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

Welcome at the press conference of PGE Polska Grupa Energetyczna, focused on financial and other results for the last quarter. We have CEO, Wojciech Dabrowski; Vice President of the Management Board for Finance, Lechoslaw Rojewski; and Director of Finance Division, Piotr Sudol. In a moment, I will give over to the Management Board members, and then we will end with a Q&A session. Mr. President?

Ladies and gentlemen, the year 2023 is heading towards an end, and the past 3 quarters have shown the key role of the Polish Energy Group in the process of transformation of the Polish energy sector, over PLN 0.6 billion investment that we had this year represented a 73% on the one -- on past year, and that is excluding our acquisitions in network and renewable energy assets. So that indicates our consistency in implementing the strategy of the Polish Energy Group. Now this direction is continued in line with the strategy of 2020 and towards the target of climate neutrality. We are consistent in pursuing this target. Our renewable capacity increased by 50% by now. And I think that's an interesting piece of information to you. The end of the year is, in a way, a time, inviting all sorts of summaries. And this increase is something that we can boast this success of this Management Board and the success of all employees of the Polish Energy Group. This policy of striving for climate neutrality and going away from coal is something that we pursue consistently. Intensification of activities can also be seen in the transformation of distribution networks and decarbonization of the heating sector. The direction of our strategy also requires carving off coal assets. Unfortunately, financial institutions will no longer provide funding for institutions. So that rely, to a large extent, on coal. That is a very clear message sent from financial institutions and banks, under no circumstances will they finance investments in groups in which coal is used in production to such a large extent as it has been until now. This is something we've been mentioning for a long time, that is why we've been working hard on sorting out the question of coal assets. Now our companies are prepared to function without relying on coal assets. For that, the parliament needs to approve a law on state guarantees. As you might recall, this law was not approved by the previous parliament. And now, it is a task for the present one. And this is the only obstacle to full operationality. The companies are prepared for that. And we have a plan, a precise plan, over the next years, how those institutions will be financed. And the only major obstacle as of now is this law on state treasury guarantees, which is necessary for the banks to take over the debt on assets related to coal. I definitely believe that the energy sector in Poland requires a refreshed attitude towards assets rather than privatization. Of course, there are also opinions of that, a panacea to solve all problems and transformation of Polish Energy would be to privatize it. And we are, on a clear stance that this is not the right path. Privatization will not accelerate energy sector's transformation, nor will it contribute to the development of capacity improvement. For sure, independence of the state in terms of energy is determined by this line of activity. So setting off coal assets is necessary to maintain Polish energy sector in Polish hands while, at the same time, assuring that we have sufficient funds for the transformation. As you know, enormous funding is required. And still, conventional coal assets prevent us from obtaining funding for investments. Let me present you the investment process because this is probably something of interest to you. So we have distribution. Let me start with the segment in which we've had the greatest CapEx in 9 months of this year, that was almost PLN 3 billion, record high CapEx in the history of the group, almost 2.5x more than last year, 250% year-on-year increase. Within this program, we cabled over 1,000 kilometers overground cables, which improved power supply to customers and allowed us to make new consumers, producers and prosumers. We also have a prosumer sector development, and this is something that we as Polska Grupa Energetyczna support very much. Then replacement of meters to smart meters in medium-voltage stations. We increased over 100 -- we replaced over 110,000 meters and we modernized 4,400 stations for installation of such meters. Improvement in renewable energy sources and offshore agreement on foundations in the form of single pillars. For Baltica 2, everything is already contracted. Previously, we also signed a contract for laying and connecting cables, which will involve using special chips, which we also have signed the relevant contracts. Tenders and contracts signed as a result of these, show how advanced the project is. In the first stage, Baltica 1, the capacity will be 1.5 megawatt installed capacity installed power. That is the greatest project in Poland based on renewable energy sources. And we are just talking about the first stage. The second area in renewable energy sources that we are involved in is building photovoltaic farms. So far, we have handed over, for operations, 131 PV farms, 30 more projects with a total capacity of over 300 megawatts underway. And until the end of the third quarter 2025, these should be handed over for use. At the same time, we are working on a series of new projects, most advanced of 150-megawatt capacity. And the construction of these should start by the end of 2024. With regard to wind energy, we have recently bought some -- we had some acquisitions, increasing our capacity to 800 megawatts. So we keep maintaining the leadership in Poland. On the 20th of September, PGE renewable energy acquired Zalesie with 25-megawatt capacity. Operations started immediately after the acquisition. Cogeneration. We've been consistently implementing an advanced Polish cogeneration transformation project. And we've been the largest producer of heat. And we have a comprehensive transformation plan of this market segment. At the Zgierz cogeneration plant, we shut down the coal-fired boiler, and we have put into line 3 gas-fueled engines, 4.4 megawatts, the 7-megawatt reserve boiler and we will also continue the PV panels. At the EC Czechnica, we have put into commission the gas-fired 179 megawatts boiler and a peaker and reserve of capacity of 152 megawatts. These cogeneration plants will supply power and heat to many inhabitants of Wroclaw at the end of 2024. I'd like to relay to our conflict with the service provider, which is Polimex-Mostostal. It is not