PGE Polska Grupa Energetyczna S.A. (PGE) Earnings Call Transcript & Summary

We will be talking about our operational results after 2021. Today's meeting is a hybrid meeting. We are here with some of the journalists and investors. I would like to welcome everyone. And I would also like to welcome all of our online followers, viewers. And we will traditionally go through the outcomes, and then we will have a Q&A session. [Operator Instructions] Today, we will have Wojciech Dabrowski, the CEO of PGE; Lechoslaw Rojewski, the CFO; and Piotr Sudol, Financial Director in PGE with us. I am the spokesperson of PGE, and I have the pleasure to host today's conference. And I give the floor to Wojciech Dabrowski, the CEO.

Thank you very much, ladies and gentlemen. Welcome, everyone, representatives of media and our online viewers as well and our investors, of course, who are following us online. Ladies and gentlemen, I would like to start my presentation with an information that is the most important for us today connected with the tragic events in Ukraine. As you know, we are the biggest energy company. We produce over 40% of electricity in Poland. We are the biggest heat producer as well. And our distribution is located in mainly the Eastern part of Poland, East of Vistula River. So regarding the difficult situation in our neighboring country, Ukraine, and so the tragic situation, which is the Russian invasion in Ukraine, is very important to follow our safety rules. And we launched some concrete actions to improve the safety of our employees, our customers and the whole company. Because our priority, as you know, is to ensure electricity and heat supplies. And I can ensure you that everything is under control today. And there is no threat about the supplies deliveries in our group, which we informed you about. We've appointed a crisis team, and so that is at the central level of the PGE Group and in key companies. We have an ongoing monitoring of the risk. So what is important for us is the safety of the infrastructure as well as the cybersecurity. So we cooperate with all the services in Poland, especially security services. And we are in touch with them. In addition to the safety, today, the geopolitical situation also affects our business, and it affects the business in Poland and in Europe. So we identified some risk today, and we tried to minimize them. And we also introduced some mitigating issues. So supplies of fuel, such as coal and gas, there is no threat here. The deliveries are coming according to the plan. As well as -- as regards to the financial results, well, they are affected by the fluctuating prices of coal, gas and oil. As well as the EU certificate, CO2 certificates, they affect directly the margin. So all the results that we will be talking about today are very good right now. But we must also tell you that we can see some risks that will most probably affect Polish economy as well as the European economy. And we hope that this will be not a big impact on our company, but this is beyond our control as you know. As regards to the 2022, we contracted most of the energy and fuels. So we've contracted them according to the old prices. So we are observing really high prices of coal on foreign markets. And they will translate into the high prices in Poland because, as you know, we are operating on the open market. And the prices, in general, are similar, they equalize. So we can see the that the prices are rising. But right now, we do not believe that they will affect very much our results in this year. But the situation is very dynamic, and there are many scenarios possible. But I need to ensure you that everything is under full control. Now moving on to the summary of 2021. As you know, we've been implementing the new strategy. It was a very dynamic year as regards to the situation on the energy market as well as the implementation of the strategy that was announced 1.5 years ago. Our results are very good, and they are quite satisfactory to us. But they will be discussed by my colleague, Lechoslaw Rojewski. And as regards to the conventional generation, we are talking about fundamental change in the market, which was the result of the changes of gas prices on the world -- on the global market. Well, the prices were 6x higher. So -- but the very good results that we've achieved are also a consequence of the actions that we implemented in order to optimize our business. And we focused on our main business, core business. And we are very consequent in dropping the activities that are not our core activity. We sold our hotels a few days ago. We also sold the insurance company to PZU. And so we are putting everything in order according to the strategy. We will continue this. And we will move on to the new reality, new year. And as you know, our generating sources, based on the hard coal, are in the national agency of security, energy security. So this is the entity that will ensure our energy security for the next 20, 30 years based on the conventional sources. But in 2030, as a company, PGE will have no coal assets, and we'll be concentrating on the development of the renewable energy sources and, of course, huge investments. It is with special satisfaction that I underline that we achieved record results in the renewable sector. The EBITDA was [ PLN 1 billion ]. So these result proves that there is a growing role of the renewables at PGE Group and the irreversible direction that is energy transformation, transformation of energy. We, as PGE, being the leader of energy transformation in Poland, are consistently -- will consistently be implementing the investments in renewables. So today, we have a tangible proof that this is the right way because it brings measurable financial results, which is very important for the group, but also for the investors. Because certainly, most of our investors are investing to achieve profit. The past year, that's also key decisions in conventional -- sorry, wind energy. As you know, we sped up the implementation of the project with our Danish partner on the Baltic. We are the biggest investor there. In '26, we are going to generate energy from our farms. On the Baltic, of course, the works are going according to time line. And let's hope the situation in the Ukraine will not disturb this. Although, like I mentioned before, the situation is dynamic, and I hope that the situation will normalize as soon as possible, which will also normalize the situation in our region and as a consequence, the global situation. We are not slowing down. '22 is as busy a year as the previous year. As regards the implementation of offshore, we are just a day before the opening of the -- opening the procedure for building the land infrastructure. And we'll be organizing the workshops for the potential contractors. I emphasize this whenever I speak, that we are encouraging Polish entrepreneurs to enter our tenders to prepare for this huge project that will be building of offshore wind farms. This is -- we are the biggest investor in the Baltics, so this will be a huge market. And actually, Polish entrepreneurs using this chance, there may not be such a possibility later. Because probably in the coming few years, there won't be such investments, maybe only in the [ 30s]. So during the next stage of implementation of offshore. On the Baltic, we are applying for more licenses. And we would like to implement the building of wind farms. Also in the next stage in our strategy, it is stated that we want to have in the portfolio at least 6.5 gigawatt in offshore. Now it's 2.5 that we are implementing with the partner, 1 gigawatt that we are preparing by ourselves. So at least 3 gigawatt, we want to implement this in the new perspective, obtaining, I hope, the next licenses for the Baltic under this new program. As regards conventional -- sorry, renewable energy still. Let me remind you that we won the auction for renewable energy sources, 50 megawatt. We have a big photovoltaic program. This year, we'll be delivering much bigger capacities in the photovoltaic sector. We have permits, construction permits, 470-megawatt. So in this area, we are consistently implementing our strategy. As regards the investments in the gas and steam units, Dolna Odra is going according to plan. And before you ask the questions, we are assuming that the gas for Dolna Odra will come from the Baltic pipe. Let me remind you that the Baltic pipe is to provide 10 cubic billion of gas, and we are still developing. So we assume that Dolna Odra will operate with the Baltic pipe, and the fuel from the Baltic pipe -- will come from the Baltic pipe. As regards gas diversification, there is a program of extension of the LNG terminal in Swinoujscie, which as a target is to provide 8 BCM from Swinoujscie. And I also hope that the Polish -- the PGE LNG will continue the extraction of gas in Poland. Let me remind you that in Zielona Góra and Gorzów Wielkopolski, we are using the local gas deposits. And as regards the gas from Russia, because I assume there will be questions about this, we are receiving such questions, Our communication department is receiving such questions. So let me now say this, we also need to remember that as regards the energy mix of PGE, Polish gas is to be one of the elements of the energy system in a limited scope and as a target. As you know, in the Polish energy system, it is to be based on the nuclear plants, which are described in the Polish program that there are to be 6 of them. And after the conventional sources are withdrawn, they will provide the energy security. And the Polish energy groups will have a lot of renewables in their portfolio and modernize the distribution. We are also assuming that the geopolitics can speed up the development of alternative fuels. And now there are many voices that there should be a skip from conventional to the renewable. And as you know, you are -- well, I'm talking to those who are in this room because we know each other. We have known each other for many years. For technical reasons, it's not possible to transition from the conventional to the renewables. It's not so straightforward. Poland is a unique place as regards its heat system, the