.7 0.0 2,234.9
Other activity 48.4 20.4 36.1 0.0 1,338.5
Total 2,310.3 1,542.8 1,197.4 310.6 54,941.5
Consolidation adjustments -44.5 -35.1 -29.8 62.4 -1,333.2
Total after adjustments 2,265.8 1,507.7 1,167.6 373.0 53,608.3
Table: Key indicators for each business segment for the third quarter of 2012.
in PLN million EBITDA EBIT
Capital expenditures
Purchase of PPA* net,
within purchase of new
companies
Assets of the segment **
Q3 2012***
Conventional Generation 1,221.4 783.9 995.9 0.1 32,754.9
Renewable Energy 59.0 21.9 75.1 284.6 2,226.4
Wholesale Trading 285.5 280.8 0.9 0.0 1,024.7
Distribution 488.9 254.4 319.8 0.0 14,709.5
Retail Sale 38.0 35.7 2.2 0.0 2,013.7
Other activity 39.1 12.1 24.7 0.0 1,414.0
Total 2,131.9 1,388.8 1,418.6 284.7 54,143.2
Consolidation adjustments 3.7 12.0 -31.1 127.5 -1,796.3
Total after adjustments 2,135.6 1,400.8 1,387.5 412.2 52,346.9
* PPA – property, plant and equipment ** see Note 10 to the consolidated financial statements *** data restated
51
2.3.1 Conventional Generation
In the third quarter of 2013 total sales revenues for Conventional Generation amounted
to PLN 3,059.6 million, what means approx. 4% decrease as compared to the third quarter of 2012.
EBIT of the segment in the third quarter of 2013 amounted to PLN 960.3 million, and EBITDA
amounted to PLN 1,393.9 million. In the analogical period of the previous year EBIT amounted
to PLN 783.9 million, while EBITDA amounted to PLN 1,221.4 million. Increase of EBIT in the third
quarter of 2013 as compared to the third quarter of 2012 mainly resulted from:
I. Higher result on other operating activities,
II. Lower cost of goods sold.
Higher result on other operating activities results mainly from higher revenues related
to LTC settlements, higher compensations, penalties and fines received and higher revenues due
to reversal of impairment loss for fixed assets. The higher result was also affected by level of other
operating expenses what is connected with the reversal of impairment loss on units 5 and 6 (Project
Opole II) in amount of PLN 71.4 million in Branch Elektrownia Opole following the decision
on reopening of the investment project. Impact of the above reversal on the Group’s result
amounted to PLN (+) 56.0 million after adjustment for capitalized intragroup interests (see p. 2.5.7.
of the foregoing report).
Lower cost of goods sold results mainly from lower costs of production fuel used and lower
personnel expenses what is connected with the payment of high severance pay due to Voluntary
Leave Programs in the analogical period of the previous year. Described declines were partly offset
by increased costs of fees for CO2 emission what is connected with the significant reduction of free
allowances limits..
EBIT was also affected by lower revenues from sales of electricity that resulted from decline
of electricity prices and by decrease of revenues from the sale of certificates as a consequence of lack
of suport for co-generation, based on yellow and red certificates.
In the third quarter of 2013 capital expenditures in Conventional Generation amounted
to PLN 764.5 million as compared to PLN 996.0 million in the corresponding period of 2012.
52
Table: Capital expenditures incurred in Conventional Generation segment in the third quarter
of 2013 and 2012, by particular investment tasks.
in PLN million Capital expenditures
Q3 2013 Q3 2012 % change
Investments in generating capacities, including: 263.5 736.1 -64%
• Development 196.1 495.2 -60%
• Modernization and replacement 67.4 240.9 -72%
Purchases of finished capital goods 8.8 12.3 -28%
IT 4.4 6.2 -29%
Vehicles 0.7 1.2 -42%
Other 309.5 92.3 235%
TOTAL 586.9 848.1 -31%
Purchase of PPA net, within purchase of new companies - 0.1 -
Activated costs of overburden removal in mines 177.6 147.8 20%
TOTAL with activated costs of overburden removal and purchase of PPA
764.5 996.0 -23%
In the third quarter of 2013 highest capital expenditures were incurred for the following projects:
(i) modernization of units 7-12 in Bełchatów power plant (PLN 112.7 million), (ii) change
of technology of furnace waste storage in Bełchatów power plant (PLN 41.9 million),
(iii) modernisation of IOS at units 3-12 in Bełchatów power plant (PLN 32.8 million), (iv) reduction
of NOx emissions from boilers BP-1150 below 200 mg/Nm3 in Opole power plant (PLN 14.9 million),
(v) development of set of pass-out and condensing turbines along with the reserve-peak boiler
in EC Kielce (PLN 13.8 million).
Additionally, PLN 177.6 million was recognised in capital expenditures in the third quarter of 2013 -
value of activated costs of overburden removal in the Group’s lignite mines.
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2.3.2 Renewable energy
In the third quarter of 2013 total sales revenues in the Renewable Energy segment amounted
to PLN 161.8 million as compared to PLN 135.9 million in the third quarter of 2012.
