TAURON Polska Energia S.A. (TPE) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen. I'd like to welcome you to the earnings conference of TAURON Capital Group for Q1 2021. Similar as in case of a previous earnings conference calls, due to the pandemic, our meeting is held via online video conference call. We have with us today Mr. Pawel Straczynski, representative of the management Board of TAURON Polska.

Good morning, ladies and gentlemen.

Vice President -- Marek Wadowski, Vice President for Asset Management. Please use the microphone.

Good morning, ladies and gentlemen.

And Mr. Krzysztof Surma, the Director of Financial Division -- Finance Division. My name is Grzegorz Furgal, and I represent the communications area. The presentation will be conducted in polish with simultaneous interpreting into English. Besides the broadcast, you can also listen in today's conference call via conference call connection. And right now, I'd like to invite you to ask questions via a form that's available on the tauron.pl website. And I'd like to hand over the floor to Mr. President, the CEO.

Ladies and gentlemen, it's a great pleasure for me to -- for first time to conduct the earnings conference call, presenting the accomplishment of TAURON Group as the President of the Management Board of the group. On April 1. When I joined the TAURON Group, I outlined the directions, but I see TAURON Group expanding. It is definitely means unlocking the expansion opportunities for the group, which today due to the enormous debt locked up and accelerating the green turn. The energy transition is inevitable. But switch of energy sector to a low and zero-emission energy production is irreversible. And it's only up to us whether when we unlock the opportunities for expansion and joining the race. This is already underway today, mainly in the renewable energy sources area. I mean here the photovoltaics, primarily, in a moment, probably the onshore wind farms, but also the offshore wind farms. We have already had first decisions taken. The decision of the European Commission is granting the support. Unfortunately, TAURON Group is in the first stage of its participation. And TAURON Group was not involved or not participating in the first stage of expansion of the offshore wind project -- wind energy projects, but I do hope that our activities will bring us to the next stage for the subsequent permits for building artificial islands that TAURON Group will be actively involved and will join that process. The figures for the first quarter demonstrates still certain pandemic effects. However, the weather was favorable for us. A long and harder than before winter meant that the production, especially the heat production, but also electricity production, was higher. I would also like to start with mention that these quite good TAURON's results, TAURON's earnings, unfortunately are not based today on the foundations. But they are to a large degree a consequence of a favorable one-off events. However, further on the presentation, I will be outlining those directions -- expansion directions, which I would like, and I hope will help TAURON Group to be expanding in a fundamental way and improve its profitability. Briefly presenting the most important results. Sales revenue more than PLN 5.4 billion, 18% up versus Q1 2020. Of course, a certain effects of lower base, the rebound after the pandemic very much -- big improvement of EBITDA, more than 81%, more than PLN 1.7 billion. The net profit improved almost fivefold because an improved rise up to PLN 839 million. The CapEx, capital expenditures, we will elaborate on that during the latter part of the presentation. That declined by 32%, down to PLN 639 billion. And due to the improvement of the cash flow position, reduction of net debt-to-EBITDA ratio down to 2.0x from 2.5 at the end of 2020. The distribution here an increase by 4%, we view this as, hopefully, the permanent rebound after the pandemic period, plus the production from renewable energy sources, mainly due to the weather conditions. I mean here, the wind conditions dropped 16% -- by 16% versus Q1 of last year, and it reached close to 0.5-terawatt hour electricity production by coal division. An Increase by 40%, up to 3.74 terawatt hours for the reason that I mentioned. Heat generation, 5.15 beta joules, that's an increase by 4 percentage points. Retail Electricity supply practically flat, almost 8.8 terawatt hours. Commercial coal production increased by 21%, up to 1.43 million tonnes. Looking at individual segments now -- excuse me, in the individual sources of revenue, we have the following structure. PLN 3.3 billion, this is the revenue from electricity sales. The sales from your carbon credits, PLN 512 million. PLN 219 million, the distribution -- excuse me, PLN 621 million trading in distribution, PLN 219 million revenue is for fuel sales and other revenue PLN 1763 million. The net profit, I mentioned, PLN 839 million net profit versus Q1 2020. EBITDA Q1 2021, PLN 1.372 billion. This is the caring EBITDA as compared to 2020. It is higher by 27%. And this is where we have mainly the difference due to sale of carbon credit, practically an one-off event and, of course, a certain fundamental impact that I -- we will also elaborate on later on. If we look at the individual segments now, revenue in the distribution came in at PLN 1.8 billion. In renewables, only unfortunately EUR 166 million. In the conventional generation, PLN 2.3 billion. PLN 6.08 billion, the revenue in the supplier line of business, where mining PLN 303 million, after consolidation all kinds of discloses more than PLN 4.2 billion. Interesting data for you related to the EBITDA per segment. Stable, solid level of EBITDA in the distribution line of business of PLN 142 million; in the renewables, PLN 83 million; PLN 686 million in generation; PLN 234 in supply; and in mining, minus PLN 14 million. Here, the obvious thing is that this still good result in the Generation segment is due to the fact that the CDS is hedged for the generation were much better than the current market ones. Let me remind you that quite recently, less than 1 year ago, CO2 emission allowance, which already made us anxious at that time, the price of the carbon credit was about EUR 25. And this is the average price in the hedged portfolio. Detailed information related to the capital expenditures, we will expand on that topic further on Distribution, PLN 457 million; Renewables only, PLN 5 million; Generation, PLN 58 million; Supply, PLN 15 million; Mining, PLN 66 million. I think it's an interesting piece of information. And in the other segments, PLN 36 million in capital expenditures. We are changing here in the -- new management board is changing the policy, the CapEx policy. Investment policy will be, first of all, and not increasing the leverage of TAURON Group. So today, our CapEx capabilities will be adjusted to our financial capabilities, financial standing, not via round as its frequency happened in the previous years, which led to the permanent year-on-year increase of debt -- of leverage. Of course, it was a consequence among hours of investment policy conducted, which was done in such way. But irrespective of the level of cash flow generated from operating activities, those capital expenditures were not correlated with cash generated from operating activities, which directly led to situation where the group was becoming more and more indebted, more leveraged. More information here on the bridge presented on the changes to EBITDA from PLN 957 million, up to PLN 1.735 billion. The main increase came from the generation segment, PLN 617 million. Unfortunately, the one-off event. This was the effect of sale of carbon credit, CO2 emission allowances, mainly related to the delay in the commissioning of a new Jaworzno generation unit and it's earlier positions open for it regarding trading operations. In the other segments, things are not significant, except for Renewables, PLN 47 million in sort terms, it's relatively low. But for this line of business itself, it's quite -- as I mentioned, quite a significant drop, which, of course, we have no control over. As the wind blows, then the EBITDA in the Renewable segments will be generated accordingly. Ladies and gentlemen, this was brief information -- key information on the first quarter. Let me now ask Mr. President Topolski, to present the macroeconomic market situation and provide some detailed information on the assets and investment in CapEx.

