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

[Interpreted] Good morning, ladies and gentlemen. I would like to give you a warm welcome at the press conference of PGE, concerning our financial and operating results in the fourth quarter and in the past year. We will have CEO, Wojciech Dabrowski; Vice President for Finance, Lechoslaw Rojewski; and Director of Finance Division, Piotr Sudol. My name is Konrad Mróz, and I have the honor of being in charge of External Communications and Press Office, and I will host today's conference. In a moment, I will give the floor to our Management Board members, and then we will proceed to the Q&A session. CEO, Wojciech Dabrowski.

[Interpreted] Good morning, ladies and gentlemen. Ladies and gentlemen, now we have behind us a difficult year, difficult for PGE, for the entire Polish economy. We had to face difficult market -- volatile market of fuel prices, CO2 rise and inflation caused by the Ukrainian war. The scale of the energy crisis, as you will have noticed, was so immense that it brought about intervention of the state and market mechanisms and in the operations of energy companies. Let me just remind you a few events that took place in Europe. Nationalization of Uniper that was Fortum's subsidiary, all a nationalization of EDF. In Poland, such an event, but also affected the market and that resulted from this intervention was the abolition of stock exchange obligation. But in spite of those difficult conditions, we were identified with those who made some profit on growing energy prices or even we were believed to get some huge profits. Yet the data we are going to present to you today, and that will be in line with our communication of the past months, all that denies the propaganda that was against us, because PGE had no extraordinary profit. The increase in energy prices resulted solely from market mechanisms and energy crisis, which drove fuel prices. In 2022, recurring EBITDA was slightly over PLN 7 billion. That was 11% (sic) [ 12% ] lower than in 2021. But I would like to emphasize, and I'm saying this with full responsibility, that the situation of the group is stable as confirmed by our credit ratings. At the end of January, Fitch maintained a high rating of PGE at BBB+ with a stable perspective for the future. Slightly earlier, Moody's confirmed its rating, which shows that the rating agencies and the national rating agencies perceive our group as a stable market entity. And the operations of the government and energy companies mean that the Poles do not bear the burden of energy price increases and their bills are similar to what they paid last year. As regards to the fund for payment of the price differential, just in December, PGE, thanks to this mechanism, was able to freeze its prices and customers were able to pay as in the previous year. From PGE, this payment amounted to PLN 350 million. Strategic projects. 2022 will be remembered in PGE as a year that, to a large extent, will determine the future of the group. That was a year of intense activity throughout the entire group and holding, all that aimed at preparing the company for energy transformation in the market. What we did, the work that we performed will affect safe energy supplies in the future at prices acceptable to customers. Let me remind you that in 2022, we signed an agreement that paves the way for creating a national agency for energy security. We are at the last stretch of this process. Operationally, we are ready, NPG for this transaction, and we will be able to function fully independently. You will get some more information of that. If you are interested, we can address it in the Q&A session. We signed -- and that's particularly important agreement to buy PKP Energy. The takeover of PKP Energetyka will consider the very important element of our development in energy distribution area. Thanks to this transaction, we will start our operations in the field of railway distribution. We will be an energy distributor in all voivodeship of Poland throughout the country basically because PKP Energetyka operates nationwide. PKP Energetyka is an important element of state energy security because PKP Energetyka distributes energy for the entire railway transport in Poland. So that is a strategic company in terms of safety and security of the state, especially under circumstances of threats from the East. An important element of our activities was the commencement of the construction of nuclear power plant in cooperation with ZE PAK S.A., which is a Korean partner. Last year, as we informed you, we revised our attitude to nuclear energy. We signed letter of intent with ZE PAK and with the partner who will allow us to safely build this nuclear power plant. Today, we are very active operating on this. We prepared a preliminary seismic geotechnical studies. We have signed a document defining the rules of cooperation with ZE PAK that was a term sheet for the agreement of establishing this joint venture that will operate to achieve this goal that will be a joint venture of us and ZE PAK, that will be PGE and ZE PAK 50-50, and this company will be the partner in negotiations with our Korean counterpart. So we are working dynamically on this. We are waiting for the Office for Competition and Consumer Protection, and once we get the consent from the Competition and Consumer Protection Office, we will start talks with the Korean partner to establish the joint venture and drafting of the investment agreement. It is also important to us to have received the final decision on Baltica 2 and 3 wind farms with contract prices at [ PLN 319 ], 60 [indiscernible] per megawatt hour. And the valorization of the price, the adjustment of the price since 2021 will apply. We are now working on procurement in this project. We're also working on getting funding for the project. This project will be done under the project finance formula and in connection with talking broadly