EBIT of the segment in the third quarter of 2013 amounted to PLN 25.9 million, and EBITDA
amounted to PLN 78.4 million. In the analogical period of the previous year EBIT amounted
to PLN 21.9 million, while EBITDA amounted to PLN 59.0 million.
Growth of EBIT is connected mainly with higher result on other operations mainly due to lower costs
of assets revaluation. Significant decline in costs was partly offset by lower other operating revenues
due to lower level of compensations received.
In the third quarter of 2013 capital expenditures in Renewable Energy amounted
to PLN 356.2 million as compared to PLN 359.6 million in the third quarter of 2012.
Table: Capital expenditures incurred in the Renewable Energy segment in the third quarter of 2013
and 2012.
in PLN million Capital expenditures
Q3 2013 Q3 2012 % change
Investments in generating capacities, including: 44.6 72.5 -38%
• Development 30.0 62.8 -52%
• Modernization and replacement 14.6 9.7 51%
Purchases of finished capital goods 0.2 0.4 -50%
IT 0.5 0.2 150%
Vehicles 0.2 0.1 100%
Other 0.1 1.8 -94%
TOTAL 45.6 75.0 -39%
Purchase of PPA net, within purchase of new companies
310.6 284.6 9%
TOTAL with purchase of PPA 356.2 359.6 -1%
In the third quarter of 2013 highest capital expenditures were incurred for project connected
with construction of wind farm Wojciechowo with a capacity of 28 MW (PLN 18.3 million)
and construction of hydro power plant Oława with a capacity of 3.2 MW (PLN 5.3 million).
On July 31, 2013 PGE Polska Grupa Energetyczna S.A. completed the transaction of acquisition
of assets of Iberdrola Renewables Polska sp. z o.o. Expenses related to that acquisition in amount
of PLN 311.2 million were recognized in renewable energy as purchase of property, plant
and equipment net, within purchase of new companies. Additionally, adjustment for revaluation
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of property, plant and eqiupment in amount of PLN (-) 0.6 million was recognised in expenditures
for tangible assets.
2.3.3 Wholesale trading
In the third quarter of 2013 total sales revenues in the Wholesale Trading amounted
to PLN 3,097.5 million, what means an approximately 24% growth as compared to the third quarter
of 2012. EBIT of the segment in the third quarter of 2013 amounted to PLN 229.3 million,
and EBITDA amounted to PLN 233.8 million. In the analogical period of the previous year EBIT
amounted to PLN 280.7 million, while EBITDA amounted to PLN 285.5 million. Decline of EBIT
in the third quarter of 2013 as compared to the third quarter of 2012 in the Wholesale Trading was
caused mainly by lower result on other operations what is connected with reversal in the third
quarter of 2012 of provision for Alpiq Holding AG claims related to costs of reservation
of cross-border transmission capacities.
Decline of EBIT was partly compensated by higher result on electricity sales, resulting from increased
volume of energy sold and higher margin on energy trading.
In the third quarter of 2013 capital expenditures in the Wholesale Trading amounted
to PLN 4.3 million in relation to PLN 0.9 million in the third quarter of 2012 and related mainly
to infrastructure modernization in the building, in which PGE S.A. has its registered office.
2.3.4 Distribution
In the third quarter of 2013 total sales revenues in the Distribution segment amounted
to PLN 1,367.4 million, as compared to PLN 1,340.7 million in the third quarter of 2012.
EBIT of the segment in the third quarter of 2013 amounted to PLN 356.0 million, and EBITDA
amounted to PLN 603.0 million. In the analogical period of the previous year EBIT amounted
to PLN 254.4 million, while EBITDA amounted to PLN 488.9 million. Growth of revenues mainly
results from higher revenues from the distribution services due to higher tariffs approved for 2013
and higher volume of energy distributed.
Growth of EBIT was also affected by lower level of external services (mainly transmission services)
and lower personnel expenses.
In the third quarter of 2013 capital expenditures in the Distribution segment amounted
to PLN 346.2 million and were higher by PLN 26.4 million, i.e. by approx. 8%, as compared
to the analogical period of the previous year.
55
Table: Capital expenditures incurred in Distribution segment in the third quarter of 2013
and 2012.
in PLN million Capital expenditures
Q3 2013 Q3 2012 % change
HV, MV and LV power networks 116.4 94.3 23%
Communication, telemechanics and metering equipment
29.3 29.0 1%
IT 9.0 15.8 -43%
Connection of off-takers 149.9 149.7 0%
Purchases of finished capital goods 32.9 21.6 52%
Vehicles 1.1 2.4 -54%
Other 7.6 7.0 9%
TOTAL 346.2 319.8 8%
In the third quarter of 2013 highest capital expenditures were incurred for connection of new
off-takers (PLN 149.9 million) and modernization and expansion of HV, MV and LV power network
(PLN 116.4 million).
2.3.5 Retail Sales
In the third quarter of 2013 total sales revenues in the Retail Sales segment amounted
to PLN 3,217.7 million, while in the third quarter of 2012 amounted to PLN 3.010,7 million.