true that after the last verdict of the court the costs went up by PLN 230 million, it is just a collateral, which is, by the way, not legally binding yet. We are still in negotiations with Polimex and we want to end this conflict amicably. And also, I'd like to remind you that we are a stakeholder in Polimex. So we are looking forward to reaching a good agreement with the company and continue -- to continuing this project, investment project, without the conflict that you, ladies and gentlemen, described in the media. That includes also this called collateral. Another areas that we've been pursuing transformation is the Kielce cogeneration plant, where we implement new production capacities. At Rzeszów, we have been building the second line to recover energy from waste. And also, we've been busy with Gdynia, Kraków, Wroclaw and Gdansk, where we prepare new investment projects. We want to have those power units and start by 2030, that would spell the end to coal in those cities. We've been also building the peak and the reserve boiler rooms of the capacity of 220 megawatts in Gdynia, Gorzów, Rzeszów and Lublin. In 2023, we completed reserve, peak boiler rooms in Kielce and Bydgoszcz of the capacity of 200 megawatts thermal, a low emissions power generation. As part of new potential of RS and lower emissions conventional power plants, we started building 2 670 megawatts power unit at Gryfino and gas and heat generation plant of 871 megawatts in Rybnik. The progress has been made, the second quarter of 2024 we'll see the commissioning of both units. The Rybnik plant will be commissioned in December 2026. Another very important thing that you have flagged up, and our clients too, are the electricity prices. So to preempt your questions, I decided to address the questions that you've been asking to media. Firstly, we've been consistently transforming PGE in order to provide our clients with accessible and inexpensive electricity in the long run, which is very important for our clients. This is what the general expectation is. We are talking about the future, but also about today. So given the energy crisis and the need to curb the price surges, market regulations are of key importance. And you, since you are the sectoral media, you know very well how the market's regulations are made of -- are built. And your contributions in your article, you also flag up certain doubts that also includes the statements by the ERO President. Another extra cost for the write-ups that, the President announced will be 508 -- sorry, PLN 50 billion, and the fund will be made of PLN 20 billion, which we support. The main source of doubts are the interpreting of the sales prices that have not been put to use because the clients received the maximum invoices. So the companies would have to write -- or actually, payers taxed incomes that have not been received. So we are negotiating contracts with the parties to the agreements. The prices of electricity will see a lowering by PLN 125. This is what you've been interested in as journalists. The question is how does regulation impact the households? In October, we have made -- we have built a reserve of PLN 291 million. That reserve is based on very accurate calculation, including the number of customers as of Q3 that actually fulfill the requirements resulting from the regulation. We have accounted for 5 million receptacles that can be included in this regulation by meeting the criteria. And this is why we have built this reserve of PLN 291 million, which is prone to modifications. We have also applied to amend the G tariff. So that the loss that the group is going to incur if the regulation enters into force will be equalized the tariff. However, I'd like to emphasize that all our clients that meet the regulation's requirements will be able to use that PLN 125 deduction. How about the prices for 2024, which has been of interest to you every time? When we speak about the prices, please know that the electricity prices went down significantly in 2023. But not as much as not to enable the government to dismantle the support mechanisms. Our clients need support still so the prices have been actually frozen, effectively frozen at the 2022 levels. The prices are still higher than that level so the households would see a dramatic impact if the prices were to be unfrozen. And the clients ask us many questions so we see the need to continue to support the clients as dictated or as decided by the new parliament. So coal is another issue that comes and goes every time where we talk to each other and we also received a number of questions relating to coal. When it comes to the supply, we are still negotiating the contracts with the PGG, which will cover about 70% of our coal demand. We are after the final talks. The price is a trade secret. However, I should say that it reflects the market situation. It was a priority for us to contract coal at the lowest possible price acceptable to both parties because eventually, that translates into energy prices and of course, into the current situation of the entire mining sector. At the same time, the production will be -- the generation will be at the level appropriate from the perspective of the Polska Grupa Energetyczna and it will ensure a stable output. You also asked questions and we answered the point on a couple of occasions on intervention purchases of coal to ensure energy security during the peak of the Russian invasion in Ukraine. On the 10th October this year, we concluded an agreement with the Ministry of Climate and Environment on the implementation of decisions on coal import and the agreement provides for a refund of the costs incurred in connection with this particular investment. Previously, there was no formal confirmation so we established a provision of PLN 645 million. But now, once we have the confirmation that the cost would be refunded, income will be recognized in our accounts because the contract says clearly that by the end of the quarter, we will get a refund resulting from the loss incurred in this trade. So I assume that by the end of this year, this provision will be dissolved in accordance with this agreement signed with the ministry. So this is a matter that you raised on a number of occasions, and I think we can consider it solved. At the same time, I would like to inform you that we are prepared with regard to coal for the upcoming season, just as we were in previous years. So there are no concerns that Poland might suffer from cold. We will fulfill our promises in that regard. That is it for me, then you can come back to certain points in the Q&A session. And I hand over to Lechoslaw Rojewski, Vice President for Finance.