heat powered by the sources that comply with the strictest environmental norms. Because all the sources that where we are producing our heat in PGE, but also in other big groups, they're complying with the strictest environmental norms. So today, saying, let's abandon gas, let's switch to renewables is not possible for technical reasons, not to mention the social aspects and the economic aspect. We must not forget that at the end of the day, the investments in renewables are costly. And there is the end-user at the end, and we must not forget about our customers. We are a service company providing services to customers. And we decided that '22 and '23 will be strong -- strengthening of our work to improve and extend the offer for our clients, like turning towards our clients, offering them a somewhat broader services than today. There's -- like production of electricity and heat, we will be offering them also other services, which we know that they expect. We want to give the customer energy security. We want to take the customer through the transformation. We want to be a company that is helpful, taking the customer through this uncertain period because certain changes will result in concerns and uncertainty. So as the Polish Energy Group, as strong biggest energy group in Poland, we want to make our customers feel safe and take them through the transformation, providing them with the highest possible level of service as well as additional services that they expect. So ESG today, this is something interesting today, not interesting not just for the companies that are directly affected by it, but also interesting for media, for the circles that -- and companies around the world, investors, our investors. Well, not just the environment is changing, our group is also changing and I hope you are seeing this. And taking into account all the fields of ESG, so for instance, an environmental and the corporation governance, well, we take actions to meet the expectations of our customers to supply them with what they expected and change in a way that is expected from us by our customers and our investors. Now as regards the environment. So in addition to the decarbonization actions that I have mentioned, that you know about, we also strive to increase the climate awareness. I am talking about our group, our employees. Today, we've done that by calculating our carbon footprint and in -- so that was the reporting PGE Group's carbon footprint in using various machinery equipment around the generation of energy, but also in connection with the materials that we use and the services that we use because they are also affected by the carbon footprint. So CO2 emissions, so energy transformation is, of course, means not just the technological changes, but first and foremost, people. And our social involvement means that we are very active in the social field. And we want to continue our involvement in this area. So our social involvement means not just participation in the ventures that support social initiatives, but also being active -- acting for the regions and local communities in which we operate our business. So we prepared the transformation plans for the regions that are -- for the regions that are associated with Belchatów and Turów Complex. We've brought in applications to the marshalls of the [indiscernible] So we hope to receive money from the Just Transition Fund because we've already supplied them with our applications. So we also apply for the national recovery plan, recovery and resilience plan. Our projects are several million zloty worth. And today, we probably read the newspapers and the Minister of Development, Mr. Nowak, shared the information that there is a political consent to launch the recovery and resilience plan. And I hope that this will start very soon. This is necessary for us to start actually meeting our objectives, delivering our objectives. Poland, as you know, is one of the countries that has not received the money yet. But I hope that if really the politicians in the European Union and the whole European Union is realistic, serious and honest in treating the issue connected with supporting each other and is a conglomerate. And its a Europe of homelands, homelands that support each other. And I think nobody doubts about that right now. I think this is the moment when Poland deserves this support. It's not connected with our -- please, because if we are a full member state of the European Union that should receive further money in order to implement the objectives, the investments that are planned. Well, transformation of Poland because this is not just about the transformation of energy. That is a very important element of that. But we actually are talking about the transformation of the whole country. So ESG, so G letter stands for governance. So we know how important it is to have a efficient organization. And we work on optimizing and improving the operation of our company. So we simplify and facilitate work for our employees. So this is a long process. It's not as quick and as a show-off process like with the investments when you get the tangible results. So building up the governance is a longer-term process, maybe not too long, hopefully. But we really care about that. And I'd like to ensure everyone today that we are very consequent in developing the ESG area in order to meet the Polish standards, but also global standards. And we are no deeper. We are close to -- we stick to global standards here because we are the biggest energy company in Poland, one of the biggest in Europe. So I ensure you that we will be following this policy, and we will be implementing it. And we will keep informing you about our successes and progress in this. So the National Energy Security Agency, well, this is also about the internal security actually. So yes, it will be an internal security because it will ensure us with internal energy security. This is a process that is irreversible. So political decisions have been made. So this project that was just communicated in media has been confirmed by the Council of Ministers. On the 1st of March, the Council of Ministers approved the decision -- has taken the decision to approve the transformation of the energy, conventional energy in Poland, moving the conventional sources to the national energy security agency. So this process is irreversible. We are very actively working in this process. We believe that this is a necessity for us, necessary for the future for us. And this is necessary for us to have the ability to develop in the future. We did a lot of work in PGE. We prepared our organization for the separation of assets. While the agency must be independent, self-sufficient, the transaction must be market-based transaction. So before you ask your questions, I need to assure you that we have actually discussed this with the commission. We do not believe that the process will be done according to the market rules. So my colleague, Mr. Rojewski, will tell you more about that. He's been involved in this project since the very beginning, since the day one when it was included in our agenda. So separation of coal assets, so lignite, hard coal and mines, coal mines, so gas and distribution stays in PGE, for instance. So we are waiting for our final effect. We talk to our counselors, advisers. So this is a dialogue with banks, financing debt that needs to be overtaken, so many issues connected with finances. But in terms of organization, we are prepared, and we've just stepped into the next stage. So we have meetings with the social partners in the dialogue center. So one of them is helped today in the dialogue center exactly. I'm very happy that it's been understood because of the situation. And I hope that by implementing this agreement with the highest -- keeping the high standards of the social dialogue because we as the Management Board will not be able to do the process. We have to do this together with everyone. And I'd like to thank everyone who is writing about that, that this is a project that is necessary, that project that will offer Poland energy security because many of you have been supporting this project since day one. And I'd like to thank you for that, for understanding that this is a project that's necessary for Poland's energy security, and that will give us the possibility to develop so that the Polish energy sector stays in the Polish hands. So rather than in the foreign hands. Of course, we are open to cooperation with companies from abroad. We are famous for our kind hearts, I suppose, which was expressed in the recent weeks, for another time in our history. But we would like this strategic section of the economy. This strategic sector, which as the recent dates have shown, is so important in the broadly understood energy security of each country. We would like most of it to stay in the Polish hands. And for this to happen, we need to invest. And to invest, we can't have coal assets because the institutions, financial institutions for years don't want to invest projects implemented by companies that have in their portfolio coal assets. I wonder what else I should communicate, maybe I look at the slides that my colleague has prepared. Searching for new sources of financing. As you know, we are -- well, a day before that on the 6th of April, there was a break. We are a day before obtaining financing for investments in the renewables and distribution. These funds are to be used on this. Now the situation on the stock exchanges, as you can see, it's almost PLN 10. That's our price today. And I hope that after what I said, it didn't go down. But anything is possible. So the minimum issue price is PLN 8.5. I probably don't have to you encourage to invest in our stocks. This is probably obvious. So if the minimum issue price is PLN 8.55 and then it's PLN 10, so share -- per share, it's not surprising that there is such interest. And if the investors are still interested, we shall consider preparation of another issue. I believe that's it, by way of introduction. I suggest that my colleague, Mr. Rojewski, should take over to tell you more about the financial results. But then we'll be open to your questions.