with various institution -- financial institutions from across the globe that are potentially interested in participating in the project by providing funds. Last year, we also issued bonds that was a successful issuance for PLN 3.2 billion, as a result of which the funds can be used for investments in distribution network and in renewable energy. That was precisely defined as the purpose of the proceeds from the issue, and we are consistent in spending the money for those purposes. At the turn of 2022 and 2023, we signed 2 agreements with EIB for the total amount of PLN 3.4 billion. These were also related to investments in network. That shows that in the upcoming years, this year and the short-term perspective, will invest heavily in our distribution. From the perspective of the completion of our plan, it also matters that by 2030, we plan to invest about PLN 70 billion. We won an auction for Rybnik gas unit, which paved the way for work on this investment. In the energy mix, we have gas in PGE. We believe energy diversification is necessary. That is, by the way, our second major investment of this type with Dolna Odra and the New CHP Czechnica being far advanced. And this one will be another investment in a gas unit or gas units rather, that will ensure diversification of fuel in the future for energy generation. Coal in the future will be replaced with other fuels, but the situation that we are facing right now shows that having our own resources, lignite, charcoal protected Poland in this difficult war-time period, allowing us to be self-sufficient in this respect. We had this basic fuel, which allowed us to supply our power plants that were capable of producing electrical energy, which meant security last year. I leave aside the question of coal import because that was important mainly for individual customers. It was not intentionally imported for institutional partners. Our primary partner is Polska Grupa Górnicza [ Kogeneracja S.A ]. So we rely primarily on national producers and national suppliers. From our perspective, it is also important that we started the feasibility study for another energy storage facility and power plant that will be in the Southwestern Poland. Today, the global trends of developing those energy storage facilities that will allow us in the future to store surplus energy, mainly in the renewable energy sources, and then using this energy when it is most needed and most expensive. So in the future, this project will be an important element contributing to a balanced funding of energy supply in Poland. The first days of 2023 were also important. So if I may, let me cast more light on the early days of 2023. I'm sure you have followed that. For location licenses for offshore wind farms have been settled in our favor. So PGE alone and with partners, we received the highest score, and altogether, this is 3.7 megawatts, which really secures our strategy. The strategy of PGE Group makes it clear, but it is our ambition that by 2040, we would have 6.5 megawatts of installed capacity with offshore wind farms. Now in terms of Rybnik, we signed a contract for the construction of that power plant. We also signed the agreement with ZE PAK to set up of SPV, and we continue to arrange financing for our projects. We signed a contract with a bank consortium for PLN 2.3 billion, and this is a lending facility that is related to [ STE -- is dividing ] which means that we are really turning around, and we are very responsible about our communication to the market and to our stakeholders. So we do consider ourselves accountable and responsible. We really want to prove to the stakeholders and the market that we are changing our profile and hence, this lending facility for PLN 2.3 billion, that is directly related to ESG rating. So the changes that are along the line will just confirm the consistent approach that we have to the energy transition. The market is evolving very dynamically, and the situation is changing at the fast pace. Therefore, we have decided to revise our strategy to keep it updated. And to account for important projects that I mentioned, namely extend that operation in the distribution area, nuclear power and the shutdown -- or actually the spin-off of coal assets to the national agency for security -- for energy security. The strategy after the update will be presented in June. And I think that I should mention the lignite imports. I know where it was a popular topic in the media, but not only in the media, our customers were also scratching their head over it, whether Poland will have sufficient supply of lignite for the heating season. Now no one has any doubts about it. We managed to close the loop, and now we are at the onset of the spring and the heating season is coming to the end. But let me revisit the action that we launched as PGE. We worked with other players, but we were the leading company that was orchestrating the action to secure energy security. We imported nearly 10 billion tonnes by March this year. So I want to thank the staff of PGE. There was a number of our companies that were engaged in that process. It was a tedious process to import coal and then to actually have the distribution to reach different locations in Poland, so that the end customers have access to refuel throughout the winter season, and we succeeded. Now I would like to acknowledge the Prime Minister Morawiecki and Prime Minister Sasin and his ministry and also the Ministry of Environment and Climate and the local governments that were willing to work hand in hand. And together, we were able to get the job done. In other words, we were able to deliver -- to secure steady supplies of coal once there was an embargo on Russian coal announced. So that would suffice for the introduction. Now let me turn the floor to Mr. Rojewski, who's our CFO, and he will discuss financial performance of the group. And later on, we will be ready to take your questions.