Ladies and gentlemen, the details that you have already received in the press release and I already know that some of your outlets have already published this information, I will try to provide you with some more details. Traditionally, I will start with what happened in the national electro-energy system because that translates into the results of the Polish Energy Group and the results of its individual segments. It also translates into the results of our group as our company, as the mother company in the group. Let's have a look at the prices of energy in the third quarter, our debt and our investments and at the end, I will say a few words about the upcoming year 2024 and what our outlook is regarding individual segments, which can expect EBITDA growth and which are on the downward trend. So let me start with the situation in the national electrical energy system. As you can see on the slide, in the third quarter, the downward trend continued for the national consumption. The national consumption dropped by 4% year-on-year. So we record here decreased efficiency of consumption. As for generation and -- well, with reference to the decline in generation by our generation segments, in the third quarter, the production dropped 8% year-on-year. And as a result, we saw an increased consumption of energy from renewable energy sources and increased imports of electrical energy, net from abroad. In the third quarter and in the second quarter as well, by the way, Poland was the most expensive market in terms of sales price in the whole region. So the imports compared to the third quarter 2022 grew to 1.7 terawatt hours. Let me remind you that in the period of 2022, it was as low as 0.21 terawatt hour. As for the structure of this generation and the elements contributing to the decline, lower generation on lignite and coal. And when we refer to gas here, there was a clear generation increase because the price of this raw material, this commodity, dropped. So profitability increased. Generation on gas became more profitable. Let me remind you that in a similar period of 2022, the price of this commodity was at PLN 950 per megawatt hour. And in 2023, it was just PLN 170 per megawatt hour. We also recorded in the national electrical energy system, an increase in generation in PV plants, photovoltaic power plants. And at the end of the third quarter 2022, we had only 11.2-gigawatt installed. And now in the same period, we have 4 gigawatt more than back in 2022. If we move to prices in the market, you'll see that this is yet another quarter in 2023, where we recalled significant decreases in electrical energy prices. The price was at PLN 555 for contracts with deliveries for 2024. Let me mention that in the second quarter 2023, this price stood at PLN 630. So the trend is downward and it continues. The same downward trend applied in the third quarter to commodity prices, that is natural gas and lignite. In the third quarter, 2023 prices in ARA contracts for coal were at around USD 120, USD 130 per ton. In turn, in the third quarter 2022, these prices reached as much as USD 390 per ton. So we record a significant decrease in prices of this commodity. The same goes for gas. The level is now EUR 50 per megawatt hour while in the similar period, in the past, the prices were much higher. If we look at CO2, the prices in the third quarter 2023, oscillated around EUR 78 to EUR 95 per ton. Now if we move on to our 4 segments, we will see a similar situation. That is the condition that I have just discussed, referred to the national electrical energy system, we see a decrease in generation by 18% compared with a similar period 2022, so from 16 terawatt hours in the Q3 of '22 down to 13 terawatt hour in the third quarter of 2023. As I said, this is the generation from -- to sources who drop or decline in the lignite by more than 20% and decline in coal of minus 10% year-on-year, contributed to all that. Now what went up was of the production or generation from gas by 111% due to the declined raw material prices. Now if we look at Q3 of 2023 in distribution, you would see the increase and distributed electricity by 8%. This is due to our takeover of the railway electricity because if we put that segment aside, which, by the way, accounts for 1 terawatt hour, we would see a decline by 3% in the individual distribution segments. And first and foremost, this would be seen in group A and -- groups A and B, which are large- and medium-sized enterprises. This is because of diversification of sources of electricity by those enterprises. Also registration of new companies has declined in Q3 of 2023, 8.3% or less of corporations were registered. So constantly less reception points compared to 2022. Now when it comes to final consumer or end consumer sales, we also see the outcome of our takeover of railway power system by plus 0.3. When we also deduct this takeover, we would see a decline of sales or in sales by 6%, especially when it comes to the corporate tariffs. As far as heat sales is concerned, that sales was dropped by 15%. This was mainly due to the ambient temperatures, which was by 1 degree higher than back in 2023 -- 2022 on average. Now let's go to the financial indicators, which contributed to our EBITDA. Q3 EBITDA accounted for PLN 2.4 billion, PLN 122 million year-on-year only or as much as PLN 122 million, whatever you like. Now what contributed to EBITDA year-on-year was the increase in sales revenues on electricity and heat because we see higher prices of energy, both sides, by PLN 160 per megawatt hour. However, this also translates into reducing the sales volume altogether. Now the next thing to consider are the lower fuel prices. I'm not going to repeat the story of the fuel costs because this is what I covered before. But the lower fuel prices mean an increase by PLN 0.3 billion and lower production from coal, lignite and high production from gas. The costs were impacted by CO2 costs because of the price changed by PLN 126, but the drop in production of lignite led to a smaller volume of CO2 that had to be covered. Let