Ladies and gentlemen, let's focus on the macroeconomic situation for a moment and the market environment of TAURON Group. It has crucial, a big impact upon the results of the earnings of our group because the group is mainly operating in the most highly urbanized and a very dense area of Poland, which has an important material impact. Of course, not all the parameters have a direct immediate impact, which I elaborate on in a moment because we will see them definitely in the subsequent quarters or in the subsequent years, that will have an impact upon the group company's earnings. As we can see the change of the energy growth of Poland and the PMI, in fact PMI in Q1 is already coming in at very good levels. PMI is about 54 points roughly, which gives a good outlook for the operational sub-segments of our company, mainly the distribution or supply as well as the forward generation line of business of our company. We can see that the pace of the rebound of recovery after the pandemic in March was surprisingly high. In terms of nationwide versus the initial projections, which is reflected in the earnings that the CEO already described. What about the change of industrial production sold and electricity consumption? We can see this on the right-hand upper corner of the slide here. Nationwide, the electricity consumption due to business operation, economic EBITDA and general indicators came in at 4% in growth rate versus the same quarter of 2020. And as I already mentioned, since we are operating in the highly urbanized densely populated area, also a TAURON, as we do mentioned, increased electricity consumption came in at exactly 4%. So exactly the same increase as nationwide indicator. CO2 emission allowances prices, we know what the situation is like. As said, a strong surge in last quarter up to EUR 50 or even EUR 55, EUR 56 per tonne. I'd like to call your attention to the fact -- to the pace to the -- over the years. So far, we have been observing roughly 100% increases, but at over 40, 47 weeks. So growth rate was at that level. But currently, after the short momentary instantaneous stability due to the pandemic turmoil in 2020, now in 2021, those increases of last 20, 26 weeks came in at more than 100% growth rate. And in our earnings, you don't -- won't see these increases translate into our earnings because contracting of electricity versus the CO2 contracting is taking place at least ahead -- 1 year or more years ahead of time. So the implications of this search, we will see in the earnings of 2022, starting from the first quarter. But when describing individual segments, this event -- this surge of carbon credit prices will have an impact and will be discussed, impact upon the generation segment's earnings, as mentioned by the CEO. Concerning the electricity production. Poland, it's worth mentioning that mainly the climb -- the weather conditions, so the average temperature and the wind conditions in Q1 2021 had an impact upon the operations of the individual generation assets. The fired power plants, the increase came in at 11% related to production in Lignite power plants. We have 12.6% increase. Whereas in renewables, we observed a decline mainly due to weak winds and lack of Sun in February and January, which also had its impact upon the balancing of a national power system. And you most probably were following that in detail. When you allow -- some interesting things in on the slide is the decline of production at the gas -- by the gas fired plant, 4.2%. And one would see that consequently consumption rising, it places demand rising, it would mean an increase, but it's one of event and extending overhaul of 600 megawatts gas-fired generating unit in Poland. At the time when Stalowa Wola the providing 450 megawatts. Instead, this shortfall -- lack of generation imports from January until the end of April 2021. So practically, throughout the first quarter, for technical reasons, led to a decline in the production outcome because otherwise, you would have observed an increase. That would have given a certain impact or certain good results, a good quarter. But at the same time, the surge in the carbon credit prices led to good earnings over generation segment. But this was a one-off event, as we explained more in detail in our presentation. Let's move on to capital expenditures. Here we have a significant change between the first quarter of this year and the first quarter of last year. In total, it's a decline by 32% overall, CapEx, down from PLN 940 million of capital expenditures, 2020, down to PLN 639 million in this quarter -- in the first quarter of this year. This is due to what you can see on the slide, mainly to the decline in capital expenditures in the generation line of business. This is due to commissioning of a new Jaworzno generation unit, which has been operation since November 13, 2020. And starting from that point of capital expenditures on Generation, which is here, PLN 457 million, is on the CapEx aimed at replacing the generation capacity but not anymore, the construction of any -- of new generation capacities. Because as we already mentioned, this was the last investment project of the type and last investment products of this type in Poland, this type of generation assets. Of course, we are still setting in clearing the investment. The CapEx on the BAT adaptation is about PLN 20 million in 2021, which you can see mainly in the first quarter. With respect to the Distribution segment, we have a slight decline from PLN 485 million to PLN 457 million. This is mainly due to the weather conditions. So the winter -- strong winter with refurbishment. Upgrade and replacement investment projects were a bit delayed due to the severe water condition. So we can see the decline here. But we estimate gross CapEx to be stable, to be flat versus the previous year. In the Mining segment. Here, we have a slight increase, PLN 12 million up versus Q1 2020. And this was due primarily -- practically 100% due to the preparation, an increase by PLN 12 million of the amount spent on preparing production process related to commissioning of the additional long-haul headings for preparing the coal faces for coal extraction in the future. It just happens in Q1, those -- that CapEx went