Energa SA (ENG) Earnings Call Transcript & Summary

Good afternoon. Welcome, ladies and gentlemen, to a conference for investors, analysts and journalists devoted to financial results of Energa Group in the first quarter of 2020 and in the second quarter of the same year. Throughout the conference, you are free to ask questions using the form on the website of the conference and also by sending them to the address investor.relations@energa.pl. The host of our today's meeting are Marek Kasicki, Deputy Chairman of Energa Board for Financial Issues; and Dominik Wadecki, Deputy Chairman of the Board for Operational Issues; Mr. Wieslaw Jasinski, Deputy Chairman of Energa Operator Management Board; Mr. Piotr Dorawa, Energa-Obrt Chairman of the Board; and Mr. Bartlomiej Marchut, Deputy Chairman of the Board of Energa OZE. Good afternoon, ladies and gentlemen. With us, there are also experts who will be available for you through the Q&A session. My name is Marcin Chanke, and I chair the Investor Relations department in Energa. And now the floor goes to Chairman Kasicki.

Thank you very much. Good afternoon. Once again, let me welcome you to our video conference devoted to discussing financial results of Energa Group for the first half of 2020 and the second quarter of the year. You can see the chart presenting the results, financial results for the first 6 months. And as you can see here, the coronavirus pandemic has clearly reflected itself in the finances, coupled with unfavorable weather conditions, lower temperatures on average and a lower level of the waters that reflected itself in all the volume revenues as presented with the volume operational data. As far as our net result goes, additionally, it was impacted by one-off events of financial noncash in nature and that we'll briefly tell you about in a moment. As you can see, ladies and gentlemen, in this period, Energa Group generated PLN 6 billion worth of revenue over PLN 6 billion. That is 2% more than in an analogous period of 2019. EBITDA is PLN 1.055 billion, and it was lower by 16% year-to-year. But eliminating one-off events or extraordinary events, and this is the way we treated COVID's impact on our operations, we can show you the EBITDA at the level of PLN 1.116 billion that is lower year-on-year 9%. As for one-off events that impacted the EBITDA level adjusted one, we've calculated in the volume effects of COVID in total. So the total impact on the revenue of the entire group and the financial impact was PLN 95 million at the margin. This is the consequence of the G tariff. And also the change in accounting, again, of one-off nature also impacted EBITDA. As regards to the net result, as you can see, it was strongly influenced by one-off events, again, one-offs of an accounting character. So the initial revenue shows the loss of PLN 776 million (sic) [ PLN 767 million ]. And adjusted by one-off events, it shows net profit of PLN 419 million, so again, by 8% lower than in an analogous period of 2019. The noncash events that impacted this net result incorporates the impairment losses for shares of companies and fixed assets and also the reserves for future investment obligations. Of course, the impairment losses result from the tests carried out, thus for the loss of fixed assets and also the calculations of the worth of the shares. And here, we had to implement the losses concerning Ostroleka B as well as those concerning the Polish mining group at the level of PLN 155 million. As a result of a decision of withholding the process of Ostroleka C in the coal formula and the conversion to the gas project, a necessity was identified to take into account PLN 185 million of a loan. As for the reserve, again, it was necessary to create those concerning potential claims concerning the SPV as far as the project is concerned, and it was PLN 218 million. Moving on, as you can see, operational data volume ones clearly show what happened in the first half, especially focusing on the second quarter. Losses in all the areas from generation of electricity towards distribution and sale, retail sale of electricity. So those factors certainly have an impact on the overall business of ours. We will be more specific discussing particular business lines in further slides. So as you can see, those trends from the entire first half of the year are analogous to those for the second quarter with particular impact of the pandemic on the results in the second quarter. Next slide, please. Here, we show the market conditions in which our group has operated. We should pay special attention to the drop in production and the consumption of electric energy and a significant drop in prices of electricity that impact our businesses. Again, we'll be more specific on that when discussing further slides. Next chart, please. This time, we'll present a structure of the Energa Group. And here, constantly, what matters is the share in the EBITDA group of -- EBITDA of Energa Operator and as you can see in every period presented here. As for the first half, unfortunately, all the 3 business lines noted drop of EBITDA versus 2019. Of course, to a large extent, that was owing to the factors connected with COVID or atmospheric condition that I've referred to at the beginning. As regards to the second quarter, here, the structure is, again, very similar. Although you can see that this EBITDA of Energa Operator is higher than in the second quarter of 2019. But that, again, results from a one-off event in the shape of a different treatment or a different approach to what was -- and as a result of, again, accounting approach that was adopted. Now we move on to investment issues and expenditures. Despite unfavorable conditions resulting from the pandemic, Grupa Energa has resulted in investment projects. Overall, the expenditures in the first half was shaped at the level of PLN 815 million, which is 5% higher than in the analogous period of the previous year. Traditionally, the greater share in capital expenditures were those concerning distribution. They amounted to PLN 579 million, which constituted 71% of all the investment expenditures. The major directions of the investments concerned building and modernizing of the grid. It was 418 kilometers of new high-voltage, medium-voltage and low-voltage lines. Further group of investment works of the operator concerned connecting new connections altogether with the 29,000 of new receivers for these, 25% more than in the previous year. As for distribution, we also realized connections of new renewable energy sources of 251 megawatts. This is 3 times greater power than in the analogous period of the previous year, 251 megawatts. In the production line, the greatest investment expenditure concerned the Przykona Wind Farm construction. The overall expenditure in the first half amounted to PLN 125 million. A bit more on that to another chart. Moving on to our key investment projects. Here, again, I would like to draw attention to the investment of the wind farm Przykona. That's starting to be operational in June. And in Ostroleka B, we have another project, desulfuring of the fumes. And we expect to complete this project by the third quarter of this year. Now referring to building the Ostroleka C power plant. We also mentioned the full -- the conversion of this project to gas fuels. I would like to inform you of the continuing, ongoing work concerning preparing a new agreement. And we will, of course, inform you as soon as decisions have been made on that issue concerning partner agreements. And now we will talk about particular lines in terms of the results, and we'll start with the distribution business line. And now the floor goes to Chairman Jasinski.