[Interpreted] Ladies and gentlemen, as always, let me start with the national power system for 2022. So Q4 of 2022 showed that generation has been declining, or I should say, it was slowing down. And we were down by 2.6 terawatt hours compared to the Q4 2021. And that -- the reason for that was that gas-fired generation was down by 1.13 terawatt hours, and the coal generation was down by 1.10 terawatt hours. We were able to offset that decline by renewable sources to some extent. The renewable sources were developed at the fast rate last year. The PV capacity reached 12 gigawatts which means that throughout the year, we were up by 4.5 gigawatt hours. And over that period, the consumption of electricity was down by approximately 4% because of the conducive climate environment and because of the fact that the COVID-19 situation was contained and faded away. The price per megawatt hours in Poland was one of the lowest in Europe. The average annual price was PLN 775 per megawatt hours. And let me just remind you that in the neighboring countries like Germany or in the Czech Republic, the price was over PLN 900 per hour -- per megawatt hour. So summing up, Poland was the country that ended up to be the exporter of electricity, approximately 0.2 terawatt hours. Now if we take a look at the electricity prices -- and please note that the average price on wholesale market in Conventional Generation and heat was PLN 505 per megawatt hours. On the same chart, you see the average annual price for -- on the forward markets and on the next day market. So the conclusion is that the last year prices that surged at some point -- well, the surge in prices were a one-off event. At the end of the year, the prices of commodities were down. That was true for coal because let me remind you that at the turn of July, August, the price of coal was approximately EUR 400 per tonne. And at the end of the year, it was down to EUR 200 per tonne. We have also seen high fluctuations in gas -- natural gas prices. At some point, the prices were reaching EUR 300 per megawatt hours, and it was at the turn of July and August. But at the end of 2022, the price was down below EUR 50 per megawatt hours. And let me remind you that before the Russian aggression in Ukraine, the average price was EUR 40 per megawatt hours. Now if we -- if you look at the cost of CO2 as this is the main -- significant cost driver. In Q4 2022, the price of CO2 allowances was between EUR 70 and EUR 90. Currently, it's between EUR 85, EUR 87. In Q4, the exchange obligation was lifted, namely the obligation to sell electricity through power exchange, and when the limits were set for -- price limits were set for the generators and maximum price levels for selected groups of generators. Now if we take a look at the next slide, you will see the summary of 2022 for the PGE Group. So as in the national power system, in PGE, we've seen declining generation of electricity. It was down by 4%. In our case, we had declined coal generation, and we were down by 16% year-to-year. And with the gas turbines, we were down by 34%. So we focused on lignite units, and that was necessary because we had to restock. And at the same time, the operator required us to operate mainly our lignite fire units. As the consumption of electricity was down, the distribution of electricity was down by 2% in terms of the volume of distributed electricity. I always emphasize that this is strictly related to breakdown of off-takers that we have in our jurisdiction. We have fewer industrial clients. We have more retail customers, and the situation on the market has changed. As you may know, most people are back to the office and children are back to school. They don't need to stay at home for online classes. Now looking at the sales. Sales in 2022 was declining. We were down by 9% year-to-year, and that was specifically true for tariff B. The reason is that more and more corporate customers are switching to renewable sources. So they diversify their energy mix. But when we look at the G tariff, that number was down because consumers that are having some limits for their electricity generation are able to recover some part of whatever they generate. And therefore, they do not use the electricity that we are generating or other generators. Now decline in heat sales again, and the reason is a higher temperature during the season. The average temperature was higher by 1.4 degrees in 2022 compared to the previous year. Now if we actually look at EBITDA value drivers, as the CEO said, the reoccurring EBITDA was PLN 7.1 billion. The negative impact that we've seen with electricity generation was translated in PLN 816 million. And the underlying reason was that the variable costs of generation had much greater dynamics, and they were growing at a faster rate than the prices. So again, let me remind you that we are speaking about higher commodity prices. So coal was up by PLN 18 per giga joules and CO2 allowances were up tremendously, over PLN 170 per tonne. Increase in revenues from electrical energy sales was at PLN 15.8 billion and reflected the high dynamic of electricity prices in three segments: conventional energy, heat and renewable energy. Compared to 2021, the growth was by PLN 260 per megawatt hour. We also had growth in the prices of emission rights following the price increase. The volume of those emission rights -- the amount I quoted previously as the increase, we can talk about PLN 12 billion growth while on raw materials, PLN 14.4 billion. Additionally, in trade, we recorded high margin on sales of electricity. If we look at headcount, personnel cost, PLN 658 million up, and that is mainly the cost of collective bargaining agreements and increase in minimum wages. So we can recapitulate that EBITDA -- recurring EBITDA in 2022 decreased by PLN 1.9 billion year-on-year. One more important item among the factors driving EBITDA, namely other costs. Here, under other costs, you can see a positive balance of provisions on claims from contractors in our build sector, higher cost of third-party services and the two related costs of transportation. If we move on to capital expenditures, increase in CapEx, and that is a significant item, almost PLN 2 billion increase in capital expenditures, leaving aside conventional energy because that was basically expenditures on modernization and restoration. Partially, we also included here the amount related to the new unit #7 in total at PLN 14 million. As regards to distribution, here, we have CapEx mainly related to new connections. We are intensifying the program related to the new connections and modernization of low- and medium-voltage networks. In Gryfino 250 (sic) [ 2050 ] that is on the premises of the former Dolna Odra power plant, we are now building gas units and the CapEx was mainly related to this project. So that means low emission energy sources. Now if we look at heat. Here CapEx is mainly linked to the New Czechnica project. In renewable energy, capital expenditures are mainly linked to modernization of the water power plant Dêbe and Proabka-Zar power plant. These were the key elements behind the growth in CapEx at almost PLN 2 billion as compared to 2021. So if you consider our debt at the end of 2022, net cash balance was PLN 2.66 billion. That net debt to EBITDA ratio was at 0.31x. Economically speaking, if we consider CO2 settlements, our debt increased by PLN 3.3 billion, and that represents the debt ratio -- net-debt-to-EBITDA ratio increase quarter-to-quarter at 2.2 (sic) [ 2.02x ]. Now we have two slides showing the prospects for 2023. At the beginning, I would like to notice that the key impact on the result of 2023 will come from the laws approved in October, November 2022 about extraordinary measures that limit, on the one hand, the price of electricity and on the other hand, support some recipient or relieve some recipients. There is also the executive resolution specifying the manner of calculation of electricity prices. Another important element affecting conventional energy segment and heat energy will be a significant increase in CO2 costs. We expect the CO2 cost increase at some point in December. The price exceeded EUR 100 per tonne. As regards to renewable energy, the arrow points down and that is because those executive orders came and those laws were approved at the end of last year because other elements, other factors are positive like new photovoltaic capacity and month-to-month improvement on power plants. So if there is any change in those legal regulations, then automatically, the arrow in renewable energies will change, showing a growth. As regards the structure of heat tariffs, the increase in cost will not be carried over in the following years. So if we experience an increase in prices on the raw materials needed to generate energy or if there is an increase in CO2 prices, then we will see a decrease. In trade, regardless of the offsets, there will be made a pressure coming from the legal regulations on extraordinary measures. And that, in turn, will affect margin on products, mainly on tariffs. Distribution is positive -- on positive track. Here, we have regulators go ahead for the program that we had intended. And as regards capital expenditures, we had conventional energy that was higher. Additionally, the process of offsetting the coal sector to the national agency for energy security is underway, so I don't want to comment on this. This will be basically CapEx related to modernization and maintenance of this segment. But elsewhere, we will essentially continue to build the Gryfino unit, and we will commence work on Rybnik unit. The same situation in renewable energy. We have extensive photovoltaic program. Offshore wind farms, also onshore wind farms will develop. So here, we expect significant CapEx in this area. And then distribution were the key outlays in the context of new connections, new potential customers with cabling and with investments in tangible fixed assets. So I think that distribution and renewable energy will be the two principal drivers that we will see this -- in this new group next year.