up due to the schedule of preparation works -- preparatory works for those long-haul headings. The other segments, the CapEx was relatively flat. A few words about the other investment products were the main difference between Q1 this year and Q1 last year was due mainly to the CapEx related to the implementation of broadband Internet as part of the POPC program. This is PLN 23 million. The other component did'nt change much. One more thing we should mention is engines, methane, where this type of investment products we are implementing being the first one in our group, and such CapEx did not occur in Q1, in the previous quarter of 2020. Ladies and gentlemen, with respect to the presentation of individual segment, let me start the presentation with key segment for the group, namely the Distribution segment. As it has already been mentioned before, segment took advantage of a positive trends and the recovery of the economy. We are dealing with an increase of electricity consumption in the region of 4%, and practically an identical increase of electricity distributed by our group, on our area and our territory, this increase of electricity distributed of volume led to increase of EBITDA quarter-over-quarter sequentially, so year-over-year Q1 '21 versus Q1 2020 by PLN 66 million. A very important piece of information here. Practically, in all segments, in all tariffs area -- segments, we had an increases, particularly significantly in the G tariff, which is natural in the COVID time. Most of people work remotely. Many conference calls always increase of Q1. This year versus Q1 last year, came in at almost 10%. The only segment where we didn't observe the increase is the C tariff segment. These are small businesses, small entrepreneurs, small services such as restaurant business. This segment was most heavily impacted by the pandemic. But we can see economic recovery practically in all tariff segment, in all tariff groups with high volume, as a matter of fact, covered with a certain -- even with a certain surplus, the decrease of the tariff, which was approved by the President of Energy Office for this year due to decline of variable grid rate. And the net effect of these 2 factors, the increase of volume and the reduction of the prices, PLN 22 million positive increase in EBITDA, one should also mention the positive impact and additional revenue from the other distribution services here, primarily the revenue from the above contractual consumption of passive energy as well as fixing all power line collisions. Here, in this segment, additional surplus is PLN 16 million increase. In terms of the key quality parameters in the Distribution segment, we have a stable increase of regulatory asset base year-over-year. Regulatory asset base for this year comes in at PLN 19 billion. In terms of the other quarter-related parameters, they are practically in all areas, better than in the previous year. I'm talking about the interruptions -- number of interruptions, interruption durations. And as far as new connection, connection times are very similar year-over-year. It was very important. All the permits are in line with the objectives set -- go set by the President of Energy and not have a negative impact upon the earnings of the Distribution segment in the subsequent quarters. If we move on now to the Renewables segment. As mentioned before, for this segment, is impacted mainly by the weather conditions. Last year, in Q1, we had historically the strongest wins. So the segment generated very good earnings. This year, wind conditions were below the historical average. So year-over-year, earnings are much worse, mainly due to volume of electricity generated by the wind farms. This was mitigate some -- slightly by a bit better hydrological conditions and a bit higher volume of electricity generated by hydropower plants. Nevertheless, the total effect is negative. This negative effect was mitigated partly by a bit higher price on the market. However, can be seen in -- also in the electricity sales and the number of green certificates produced. Additionally, this year, unfortunately, we are dealing with a decline in the number of green certificates due to the lack of support for the oldest wind farm, one of the oldest wind farms in Poland, namely the Zagórze wind farm for 30 megawatts, as part of our wind farm fleet and the expiration of support for hydro pipeline, so the capacity below 5 megawatts. If we move now onto the Generation segment. As was mentioned before, we were dealing here with a very material, very significant one-off event. This one-off event had an impact of PLN 490 million of EBITDA improvement year-over-year. As a matter of fact, it's made up of 3 parts. The first part is elimination of the event that occurred last year. As a matter of fact, last year, in Q1, the result was reduced by PLN 127 million. This reduction of the result was the consequence of the shift of carbon credits from the IC -- exchange to the OTC market. The goal of this swap was to make the group independent of variation -- because of a variation margin, which at that time was very material, very significantly negative. This effect gradually reversed itself in 2020 and 2021 due to the smaller amount of provisions set up for means related to redemption of carbon credits. The second event that took place in Q1 2021. This was the rollover of emission allowances related to energy that was not produced by Jaworzno generation unit. The commencement of the operation of unit was shifted from January until November 2020, and due -- because of weather and because of the earlier hedging policy, we did big surplus of carbon credit. These carbon credits were rolled over to 2022, 2023. And due to the fact the transaction was concluded in the form of hedging -- of the hedged transaction in the form of forward contract as a matter of fact, but clearing as opposed to the settlement of those carbon credits. But for the planned production from the unit was supposed to take place in March this year. But in order to avoid the onetime purchase of carbon credits and freezing of cash into the carbon credits, those carbon credits were accordingly appropriately allocated according to the contracts for electricity generated by the new Jaworzno