So good morning, everybody. I shall start briefly with the situation that is in the national electric energy system, in this situation, in 2021. Of course, this was affected by, as our CEO said, by the situation on the resources market, the increase of the prices of fuel, especially of natural gas. Consequently, in the fourth quarter '21, in Q4, like in the previous quarters, we were dealing with growing exports of electricity. This growth in the fourth quarter '21 was at the level of 1.4 terawatt hour where in the entire '21, as a result of limiting the imports and growing exports, the exchange balance was a smaller by 12.4 terawatt hour. You will know that the price of electricity in Poland was one of the lowest as compared to the neighboring countries where in Germany, for example, or Czechnica, the price was around PLN 200 higher per megawatt hour than in Poland. In Poland, it was around PLN 617 per megawatt hour. Only the Scandinavian countries had electricity prices that were lower. At the same time, we need to remember that after the pandemic, there was an acceleration of the GDP and production in the entire '21, it was bigger by 5.4 terawatt hour. In connection with the higher energy prices in the neighboring countries and big use of electricity at home, the growth of electricity year-on-year was by 21 terawatt hour. And generally speaking, this applied to this -- this was applied to energy production in coal plants because the prices of gas and the winds. Because of that, make the renewables also use them. When we observe the situation, the dynamics was similar of production and of use. When we compare it to the high base level of '21, the growth is definitely smaller. And in the first 2 months, the production of electricity was bigger by 5.5% and use 0.6%. You also need to remember that this year is a year with exceptional atmospheric condition, the first 2 months, as compared to the first 2 months of the previous year where had much higher temperatures. The temperatures were at the level higher by 1.5 degrees. However, in the first 2 months, the atmospheric conditions was better for the production of electricity from renewables. That's why the production from electricity -- from renewables was higher. For the results, shall we pass on, shall we continue? The results for '21 were very much affected by energy contracting in '20 where the average prices of base annual production were lower by PLN 34. During the entire year, you will know that there were fluctuations on the energy prices, on the energy market. And the prices for '22 have considerably grown. Because of the growing prices of fuels, mostly gas and CO2 from quarter-to-quarter, the prices were growing from quarter-to-quarter. Especially in Q4 '21, the prices grew considerably. The price was PLN 700 per megawatt hour in December. And the decisive factor here was also CO2. The prices of CO2 at times grew to EUR 90 per ton. At the same time, we were seeing the extension of the simplified CDS, the difference between electricity price and the price of CO2. This is, of course, a dynamic growth, a dynamic growth of the resources on the market for the producers like us who mainly based on the cost of fuel. Because of production connected with lignite, the record high prices of gas meant high margins. We also need to remember that production of energy from fuels like lignite, unfortunately, is characterized by higher emissions, by 0.4 than in the case of hard coal. You need to remember, getting back to gas, that the amplitude of gas price changes in the previous year could change during -- by EUR 100 overnight. So it's hard to forecast what margins will be applicable longer term. When we -- now talking about the first 2 months of this year, in the beginning, we've reported -- recorded drops of energy prices. But in connection with the conflict in Ukraine, the situation has sharply changed. And then we came back to the level of PLN 700 per megawatt despite the fact that the CO2 prices are down. And of course, again, the conditions to produce energy using lignite became good again. And that was noticeable in the results after the first 2 months of this year. Now moving on to the next slide. In the individual segment, you will see the operational results. As I've said, the growth of national production, so it grew by 21 terawatt hour on annual basis. And as the CEO has said it, most of the production came from the Polish Energy Group, which is important for the conventional units that are necessary for the security of the country. The growth in 2021, we had the growth of production of lignite 25% -- up by 25% compared to 20% of hard coal. Of course, in connection with the fact that the gas became more expensive the -- so the production stopped -- dropped by 16% in the power plants. But now, renewables, the level remained more or less the same. Now distribution volume. Energy distribution grew, was up by 6%, so slightly over the demand in Poland because the demand in Poland was 5.4%. The biggest growth was among B tariff customers. So this is the average voltage. So now retail sales. As we've said before, the sales to end users, to the retail users was down by 9% year-on-year. So that was mostly connected with the a 13% drop of volume for the largest businesses. And there was a -- we had higher volumes sold to the end users, plus 2%. Now talking about heat sales. Of course, because of the colder weather in 2021, we sold more heat, 6.5 petajoules more. So that means around -- up by 13% year-on-year. So main factors for EBITDA. You know perfectly well that this year, our EBITDA was record high and the repeatable was PLN 8.129 billion. And as of 2021 on the energy markets, we achieved 2 fees, fee from the sale of energy, but also the power market. And as you can see here, we've reached PLN 2.773 billion. And this market, this situation really contributed to the good result. Now energy and heat. Despite high volumes, that grew by 10.7% year-on-year. The total effect of margin drop was PLN 623 million. And that was because of the lower price of electricity lower by PLN 18 per megawatt hour and also the growth of cost of CO2 and the resources on the market, raw materials. So the drop of energy production has been offset by the power market, capacity market. And we also sold more to the end users, so the growth here was over PLN 700 million. Well, that is mostly because of the fact that in the previous year 2022, we had a different situation because of the pandemic and the base was very low in that year. Now distribution. As I've said, the growth of volumes was connected with the growth of distribution, which was up by 6%. But now because of the regulatory account that was created, the higher growth than expected will result in the fact that in 2023 we will have to lower the result by PLN 250 million in this sector. And now summarizing the financial results. Please note that the recurring EBITDA was higher by close to PLN 2 billion. And that was the result of all the factors that have been mentioned