Thank you very much, Mr. Chairman. Welcome, ladies and gentlemen, wholeheartedly. The situation, the economic and financial situation of Energa Operator is good and stable. This is what I can say to begin with Energa Operator phase of its obligations and it notes good results. Although it has to be stated that this all happened despite 2 negative extraordinary factors that have already been mentioned. The first one being of an internal nature, namely the state of the pandemic threat at the beginning, following the 7th of March, then in the second half of the month the state of pandemic, of epidemic. And here, probably it will be touched upon by Mr. Chairman here, but I will tell you about it more extensively of the impact of pandemia on such a big entity employing a great number of employees. It was negative, a negative factor because the company has to be reshaped and it took many months. First of all, we had to change the functioning of the central dispatch of power, the regional ones, in such a way so as to stick to the sanitary regulations. And we acted in completely new conditions. The same followed the works on the grid. The fitters worked in a completely different cycle following different processes than before. Further, the distribution services department, in the first department, we had a number of contacts with external companies, where we also had to observe sanitary regime. And in the other departments, we got in touch with customers whom we had to ensure the right security, the same concern, the employees. When you hear about massive failures, then the operator works in a scenario of conditions for a few or several days or when you have super extraordinary situations like for a few weeks. Well, in this case, we are talking about extraordinary situation lasting for many months. And now we are preparing for a new situation. That is what we expect to happen in autumn. And I would like to briefly tell you what -- over 5,200 employees. We are talking about core business, of course, but also back office had to adjust. And at the same time, as you can see on the first chart, all the indices were up kept, matching the situation from before the 7th of March and even there's reliability, and this is better than before. Investments and investment expenditures are deployed and they are comparable to those that we talked about in 2019 and 2020. The first year is PLN 1.240 billion. And in the first half, the expenditure was PLN 514 million, which is 41%. It was PLN 1.294 billion. And in the first half of 2019, we spent PLN 617 million, that is 48%. So there are certain cycles of these expenditures being made. So I wouldn't say that 41% compared to 48% was a significant difference. Ladies and gentlemen, there's always -- it is always the case that commissioning the main point of supply is certain holiday and celebration. We didn't have it this year. We modernized Stawiszyn station. We built the new one in Daszyna and modernized the high-voltage line of Zydowo-Szczecinek. And also in this period, we did not fail to forget about big projects, big innovative projects. This year in particular, we are pointing at these projects that are financed from EU resources but that focus at the same time on something that is of utmost importance for the operator, that is the flexibility of the grid universe. So it's one of these projects. This is a project in which 18 states participate. Only 3 operators, Energa Operator from Poland, a German operator and a Portuguese operator. And then the budget of the project is EUR 22 million. The demonstrate of the grid is going to be built for the medium voltage that will consume this and address this issue of the grid flexibility. But there was also another negative factor that was of an external nature, and that resulted in the lower volume of the distribution service. In 2020, in the first quarter, in the first half, it was by 0.5 terawatt-hours lower than in the previous year. And that resulted