generation unit. This effect, as a matter of fact, let to the effect of PLN 304 million this quarter. This is also a consequence, as you mentioned before, of the contracting of carbon credit EUR 25 and the sale of those carbon credits at the price of EUR 40-plus as -- according to the prices at the end of March. This effect over a longer term, '21, '23 time frame basically will be neutral or will have a minor impact upon the earnings of the group. But it will have a major impact in Q1 as we've seen and also in the subsequent quarters of this year. The last part of this one-off event, as a matter of fact, is the resale of the carbon credits purchase for the production in November and December last year due to the fact that the Jaworzno unit was just launched. It was still in fancy period. It means that we are generating a bit less electricity when we should according to its rated capacity and the surplus of the carbon credit related to the energy base. We do not produce. We simply sold on the market. And this way, we generated one-off event, one-off earnings of around PLN 60 million. What's very important, PLN 60 million. It's -- but it's also a new factor in the segment, first time we are dealing with the capacity market revenue. This revenue is PLN 150 million in the first quarter of this year. Of course, this result is mitigated a bit due to the lack of revenue from the operational reserve and the carbon emission reserve. As a matter of fact, after deducting the former revenue from the [indiscernible] told you the net effect is about PLN 90 million from capacity market. It's also worth mentioning here, from -- that a positive impact upon the earnings of the segment is due to commissioning of a new generation Jaworzno generation unit in Q1. The new Jaworzno generation 1-terawatt power of electricity, and we also can see the positive impact of the offtake contract margin between Jaworzno and [indiscernible] based on the cost plus principle. It has positive impact on the results of this segment and in Q1, had a negative impact on the results of Supply segment. And now moving on to Supply segment. We are dealing with a flat level of sales revenue year-over-year. Here also, we can see the positive results in the G group -- in the G segment, as I mentioned before, the impact of COVID, much more remote work of people staying at home. However, in the business segments, we are observing weaker results so far. So far, the business customers in our area of operations are reporting a bit lower volumes of electricity purchase from our point of view, electricity volumes sold. In this line of business, the contracting is very important. The contracting here was already mentioned as well. The contracting is taking place usually at least 1 year ahead. 70%, 80% of adjusted volume is purchased way ahead of time. Therefore, the group generated a positive effect caused by relatively lower prices in the first -- in the early pandemic period. And now with the prices being a bit higher in the market, this impact in the subsequent quarters will be getting smaller and smaller. But in Q1, we had a very positive impact because of that. Second, the positive impact in this line of business is, as a matter of fact, the G tariff. This year, G tariff covers fully the cost and is generating a positive margin for the group. Of course, it's a bit different situation. It's a bit different than last year. So here, we are dealing with a positive trend. The negative impact upon this line of business is brought by the offtake contract in group wide is neutral, but the positive impact upon the Generation segment results, whereas has negative upon the Supply segment's results, positive on the Generation segment's result. So the last thing about the Supply segment is the positive impact of -- as a matter of fact of payments deadline -- customer payment deadline. In Q1, we delivered a new event, which I hadn't held it before, the outbreak of the pandemic. That's what happened in Q1 last year. At that time, we had a very conservative approach. We increased the provision for accounts receivable. Whereas in Q1 2021, we reduced this provision. And moving on to the Mining segment. Very quickly, in the Mining segment, as a matter of fact, we're dealing with a positive impact -- positive effect of volume of hard coal sold. During that period, we sold more hard coal than a year ago. Additionally, we also produced more coal as compared to the previous quarter. As a matter of fact, this increase was 350,000 tonnes. This partly led to a reduction of mining cash cut by PLN 30 billion quarter-over-quarter. However, the net -- a bit lower applied to the negative on other segment's result. This is due to the large supply of coal on the market and the need for a much more competitive fight on the market and need to place the hard coal in the market. And therefore, it leads to the price reduction. And the negative -- -- another negative impact was the consequence of a bit small increase of inventory levels. So less costs were allocated to the balance sheet, more cost were allocated to the P&L statement. If we move on now to the debt and financing. We observed a bit lower leverage than the previous quarter. But we are noting that in Q1 last year, we had to provide very high margin collaterals on the exchange. Net debt to EBIT went down to PLN 9.8 billion. In terms of net debt-to-EBITDA ratio, that ratio went down to a bit less, below 2. So 2.27 was slightly high in the previous quarter. And this was due to recent one-off events, as it was mentioned before, the transaction on the CO2 emission allowance. This had a major impact on the EBITDA for the last -- for the trailing 12 months. Additionally, this EBITDA was also significantly impacted by the actual provisions for the employee provisions more than PLN 500 million. So the effect of this is very positive in this quarter, but this will not be continued in the subsequent quarters of the year. If you're talking about the amount of financing available, it's quite satisfactory, but there's no threat for the liquidity of the group. And material maturity of the debt is -- for upcoming is December next year. As a group, we are working and trying to mitigate the risk of refinancing at that time.