by me during the previous slides. So the reported EBITDA was up by PLN 3.5 billion, which was mostly connected with the reclamation provision that was connected with the growing interest rates, but also technical conditions connected with the outlays, connected with the reclamation -- sorry, cultivation in 2 locations, in Turów and Belchatów. Now operational profit and net profit were more dynamic, mostly because of the value of the write-offs in 2020 in conventional segment. And that was also connected with the total loss of investment on PGE. And now moving to investments, to CapEx. As you can see, the CapEx this year, well, down by around PLN 1 billion when we compare it to 2020, mostly because in the conventional energy segment, we are limiting the investment spendings. So conventional energy will be moved to energy security agency. So Turów investment process was completed. We also ended the modernization process. Now as regards the distribution segment. Unfortunately, here, we also reported lower results in connection with the investments. That was mostly caused by the COVID situation. Some of the investments could not be implemented. Some were moved in time, delayed. So this year, we expect that we will have a bounce-up, and we will spend money to intensify the whole distribution program. So this is connected with cable laying, meters, remote meters. And this is also connected with a new issue. And some of the money for the program '24, '26 will accelerate the investments. As regards the investment expenditure on low emission sources, there are 2 new gas blocks in Dolna Odra. Now they will be entering the investment phase, so a lot more investment. In 2020, the down payment was paid of PLN 550 million. As regards the heat sector, the investments were on a similar level. We could say, to simplify that, in Czechnica, compensated for the modernization, more than compensated for the [ gas ] of CCGT. As regards the drop of investment in renewables, this is mainly connected with investments in wind farms in a cycle of investments. The cycle of investment is already planned. And now these investments are at the stage of implementation and preparation. So this cycle involves investments that will be mostly made in '22, end of '22 and then '23. Moving on to net debt. Like in the previous quarters, we had high operational flows, over PLN 4 billion. And in Q4 '21, there was a growth of the reported debt. This was mainly connected with payments for CO2, for the rights to CO2 emissions, implementation of contracts in December '21. Partly this -- the growth of the debt was also affected by the market situation because we needed to secure the spot market. Because in every presentation that I give, I always point out that there is CO2 contracting for the future periods. We are also showing the real debt of PGE, debt is PLN 10.3 billion. Considering the future CO2 contracting, so 0.52 debt indicator growth to 1.1. And briefly about our expectations for '22. This is going to be a year, as I mentioned on the previous conference, demanding here, where we expect a drop of recurring EBITDA, both in the conventional sector and in the district heating sector. Because of the differences in the prices of electricity that we recorded in '21, considerable growth again by almost 93% as compared to '20, that was how much the price of electricity grew. Consequently, we are expecting -- we have higher expectations as regards the average sales price of electricity, around PLN 480. Of course, it needs to be taken into account that CO2 after the drop to EUR 54 per ton in January, grew again to the level around EUR 80 per ton. This also needs to be considered. But this is just our forecast. And you need to take into account that the variable macroeconomic conditions, especially the situation in Ukraine may significantly affect our forecast or limit our forecast, unfortunately. In the conventional energy sector, the situation will less be favorable for us also because of the growing prices of coal. And like the CEO mentioned, well, it was over $300 per ton, which translated into PLN 50 per gigajoule. We are basing, of course, on the national market of coal. But we need to remember that the situation is dynamic. And if the volume of production from coal grows in connection with the demand, we will also have to purchase coal at a higher price. At the same time, we expect a bigger production from renewables, from wind facilities, and that will translate to a drop in production from conventional sources. Regarding the district heating, this will be significantly affected as a result of the growing CO2 costs. Like I said, this cost, against '20, in '21 grew almost twofold and the prices of gas as well as other resources. And please note that this growth does not translate to the tariff. So we are hoping for regulatory changes of the President of Aura, which will soon allow us to move the cost factors in the tariff. And then we will be able not to affect our EBITDA. But this is one of the factors that we are showing in the presentation that, unfortunately, we have a negative approach here. One of the main segments that we are most hopeful about, we hope it will grow in '22, as the CEO emphasized, this is the renewables sector, the renewables segment because we are expecting higher energy prices on the spot market from renewable sources. And we also hope that the price of green certificates will grow due to their insufficiency on the market. In the distribution sector, we are hoping for a stable perspective. We are expecting -- in the supply, we are expecting pressure on the margin. But the potential drop of the margin should be compensated by the wholesale activity of this segment, especially because of the higher revenues from the management of production capacities. In the case of distribution, the regulatory asset base growth, that's around PLN 700 million. This is mainly connected with the fact that investments were limited. And however, we expect that the WACC will slightly grow and the model rate would make WACC drop to the level of 4.7%, which should be compensated for -- compensated by the additional reinvestment premium at the level of 1.1%. This is signed by the President of Aura. In comparison to what we showed during the previous conference, nothing has changed as regards our -- the perspective of our investment in this year and in the coming year where we expect that the conventional energy, we won't have it anymore. But we are reducing the outlays on the conventional generation this year. But in all other segments, so renewables, district heating supply, we will increase the CapEx, the investment outlays. And this also is very important for our issue because the money from this issue in those 3 segments are to accelerate the program, investment program that we have. So let me remind you that our strategy says that up until 2050, we are to spend PLN 75 billion for investments, and we want to be a leading company in energy transformation in Poland. So thank you very much.