EBIT of the segment in the third quarter of 2013 amounted to PLN (-) 49.1 million, and EBITDA
amounted to PLN (-) 47.1 million. In the analogical period of the previous year EBIT amounted
to PLN 35.7 million, while EBITDA amounted to PLN 38.0 million. Lower EBIT is connected
with the higher costs of redemption of property rights by PLN 92,6 million, resulting from growing
market prices of green certificates and realization of large volume of purchase of green certificates
on base of contractual prices (higher than current market prices). Decrease of EBIT was directly
affected by restatement of reserve for realization of obligation of green certificates redemption,
that was connected with the increase of market prices and with prices of purchases of property
rights executed in the PGE Capital Group. Volume, which was not covered by the purchase,
is restated with accordance to current – growing in the third quarter – purchase prices of green
certificates.
Capital expenditures in the Retail Sales amounted to PLN 0.7 million in the third quarter of 2013
as compared to PLN 2.2 million in the third quarter of 2012 and mainly related to expenditures for IT.
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2.3.6 Other Operations
In the third quarter of 2013 total sales revenues for Other operations amounted
to PLN 473.0 million, as compared to PLN 438.9 million in the third quarter of 2012.
EBIT of the segment in the third quarter of 2013 amounted to PLN 20.4 million, and EBITDA
amounted to PLN 48.4 million. In the analogical period of the previous year EBIT amounted
to PLN 12.1 million, while EBITDA amounted to PLN 39.1 million. Growth of EBIT as compared
to the previous year mainly resulted from higher result of PGE EJ1 sp. z o.o., what is connected
with the issuance of debit notes in respect of penalties for delayed work related to the construction
of the first Polish nuclear power.
EBIT was negatively affected by lower result of Exatel S.A. inter alia due to change in the calculation
of awards and costs of employment restructuring incurred in the third quarter of 2013. Additionally,
in the third quarter of 2012 higher reversal of provisions were recognised. PGE Systemy S.A.
also achieved lower result due to personel expenses, what is connected with transfer of Staff
fromother segments of PGE Group within creation of IT Shared Services Center.
Capital expenditures in Other Operations in the third quarter of 2013 amounted to PLN 36.1 million.
Within the above amount PLN 10.9 million were spent by Exatel S.A. for development
of telecommunication infrastructure and PLN 7.7 million were spent by PGE Systemy S.A.
for development of IT infrastructure. The rest of the capital expenditures were mostly related
to expenses for ancillary activities.
In the reporting period PGE S.A. and PGE Capital Group did not record any significant failures in its
activities which would have effect on achieved results.
2.4. Publication of financial forecasts
PGE Polska Grupa Energetyczna S.A. did not publish forecasts of the financial results.
57
2.5. Other significant events of the reporting period, subsequent events and
description of material agreements
2.5.1 Legal aspects
Dispute between PGE S.A. and ATEL (currently Alpiq Holding AG)
Since 2009 PGE Polska Grupa Energetyczna S.A. was a party to arbitration proceedings
with the company Alpiq. The proceeding was held before the Arbitration Tribunal in Vienna.
The subject of the arbitration proceeding was the claim of Alpiq, raised against PGE, resulting
from the default on an electricity supply agreement signed on 28 October 1997. Claims submitted by
Alpiq and changed on October 4, 2010 amounted to approximately EUR 155 million. After exchange
of last post-hearing briefs Alpiq ultimately requested PGE to pay EUR 168 million plus interest.
The arbitration proceeding was held in written form and was based on the exchange of pleadings
between the parties and presentation to the Tribunal of evidence by witnesses, experts
and statements by the parties.
On September 12, 2012, the Arbitration Tribunal issued a final judgment in this case and obliged PGE
to pay to Alpiq EUR 43,204 thousand plus interest due.
PGE S.A. and Alpiq reached agreement on execution of the judgment. According to the agreement,
PGE S.A. will pay the above amount plus interest until the verdict date, reduced by the proceeding
cost judged from Alpiq for PGE S.A., in two installments. First part in amount of EUR 22,898 thousand
was paid on April 15, 2013 and the remaining amount is to be paid by the end of 2013.
Case of compensation regarding the conversion of shares
Former shareholders of PGE Górnictwo i Energetyka S.A. file request with the courts for calling PGE
Polska Grupa Energetyczna S.A. to set conciliatory hearing for payment of compensation due
to alleged incorrect determination of exchange parity of shares of PGE Górnictwo i Energetyka S.A.
for shares of PGE Polska Grupa Energetyczna S.A. in the Consolidation Process that took place
in 2010. Aggregate value of claims resulting from summons to a conciliation hearing filed
by the former shareholders of PGE Górnictwo i Energetyka S.A. exceeds PLN 5 million.
Irrespective of the above, summons to a conciliation hearing were also filed by Socrates Investment
S.A. – a company which purchased claims from former shareholders of PGE Górnictwo i Energetyka
S.A. Socrates Investment S.A. requests from PGE Polska Grupa Energetyczna S.A. a compensation
in aggregate amount of PLN 370,954 thousand for the damage suffered in connection with incorrect
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(in company’s opinion) determination of exchange parity in merger process
of PGE Górnictwo i Energetyka S.A and PGE Polska Grupa Energetyczna S.A.