me remind you that the maximum price level from the regulations in 2023 was about PLN 693 per megawatt hour for households and PLN 785 for public entities and corporations or companies. Please note that in August 2023, the prices were equalized down to the household prices. The write-off for the price differentiation found in 2023, due to postal limitations accounted for PLN 1.1 billion. Most of that amount, PLN 96 million, related to the conventional power generation. In the same period, we also saw a lower result of sales to the end consumers by PLN 200 million. In Q3 of this year, a higher margin and distribution of PLN 392 million resulted from higher tariff rates. Please note that this outcome also consolidates the railway network, which accounts for PLN 300 million of rebounding from the EBITDA that we had forecast previously. So EBITDA in the railway system accounted for PLN 656 million, which was 50% of what we expected -- of what we accounted for. So of the takeover of the railway power system has been a very significant point in the growth strategy of the company. In Q3, we have also -- we also saw higher revenues, not only from electricity sales, but also from distribution, regulated system services. And if we look at the growth of net profits in Q3, we see a significant growth in profits compared with the previous year due to us all taking over the railway system and the share of this takeover in the net profits. The rest is referenced to the base of 2022 and the change in the recultivation reserve of PLN 300 million. So these were the most important fundamental results. Now if you see the reported EBITDA, please have a look at that, there was a reevaluation of the recultivation reserve. So this one-off event changed our reported EBITDA. Now if we look at the investment outlays, please note that those expenditures year-on-year show a change of PLN 372 million, 25%, that is. And the predominant segment here is distribution. Where in terms of labor is conducted, including laying cables, modernizing the grid and installing remotely controlled meters. Now if you look at the investment outlays in the railway system, they account for PLN 375 million connected with the program that railway power sector conducting, namely the power supplies and building substations for the railway system. In the case of low emissions sources, as the CEO has already indicated, that were expenditures related to building of units in Dolna Odra and units and modernization in other locations. In renewable sources, we had higher CapEx related to building offshore wind farms, expansion of PV farms and modernization of hydro peak and reserve plants in Debe and Porabka-Zar. As regards cogeneration and heating, here, the main expenditures were incurred on New Czechnica and on transformation of this sector and this transition from coal-based sources to gas-based sources. As a result of those expenditures, and as a result of all our operations, you will see that our debt is not as good as it was at the end of '22. But in the third quarter 2023, our debt was only -- net debt, was only at PLN 1.5 billion. And if we also take into account the economic debt, taking into account CO2, our debt is at PLN 18.5 billion. So if we look our debt ratios with reference to net debt, it is at 0.17 debt-to-EBITDA ratio. And if we look at debt to other economic circumstances, the ratio is at 2. And a few words about our outlook. On conventional energy and heating, we present here downward arrows because the situation here depends on electrical energy prices and on the costs related to that. Besides, these sectors are linked to regulatory elements. So everything will hinge on the regulations that will appear in the market in 2024 regarding electricity prices. On the other hand, we do not expect a favorable development of prices in neighboring markets. Therefore, we also expect an increase in imports of electrical energy. And thirdly, with regard to energy transformation, that is the process of shifting towards low emissions and no emissions energy sources, we want to increase the capacity and renewable energy sources, which should also drive prices down in the spot market. Since June 2023, the President of the regulatory office sets tariffs -- the rate and the tariffs for the upcoming 12 months. In the heating segment and cogeneration segment, some of those tariff rates have already been determined with the growth of about 2%, 2.5%. At the same time, I should stress here that in the context of the inflation, which you can see in the market, these are not satisfactory changes. If you consider renewable energies, here, our expectations are similar to those we had for 2023. Above all, utilization of the peak and pump power plants with increasing capacity in PV farms and wind farms. Trade can also be under inflation or under regulatory pressure. And here, we expect regulatory matters not to disturb the current functioning, the current results of the sales and trade segment. Distribution is the key element where we see the development of our group. Here, we expect higher levels of WACC. We expect this WACC ratio -- there were some questions about this, and you keep asking questions. We expect this to be at 10% plus additionally, premium for reinvestments because the distribution needs and requirements here for the development of this sector, above all the cabling program, are very capital intense and we need funds for development in this field. The same goes for railway energy. This should also be one of our key segments. And you need to consider the revenues from tariffs there, especially on distribution services. We have already applied for including railway energy in the effective transformation charter. And that should help us improve WACC. Today, it is at 6%, and we want to make it above 8%, including the premium for reinvestments. Planned development, in particular, this investment program that we call [ MUSA ], here, we need funding to continue the program. These are our key segments, which should bring determined EBITDA in 2024. Thank you.