I would also like to thank you. We have the main part ended, and now we are moving on to the Q&A session. So traditionally, we will ask several online questions, and then I will give the floor to all of you who joined us here in the room. So the questions will be collected because we receive similar questions. So the first issue is connected with something that was mentioned by the CEO. So transferring the debt to the National Energy Security Agency, so what's the stage right now?

Let me remind you that we are talking to the banks and we are evaluating our assets. So as regards to this valuation, once we have it, it will help us to see what will be the relation between debt and the price. But we believe that all the debt will be in the Energy Security Agency. And we are not doing this operation to stay with the debts in PGE. I also received a text message from the investor, so when I was talking about the shares issue. So I just wanted to say that we are not thinking about new issues. We are doing this issue. And yes, so I just wanted to emphasize and clarify this. We are not taking -- considering any other issues. If this issue is successful, we are not thinking about new ones. So shortly from me. So we are following the schedule when it comes to this Energy Security Agency. There is a representative from the Ministry of Assets. They are preparing the financial model, and this is nearly completed. But once we have it this model in the third quarter, we will be selecting a company that will do valuation for all the entities, valuation of their assets. And then on this stage, we will be able to tell you more details, share more details with you about the process. And of course, as regards to our talks with the banks, I have to say that their response is very positive. We are preparing working teams that will be cooperating with the banks in order to work out a financial model for the future of financing Energy Security Agency. So that's how it looks like.

So for those of you who did not read the dividend report published yesterday, we have a question about dividend this year. Are you planning to pay out the dividend this year?

Well, I will be very brief in my response. Of course, our dividend policy includes 30%, 40% of the consolidated net profit minus the write-off, can be paid out in the form of dividend. But we have this reservation that because of the acquiring process, also because of expected the capital outlays, CapEx and the debt of the company, we are allowed not to pay out this dividend. And this is our decision for this year. As I have mentioned during my presentation, you know that we will continue big investments, and we need money to continue them. And we hope to get money from the issue. And we will also use our own money, and the money will include the net profit from 2021, and this will be spent on the investment processes.

Now the question connected with the share price, PGE share price on the stock exchange. So with the growth of capitalization of PGE, will the share price grow?

Well, as the CEO has said, so the nominal value of the new share issue has been specified, determined as PLN 8.55 level. But this is the nominal value. We have to remember that the issue and especially the recent situation, so the share price on the stock exchange which is growing definitely, I think there will be a lot of interest to acquire the shares. And this will result in a higher issue price than the nominal price.

Let's move back to gas topic. So this is the question to Mr. Dabrowski. We received a lot of questions like that via e-mail. So in connection with the fact that the strategy is greatly based on gas as the transition fuel, should this be updated?

Well, all our gas projects, such as Dolna Odra or Czechnica that we are implementing, are much progressed. So they are very advanced. The works are advanced. So we are preparing an investment in a Rybnik gas power plant. This will -- this is our target project. So as you know, the whole district heating transformation program is based on gas. Today, we have no other fuel that would be less emission costly, less than coal. So the situation is optimum for district heating. We have the technology. We can't really replace this gas technology with a renewables technology. This is unrealistic. If people have this kind of idea, that means that they have no clue about energy and gas district heating. So those projects will be continued. And we will also observe the situation on the market. But in district heating, there is no other fuel than gas that can replace coal. Just to make it sensible, then we have to use gas. So this is the best solution for everyone, also the company.

The last online question, and this is about the sales segment and the results in the fourth quarter, the supply district, why the supply recorded -- reported a downturn?

So the market prices, as I've mentioned, cost -- the contracts that were signed for the sale of gas and partially electricity fail to go hand-in-hand with the cost of purchase. So the company was unable to agree to implement the contracts according to the prices that were included. So the company proposed compromise in order to deliver and continue cooperation with the entities that signed the contracts. Nevertheless, because we have to realize that some of the entities may go to court and the claims may come up, we made a reserve of PLN 280 million for that. But as you've noticed, the situation is still better than in previous years. Of course, it could always be better, but it's much better than in the previous years. Anyway, the supply is still there, and we hope that we can reach an agreement.

So now over to those who are present in the room.

Piotr Dzieciolowski, Citibank. I will move slightly to see you all. I'd like you to help me solve the problem of the national energy security, energy and the balance. Because you say that you will move the PLN 10 billion of debt from the balance, so instead of that, there will be PLN 10 billion in cash? And how quickly can there be a level of debt? And what investments, annual investments should we expect within 5 years? And you also mentioned the acquisition processes. This is a phrase that always raises interest. What did you mean when talking about acquisition processes?