in changes in different tariffs. Tariffs -- with A tariff, this drop was by 9.4%. In the case of average company's B tariff, it was 6.2%. The smallest company C tariff, it was 6.8%. But it increased in terms of household the G tariff, 2.9%. In gigawatt-hours, it is also expressed and will be shown later. Ladies and gentlemen, now the results of the distribution business line, the basic ones: EBITDA, margin and the net profit. As regards the revenues from sales in the first half of 2020 was -- were at the level of PLN 2.148 billion. That is by 4% higher than in the first half year of 2019. This connected with the increase of the average price of the distribution service by around 9%. And that again translated differently to particular tariff groups. In the A group, that was a minor drop by just 0.10% with medium-sized companies. It was somewhat higher with the smart ones. There was a drop by -- there was an increase by 0.7%. And the biggest growth that had an impact on the total revenue was 7.3% in the tariff group concerning G, the G tariff group. As regards the EBITDA, as mentioned by Chairman Kasicki, we have a drop here by PLN 36 million. The impact -- it impacted from the loss of the volume connected with COVID-19 but also an increase in minimum wages and also the actuarial results increase. And now here, you can see the factors that have impacted the drop in EBITDA. And the basic ones was connected with lower margin on distribution with losses from the grid. And this is the one by around PLN 32 million. The negative impact was also that of an increase in OpEx, PLN 42 million year-on-year, mostly as regards the payments for the employees as a result of increase in actuarial losses as the discount rate [indiscernible]. There was cost concerning maintenance, repairs, also servicing. And we'll hear all this is, is about PLN 3 million. There was again a drop concerning connections by PLN 7 million and an increase in property tax. This is a loss of about PLN 10 million. But positively in this EBITDA bridge diagram, what was positive was a one-off event that Chairman Kasicki mentioned. There was a change of the infrastructure that was obtained free of charge that was connected with the new model of accounting following the policy of the ORLEN Group. And here, we noted a positive result at the level of PLN 73 million, which altogether shows itself as a result in other operations, PLN 54 million, as displayed on the slide. And now another slide, the fourth one, the Reliability Indices. Despite the significant internal factor concerning the necessity of changing the processes in Energa Operator, we have noted an improvement both in the SAIDI index, from 74 minutes last year in the first half of 2019 to 60 minutes in this -- in the first half of 2020. And as regards SAIFI, from 1.2 total of the interruptions per customer to 0.9. And again, I said before at the beginning of the pandemic in the first half of March, we had big thunderstorms that affected 3 departments of Energa Operator. Then the indices improved as a result of enhancing the processes in Energa Operator but also investments concerning modernizing of the grid in the so-called B part of the investment funds of Operator. And here, I would point at exchanging the cables of the medium-voltage line of those nonfully-insulated, 132 kilometers in the first half. And this is the implementation of the plan at the level of 88%. Exchange of low-voltage line cables, 136 kilometers. And here, the plan has been implemented in over 40%. Exchange of transformers, 12 units. Planned -- out of the planned 25, that is 40% of the plan implementation. And building new connections of medium-voltage lines, 49 kilometers. That constitutes over 55% of the implementation of the plan. There are certain problems for it not to be too beautiful with automation of the grid, but these are connected with the difficulties in finalizing the purchase. And that would be all. Thank you very much.