PGE finds the demands of Socrates Investment S.A. and of other shareholders undocumented
and fully groundless. In the given cases PGE S.A. will not conclude any settlements. Thus, there is
a risk that Socrates Investment S.A. and other shareholders will file petitions for payment
of the abovementioned amounts by PGE.
2.5.2 Co-operation with administrative authorities governing electricity market in Poland
In 2013 PGE SA initiated a broad discussion among experts from the energy industry and finance,
representatives of governmental administration, including the President of the Energy Regulatory
Office with regard to the creation of conditions for infrastructure investments in conventional
energy, whose risk is disproportionately high due to the current and anticipated situation
on the Polish and European energy market.
In this respect, PGE S.A. led and continues to lead efforts on the one hand to make aware about
the situation, and on the other to offer constructive ways to change it. In particular, a discussion was
initiated on the necessity to change the model of the energy market in Poland.
2.5.3 Activities related to nuclear energy
Environmental and site characterization
On February 7, 2013 PGE EJ1 sp. z o.o. signed an agreement with syndicate of WorleyParsons
companies (“Contractor”). The subject-matter of the agreement is the environmental research, site
characterisation and services connected with obtaining permits and rights which are necessary
in the investment process. On March 8, 2013 the Contractor received authorisation
for commencement of the works with the indications for Choczewo and Żarnowiec localisations,
which will be subject to the research.
In September 2013 the Contractor finished so called mobilisation stage, which included detailed
planning of the work and preparation for the implementation thereof, inter alia quality management,
work safety, risk management, stakeholder management, subcontracting, environmental protection,
development of specific methodologies for natural inventory, project implementation plan
and schedule for carrying out the work.
The completion of mobilisation stage and approval by PGE EJ1 Sp. z o.o. of product of this stage
allowed the start of the next phase of the project in September 2013 that is starting fieldwork
in designated locations.
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Selection of Owner’s Engineer
In April 2013 invitation for submission of final offers was sent to four bidders. In the third quarter
of 2012 the communication with the bidders was continued i.e. answering bidders’ questions
with regard to the contract and the proposed provisions of the agreement.
Selection of technology, integrated proceeding
In 2012 a decision was taken on application of integrated tender proceeding, which covers key
supplies and services for the nuclear project.
Currently the first phase of the proceeding – initial dialogue – is being executed. The end
of this phase of the proceeding will allow elaboration of a full summary and the management boards
of PGE S.A. and PGE EJ1 sp. o.o. will be able to decide on the final shape, scope, approach
and formula of integrated proceeding. Commencement of the integrated proceeding is conditioned
by the adoption of the Polish Nuclear Power Programme by the government, what should take place
by the end of December 2013.
Power grid analyses
The works are carried out with regard to the preparation of variant network analyses such as analysis
to determine the possibility of connecting the nuclear power plant to National Power System
and the scope of its necessary expansion beyond PSE S.A. Development Plan by 2025. These analyses
are performed alternatively for different locations and nuclear technologies. According
to the agreement, works were completed with regard to the verification of computational models
and the first results of the outflow results for location of station EE Żarnowiec were obtained.
In the next quarter next stages of the project will be realised and obtaining of overall results
of the first phase is scheduled for the first quarter of 2014.
Business partnership
On September 23, 2013 PGE Polska Grupa Energetyczna S.A., KGHM Polska Miedź S.A., Tauron Polska
Energia S.A. and ENEA S.A., agreed the future ownership structure and functioning of the SPV -
PGE EJ1 Sp. z o.o. After obtaining corporate approvals parties will sign an agreement of partners
(shareholders) of PGE EJ1 Sp. z o.o. and will apply for the necessary approvals to Polish Office
of Competition and Consumer Protection. As a result, PGE S.A. will sell to other companies package
of 438,000 shares, constituting a total of 30% of the share capital of PGE EJ1 Sp. z o.o. (controlling
stake of 70% will stay in PGE). KGHM Polska Miedź S.A., Tauron Polska Energia S.A. and ENEA S.A. will
60
acquire 146,000 shares each, representing 10% in the share capital of PGE EJ1 Sp. z o.o. Adoption
of the Polish Nuclear Energy Programme by the government is one conditions precedent.
2.5.4 Signing of the Letter of Intent on joint participation in preparation, construction and
exploitation of the first Polish nuclear power plant.
On September 5, 2012 PGE S.A. signed a Letter of Intent regarding participation in preparation,
construction and exploitation of the nuclear power plant (“Project”). The parties of the Letter
of Intent are: PGE Polska Grupa Energetyczna S.A., KGHM Polska Miedź S.A., Tauron Polska Energia
S.A. and ENEA S.A. (jointly “Parties”).
On September 23, 2013, as a result of works concerning implementation of a draft purchase
agreement with regard to shares in special purpose company for construction and operating
of the nuclear power plant, the Parties initialed a Partner's Agreement (“the Partner's Agreement”).
In this way Parties declared that the initialed document constitutes a draft of a future Partner's
Agreement settled by the Parties, which will be signed if necessary corporate approvals are obtained
by all Parties.