As regards raising the capital, we are not doing that. But please consider that we are -- at this stage, it's not us. Actually, the consulting company is at the stage of developing a model. As a result of this model, it will define for the particular energy entities the enterprise value. The enterprise value will be determined. And we are waiting. We are now at the stage of arrangements. So we are unable to concretely refer to the figures that you quoted.

Maybe I will add. The moving of the whole debt doesn't have to mean that it will be paid off like onetime. This theoretical number, PLN 10 billion of debt doesn't have to mean PLN 10 billion of cash. Could you please elaborate on that because I don't understand?

So this can be operated by a future enterprise. Now we are in the dialogue with the banks. We are not assuming that the debt will stay with PGE. There is no assumption like that on our side. And I can emphasize that. And as regards operation of the debt in the future, now this is under negotiation with the banks. How this debt will be operated by the banks to the...

I understand all that. But briefly speaking, well, I am asking you, at the end of the year, if you perform the operation that you mentioned, the whole debt will go to the National Energy Security Office. You will have -- then you will have zero debt on your balance.

Yes.

Yes. And let's stick to that. So why are you increasing capital right now, like PLN 8.55, all this issue? What is the goal with such a nonoptimal...

Well, the goal is we communicated to get capital for investments in renewables. And that's where the money will be used. And as regards to your question about acquisitions, we are interested in acquisitions in all the areas pertaining to our basic activity, and we are advanced in different processes. Very soon, very soon, we will be announcing the decision regarding quite a big acquisition connected with renewables. So we'll strengthen our leaders' position -- the position of the leader in the production from renewables, will definitely strengthen this position, will strengthen our capacity potential. And in the other areas of our activity, we are also in advanced talks with the potential sellers of assets in the area of generation, distribution areas that are our basic activity, no other areas. We are -- well, our interest is not present in our areas of business other than the ones that we are known for. If you talk about the acquisition processes and acquisition processes that we want to implement, the total might give you the picture of what you're asking about. But remember that in the strategy, it is written that by '30, we want to invest PLN 75 billion. And this is the amount that is still valid. We are trying to attract financing from various directions to be able to finance. And we are now consistently implementing this strategy and will continue to do. So we are advanced as regards obtaining financing for offshore. Now we are in the dialogue with several dozen of institutions from around the world that are very much interested in investments in the renewables. That shows that the direction that we adopted, like moving the coal assets to a separate entity. This results in interest in financing of green investments, and that is what we are doing today, that's -- we are doing quite at [ pace ] of best. And we are financing the whole strategy of Poland's energy transformation.

And what about return on capital in distribution? Because you provided the perspective for '22, do you think that the regulatory model for '23 can be developed? There was to be a due model, WACC on the PLN 22 billion of capital that you have involved in business. What is the prospect for WACC '23?

About WACC, my colleagues might comment. But remember that the office for energy regulation is to contribute to increasing the capital, like return on investment. We are investing a lot in distribution and we are continuing to do so. So we hope that we are convinced that we will get this premium irrespective of WACC. Because WACC, this is announced by Aura, then we are hoping we'll get the premium. We are an entity with the biggest investments in distribution.

And what about the prospects for the new model? How this can affect WACC?

We don't have the new model. It was to be there since '22, but it was not agreed on by the Aura. But now this is under the agreement, under the arrangement. As regards WACC and heat tariffs more flexible, very flexible actions of the Aura and the possibility of regarding the change of the CO2 price, fuel price, quicker response in tariffs. Well, it's about the move by a year because we are now on referential tariffs as regards heat. And you will know that first heat prices are collected from across Poland, they are averaged, and then the referential price is set. So there is this move by a year. And we want to avoid a situation in the future years that the growth will get accumulated because the big growth on CO2 and fuel will be accumulated. We want to avoid that. We want to make this flexible. We want to -- this to be done at least 2x per year or maybe more frequently. And we are in talks. This is done by the Ministry of Climate and Environment, but also Aura is very much advanced. So we hope that the decisions will be made soon. These are political decisions. These are not strictly business decisions, but political decisions which will make the system somewhat more flexible and will enable us to respond quicker because -- well, we just want to be able to respond quicker to market changes, which will be important for our clients. We should not assume that only growths are possible because we hope that also the prices can go down, the prices of energy carriers. We hope that the situation on the market is a special situation and that it will normalize, back to normal after the war in Ukraine ends. And this is also connected with planning investments like CO2 speculation that is happening all the time. Let's not fool ourselves because probably no one would say that it's different. One day it can go down by 30%, the other day up by 30%. So how can you play multibillion investments for many years if you are dealing with an instrument that constitutes 60% of the price of energy, even 70% of the price of energy. And it is so -- well, prone to fluctuations depending on the political decisions and -- so we hope -- so this is what we are postulating, and Polish government has been reporting this all on the global arena. So there are many elements that will affect quicker changes, quicker adjustment to the market situation. Thank you very much.

[indiscernible] PLI. I have a question about Energy Security Agency, 2 variants are there. So the government pays -- buys it out. And then the second variant [ GEXA ] will buy this out. In this year's budget, there are no money for the buyout. So it's not probable that [ GEXA ] will buy it out. So what are you expecting? So is it possible that this buyout will happen next year?

Well, this is something that will be related to the final agreements and the work of the adviser because this is part of the KPMG adviser work, and they work for all the enterprises, depending on the final model, and I hope this will be an optimum model, for what, for whom, for PGE, for the budget, for everyone. And -- but first of all, for the energy security of Poland, I hope you care about energy security of Poland as well. So this will be probably a model that will ensure us, provide us with energy security and make this venture profitable. And so that in the future, the Energy Security Agency will be doing well in the future as well. So the perspectives, the outlook is really good for energy. And you've been talking about that. So this will help the energy security agencies to have a good start and do a good operation, and then Poland will be able to do the energy policy.