Thank you very much. That will be it as regards our presentations. Now we can move on to the Q&A session.

[Operator Instructions] [indiscernible].

If you allow me, I have a few questions. The first is about coal prices. In accordance with your report, a quarterly report, coal price, after 9 months versus 9 months of last year, increased by 85%. That's what it seems to me, your data say. So my question is, why do you have leap increase in the prices? The second question is about increase in compensations. Contribution to the fund of PLN 4.7 billion and compensations, PLN 5.5 billion. So if I understand, you are -- you get a positive result in this system, at least after 9 months. So my question is, how come you have this positive result? Because we've been told that energy was expected to contribute extra funds and now it seems to be earning on this. And the third question regards the interpretation of the regulator on trade and energy. The main question here is does PGE think -- and that's probably the most important matter, does PGE think that the tax on this compensation should be paid? This is the difference in interpretation, if I understand it correctly. And one more question about sales in the wholesale market because according to your report, energy sales in wholesale market dropped by 31% after 9 months. And my question is because this is something you don't mention in your report, what is going on in non-wholesale market, increase, decrease or what in the context of the stock exchange obligations? And the real final, final question, what is about those -- that frozen PGE strategy?

Now let me tackle the first question when it comes to the prices of coal and lignite. This is because of the price/mix that results from the contracted coal and lignite from the -- and imported coal from 2022. Those prices were significantly higher. It is quite obvious that we still see at -- still look at a higher -- still high volume of coal. And we are now buying the new price. So when we put those 2 together, you will see the price that you can read right now.