The Partner's Agreement obligates its parties to conclude the Purchase Agreement with regard to
shares in PGE EJ1 sp. z o.o. – a special purpose company for construction and operating
of the nuclear power plant (“The Purchase Agreement”). According to the Partner Agreement,
PGE S.A. shall sell 438,000 of shares for the benefit of other parties of the Partner Agreement, which
constitutes 30% in a share capital of PGE EJ1 sp. z o.o. As a consequence PGE shall have 70%
in a share capital of PGE EJ1 sp. z o.o. Shares shall be purchased in the following way:
- KGHM Polska Miedź S.A. shall purchase 146,000 shares, which constitutes 10% in share capital
of PGE EJ1 sp. z. o.o.,
- Tauron Polska Energia S.A. shall purchase 146,000 shares, which constitutes 10% in share capital
of PGE EJ1 sp. z. o.o.,
- ENEA S.A. shall purchase 146,000 shares, which constitutes 10% in share capital
of PGE EJ1 sp. z. o.o.
PGE S.A. and each partner shall be obliged to conclude the Purchase Agreement after fulfilling two
conditions precedent:
- obtaining unconditional approval of the President of the Polish Office of Competition and Consumer
Protection on concentration;
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- adoption of the Polish Nuclear Energy Programme in 2013, in a form of a resolution of the Council
of Ministers.
2.5.5 Decisions of the President of the Energy Regulatory Office related to realisation of LTC Act
As it was described in the previous reports, some generating entities of PGE Górnictwo i Energetyka
Konwencjonalna S.A. („PGE GiEK S.A.”) became entitled to receive funds to cover stranded costs
(so-called "LTC compensation") pursuant to the Act of June 29, 2007 on the Rules of Coverage
of Costs Occurring at Production Plants as a Consequence of Early Termination of Long-Term Power
and Electricity Sales Contracts (Journal of Laws No. 130, item 905, of 2007) (the "LTC Act").
The LTC Act is ambiguous in many points and raise important questions of interpretation.
The calculation of the estimated results of each entity and resulting compensations, annual
adjustments of stranded costs and final adjustments as well as resulting revenues recognized
in the statement of comprehensive income was performed by the Group with the best
of its knowledge in this area and with support of external experts.
In the previous years entitled producers from PGE Group received decisions on annual adjustments
of stranded costs and costs related to natural gas fired entities for 2008-2012. The majority of these
decisions were disadvantageous for the particular entities and the Group believes that they were
issued in violation of the Long-Term Contracts Act. As a consequence, since 2009, a number
of proceedings have been pending before the Regional Court in Warsaw - Competition and Consumer
Protection Court ("CCP Court") and before the Court of Appeal concerning appeals by PGE Group
producers against the Decision of the President of the Energy Regulatory Office. These proceedings
are currently at various levels of advancement.
LTC cases as at the date of this report are presented below:
With regard to settlement of annual adjustment of the stranded costs due
to PGE GiEK S.A. for 2008 with a claim value of PLN 434.7 million – in the third quarter of 2013
two cases with a total claim value of PLN 205 million were closed with a favourable verdict
of the Court of Appeal that is final and valid. So far favourable verdicts were issued in five cases
with a total claim value of PLN 392.3 million (in two of these cases the ERO President is entitled
to cassation appeal). In one case with a claim value of PLN 42.4 million, the CCP Court verdict
of November 12, 2012 was appealed by the ERO President – the company replied to the appeal.
With regard to settlement of annual adjustment of the stranded costs and costs related
to natural gas fired entities due to PGE GiEK S.A. for 2009 with a claim value
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of PLN 672.9 million. So far final and binding verdicts favourable for PGE GiEK S.A. were issued
in three cases with a total claim value of PLN 308.7 million (in two of these cases the ERO
President filed cassation appeals). In three cases with regard to settlement of annual adjustment
of the stranded costs with a total claim value of PLN 353.4 million, favourable verdicts of CCP
Court were appealed by the ERO President. In one of the two cases with regard to costs related
to natural gas fired entities with a claim value of PLN 10.8 million the company appealed against
the part of the unfavourable verdict of the CCP Court.
With regard to settlement of annual adjustment of the stranded costs and costs related
to natural gas fired entities due to PGE GiEK S.A. for 2010 with a claim value
of PLN 539.5 million. The ERO President appealed against the verdicts of the CCP Court of June
10, 2013, which were favourable for PGE GiEK S.A. ( including for the period January 1, 2010 –
August 31, 2010 for PGE GiEK S.A. as a legal successor of PGE Elektrownia Turów S.A.,
PGE Zespół Elektrowni Dolna Odra S.A., PGE Elektrociepłownia Rzeszów S.A. and
PGE Elektrociepłownia Lublin Wrotków sp. z o.o.).
With regard to settlement of annual adjustment of the stranded costs and costs related
to natural gas fired entities due to PGE GiEK S.A. for 2011 and 2012 with a claim value
of PLN 13.2 million. Cases are at the stage of appeals by PGE GiEK S.A. against
the ERO President’s decisions with regard to annual adjustments.
The resolution of the two cases regarding the settlement of annual adjustment of the stranded costs
for PGE GiEK S.A. Branch Elektrociepłownia Lublin Wrotków for 2008 and for PGE GiEK S.A.