Thank you very much for presenting the financial results of TAURON Group for the first quarter of 2021. We have questions.

And the first question I'd like to ask to the CEO. When will the management Board of TAURON update its business strategy? When will we become familiar?

That will be the main expansion direction. I already mentioned the expansion direction. Definitely, for prerequisite for implementing any strategic expansion of the group it would be the spinning off of coal asset, spinning off of coal to a separate entity owned by the state treasury. And this way, deleveraging of TAURON Group and unlocking its potential for growth. Next, the expansion of the group towards the low and zero-emission source -- generation sources, enormous program, repowering program for the heat segment because by 2030, we should be, in my opinion, ready -- we must be ready with switching of our entire heat segment to gas. In terms of days -- deadlines, we would like -- of course, the words on the update of the strategy have already started, and they are going very intensely. We would like, by the end of September, at the latest, to present the strategy for approval by the Supervisory Board. And subsequently not later, by the end of the year, to present to you the updated strategy. However, of course, the directions we are working on are the progress related to the update of the strategy, we'll be trying to convey to you on an ongoing basis.

The next question whether in the subsequent quarter, it's possible to achieve such good results as in Q1 2021? What are the estimated results in individual segments?

Of course, as we already mentioned, in Q1, we are dealing with one-off events. A lot will depend on what will be happening generally in the macroeconomic scale. I mean here, mainly the pandemic -- finishing of the pandemic and the economic rebound, recovery after the pandemic. Of course, the situation -- social situation will have enormous impact, the increase of consumption. So far, the results of PMI and consumer optimism levels are satisfactory. In terms of commercial trading situation, basically, 97% of trading positions for 2021 is already closed. It's already known. So 2021 will be comparable to 2020. That's our expectation, unless any extraordinary events happen. We do hope that they don't happen. In individual segments, the situation will be probably stable. What I mean here, distribution or supply lines of business. We've got foresee and you don't expect any major deviations. In case of Mining, line of business, as I mentioned, the trading business is closed. So maybe when it's need to repair electricity due to technical problems, would mean that the EBITDA in this segment would be subject to any major fluctuations. Of course, we are also trying to limit the losses in the Mining segment. If we take into account all these factors, we expect EBITDA to be comparable, to be flat versus the previous year.

The next question, despite the higher carbon credit prices in recent months, we've seen a large increase of electricity generation by -- from hard coal fired units. How long [indiscernible] board situation can last? And what can change it?