Right. I'd like to corroborate data that were reported, but let me rectify certain things. We -- it's not that we are in the black figures because the compensation is spent on compensating for the losses and the distribution, the sales. But this write-off is about decreasing the margin that would have happened if the compensation had not been implemented. We can also add to that when it comes to the interpretation of the verdict by ERO President. This interpretation would necessitate us to pay a write-off from the compensation that is just for covering up the loss due to freezing the maximum prices that we actually invoiced our clients with that are eligible. Also the act of Parliament was generated last year, but the interpretation of it is quite fresh. So time is of essence. Now when it comes to strategy, you've been following us on a daily basis. And we've been quite consistently implementing our strategy from 2021. This refreshing of the strategy that we showcased in the autumn this year that was repealed due to the fact that the coal and lignite asset process was not fully implemented, we need the coal share of the transformation to keep the generation system in the Polish hands, the Polish property.

[ Sakina Pionche, dot.pl ]. Let me also drill down the coal avenue. You said that you secured 70% of volume. The remaining 30% will be imported or what?

I mean, we secured 70% from the PGG, but we have other suppliers from Poland. When it comes to the heat generation at the sea coast, we've been historically importing coal for that purpose because this is what is most profitable. And about 70%, as I refer to this as PGG share.

Well, okay, the PGG prices are very different than the ARA prices. And you reported on #37 Page, that you paid more than PLN 900 per ton, which is dramatic.

We have never disclosed our trade secrets and the agreements with our partners. And the new agreement is satisfactory for both prices and this agreement will be based on market. We've never disclosed the prices, and I am not going to corroborate the price. We show not only the raw material costs in the report, but also that includes the logistic costs, including transport and so on. But if you deduct that, you will end up with more than PLN 700. But transportation is a very significant cost, especially after the pandemic and the war, the cargo prices went up. And these costs are very significant component of the price, total price.

So when will you end showing the cost of imported coal? When are you going to burn it entirely?

It's not much left to burn. I believe that we're going to finish it off in the season. So for Q4, this is going to be only the domestical coal -- well, the season ends in April, unless the climatic conditions change. We look at the season as something that ends in April.

Okay. Given the prices, what is the profitability of a generation from coal? And what impact the implementation of the -- proposals maybe are going to appeal this decision because I think this is detrimental to your finance?

Not yet. You asked profitability of the coal generation. Well, we contract usually by addressing our variable costs. If we're going to produce coal, we take into account of the price of coal plus CO2 costs. And for lignite, it's only CO2 almost. So we want to actually address a profitable margin. But URE have not paid you for -- or they have paid for reallocation of generation, but they are going to stop it.

Are going to appeal this decision?

Well, it's not decided that they were to stop paying.

I think the instructions, amendment has been already decided upon.

All right. If so, then we will probably consider appealing.

Bloomberg News. I have 2 questions. Firstly, I'd like to ask about that offshore project of the community of European developers and turbine manufacturers saw your partner, Ørsted, going to rough seas. Did you receive a signal from Ørsted that they could possibly withdraw from that investment project? Secondly, what is your take on the profitability of the project? And when can we expect you putting the financing scheme together? And second question, is about URE. What's your take on the further development of this interpretation conflict? What's going to happen down the line? What may be the outcome of it? What's the next step can be? What is your forecast of it? And they are going to build reserves for this area.

So let me start with offshore. We are looking closely at the market situation worldwide. And our partner has not reported yet any difficulties or doubts about the further implementation of the Baltica products. So we assume that the situation will be unchanged. The situation in the market is difficult in services and production as well. Our partners, both SIEMENS who will provide turbines and Ørsted, who is our business partner have not expressed any doubts or concerns about lack of possibility to complete the project. And as regards to funding, this decision will be made after FID, and we expect this to be approved in the second quarter, third quarter, the latest next year.

Okay. I will refer to the funding. We continue our product finance activities. So we've had some reconnaissance in the market. We have a few advisers on the topic of funding. We have advisers specializing in technical aspects of funding and banks. We have a few banks that expressed interest in providing us with financing. So basically, the value of the funds that they offered is twice as much as we need. So in this regard, we do not see any problems in obtaining the funding. And as for profitability inflation drove up prices of materials and still profitability is at a satisfactory level.