Branch Elektrownia Turów for 2009 resulted in recognition of reversal of provisions in other
operating revenues in amount of PLN 103.7 million (in period January – September 2013 reversal
of provisions amounted to PLN 251.9 million).
2.5.6 Agreement on the exploration for and extraction of shale gas
On July 4, 2012 PGE S.A. signed a framework agreement on the exploration for and extraction
of shale gas (“Agreement”). The parties to the Agreement are PGE Polska Grupa Energetyczna S.A.,
Polskie Górnictwo Naftowe i Gazownictwo S.A. (PGNiG), ENEA S.A., KGHM Polska Miedź S.A.
and TAURON Polska Energia S.A.
The subject-matter of the Agreement is exploration, evaluation and extraction of shale gas
in geological formations for which concessions have been granted for the exploration and evaluation
of deposits of crude oil and natural gas in relation to the Wejherowo concession held by PGNiG
(the Wejherowo Concession). With respect to the Wejherowo Concession, there is a close
63
cooperation involving an area of approximately 160 km2 (Co-operation area). The Agreement
also provides for preferential treatment of the parties with regard to the possibility of cooperation
in relation to the remaining area of the Wejherowo Concession (with the exception of a situation
where PGNiG on its own engages in exploration, evaluation or extraction of shale gas and excluding
the area in the vicinity of Opalino and Lubocino where PGNiG is already conducting exploratory
work).
Estimated expenditures on exploration, evaluation and extraction with respect to the first three
zones (the Kochanowo, Częstkowo and Tępcz pads) within the Co-operation area are projected
to be in the amount of PLN 1.72 billion. According to the Agreement and annexes, details regarding
the terms of cooperation, including a detailed project budget and timeline, the shares of the parties
in financing the expenditures arising from the agreed-on budget, shares in the project's profits
and the principles of responsibility, including contractual penalties in the case of the failure,
in particular by PGNiG, to fulfil certain obligations resulting from the Agreement, were to be agreed
by May 4, 2013. The Agreement assumes that if details regarding the terms of cooperation are not
agreed by the parties by May 4, 2013, the Agreement may be terminated by each of the parties.
Until the date of this report none of the parties terminated the framework agreement of July 4, 2012.
Currently works are carried out in order to settle terms of co-operation.
2.5.7 Project of construction of power units in PGE Górnictwo i Energetyka Konwencjonalna
S.A. Branch Elektrownia Opole.
On April 4, 2013 the Management Board of PGE Górnictwo i Energetyka Konwencjonalna S.A.,
on the ground of analyses of changes on the energy market and in the environment
and recommendation from the Investment Committee of PGE Capital Group, adopted resolution
on closing of the investment project “Project Opole II” of construction of new hard coal-fired units
no 5 and 6 in PGE Górnictwo i Energetyka Konwencjonalna S.A. – Branch Elektrownia Opole due
to the inefficiency of the project.
In connection with the realisation of this investment PGE Elektrownia Opole S.A. (currently, after
merger, PGE GiEK S.A. – Branch Elektrownia Opole) concluded series of agreements with
the contractors including first of all:
agreement with the General Contractor (consortium of Rafako S.A., Polimex-Mostostal S.A.
and Mostostal Warszawa S.A.) for construction of two power units with a total capacity
of 1,800 MW, that net value amounts to PLN 9,397 million,
64
agreement with PSE Operator S.A. for connection of units 5 and 6
in Opole power plant to the transmission grid.
In connection with the decision on closing of the above investment project, an impairment loss
on fixed assets under construction in amount of PLN 56 million was recognized in the first quarter
of 2013. The impairment loss concerned the capital expenditures incurred for investment “Project
Opole II”. In addition, a provision was raised for future liabilities resulting from the necessity
of settlements of agreements accompanying the agreements with the General Contractor. Estimated
provision amounted to PLN 3.5 million. Until the preparation date of this report, no agreements,
which affect the continuation of project of construction of units no 5 and 6 in Opole power plant,
have been terminated, including above agreement with the General Contractor and agreement
for connection to the transmission grid.
Following the information from the government side about support of the Project, the Management
Board of PGE GiEK S.A. adopted a resolution on giving consent to start analytical works in scope
of additional solutions which would improve the profitability of the Project and enable its possible
realization. In that resolution, the Management Board of PGE GiEK S.A. gave an approval
for commencement of analytical works and incurring of costs connected with the Project that are
necessary for these analyses to be completed and securing the company’s interest in relation
to other entities in case the Project is re-opened.
On August 13, 2013 PGE GiEK S.A. notified the General Contractor about planned issue of the NTP
which falls on December 15, 2013.
In the third quarter of 2013, PGE GiEK S.A. concluded a series of agreements and annexes with regard
to the organization and co-operation at realisation of Project Opole II.
Due to the above, the Group reversed in the third quarter of 2013 impairment loss on fixed assets
under construction in amount of PLN 56 million, recognized in the first quarter of 2013 and reversed
a provision for future liabilities resulting from the necessity of settlements of agreements
accompanying the agreements with the General Contractor in amount of PLN 3.5 million.