[Interpreted] Thank you, both gentlemen. Ladies and gentlemen, this is what we prepared for you. As you know from the past experience, we collect that questions already yesterday after we published and announced a report. So let's start with the e-mailed questions and then we will turn the floor to you. The first question is about the national agency for energy security. Are you prepared for that? And when we may expect that to happen? Over to our CEO.

[Interpreted] So we are actually just investing our coal assets. I've already said that we are finalizing that. The decision of Minister Sasin is that the final arrangements will be done at the end of March and beginning of April. And we believe that the State Treasury will confirm that they want to make the acquisition of these assets. We are ready in terms of operational aspects. This transaction is fully prepared. Operationally, we are also fully prepared for that and because of the social agreement that we have with the social partners. We have the provision for the bonus for the employees who will leave the structure of PGE, and hopefully, the proposal that we'll get from the state will meet our expectations. And hopefully, the final transaction will take place in Q2 of 2023. These decisions will be signed at the turn of March and April, and the final decisions of [ Nikoli Vares ] will become effective in Q2. And if final decisions are made, we will keep you informed, but we are really finalizing this process, and we've been talking about it for a long time. So I cannot -- I do not need to tell you there is a breakthrough for the Polish power sector. It will change the markets. It's -- this is not a straight forward operation. It affects a lot of stakeholders. It also involves many other electricity generators. So the process is highly complex, but we are really finalizing it.