As for the President of the Energy Regulatory Authority, well, let me b*** in here. Operationally, the assumption of the payment out of the price differentiation fund was to cover us. So how can you pay a tax on income that was supposed to cover the loss? Just let's be just logical. Even if we pay this tax, there is some loss. That was not the assumption. The idea was not to leave us formally with a loss. We don't want to have a loss either on operations or paid tax. That would undermine the whole idea of the project. This payment is supposed to cover the loss we have incurred. So I do not expect such an interpretation to be upheld. Frankly speaking, I have not discussed this specific topic with the President of the Energy Regulatory Authority. We have received some guidance on this, but maybe that is -- that was some sort of overinterpretation of a certain point. If we were to pay a tax on this, we would be formally left with a loss, and this is something we are not going to accept. So if anything like this happens, we will intervene. We will step in very shortly.

My point is whether you have formally talked, for example, to your auditor because that is the official interpretation of the Energy Regulatory Authority.

So this is no, no. As of now, this is just the press reports.

No this is interpretation. This is mass release from the regulatory authority.

Yes, but we have not -- we, as a company, have not received yet any such release to give us the basis for any conversation with our auditor. We can only talk with the auditor if we physically get an official document, then we will address it. I do not expect -- frankly speaking, it would be illogical because we would be left with loss coming from the tax. So I think it will not be upheld.

But that might be linked to some inspection, and you have not started any inspection.

We are open to and inspection. We admit and inspectors and inspection is something that we treat as an opportunity to improve our operations. We have always admitted all representatives of state agendas. We are not afraid of any inspections. We even appreciate inspections very much because recommendations from those inspections often give us indication how we can improve our operations, but no inspection that has been carried out in Polska Grupa Energetyczna at least in our term of office has ever found out any irregularities in our activities. There were just minor points about recommended changes. So it was more advice for possible improvement in certain areas rather than -- and hard conclusions since we have been here, that is 4 years.

[ Machi Pava, Gazeta Polska ] In the core financial data, you don't include data on the net and gross income. You had profit, you had EBITDA. Did you show your revenues?

Have a look at our financial statement. You will get all numbers there.

Barbara Oksinska, Business Insider Poland. I have a question about the idea of the new parliamentary majority to exclude distribution companies from energy, conglomerates. And I'm interested what do you think about it? Do you think it is a good idea? Or is it completely misguided suggestion?

You know my opinion. The idea of setting of coal assets and leaving in the group's distribution and renewable energy sources was intended to enhance the position of energy companies and setting of such profitable activity as distribution, separating distribution from energy group. So it would mean that a little would be left in those groups. That would weaken Polish energy and that all we can the energy groups. There are various ideas that are noted in the public space, but I think this would not be a good idea in terms of building a strong and robust energy companies in Poland in the future. Of course, there can be a lot of ideas in the future. We think that in order to strengthen Polish energy, it would be better to consolidate rather than to disperse the sector by setting of additional sectors. So setting of this area would mean that only heating and renewable energy sources are left, and that would weaken the position of energy groups in the country. While today, we need to build strong energy companies who want to compete in the market. And if you want to keep the energy sector in the Polish hands, setting off the coal assets, and that's it, then consolidation rather than selling off more areas.

[ Batumi Savitzky ]. I would like to continue on the point regarding the interpretation of the regulator. It is not just the interpretation of the energy regulatory authorities' document. We talked to one of the authors of this document. And this...

Excuse me for interrupting. I do not follow all articles and all opinions that are published in the press. We are against this interpretation, and we will please take it as my message. In my opinion, it is illogical and again the assumptions of the entire project. The project was supposed to cover our loss rather than burden us with an additional income, at least in the form of corporate income tax.

If I understand this interpretation well, the tax on the compensation that you got for the profit, which you might have hypothetically obtained hadn't it been for the frozen price.

It is equalization of our price as stated in the tariff. We are not talking about any profit. Compensation is the difference between tariff price and the maximum price resulting from the previous year's tariff.

The Minister talked about market price that as a trade company, you contracted with your customer. That's the second element outside the G tariff.

Yes. But we have not invoiced those customers for the amounts you mentioned, but for the maximum amount resulted from legal regulations, [ 75 and 690 ].

So you did not contract your customers about the cost of energy acquisition about the tariffs, so above PLN 150 -- PLN 1,050 -- 100 -- PLN 1,100?

By definition, that was not impossible. This was the only legal amount that we could invoice to clients with.