2.5.8 Conclusion of material agreement on hard coal supply for period 2014-18
On August 12, 2013 PGE Górnictwo i Energetyka Konwencjonalna S.A. concluded an agreement
with Kompania Węglowa S.A. for hard coal supplies. Subject matter of the agreement (“Agreement”)
is supply of hard coal by Kompania Węglowa S.A. for power plants within PGE Group for 2014-2018.
The net value of Agreement amounts to approx. PLN 5.6 billion.
65
Price of hard coal for consecutive years within the Agreement is determined on the ground of factors
regarding the average electricity price and average market price of hard coal.
The aggregate value of contractual penalties shall not exceed 10% of the non-delivered supply
volumes based on the Agreement. PGE GiEK S.A. may seek compensation claims on general basis
exceeding the value of contractual penalties.
2.5.9 Conclusion of material agreement for coal supply for the needs of Investment Project Opole II
On August 13, 2013 PGE Górnictwo i Energetyka Konwencjonalna S.A. concluded an agreement
with Kompania Węglowa S.A. for hard coal supplies, in the period 2018 - 2038.
Subject matter of the agreement (“Agreement”) is supply of hard coal by Kompania Węglowa S.A.
for the needs of Units 5&6 at Opole Power Plant, if Project Opole II is completed.
Conclusion of the Agreement is intended to limit certain risks related to realization of the Project
Opole II. Estimated net value of the Agreement amounts from app. PLN 16 billion
to app. PLN 22 billion, dependent on the delivered volumes.
Price of hard coal for consecutive years within the Agreement is determined on factors
of the average electricity price, average market price of hard coal and average cost of carbon dioxide
emission rights.
Start of hard coal delivery is conditional on the commencement of the Project Opole II. PGE GiEK S.A.
is entitled to retract from the Agreement before September 30, 2020.
The aggregate value of contractual penalties shall not exceed 10% of the non-delivered supply
volumes based on the Agreement. PGE GiEK S.A. may seek compensation claims on general basis
exceeding the value of contractual penalties.
2.5.10 Conclusion of an agreement for the construction of CCGT unit in Gorzów CHP.
Conclusion of a material agreement for gas supplies.
On October 3, 2013, PGE Górnictwo i Energetyka Konwencjonalna S.A. concluded an agreement
for the construction of a combined cycle gas turbine unit (“CCGT unit”) in Branch Elektrociepłownia
Gorzów and for the provision of maintenance services with the consortium of Siemens Sp. z o.o.
and Siemens Industrial Turbomachinery AB ("Siemens Consortium").
According to the provisions of the agreement, CCGT unit with a capacity of 138 MWe and 90 MWt
and 83.93% operating efficiency in co-generation will be commissioned within 28 months
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from the award of the contract. The net value of the contract for unit construction amounts
to PLN 562 million.
Therefore, on October 3, 2013 PGE GiEK S.A. also concluded the agreement for the supply of natural
gas with Polskie Górnictwo Naftowe i Gazownictwo S.A. Its subject matter is sale of nitrogen-rich gas
extracted from PGNiG deposits to the new CCGT unit in Gorzów CHP. The agreement is concluded
for a period of 20 years from the date of commencement of gas supply, which is dependent
on the commissioning date of the new unit. The annual volume of supply will amount
to 281 million m3 per year. The estimated net value of the Agreement as at the signing date amounts
to approximately PLN 3 billion.
The agreement provides for contractual penalties, which maximum amount may exceed
the PLN equivalent of EUR 200,000, including penalties for failure to collect the minimum annual
amount of gas and for the necessity to terminate the Agreement due to non-performance
or improper performance of the significant obligations by the buyer. If the contractual penalties
provided for in the Agreement do not cover any damage suffered, either party may claim additional
compensation in excess of these penalties, but only within the limits of the actual loss, except for loss
of profit.
2.5.11 Changes in the composition of the Management Board of PGE S.A.
On July 17, 2013 Mr. Paweł Smoleń, Vice-President of the Management Board, submitted his
decision to resign from his position as from July 19, 2013.
As at September 30, 2013 the Management Board consisted of:
Mr. Krzysztof Kilian – President of the Management Board;
Mrs. Bogusława Matuszewska – Vice-President of the Management Board;
Mr. Wojciech Ostrowski – Vice-President of the Management Board;
Mr. Piotr Szymanek – Vice-President of the Management Board.
On October 25, 2013 the Supervisory Board of the Company adopted resolutions on recalling Mrs.
Bogusława Matuszewska and Mr. Wojciech Ostrowski from the Management Board.
As at the date of this report the Management Board consisted of:
Mr. Krzysztof Kilian – President of the Management Board;
Mr. Piotr Szymanek – Vice-President of the Management Board.
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3. Factors, which in Company’s opinion, will affect the results within
at least the next quarter.