[Interpreted] The next question is about our contracts with PGG and whether we have the price set for 2023 -- the price of coal.

[Interpreted] Yes, we agreed on the price and the volume of coal that will be delivered to us. So we should finalize everything by the end of the month. So we negotiated everything. So there are no outstanding issues that need to be covered. So we have peace of mind when it comes to supply of that fuel.

[Interpreted] Okay. We've got a handful of questions that are about our new loan that is linked to ESG. How does it work? And do you intend to continue such financing in the future?

[Interpreted] Well, as you know, ESG policy plays a major role on the financial markets, and it is really important when you want to arrange financing from the commercial banks or international institutions. For the very first time, we dealt with ESG policy or we got the rating that is related to ESG policy and was actually used in our financing. So I'll have to say that yes, we will definitely continue along these lines. We will promote sustainable projects because this is in line with ESG policy. And at the same time, ESG policy has an impact on the margin that we pay on the loan, and we want to make sure that the cost of lending -- of borrowing is the lowest we can get it. So I may confirm that we will continue to work on the ESG implementation, especially that we have a very challenging expenditure program -- capital expenditure program. And the financing that we are going to arrange is not just raised here in Poland, but primarily in the international markets, and this is where ESG policy appreciated.

[Interpreted] Some questions that we got are about Price Difference Payment Fund. Mr. Dabrowski mentioned the cost for the last year, but what is the expectation for Q1 2023 and throughout 2023?

[Interpreted] As far as 2023 is concerned, as of today, I may just say the same that our CEO said that at the end of Q4, so December 2022, in total, we contributed to the Price Difference Payment Fund of PLN 351 million. And as far as 2023 is concerned, I do not want to come up with any answers to these questions. I cannot give you any accurate answer because there is a number of drivers here and prerequisites. For instance, national agency for energy security and the assets will be transferred. We have open position. We have high volatility in the spot market. So at this point in time, we are not really able to give you any meaningful answer to the question about the total contribution that we are going to make to price difference fund in 2023. If electricity prices in 2023 are down, then contributions to the fund will be lower. But at the same time, our revenue would be lower. Let me just remind you that the maximum allowable price, according to the regulation, guarantees the transfer of costs. And for the coal units, it's higher than the price that you get on the wholesale market. The price per lignite -- the limit is PLN 700 per megawatt hours, and for the coal, it's PLN 1,000 per megawatt hours. And the sale price was PLN 505 per megawatt hours. So the tipping point is really renewable power. PLN 355 per megawatt hour is the price limit and this is important to watch the spot market for renewable electricity because renewable electricity is all about spot market. So to give you a more precise answer, we have to wait a bit. This is premature to come up with any sound estimates. I believe that at midyear, we will be able to provide more answer to such questions.

[Interpreted] Okay. Another question that we got is about the dividend payment. PGE is not going to pay the dividend this year. Is it something that is going to stay with us?

[Interpreted] Well, as a Management Board, we really made a decision that we are not going -- not a decision, recommendation, sorry, sorry, sorry -- recommendation for the General Shareholders' Meeting. General Shareholders Meeting will make the decision. We made the recommendation. So on one hand, we are facing the acquisition of PKP Energetyka. At the same time, we have a very challenging capital expenditure program in the distribution sector. We have offshore wind farm projects. We are preparing for the nuclear power project. So putting all these things together, we need to make a recommendation not to pay a dividend this year, especially that our profit is [ PLN 3.3 billion ]. I'm talking about a consolidated results for the capital group, which is modest, and you have to admit, compared to financial outlays that are ahead of us if we want to deliver our CapEx program.

[Interpreted] I promise this is the last e-mailed questions, and I'm going to turn the floor over to you. Distribution from 5.8% to 8.5% in 2023, why do we have this increase in the distribution sector?