Thank you very much, Mr. Chairman. Ladies and gentlemen, as regards to the sales business line, the retail sales of electric energy in the first half of the year, this was a drop of 5% year-to-year. In the quarter, this drop is even higher because it is about 10%. Now that was impacted by the pandemic mentioned before and what follows, that is, certain regulations introduced, restrictions that resulted to drop of sales of electric energy to business customers. In percentage values, it was about 9% of a drop. And there was an increase of the sales to households, and this increase is around 3%. As regards the revenues of the sales business line in the first half of 2020, it was PLN 3.578 billion, and this level is almost identical as in the first half of 2019. The drop of revenue from the lower volume was neutralized partly with higher average prices of sales on a retail market. EBITDA and the net profit in the first half of this year were PLN 52 million and PLN 12 million, respectively, which means that they were considerably lower from the ones noted in the same period of the previous year. Just a remark here. Last year in the second quarter, there were compensations that impacted the results quite significantly in the second quarter. It was calculated -- it was also the compensations concerning the first quarter of last year. Apart from that, the reason for the drop was the sales of electric energy to some of the households for an unfavorable price -- prices that resulted from the decision of the chairman of the regulator. These were the prices that did not cover the costs incurred by the company. Another chart, please. Now the drop in EBITDA in business line year-to-year. It was clearly impacted by the drop of the margin for the sales of electric energy. It was about PLN 98 million. What contributed to this was the pandemic, as mentioned before, and the necessity to sell electric energy to some of the households for unfavorable prices. As again, I've already mentioned before, the result of the pandemic resulted in a drop in the demand for electric energy. So we had to sell the surpluses of the electric energy and energy that was contracted so as to meet the customers' demand before. The negative impact of the pandemic is estimated at about PLN 58 million in the first half of the present year. And as regards the quarterly view in the second quarter, it is about PLN 51 million. The changes in EBITDA year-to-year were also impacted by one-off noncash events that occurred in the first half of 2019 and did not recur in the present year. Namely, in the first quarter of 2019, some of the results were result from 2018 for contracts that's from certain burdens on the G tariff resulting from the act on the prices of energy. In 2019, there's PLN 87 million of the negative impact on EBITDA. Additionally, in connection with the lawsuits concerning long-term agreements' validity, I'm talking here about CPA agreements for the first -- the end of the first quarter, the first half of 2019. There was a reserve for penalties, PLN 31 million, that positively affected EBITDA when considered year-to-year. The positive impact on EBITDA was also the one of about PLN 12 million of the one-off event. This changing of the accounting concerning the free of charge obtained infrastructure that was matching our accounting policy with that of ORLEN in the second quarter of 2020. Another piece of information concerning the billing data for the 30th of June 2020. The level of indebtment of the final consumer is higher by about 40% from an average 3-month period from before COVID. And we take into account December, January and February. And here, we are talking about the indebtment exceeding 30 days. Thank you very much.