Now more questions. A few months ago, Piotr has said that the value of Energy Security Agency is negative. I know that you know more than us because we have now this piece of information. So if somebody would like to sell it on the market, nobody would buy it.

Well, I don't know, but we are not putting it on the market for sale because we don't want to sell the assets that ensure Poland energy security because this should stay in the hands of Poland. And this concept is followed. And I'm very happy that the government today has this policy that the coal assets that ensure us manage security for the 20 or 30 years will stay in Polish hands and will not be sold. So let's not really talk about would anybody buy it or sell it because this operation will not happen.

But are you thinking about selling it for PLN 1 so that the taxpayers are not financing it even if they -- since they will have to pay for it after 2025? Or do you believe that this can be sold not for cash, but in exchange for other assets of the state treasury because the budget has no money this for kind of mechanisms right now, so how this transaction will be financed by the budget?

Well, as you believe, well, this will be up to the final projection then by the KPMG. So you are talking about 2025. So ending the capacity matter for the coal mines, coal power plants. Well, the law is clear right now and the agreement with the commission is clear. In 2025, the capacity market, coal capacity market is ended. We have a commission, politicians represent -- responsible for green deal. And we've had -- let's not taboo coal. So let's think maybe we can extend coal in those countries that are based on coal and then quick -- do a quicker transition into gas. Well, we are just talking about it. I think that the situation in Ukraine made us think -- rethink what some things. There are different ideas in the consequence appearing. But in a consequence of how important is the energy security of individual members states, the joint energy security of EU, the policy energy policy of EU because we are linked by energy. And Ukraine has joined us, so we can't really send energy there. But this energy will be flowing around with the electric lines and the grid, electric grid. So today, I wouldn't say that definitely, in 2025, the capacity market will end because we don't know what will happen in a month. We don't really know what President Putin will do. But today, that Poland is talking to the European Commission about the extending the capacity market.

So my next question is, if this market is extended, how will the gas units work without, call it, cogeneration?

If the prices of gas are high, they will be closed down. So if the gas should come with a priority of cogeneration, maybe we should give up the units without cogeneration such as Rybnik, especially that gas prices are really high on the market. Well, so the final decision about implementation because we're just preparing. The stage is, right now, about preparing. So that all depends on the final situation on the market. So today, the project is continued. But the final decision for the construction is not there. That has not been made. We'll see what will happen on the market. We have to remember the energy security, and that's the most important, so that Poland is secure in when it comes to energy, so that we have stable generation sources. And this is our joint priority. At least, this is what it should be. So this is what we do on an everyday basis as the Energy Group. Now reserve in turnover, so this is a Nesta Company, connected Nesta Company has terminated some contracts. Well, this is an independent company supporting the Stalowa Wola economic zone. This is a special economic zone in Stalowa Wola. So the contracts were terminated with whom? Their clients. Why? Because of the economic changes on the market. So the change is connected with the changes in prices, so dynamic growth.

So these were the long-term contracts with the enterprises in the economic zone, and those contracts were terminated? So you can't terminate a contract? There's an article 357. I am a lawyer. Me too. So [indiscernible] this is a clause, rule. So this is about economic situation. Now referring to this clause, having justified changes in economies or the growth of prices or other events, you can actually terminate any contract. So this company was selling you short.

Well, they were selling the energy that they have not in their portfolio. So they terminated the contract. They had the energy but at a different price, hence, so they had no energy. That means that they had no energy. But if I sign a contract for 3 years with a stable price, I should expect that this supplier will keep the price, keep the contract. But today, the situation on the market is the way it is. It will be implementing. Well, the situation is changing. The prices are growing. So it seems that the whole Polish economy and the European economy will face a problem very soon with this clause. It will be used very often. And we will have to analyze each case individually. So this is the situation like that.

Marc [indiscernible] I'd like to ask about the 6th of April and the conditions, have they already been approved? And will there be the voting on the issue of shares? Do you expect that the State Treasury will take up all shares or also market investors? And the question to the CEO about the acquisition of big acquisition of renewables. Could you please say more? When potentially this will be announced? Is it solar? Is it wind? And the megawatt?

I don't want to disclose this information because if I do, this won't be news anymore. And well, we do not live on news, but you like news, so please allow me to communicate this in a few days. This certainly is from the renewable sector. That's what I can say. And about the break in the general meeting, it was due to the external conditions. And I don't to know today if the conditions are still there or not. But we hope that on the 6th, the general meeting will be continued, and this issue will be launched. As regards the take-up by the state treasury, you can see what is happening today on the stock market. You can see how our shares are growing. And a situation can happen where the state treasury will remain at the level of 57.4 that it has, and the remaining part will go to the free market to investors. Unfortunately, I can't hear this comment. Let me put it this way. After my talks with the investors during the previous round of talks, the investors response varied. Some were interested. Some weren't. But today, we know from the broker, Rich, that the investors want to get back to the talks.

Those who are uninterested, right?

Yes. And it can happen that by the 6th, we'll get back to the round of talks with investors and then I can provide a concrete answer, whether there is interest or there isn't. Unfortunately, the comment is now [indiscernible] to the mic. We expect a higher value, that's the answer.

Marius [indiscernible] I have a question about NAV and the topics that my colleagues mentioned before. And about Turów, the estimated impact of Turów on this year's results of the company, do you have any estimations of the investments and compensations, damages?

As regards the impact on the results, the payment to the donation to [indiscernible] that's around EUR 10 million. And the other investments do not have significant financial parameters. But we are not talking about significant amounts, looking at the multibillion EBITDA that were mentioned today.

Two more questions. About the supply sector, if the situation was like that in Q4, I think caution is recommended in the other sectors. Could you make a comment about the loss or reserves? Could you make a comment about this sector? And about NAV, you mentioned that there won't be a notification to the European Commission. And is there a risk from the side of European regulators?