[Interpreted] Well, mainly, this is driven by the decision of the regulator. And this -- and there are two factors to be considered here, costs and our expenditure program and investment projects that we are carrying out. We have high costs related to the connections. We are really waiting for the connection of the new wind power farms and the entire program for the sector, which is PLN 130 billion until 2030, requires a lot of funding. If WACC is not approved at 8.5% to reflect the market conditions, we would not be able to deliver the CapEx program. And let me remind you that WACC includes 1% that is strictly dedicated to investment capital expenditure program. So the regulator simply accounted for market situation that we have today.

[Interpreted] Okay. We still have time to take a few questions from the audience. So the floor is open for any of you.

[Interpreted] My name is Tomasz Czarnecki. Can we revisit EBITDA? And can you actually say, what was the contribution of renewable sources, so PGE renewables?

[Interpreted] PLN 1.9 billion. Approximately PLN 1.9 billion. We will get the accurate number shortly.

[Interpreted] Okay. Can you -- PLN 1.7 billion. So renewable segment was PLN 1.7 million (sic) [ 1.7 billion ] in terms of contribution to the EBITDA. And now my next question is about CapEx for 2023. And what is, again, the contribution of the renewable or the share of the renewable in this total CapEx?

[Interpreted] I think that we showed it on the slide. We believe that we -- that this cost share would go up because of the PV farms projects that are going on. We launched important projects between 200 and 300 megawatts, and this is about the PV generation. And possibly at the end of 2023, we will have the first CapEx for offshore farms, but we are not able to come with a really accurate forecast. We have not announced that yet. But when we look at the outlook, we can tell that distribution and renewable segment will be leading the way, and they will be the driving force for our CapEx.

[Interpreted] Unfortunately, the question is not asked through a microphone, but the answer is that this is a PV. But please be mindful that as my colleague said, we are not able to give you like the total breakdown of this cost, and we are not able to say, at this point, how much CapEx will be spent on renewables because the wind power law has been amended, and there might be some projects here. There might be some additional PV projects coming up. So we are part of all the projects that involve development, but also acquisition. So throughout the year, we will see the evolution of this share in the CapEx. To us, this is a priority segment in addition to the distribution and certainly, we are going to have major spending in this segment to further develop it.

[Interpreted] Well, when you look at the segments and you have renewables, I think that you have not really accounted for the acquisition of free wind farm projects on the slide. Now what we had on the slide was just the material expenditure. So whatever we spend, but it is true that we made the acquisition, 84 megawatts of wind farms, so PLN 900 million minus cash. So cash flow effect is approximately PLN 800 million. So PLN 6.6 billion of total CapEx that should be 6.6%, 6.7% is the total CapEx, and we should add up this acquisition. So CapEx plus acquisition was 7.5% for the last year.

[Interpreted] Okay. But I understand that you are interested in not only like projects that are under development, but also operating wind farms.

[Interpreted] Yes, in terms of prospective acquisitions, we are actually engaged in many ongoing acquisition projects. We shall see what will be the outcome. So we are looking for the most profitable options.

[Interpreted] [indiscernible]. I have a reoccurring traditional question, which is about the contract with the -- or agreement with the Ministry of Climate and Environment to cover the cost of purchase of 10 million tonnes of coal. When do you expect that to happen? And what kind of cost was incurred by PGE to make this procurement? And I would like to ask about the contract with PGG. It was to be signed by the end of the year. So is it going to happen? And let me ask the CEO to repeat your opinion about [ Towarowa ] unless you changed your mind, if I remember well, prior to COVID, you were saying that [ Towarowa ] should be dropped because it's not profitable. And as we know very well, now [ Towarowa ] is coming back with your updated strategy and with sort of differences in the opinions about it.

[Interpreted] So in terms of the agreement that we are asking about or the Ministry of Climate and Environment, everything has been agreed and negotiated. We are just waiting for the signature of the Ministerial Officer to sign the agreement. In terms of import of coal, I can give you the volume, nearly 10 million tonnes was imported. 8 million plus was sold to end customers under -- within the framework of this project. And in terms of [ Towarowa ], this is -- we sustain our position, and that will be up to the national agency for energy security, whether they want to carry it out or not. As PGE, we are not getting involved in this discussion because we presume that this decision will have to be made by the new entity and the new entity will have to consider whether they want to follow in this direction or not. Yes, we agreed all the terms and conditions. So everything has been negotiated. Everything has been agreed. So we are just waiting for the final signatures on the contracts, but we reached the consensus. So we have the peace of mind in terms of supplies or deliveries of fuel from PGG.