Well, ladies and gentleman, we do not control our units. the PEC, the national operator, is controlling our units. So it is difficult for us to answer this question, we can only operate within the trading area. We make sure ensuring the energy security of the country, we make sure that our units are fully dispatchable, and we allocate appropriate funds for refurbishments and replacements exactly in order to maintain the full dispatchability of the energy resources to maintain the energy security, security of energy supply. Of course, commercial trading situation will be deteriorating. We have no doubt about it. The statements made by the representatives of Commission, the latest carbon credit trends -- price trends indicate that very quickly, of course, without the NAB and state aid, mechanism for the National Energy Agency with expansion of coal sources would come very soon. Let me remind you one can say at the end of functioning over 200-megawatt units is the end of operation of the capital market. This is 2025. And with the support of state, we will not be able to -- for economic reasons, we'll not be able to keep on operating those units. There's no market conditions for that. Of course, it's difficult for me to speak about that, but such purposeful anxiety is caused by the social part or the workforce disagreeing totally with NAB concept and indicating we don't disagree with a split of TAURON Group. [indiscernible] case that there's no understanding of this issue and no relation to the fact that maintaining of TAURON Group's coal assets within TAURON Group will lead to end of operations, the end-of-life of call us as any stories about extending the capital markets for coal sources, remind me of the offers for buying Megastar [indiscernible] these are all efforts beyond our control. There are certain statements made for certain interests. These statements made in order to cause some panic. Anxiety has nothing to do with maintaining jobs at TAURON Group. And maintaining TAURON -- the only way to maintain jobs and to ensure the stable operation of coal source over some years is as soon as possible to bring them out of TAURON Group and shift them over to the national agency for energy security, which will be taking advantage of a negotiated. We assume here that the Brussels, the NAB program after consultations with the social partners, Brussels would like approved program through this implementation and funds under public state will be allocated for maintaining those coal assets. And during that time, TAURON Group will be dealing with the construction of a new gas fire power donation sources with ultimately powering early '30s or '30s into '40s. We'll be powering into hydrogen potentially for hydrogen. Maybe, by that time, some other fuel will be available. And this is the only way, the only opportunity, the only chance for the group to maintain jobs. And please do not be misled by various messages, various pieces of information put forward by some politicians or representatives of social partners we work for. Maintaining the co-assets within the group means the end for the whole group, TAURON Group. It will be difficult to explain that to our workforce operating -- working in such lines of business as distribution or supply. But the group will collapse because it will not take necessarily action we have to limit CapEx in the Distribution segment or in the Heat segment. It will not be building gas-fired capacity in the Heat segment because we'll be forced to put more and more money to maintain the core assets, whereas the NABE as entity set up in order to maintain those co-assets will not have any problem maintaining those assets because I'm sure a mechanism will be set up. Public A, side 8 mechanism will be established to help maintain those assets.

Is there a plan to transfer biomass fired units into NAB, National Agency for Energy Security?

There's no such plan. It's an assumption. The units are according to taxonomy, the zero-emission units. But it may turn out that the biomass units, which is integral part of conventional generation source. We will not be able to maintain it separately, but the Biomass-fired units will be retained with TAURON. Integrated coal-fired units will be placed into NAB. Assumption is that into NAB, into the National Agency for Energy Security, all the for which is not technically separate, it is not possible to operate those units on its own. Having been disconnected from the coal assets, then there is no point maintaining such generation source. I'm talking about the general rule here. But during our works, our works conducted within the capital group preparing the conventional assets to be spun off. Each case, individual case, will be reviewed, will be discussed individually, and we'll be making a decision whether given unit will stay, whether it's technically possible to keep it within TAURON Group? Or due to its technical integration with conventional installation, it will be necessary to spin it off?

Thank you. What about the investment project-related to Grzegorz shaft Coal Mine?

I will just speak very briefly here, I think President Topolski, will be able to say a few words more.

Ladies and gentlemen, the conventional assets is not just generation. It's also mining -- coal mining, as integral part of electricity generation from fossil fuels. The Grzegorz shaft is a potential option for further exploitation, extraction for those sources. How the TAURON will keep business looking at the condition, but will not be worse, will spend the necessary amounts that will make the condition of a significant product not to deteriorate. This will be ready for further implementation. But we, as TAURON, will not be conducting this investment project, as we will not be conducting any investment products related to the conventional sources.

Only and exclusively now, as Mr. Topolski mentioned, only the funds are allocated to refurbishments, to replacement investment projects. Difficult to speak about any special upgrades. So what is most important for us, after the coal assets have been spun off, we want to keep the assets -- give the assets to the new owner in such a condition so that he will be able to take the decisions regarding the further directions for expansion. Expansion probably is too much of a word, but definitely for directions regarding the way they operated, especially the mine -- coal mines here. I don't know if Mr. Topolski will like to add something.