Thank you very much. And we are moving on to the generation business line.

Thank you very much, Mr. Chairman. Good afternoon. I'll lead you through the slides dealing with the business line dealing with production. The format is analogous to previous description. So it's all very cohesive. As far as the first quarter is concerned, the business line production, we very actively concentrated here on RES projects, development projects. And here, I'll refer to the Przykona Wind Farm that was mentioned before. So we completed all the works preparing for energy production from that asset. We've gained all the necessary permits. We also expanded the concession, prolonged the concession that we have as Energa RES for production of energy by that wind farm. And so in that way, we're able, starting July 1, as it was planned, we could start production. And that's what happened, in fact, so quite a success. We were also working on building energy storage, energy warehouse at the Bystra Wind Farm. The power involver is 6 megawatts and the capacity 27 megawatt-hours. We were also working on a number of other development projects dealing with RES. Here, I can mention, for instance, works on the Gryf project. That's the photovoltaic farm about 20 megawatts in power. The farm is located in the county of Przykona. We've obtained a permit for construction of that farm. And we are ready for further investment works depending on decisions within the group. As far as energy production in the first half year, the production dropped by over 25% in comparison to last year, to the analogous period last year. And it was shaped -- the production was shaped by a number of main factors. Let me mention them: First of all, the key factor was the level of production in the Ostroleka plant, which stemmed from the level of work -- the first level of work, first, by the operator of the transmission system, and the disposal of the blocks themselves. And the second very important element was the production of hydro energy, which was also under very strong impact of hydrological conditions. Here, I'm talking about mostly the drought. As far as the other RES assets, we are also dependent on weather conditions as well. I can also remark at this point that due to the fact that we work in a very diversified production environment when it comes to energy sources -- well, thanks to that, thanks to the fact that we're working within such a system. So despite total drop in production, we can also talk about the elements which experienced increases. More about that in slides to come, but I can just say that we've noted increase in production in wind even though our wind farm was not working at the time. On the next slide, I'd like to point your attention to the main financial results of our business line, the key financial data. Here, I should first and foremost point your attention in the income period, the revenue period -- in the revenue to the -- well, a significant drop of revenues from PLN 715 million to PLN 514 million (sic) [ PLN 549 million ] year-to-year. This drop stems mostly from the previously described elements which impact production. But also, it's due to price conditions. All of these elements, as you can see in the middle part of the slide, had an impact on the EBITDA. EBITDA dropped from PLN 172 million to PLN 98 million. And aside from these factors, I would also like to point your attention to an element shaping EBITDA and the net profit. And here, I just have to mention 2 main factors which impacted this result. I'm talking here about last year write-off, which updated the value of the Ostroleka assets. Last year, it was PLN 270 million. This year, we've also had this write-off for the amount of PLN 473 million. On the next slide, I'd like to present a bit of bridge and talk about -- talk in more detail about particular elements. So first and foremost, drop of EBITDA from -- by PLN 74 million in total in comparison to the first half of last year. And that stemmed from drops in revenues. And here, it is mostly applied to smaller production in the Ostroleka plant as well as in hydro power plants here in connection with the hydrological conditions that I've already talked about. We've noted a decrease in revenue from sales. And the parameter which also impacted the drop in revenues was also the lower selling price that was forced on the smaller production when it came to energy prices. The second factor which also impacted EBITDA in a negative way dropped by PLN 40 million in half a year scale. This is the lower degree of sales from system sales, so system services, in the Ostroleka plant. And these were the main key causes, but we are partially able to equalize these negative effects due to the fact that we also have conventional energy sources. We were able to lower net costs of key fuels used for production. Here, I should mention the lowering of cost by PLN 55 million, so it's quite a scale. Remaining elements which helped us in lowering the drop in production was the cost of buying the rights for CO2 emissions. Lower cost of buying these rights. And this stemmed mostly from the lower volume. But I should also mention that this year, the group, for the first time, faced a situation in which we didn't have free amount that we could use. So we had to purchase it in entirety. Another element that had a positive impact in comparison to last year was a lack of the necessity to suffer costs in the Ostroleka plant as well, costs connected with the renovation of the Block #2, the middle Block #2, which was down last year at the time. As far as the second quarter is concerned, here, this profile as you can see, we've noted PLN 25 million drop in EBITDA. But the profile of these factors that impacted this result is, in fact, analogous to the entire half year period with one main exception, one main difference in the second quarter due to price of these green ownership rights. So we've -- by PLN 9 million, we've dropped revenues from these green certificates. On the fourth slide, my last slide, I'd like to concentrate more on EBITDA and production as far as production sources are concerned. So going back to EBITDA, which dropped by PLN 74 million, the division of the drop is presented in the following way: PLN 45 million -- I'm sorry, PLN 45 million is the drop in EBITDA in the Ostroleka power plant. And the further -- and that's a drop regarding water. For hydro production, it's PLN 30 million when it comes to EBITDA. When it comes to wind, we lost PLN 2 million. And when it comes to cogeneration, CHP, we've noted that increase in profitability by PLN 5 million. But here, I should emphasize that both the Ostroleka plant and the cogeneration did not contribute to the final result of the group at the EBITDA level. As far as production, as I was saying before, total production experienced both in half year and quarterly basis, note the drops. This decrease in tendency, as you can see on the right-hand side on these diagrams, it affected mostly the power plant in Ostroleka and hydro plants -- hydropower plants. But as I was saying at the beginning of my presentation, in fact, we've also noted increases here. And we have higher production when it comes to wind and higher production when it comes to biomass as well. So summing up the area of production for the first quarter. We have to say that we do have drops, decreases when it comes to the level of production, when it comes to EBITDA and net revenue, net profit. But good news is that we have a very diversified portfolio in which we can -- in fact, for years, we've been experiencing a situation where individual elements of our production assets in the end support us by resulting in a positive healthy EBITDA, compensating for those elements which can be affected by the environment or other elements that we don't have much influence over. Thank you very much.