[Interpreted] [ Mace ] from Bloomberg News. I have two questions. First of all, about national agency for energy security, you said that it's about to be finalized that the Ministry should approve the terms and conditions for that agreement. So do you actually expect some cash flow coming in, some substantial price that will be paid for these assets? Or is it going to be symbolic and it will not help you cover your substantial expenditure? And the other question is about the strategy that we're talking about, and how you see the group operating in terms of financing? The market or the financing is fairly expensive. You mentioned ESG and you said that it's mostly international markets. So shall we expect the entire financing for the new company -- okay, not an entire financing, but let's say that majority of that would be placed on the financial market because it's more cost efficient? Or are you going to look for other options in the local market in Poland? And are you at all looking at issuing bonds or some bank loan? Or what are the amounts? And what are the dates that we are talking about?

[Interpreted] So if I may, I will take this question. In terms of national agency, I cannot really answer this question today. When you ask me how much we expect to get, all I may say is that we are finalizing valuation processes. We -- and the Ministry of State Assets is doing their valuations, and only at that time we will know how much it's worth and we can have discussions about the price. In terms of the second question, I may say that yes, we are open to all the financial institutions. We are not ruling out anything. We don't have any preference for international players or local players or state-controlled financial institutions. Obviously, what matters here is that we need to also look at the Polish banks because they still have some capacity to carry some of our investment projects, but financing and the main part will be in the international markets and that would be our balance sheet, which means that we will either have project finance formula or as you mentioned, we will issue bonds, especially that we do have room for green bonds and Eurobonds. Therefore, I think that we will accept any financial arrangements and structures that would help us deliver our investment projects. As you said, project finance -- the cost of project finance is higher than the regular bank loan, but unfortunately, our capacity to take on such loans because we are speaking about many billions of zlotys may not be sufficient. In terms of the nuclear power, I believe that it's premature to speak about the financial structure of this project.

[Interpreted] Bartlomiej Kubicki, SocGen. I have a few questions. The first is related to the valuation of assets for the national agency for energy security. In your books, at the end of the year, PLN 31 billion is the valuation of conventional assets. You did not make major reinstatement increasing or decreasing that value. Is that your accurate estimate of what those assets will be worth? Net assets amount to PLN 12 billion, and we have to look at the entire company, not just the assets alone. In the context of renewable energy, where the energy prices are today and where the price limit is, is there any risk that this price limit may be extended over to cover 2024?

[Interpreted] I think the price regarding price limit should be addressed somewhere else. You should ask the Ministry, not us, whether this validity of this limit is extended or not.

[Interpreted] What is your assessment of this risk? That was my question. And the third point is about trade. When coal assets are set off out of your company, how your trade will function in the context of energy prices in the market, in the context of certain activities that are performed for conventional energy segment? So what will be the new modus operandi of the segment after setting up those assets to the National Agency for Energy Security?

[Interpreted] We will continue to contract as we have contracted so far. Exchange functions, there is a platform that we have for our group. So we will have to secure the contracts for trade. We had previously this exchange obligation way with sales being recognized inside the company now with no longer the obligation for exchange. We can have a variety of practices.

[Interpreted] And there was another question here.

[Interpreted] [indiscernible]. I have four questions. The first is about the planned date of opening Dolna Odra gas unit. When is it planned to happen? The second about coal. What is the future of this coal business? I mean, will you continue imports on such a large scale? Will you keep this fuel in your group? Or will it be a set off and directed to the National Agency for Energy Security? The third point, when you have projections for nuclear energy, do you assume any public assistance in the form of a contract covering price difference on a different set of rules than the generally applicable rules? And the fourth point, I think you talked about a significant decrease in the volume of distributed energy as a result of self-generation consumption.

[Interpreted] Let me start with coal. This kind of fuel will remain within the structure of PGE. Now we have a subsidiary, which is our heat generating company. So this subsidiary will continue to function, and we will continue to provide the services to the market. And as regards to coal, more broadly, that is a topic that should be considered on a greater scale. I assume that the embargo on Russian coal will continue, meaning that probably, it will be necessary to import coal to secure it for individual recipients, not institutional, but individual ones. We have this initial agreement with PGG, now which should be officially confirmed in the upcoming days. So for sure, PGE will perform other tasks if it is tasked with securing coal for individual recipients. It seems as of today that this need will be there. We are prepared for that. We have proven pathways along which we can proceed. Everything will depend on the volume. Financing of power plants -- nuclear power plants, we expect this nuclear power project to be a purely business project. We have financial projections, and we have a model of funding that is going to be done in the project finance formula. As of today, we do not expect any public aid to support this investment. We expect this investment to be purely a business one, probably secured with some PPA contract for funding institutions because it is evident that the funding institutions will want to get some sort of security, so we will have to obtain the security. But that's the model, and it seems that in this formula it should be perfectly feasible. There is a lot of interest on the part of financial institutions in funding this specific investment and with global financial institutions, but also we have Korean institutions that want to provide funding for this particular project and that, according to our assumptions, would be about 20%, 20% our own funds and 70% or maybe 80% would be external funding based on that.