A few more words regarding the Grzegorz shaft. At this moment, talks underway regarding negotiating with a regional contractor. The conditions of potential further continuation of this Grzegorz shaft so that it could meet the minimum technical and economic requirements for the extraction from the new deposit or the deposit for our Sobieski Coal Mine. Because we also assume that those 2 coal mines will be merged as a single combined coal mine. I think here, TAURON mining subsidiary looking at the technical effects and economic effects of such a merger will be implementing. But as the CEO mentioned, in an ultimate configuration after those comments have been spun off, TAURON mining subsidiary being supported in as part of the dispute mediations underway. But based on participation of legal counsel [indiscernible] on March 17, the first meeting was held. The part is presented by our first initial position and negotiations are underway now. As the CEO mentioned, Tauron Group is maintaining the condition of its investment product in such shape, so -- but it could be continued further on to bring up about the technical perimeters agreed or what could be the result of remediation effort that we assume. But this year or maybe even in the first half of this year, should be completed the freezing of rock mass is being conducted. So at any time after the freezing, it will be possible to continue this investment product to a certain degree. This is the level of exposure here. It's about 50%. The shaft itself has been bore down to 80 meters deep and being high above the ground infrastructure -- and for boring and for extraction is completed or almost completed.

Next question. March 2021, the management Board of TAURON sent to the Ministry of State Assets a document prepared by the combined team made up of employees delegated by the management board and the trade union members representatives, the stipulations of maintaining of obligation exchange and gradual spinning off of a transfer of coal assets to state treasury. Are these agreements valid for TAURON Group now.

Well, I believe this way. If the market situation became so -- accelerated so much, what used to be planned for year should be carried out even the month, the spinning off of the coal assets and I'm saying this [indiscernible] term in a [indiscernible] manner of hand over -- the transfer of the ownership should -- for TAURON Group, it would be optimum for it to take place as soon as possible because what's very important for us is the time and the commencement of those important CapEx products, especially in gas-fired capacity, which will be necessary to replace the capacity, the generation capacity of TAURON Group, with respect to the obligation for electricity to be traded on the exchange on the power exchange. There's a lot of changing, why TAURON Group was indicating the need to maintain the power exchange obligation for a very simple reason. In contravention to -- in contrast [indiscernible] just disregarding, but in contrast to PG and now TAURON's position is definitely different. TAURON's sells much more electricity than it produces, it generates. So which means that for TAURON to be ideal, of course, to purchase electricity that we sell to purchase on the competitive market. But ladies and gentlemen, let's remember that the NAB, the agency, and the spinning off of coal assets and placing them into NAB will put on equal level playing field for all energy groups. No energy groups after the coal assets have been shifted to NAB will not have a dominant position in the electricity generation. Of course, NAB will have this portion. But again, due to the public aid mechanism and knowing the processes that are taking place in such cases, definitely a mechanism will be embedded by, but will protect the market against the dominant position of a national agency for energy security. So today, the stipulations that were formed 7, 8, 9 months ago. Today, probably they will be redefined. We want, as soon as possible -- during the next meeting with social board, we want to set up another team made up of representatives of the individual subsidiaries and the social partners, the workforce, the team that will be dealing directly with just transition of TAURON's Group. And the team also that will be dealing or already dealing with preparing the core assets to be spun off, as I have already mentioned.

Another question. How does TAURON see the transition towards the green turn and increasing of the CapEx? And what gets fired-gas CapEx products, what amount you playing for the next 5 to 10 years? Another question related to that. Where the changes to 10H will be foraging, now that the TAURON Group will be interested in investments -- onshore investment projects, investment projects?

It should be said straightforward, directly, TAURON Group over the last few years, unfortunately, plays the main emphasis on expanding the conventional sector. And I agree with a statement that today, the portfolio of ready-made products ready for implementation renewables is less than modest. It's all true. However, not enough emphasis was placed on expanding and developing those products. As I mentioned before, the investment funds were mainly allocated to the Generation segment. Today, we need to -- as soon as possible to start the Green turn. In case of a green turn of TAURON, at the beginning, of course, it must be the blue -- it will be a blue turn. It will be the construction of gas-fired capacity where the area -- where renewables areas where we simply might not be able to catch up to make up for the delays. It will be difficult to make up the delays in the PV projects. Of course, we are trying here to seek -- to look for growth opportunities. But all the other players are already ahead of us. And TAURON Group is not ready today, neither in terms of its financials -- finance, organizational to buy products like a PLN 150,000 per megawatt and to build them and commission them. We are not ready for that simply because of the financial business. So we are looking for other options for growth. We are facing gasified products. Our initial estimates between 3 and 4 gigawatts of installed capacity. Let me add here that we are considering all sites that we have today available. By 2030, the program of investment to gas-fired units in the region of 3 to 4 gigawatts should be completed. We have organizational capabilities. Technically, the only thing that stops us today is that financial capabilities. And the implementation of gas projects by TAURON Group is determined by 2 factors, namely, first of all, unlocking -- first of all, unlocking of financial capabilities of the group, which may take place solely by way of spinning all the assets. Let me reemphasize with coal assets within TAURON Group is no way we can conduct any investment product, any CapEx projects. Keeping the coal assets within TAURON Group means totally cutting off of any expansion opportunities, investment CapEx opportunities, even with respect to maintaining financing of existing assets, mainly due to the fact that the third of carbon credits CO2 emission prices. So it will be so strong, but the more and more funds will have to be allocated only to cover the obligation to surrender, to redeem the carbon credits.