Thank you. We are moving to the final part of this part of the presentation, so presenting perspectives. As you remember, generally, we do not share financial plans of the group. We rather point to the significant factors which affect financial situation and the development of the Energa Group in the perspective of at least 2020. On the slide, you can see 12 such factors. So maybe I'll divide them by our particular production lines -- business lines, which do have impact here. So as far as distribution business line, of course, the pandemia, which we've mentioned numerous times already. We have the risk here to the volume, which is assumed for 2020. We also point out to the drop in WACC due to the drop in the risk-free rate and the profitability of bonds, which obviously affects the revenue. We also have a drop in the activity of assets, which is affected by CapEx plans. As far as the production business line, when it comes to our perspectives here, well, on the positive side, we expect increase in revenues, thanks to the starting of the Przykona Wind Farm, which was mentioned by Mr. Chairman. An important factor also, hydro and meteorological factors when it comes to RES. And as far as Ostroleka, here, an important group is the way of using the blocks of the -- planned by PSE and forced mode and also lower price of energy sales of electricity, basically prices. When it comes to business line sales here, obviously, the unfavorable G tariff, which was mentioned by [ Chairman Dorawa ] for 2020. And the indicated loss of volume in retail sales due to the pandemia and the sales connected with it on the energy market of surplus energy. Another important factor is also the debt of our clients. [ Chairman Dorawa ] mentioned that this affects not so many -- not so much results but the cash flow, and this is obviously monitored by us on ongoing basis. We also have a positive element that appeared here, which stems from an event in the second quarter. That is the PKN ORLEN synergies resulting from integration with the PKN ORLEN. So this integration had a positive effect, a synergic effect when it comes to certain development projects, projects which have a chance to have a very positive impact on the EBITDA of the entire group. So that's about all at this point. And the next part of the material in the remaining part of various detailed data when it comes to our financial results. So I think at this point, we could -- we should move to the Q&A section, I think.