In the opinion of the Company Management Board, the following factors will influence the Company
and the Group’s performance within at least next quarter:
demand for electricity and heat;
electricity prices on wholesale and retail market;
prices of property rights;
availability and prices of fuels used in generation of electricity and heat, in particular prices
of hard coal, fuel gas and biomass;
availability of cross-border transmission capacities;
seasonality and weather conditions;
growth of generating capacity in national electro-energy system, including renewable energy;
changes in Group’s macroeconomic environment, including in particular interest rates
and exchange rates, values of which affect evaluation of assets and liabilities shown
by the Group;
costs of CO2 emission rights;
completion of the granting the free allowances for 2013-2020 for the generators
from PGE Group;
decision of the European Commission on transfer of part of emission rights from period
2013-2015 for 2019-2020 (so called back loading) or withdrawal of part of emission rights
from the market (so called set-aside);
lack of obtaining of free allowances for 2013 for installations generating electricity as at the time
of settlement of actual emission from 2013 (i.e. by the end of April 2014);
lack of domestic regulations with regard to CO2 emission rights trading;
amendments to the Energy Law, particularly in scope of optimisation of support scheme
for renewable energy sources and for co-generation and amendments to other acts;
update of the Poland’s energy policy;
amendments to the Law on Environmental Protection, particularly in scope of implementation
of Industrial Emissions Directive;
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results of explanatory proceedings before the ERO President in case of issue of certificates
of origin of energy produced from biomass for some of the braches of PGE GiEK S.A.;
decisions of the ERO President related to realisation of LTC Act and court’s rulings
on the disputes between the President of the Energy Regulatory Office and generators
from the PGE Group entitled to receive compensations under LTC Act with regard to the annual
adjustments of the stranded costs for 2008 and annual adjustments of the stranded costs
and annual adjustments of costs generated in gas-fuelled units for 2009, 2010, 2011 and 2012
(see Note 26.1 to the consolidated financial statements);
realisation of operationalization projects in PGE Capital Group;
possible different decision in law, tax and other contingent liabilities disputes, from which most
relevant were presented in Note 20 to the consolidated financial statements.
4. Shareholders holding directly or indirectly by subsidiaries at least 5%
of the total votes at Company’s General Meeting as at the date
of the quarterly report.
As at the date of this consolidated quarterly report, according to the information held
by the Company, the sole shareholder holding at least 5% of the total number of votes
on the General Meeting of PGE Polska Grupa Energetyczna S.A. was the State Treasury, which held
1,157,124,546 shares of the Company, what constitutes 61.89% of the share capital and entitles
to exercise the same amount of the votes at the General Meeting of the Company.
Table: Shareholders holding directly or indirectly by subsidiaries at least 5% of the total votes
at the General Meeting of PGE Polska Grupa Energetyczna S.A.
Shareholder Number of shares Number of votes % in total votes on General Meeting
State Treasury 1,157,124,546 1,157,124,546 61.89%
Others 712,636,283 712,636,283 38.11%
Total 1,869,760,829 1,869,760,829 100.00%
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5. Number of shares or rights to shares of the Company held
by Company’s managers and supervisors, as of the date of submission
of the quarterly report
According to the best knowledge of the Management Board of PGE S.A., as of the date of submission
of this report and as of the date of publishing of the consolidated report
for the first half of 2013, Company’s managers and supervisors held following number of shares:
Shareholder
Number of shares as of submission date of the
H1 2013 report (i.e. August 28, 2013)
Change in number of owned shares
Number of shares as of submission
date of the quarterly report
Nominal value of shares as of
submission date of the quarterly report
(pieces) (pieces) (pieces) (PLN)
The Management Board
0 no change 0 0
The Supervisory Board
350 no change 350 3.500
Grzegorz Krystek 350 no change 350 3.500
Management Board members and other Supervisory Board members did not own PGE shares.
6. Information on issue, redemption and repayment of debt securities
and other securities.
Information on issue, redemption and repayment of debt securities and other securities were
described in Note 21 to the consolidated financial statements and p. 1.2. of the foregoing report.
7. Information on granting by the Company or its subsidiary of loan
securities or guarantees – jointly to a single entity or its subsidiary,
if the total value of the existing securities or guarantees is equivalent
to at least 10% of Company’s equity.
Within the Group, in the 9-month period ended September 30, 2013, PGE S.A. and its subsidiaries did
not grant any loan securities or guarantees to another entity or its subsidiary, where the value
of securities and guarantees constituted at least 10% of the Company’s equity.
8. Information concerning proceedings in front of court, body appropriate
for arbitration proceedings or in front of public administration
authorities.
As at September 30, 2013 PGE S.A. and its subsidiaries were not a party of any proceedings
concerning payables or debts whose total value would constitute at least 10% of the Company’s
equity, except for applications filed by generators from PGE Group to confirm excise tax
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overpayment and tax return together with interest for the years 2006-2008 and the first two months
of 2009. Total overpaid tax to be returned to the PGE Group companies may amount
to approximately PLN 3.4 billion, excluding interest (the generators are entitled to interest
on overpaid excise tax, accrued from the date of payment of the overstated tax). Entities
from PGE Group are convinced that the claim is justified however with account taken to past practice
of tax authorities and court sentences, the reimbursement of the overstated excise tax should be
considered unlikely.
Significant proceedings pending in front of courts, competent arbitration authority or public
administration authority are described in Note 20 to the consolidated financial statements.
Warsaw, November 12, 2013
Signatures of the Members of the Management Board of PGE Polska Grupa Energetyczna S.A.
Krzysztof Kilian Piotr Szymanek
President of the Management Board Vice-President of the Management Board