[Interpreted] The question is asked off the mic.

[Interpreted] For sure, we will have to get some guarantees some sort of security of the funding that will be very much linked to the expectations of funding institutions. So SPG might be a recipient because the energy from nuclear power plant will be needed in our systems, so SPG may also potentially participate in this PPA and secure receiving supplies from this power plant. And as with regards to distribution, as I said previously, corporate customers diversify their energy sources. They build more and more photovoltaic farms or panels. Well, Dolna Odra is progressing on schedule. As for the key milestones, there are no major risks. But always with such investments, you can expect some problems. Now this is the largest investment of this type in Europe. It will be one of the largest gas power plants in Europe, and for sure, it is the -- currently the largest investment of this type in Europe. There are some problems, but we do not see any obstacles that could drastically delay the completion or cause any major disturbance. Fortunately, there are no such risks. We are in close cooperation with Polimex and GE and in constant dialogue. There are several hundred people on this construction site. So things are moving on. And the contractual completion date, I think, is the end of this year. We'll see whether we keep this exact completion date, but as of now, there are no signals of any dramatical delays.

[Interpreted] I have two more questions of more general nature. The first to Mr. Rojewski. What is your forecast concerning energy in generation in Poland this year? Do we have any estimate of what the production consumption might be? And the second question is about strategy. You mentioned update of your strategy, a revision of the strategy. Given that you are the most important producer of heat in Poland, are you considering, including SMRs, as something for energy and heat for individual recipients?

[Interpreted] Well, let me comment on the first part of your question, production. This year, we expect a downward trend, and I think the decrease will be similar to the one we had in 2022. Then from 2024, this trend should reverse and to go slightly up. That's what our forecasts expect. We hope the production of renewable energy will have an increasing share in the total market, but as you well know, this is an unpredictable segment.

[Interpreted] What about SMRs?

[Interpreted] We are looking closely at all technologies that appear in the market and that could, in the future, replace coal. But generally, we bet on large-scale nuclear energy. This is where we focus our operations, distribution, renewable energy sources. Obviously, we are also in talks with the entities that operate in the field of SMRs, KGHM, the companies that run such projects. Just to be abreast of the latest development. When a new technology becomes available, we are open to implementing it, but we are still waiting for the first installation in Poland to assess its functioning to see what kind of certification it gets. SMR is a small plant. Maybe some legislative changes should have been introduced, but whether the power plant is small, medium-sized, or huge, it needs to meet the same legal requirements. And let's not forget the role of the public opinion. Nowadays, there is much more public approval for nuclear energy in the context of the war situation, and the Polish society sees the construction of nuclear power plants as a necessity to ensure energy security in their country. SMRs are also an element of this broader policy. But today, we bet on those large scale nuclear power plant that we are going to do with the Korean partners and ZE PAK as a Polish partner.

[Interpreted] I'm asking because in April or May, [ Alan Santos ] is to specify several locations of future reactors that are expected to be situated in bigger cities and medium-sized towns. Isn't that your potential competition?

[Interpreted] No, we are not afraid of competition. The requirement for electrical energy will continue to grow and the departure of fossil fuels is something natural over the next 15, 20, maybe 30 years. So no, we are not afraid of competition. We rather cheer everyone who focuses on the energy market because energy security is our primary objective. We will also build offshore. We will develop renewable energy sources. We will have nuclear energy. So we will decarbonize the heat, and there will probably be some progress in the development of new technologies. We can see certain changes, trends that would change the heat provision. So the world is changing. We cannot close our eyes to those changes and refrain from development activities, hoping that there would be no competitors. There are competitors, and there will be new ones. Several years ago, some competitors appeared. So as regards to generation, for sure, there will be new competitors. It's good that it is done by Polish companies, companies with treasury holdings. So that will be good that these are the companies that are not driven only by the will to gain short-term profits and instead will be responsible for the business and for ensuring energy sovereignty.

[Interpreted] Thank you very much. We are coming to the close of this conference, but if we have any other questions -- okay, that's it. Thank you for online questions. [Statements in English on this transcript were spoken by an interpreter present on the live call.]