Yes. We do have quite a few questions. The first question, what identified factors resulted in the right of Ostroleka? After all, you've introduced a modernization program, the Ostroleka B program. What is the value of Ostroleka currently in your assessment?

If I may answer that question. As far as the modernization program in Ostroleka, well, aside from lowering the level of pollution -- of emission of pollutions, the plant obtained support from the energy market in 2021, 2025. And we've increased production of the third block in the plant. As far as the write-off that was mentioned in the question, well, we have tests dealing with the loss of value of these assets. The test was carried out based on financial projections for a finite period of this plant, that is for the period 2020-2036. Now using the livability period of the basic elements of -- the lifespan of the basic machinery elements, equipment, et cetera. We also took into account the support from the 2021-2025 power market. And we also had to take into account in further analysis limitations or even lack of support for this plant due to the emission standards, which were described in the legislation introduced in 2019, which limits to a significant degree, eliminates, in fact, Ostroleka B from receiving support from that instrument. Additional element that impacted the value of that asset was also the WACC level that was taken in calculating in the test. We also introduced a bonus for risk at the level of 3 percentage points. And that risk equalizes the volume risks for conventional units, which is connected merit order. And there, the prices connected obviously with the emission prices and in general policy, which is not going to promote conventional energy production. So all of these elements resulted in the necessity of write-offs at the level of PLN 476 million -- PLN 473 million, in fact. And we wanted -- want also to emphasize that the Energa Group will strive to find the most efficient strategic approach to that asset, to the Ostroleka B plant and for its activity after 2025. So here, we have specific analyses that are being started, that we've been carrying out. We are just initiating them. And of course, we are going to inform you about the results of these analysis in periods to come when they're going to be more advanced.

Thank you. So another question. The write-off and the reserve connected with Ostroleka C, what do they stand from? What do they mean for the project itself, for the contract with the general contractor and for the target company? Do you plan any other write-offs in connection with that investment?

Thank you for that question. As far as the reserves, at the end of the first quarter -- at the end of the first half year, they reflected the estimated numbers when it comes to financing of Ostroleka C in the scope of the current formula of the project, that is, the coal-based formula. And this is the position at the level of PLN 218 million. As far as the write-offs connected with the loan given to SPV at the amount of PLN 185 million, here, we also had a decision about the conversion from -- of the coal project to project in the gas formula. So in connection with that, in connection with the fact that the conversion is still ongoing, there is no formal decision at the end of the first half year to start the gas project yet. So we were obliged to write off that loan since we don't have a realistic level of flows allowing for payoff of that loan from that project. So these events are of accounting character. So they will be obviously assessed in periods to come. And they will be appropriately approached treated, depending on further decisions. As far as other write-offs, we will, of course, inform you about the levels in future reports, current reports.

Thank you. Another question. At what stage is currently the integration of Energa and ORLEN?

Perhaps I can answer that question. Currently, we are at the conceptual planning works with the representatives of the ORLEN and Energa. We are going through a number of workshops now. We are aiming at creating the most effective integration model and operational model. The process of reorganization does not cover only the reorganization of modeling the Energa Group, it also covers the energy production division of the ORLEN Group. So in this context, it's a challenge which results in a very complex character of the works, which requires sophisticated kind of modeling and verifying the assumptions that are made from the perspective of achieving optimal results. So as far as the final structure of integration and the model itself, we're going to obviously to keep -- we're going to inform you about it when the final decisions are taken within the group.

Thank you. Next question. When will you give us the information dealing with the Ostroleka C project?

I can maybe answer that, too. As we've signaled before, works on preparing new partnership agreement are going on. When it comes to technical requirements, we have conversion. So right now, we are working on the details connected with the change of technology and the model of that project itself. So at this point, we don't really have any additional information that we could share at this point. And all key decisions connected with the Ostroleka C plant are being communicated in accordance with the stock market practice and with the appropriate regulations. On the subjects of details of the final solutions, obviously, they're going to be communicated once the appropriate decisions are taken.