[indiscernible] [ Business.pl ]. I'd like to ask 2 questions. Firstly, when do you expect this agreement with Polimex to be resolved? After the elections, many new voices appeared on the revision of the reform of the President. So the process has been completed fully. So if there are change in assumptions, how will that affect companies like PGE?

Well, putting aside the coal assets and dispensable for the companies to grow, no doubt about that anymore. Those of you who are interested in the energy sector know about this. This is nothing extraordinary. This process has been completed in the Western Europe a couple of years ago, all major corporations in Germany, France and the Nordic countries have went down this road -- have gone down this road. That's how those companies continue to grow. So when we speak about stopping of the -- this connection of the assets will be a grave mistake. All projects incorporate modifications though, I have no knowledge about those amendments, ideas, but the general direction should be continued in order to strengthen Polish power sector. If we let this overarching objective go, we could, for example, divest the Polish generation system into foreign hands. Since we have a big from the East, we cannot afford giving away this big strategic sector. But these are not ours -- our decisions to be made, but it will be the parliament who will be made responsible for that. But we believe that non-divesting coal assets will lead to the decrease in Polish energy security. As far as Polimex is concerned, we are quite optimistic. We know the company. We know each other. We value each other and like each other. We are, as I say, a stakeholder in Polimex, so as you see, historically, Polimex has been or a contractor for construction industry. This is Polish company left that is operating -- still operating on the market, and we are happy that they could grow and prosper in the past. So I'm quite sure that we will reach an agreement. It will be nonsensical if we fail to achieve an agreement, especially being an owner of the company, a stakeholder in it. So I believe that the Polimex' management and also ours have all the goodwill that is needed to strike a deal. I hope that it will be accomplished as it was many times in the past. So the discussions continue and an agreement will allow Polimex to continue various efforts. We don't want to be under the dictatorship of foreign companies. I don't mean by this that foreign companies are bad, but I believe that competition is very important for all of us, and we believe that a large company -- construction company and the Polish company is worthwhile in the market. Now the -- or regarding the out payment, you are going to pay as of this interpretation had never existed. And if URE demands that you actually equalize this difference, then yes, we are going to think about the next steps, only then.

That revenue was at a level of PLN 21.2 billion, PLN 23 billion for Q1. So it is an increase by 11% and accumulated the PLN 71 billion and the results -- the resulting growth by, I think, 70% the interpreter says.

Okay, the [ ETC ] market. In my opinion, this is a commercial secret. So we never comment percentage of electricity and heat or energy where we sell and to whom, in total numbers, yes, but we never comment on details of the markets.

Now the final question, [ Martek ], please.

Let me ask you about the nuclear project and collaboration schemes. Back in March, we spoke about establishing a company vehicle with Alpack (sic) [ ZE PAK ] if we can see -- ZE PAK, and this company is supposed to be established by the end of the year. Are there any chances for that? What are -- what is the status of the discussions with Koreans about giving 49% of this vehicle to the Koreans?

The project has been developing as planned. We asked -- we applied for the fundamental decision and we are looking forward to receiving that decision. The discussions with Koreans are well advanced. We have been conducting a in depth discussions on assigning -- or commissioning rather, the feasibility study, the initial analysis have been commissioned. We are just past the electro campaign that is governed by certain rules, and we are looking forward to a new government being established by the new parliament. So the Korean side, that is what I presume, have been also watching closely the political scene in Poland as to some major projects. So everybody is waiting for the new government to be formed. So I can assure you only that the process has been going very swiftly, especially compared with the project that has more than a decade of a lifetime and how much time was wasted by reaching this moment on the previous project. But the Korean side has supported a well to continue the projects, ZE PAK too. PGE is part of the project. This project is absolutely crucial for the energy security of Poland as is the second project together with the Americans. You are an industrial journalist, I believe that we all have concluded that nuclear energy is absolutely indispensable for Poland if we want to depart from coal. And if we want to still maintain control of the Polish energy industry without importing all of that from outside, the nuclear part is absolutely necessary. We need to have nuclear power plants because not going to run coal-fired power plants for the next 40 years. And I think we can agree on that together.

Thank you very much, Mr. President. This concludes our conference. Thank you for all the questions we're going to address the e-mailed questions by e-mail, and thank you for coming. Thank you, ladies and gentlemen. See you next time. [Statements in English on this transcript were spoken by an interpreter present on the live call.]