Thank you very much. Unfortunately, the time is running out. But let me just ask about the Distribution segment. What is the view of management board, for example, EBITDA in the Distribution segment? A question related to that, what risk factors does the management board see the immediate future for the results of the segment?

Just a few words from me, and let me hand over to Mr. President Topolski, who will answer this question in more detail. The situation of the distribution line of business will be determined or the EBITDA in the segment would be primarily determined by the macroeconomic situation.

TAURON distribution subsidiary is in a very good position. The required investment projects are being conducted due to the need to maintain the coal assets this year, and we need to stop further leveraging our capital group. We have to review the investment product, delay, postpone certain projects. However, we want to maintain -- definitely maintain the level of CapEx for new good connections of internal problems, establishing our group and don't have a consequence for our customers. And as I mentioned before, if not anything happen, we expect a solid EBITDA comparable to the previous years. The only thing that can be added regarding the risk in the distribution segment, as you know, 2021 is transition year. There's no regulatory model. So we can mention the regulatory risk. And basically, this is the main reason that we can still see because according to information -- based on the information that all the DSOs are conducting with the regulator, including TAURON Distribution, representative of Energy Office, means that the lack of stability of macroeconomic situation means that the representative of Energy Office give serious thought to the idea that 2021 should be transitioned period also based on the one-off model. So on one hand, the risk is we don't know the perimeter of that model, and it doesn't give us a long-term outlook at least 5 years under what conditions the distribution segment will be operating. And this is the main risk regarding the distribution. We have ones, as you mentioned, the macroeconomic environment for the Distribution segment has a definitely correlated impact. We can see whether economic recoveries going at full speed, growth of prosumers, micro-installations, dispersed tensions also are growing. So distribution segment will definitely be following those trends. And as mentioned, will be a solid -- we'll be able to generate solid constant EBITDA, only taking into account one risk, the regulatory risk.

Last question is due to the time running out. Does COC the major potential synergies of potential merger between TAURON, PG? Are talks underway regarding the consolation of energy sector after the coal assets have been spun off?

Well, due to -- up to now professional carrier, I can assume that for a long time. Yet, I have these questions coming in. Let me put it this way. I see enormous synergies, especially if TAURON took over PG. But of course, this could happen after the coal assets have been spun off. And if we, as TAURON, could take over PG, I can see great opportunities. First of all, we would become a very major player on the market and today in the offshore wind energy sector. But speaking seriously now, well, of course, any plans regarding any measures and so on, we are not conducting any works regarding this area. On this topic, we don't have any information, that any surveys are conducted anywhere. I think that sometime in the future, after the transition process has been completed and after all energy groups enter into the new green growth pathways, probably it would be worth to start some discussions. However, we're now, at -- least I'm not aware of any plans, no works are being conducted. We are not taking part in any works. So that's all regarding that. I understand that this question will be put forward many times in the future as well. But ladies and gentleman, the assumption is that TAURON will continue to be a totally separate entity, a separate group, energy group over the, I think, the coming years. I think there's no doubt regarding that. But of course, let's remember here that all the energy groups are public companies, listed companies and these types of things will be determined by the shareholders. If the shareholders decide one way or the other during the general meeting, then the management board, as an executive body, will be obligated to undertake such works. But let me repeat once again. I am not aware of any plans of any consolidation. Today, each energy group is facing some great challenges that even some directions of cooperation's, areas where discussed before during -- on the working team level, today are being put aside because each energy group is facing enormous challenges.

Thank you very much Mr. President. Thank you very much, ladies and gentlemen for your attention. If you have any further questions, then both Investor Relations team as well as press team are available. Thank you very much, gentlemen. Thank you very much.

Thank you very much. See you. I do hope that during the conference for first half of this year, this pandemic situation will end. But we'll be able to have normal regular meeting, not just virtual meeting like today. Once again, thank you much. Please ask questions or answers to questions that were sent. But due to the time limitation, we're not able to answer them. I understand the Investor Relations team will be answering -- will be sending answers to those questions. Wish you all.