The entire project, the entire process is control -- coordinated by the Ministry of State Assets. And the initiator was Deputy Prime Minister [ Morawiecki ] one of the most important people in the government who is determined to conduct this project to ensure Poland's energy security in the future. And this is also approved by the entire government, the Prime Minister included. We do not know of any obstacles, any problems that would be connected with the establishment of the agency. And we do not know anything about notifying this project because this is to be a purely market transaction. The agency would operate. It only has agency in the name, but it will be subject to the commercial law. It will be fully self-sufficient. It will operate based on market principles. So there is no need for the process of prenotification and notification. Of course, there is to be a dialogue with the European Commission, and there has been a dialogue for many months. And from what we know from the communication we've been receiving, there is an understanding of the process on the side of the commission. Of course, there are many questions which the Ministry of State Assets is answering on behalf of the energy group. So far, we do not see any reservation on the side of the commission and no indication that there should be notification. If that happened, of course, the process would be extended. But we do not assume that this scenario is possible because this company will operate based on market principles. And the basics are...

So starting January '23, you assume that...

That's what is in the time line. January '23, this is the deadline. Everything is going in this direction. No threats today, although there are some unknowns. The dialogue with the social side, this is on the table. But I hope that an agreement will be reached, that the expectations of the society will be adjusted to the possibilities. And the perspective, providing jobs for thousands of people in the coming 20 or 30 years will also be a guarantee of the company's establishment as quick as possible. Well, this is obvious. The reasons are obvious.

What is the goal? And what about the debt investment and PGG?

We are waiting until the end of March. We are not the only entity participating in the investment of PGG. There are also other entities. The [indiscernible] entity is [indiscernible] S.A. And we are still waiting for this to be clarified and this to be solved. Our supply segment -- and as regards to the supply segment, we have not identified any increase of the reserve because the reserve was for the contracts that have been terminated. As one of you have mentioned, these contracts were signed by NSD. So if we are not identifying at this level, we do not identify the necessity to terminate any other contracts that would result in increased reserves.

So how about the CapEx? Well, this is dropping 2020, 2021 to 2022, will this be -- will the CapEx be lower in '22 than in '21?

So this is the last slide. If you come back to the last slide, well, everything goes up, so every segment will have a higher CapEx, only the supply. But this is -- we just need the working capital, not the investment capital to continue this. And all other segments are growing, PLN 75 billion until 2030 will be spent, so PLN 7 -- up to PLN 8 billion annually. So the last question, can we pass on the mic?

[indiscernible] daily. I have 4 questions actually. But my first question is about the CO2 certificates. In the report, we are reading that the group generated revenue resulting from the differences in the contract, PLN 2.7 billion. So how we should treat this PLN 2.7 billion? Is it a profit for you in the form of CO2 certificates? Is it on paper only?

This is not even on paper. Because in cash, we're selling December products, entering January and March instruments. This is the cash that we received, but we corrected the other side of the CO2 reserve. So this impact on result is zero. So what we've achieved in December, then we give away in January and March by a buying more expensive instrument, CO2 instruments.

In the same report, we are reading that you are forecasting that up until 2025, the CO2 certificates may drop by 4.6%. Why so optimistic forecast that the prices will be down?

When we are looking at the situation now, they were costing 93, and they dropped to even than by 4.6%. So this price cannot increase indefinitely. Stabilization must be reached. We know that the conventional sources will be ended significantly, consequently. So this will affect the price as well.

We know that the PGE results are connected -- have good results connected with the situation in coal, so how about PGE? And the 0 share price of PGG, will that be changed because of the good situation of PGG?

No, we don't think about changing it. That was a very efficient process. So Torun, when modernizing [indiscernible] 200 unit Torun says, hopes that there be will a new support system, new regulation form for the balancing units during the modernization. So regulation reserve, that could appear on the market after 2025 and be something additional support for the 200 units.

Do you agree with this idea of Torun?

Let me. Well, your question is coherent with what Mr. [indiscernible] says. What will happen after 2025? Well, this will depend on the situation on the market. Well, there are preliminary talks conducted. What will happen after 2025, the talks are conducted with the European Commission. Well, the situation in Ukraine, in the whole region will progress. And at some point, Polish government in agreement with the European Commission decides that we must extend the coal units because of the energy security. If such decision happens, then instruments will have to be made to support the conventional sources. As regards the 200 units, well, as you know, they can work a little bit longer than the resource information. Today, we don't have this kind of ideas, and no decisions like that have been made. We are consequently following our energy transition and Energy Policy 2040. And we implement our strategy that consistent is with the policy approved by the government, so parallelly with the strategy approved by PGE. I have to remind you that as the first energy company in Poland, we've approved the green transition, respecting the conventional base. So that was our motto. And we -- for the past 2 years, we've been continuing this policy.

And really the last question from me. So this is about the security agency. You've mentioned that this agency will not need the notification of the commission. But there is a question to the commission about there is such a big enterprise. Also [indiscernible] consent, regulatory bodies consent, are you afraid that this can be blocked because we are talking about the enterprise with 60% of generation capacity on the market?

Today, we have so many instruments how to impact from externally to -- with all the appetite of the biggest producer, which the security agency will be. So we have the commodities stock exchange. This is what we do. It can happen. We can't have a situation when energy is much more expensive in Poland than in the rest of the Europe because we have the market. And we also have the PSE. That is a regulator in a way that can import or export energy market customers, stock exchange. [Indiscernible] these are the bodies, the instruments that can be used to intervene in a situation that goes beyond a certain framework of strictly market-based operation. If the appetite of some of the enterprises to make too much profit at the cost of the customers are seen. Well, I am not saying that this is happening. Well, [indiscernible] will be the main body to take the decision because this is the office that regulates this kind of activity so well. From our point of view, we do not see this kind of threat. But maybe somebody can see it. But there are so many bodies, so many instruments that I'm generally very sure about that.

If that was really your last question, then we are really closing down the conference. It was really a long conference, and this is the biggest energy company. So thank you very much for attending. And those questions that have not been answered here will be answered by e-mail. And thank you very much, ladies and gentlemen, and see you very soon.

Thank you, ladies and gentlemen. And of course, we are at your disposal. If there are other questions, please send them to us. Really, as usual, we are transparent, and we are happy to answer any questions. Thank you very much.