Next question. In the first half year, especially in the second quarter, you've noted large drops in EBITDA in relation to comparable period of last year. What level do you expect to reach when it comes to EBITDA for 2020 in totality? What is the chance of its improvement? Or perhaps do you forecast that it's going to be lower than in 2019?

I'll attempt to answer that question. As we've mentioned before, generally, we do not publish our financial forecasts as a matter of principle. We have to obviously say that every year, a number of factors do have impact on our results, many of them independent of the group. This year, obviously, we have the pandemia, the COVID pandemia, the coronavirus, which we don't know how it's going to develop in the second half of this year. So obviously, our results are going to be affected by the rate of the economy actually getting back to normal, these deals with the European market and the international market as well. So in connection with that, it's difficult for us to foresee the period in the second half of this year. We are obviously monitoring the dynamics and direction of development and our situation and cash flow situation obviously so that we can take optimal steps. So some cooperation with business lines and at the Energa's level, at the group level. But we all hope the situation to improve, like everybody. And definitely, as I've said, on the micro scale within our group is improvement on the revenue side due to the opening of the Przykona Wind Farm or the integration elements of searching for revenue synergy also in the cost part with the PKN ORLEN Group.

Thank you. Next question. What scale of investment in the RES segment is to be expected and in what period of time?

I'll try to answer that question. Ladies and gentlemen, definitely, the Energa Group plans to invest further in that segment. We have ambitious investments that are planned. We are talking here about most -- about greenfield projects and acquisitions as well especially when it comes to photovoltaics and wind. And I understand that the question mentioned the scale. So as far as the scale is concerned, well, at this point in time, we assess the financial possibilities as far as completion of the investment that are pretty much identified at this point. And also as part of integration, our strategic role in the ORLEN Group, we are going to eventually take these decisions within that factor. So as far as scale, please give us some more time. As far as elements that can appear sooner, we are thinking about participating in a tender for photovoltaic farm Gryf, Gryf photovoltaic farm. And also considering another one, this year's tender for a number of investments up to 1 megawatt, a number of investments in that range. We are also participating in preparing a project of waters there on the Vistula River. Part of it is a hydropower plant of 60 megawatts in power. It's planned for 2028 as far as opening is concerned. So that's all I can say at this point. Thank you.

Thank you. More question. What was the impact of pandemia on the results of the second quarter of the first half 2020 generally and in division to business lines?

I'll answer this question. As I have already mentioned, generally, the assessed impact of pandemia on our EBITDA is at the level of PLN 95 million. As you know, the impact of pandemia resulted in the decrease in energy use and the demand for energy, for electricity, which obviously shaped our distribution volumes, the scale of retail sales and also generally selling the energy on the market. Now dividing these issues per business lines, well, according to our assessment, the distribution level in Energa Operator line, we have the impact at the level of PLN 36 million. PLN 33 million out of that stem from decreased volumes, so PLN 33 million. That obviously impacted the margin and PLN 3 million extra costs connected to it -- additional costs connected with work and safety in order to secure working conditions of our employees in that very difficult period of time. As far as the sales business line, this is PLN 58 million defined at this point as connected with the sales of our surplus energy, connected with lower demand on part of our customers and clients and also a smaller amount in that context at the business line levels. So production at PLN 1 million connected as extra work and safety costs also aimed at ensuring proper working conditions of our employees. Also a big thanks, that's important. I'd like to thank our employees for their attitude in this hard period, that they've been able to minimize this effect of pandemia especially when it comes to the functioning of the grid. We have to emphasize that, that year-to-year or quarter-to-quarter basis comparison to last year, we are functioning pretty much at the similar level as last year. So that means that we've been able to mitigate that negative impact of pandemia in quite a significant -- to quite a significant degree when it comes to securing safe energy transmission and production of energy as well. And that's all for me.