27.2 Other significant issues related to contingent liabilities
Non-contractual use of property
As described in note 20.4, the PGE Capital Group established a provision for legal disputes concerning non-contractual use of real property for distribution purposes. Furthermore, the PGE Capital Group is involved in disputes that are at early stages of proceedings and it cannot be ruled out that the number and value of similar disputes will increase in the future.
Contractual liabilities related to fuel purchases
According to the concluded agreements for the purchase of fuels (mainly coal and gas), the PGE Capital Group is obliged to receive a specified minimum volume of fuels and not to exceed a specified maximum level of gas consumption in particular periods. A failure to receive the minimum volumes of fuels or collection of more than the maximum volumes of fuels specified in the agreements may result in the necessity to pay relevant fees (in the case of one agreement for the purchase of the gaseous fuel, the volumes paid for, but not received, may be received within the next three contractual years).
In the opinion of the PGE Capital Group, the terms and conditions of fuel supplies to its generation facilities as described above do not differ from the terms and conditions of fuel supplies to other generators in the Polish market.
Obligations to maintain fuel stocks
Pursuant to the applicable regulations, a power company generating electricity or heat is obliged to maintain stocks of fuel in quantities sufficient to ensure continuity of supply of electricity or heat to consumers.
In previous reporting periods and also in January and February 2023, there were several breaches of the requirements to maintain minimum coal stocks in PGE GiEK S.A.’s hard coal-fired power generation units (Opole Power Plant, Dolna Odra Power Plant, Rybnik Power Plant). The failure to maintain minimum levels of hard coal stocks and the problems with restoration of these stocks in the power plants were influenced by a number of factors beyond the Group’s control.
According to the provisions of Article 56(1)(2) of the Energy Act, a financial penalty is imposed on anyone, who does not comply with the obligation to maintain fuel stocks, (…), or does not replenish them in time, (…). It should be pointed out that the very fact of not complying with a prohibition or obligation provided for in the Energy Act results in the imposition of a penalty by the President. Pursuant to Article 56(3) of the Energy Act, the amount of the penalty may not be less than PLN 10,000 and more than 15% of the penalised entrepreneur’s revenue earned in the preceding fiscal year, and if the penalty is connected with activity conducted on the basis of a licence, the amount of the penalty may not be less than PLN 10,000 and may not be higher than 15% of the penalised entrepreneur’s revenue from the licensed activity in the previous fiscal year.
Before the date of the preparation of these consolidated financial statements, no penalty had been imposed on PGE GiEK S.A. for failure to meet the obligation to maintain and restore coal stocks at an appropriate level. From February 2023 until the date of drawing up these consolidated financial statements, the level of coal stocks was maintained above the minimum level required by law.
Taking into account the above reasons (that were beyond the Company’s control) for not meeting and rebuilding the required minimum coal stocks by the set deadline, as well as the fact that PGE GiEK S.A. had not received any previous penalties on this account, which should constitute a circumstance for adequately moderating the penalty, the Company estimates that the value of a potential penalty should not be significant for PGE GiEK S.A. Consequently, no provision was established for this particular purpose.
Funds from an increase in the Company’s share capital
On 5 April 2022, an investment agreement was concluded between PGE S.A. and the State Treasury concerning the acquisition by the State Treasury of shares issued as a result of the share capital increase. According to the provisions of the agreement, funds raised from the share issue in the amount of PLN 3.2 billion are to be used exclusively for investments in the area of renewable energy, decarbonisation of heat generation and distribution. The manner in which funds from the issue are spent is subject to detailed reporting and auditing. Disbursement of funds contrary to the provisions of the investment agreement may result in financial penalties or even the necessity to return the funds. The PGE Group uses the funds in accordance with the investment agreement.
“Cancellation fees” in EWB2
During the 2023 financial year and after the reporting date, the company EWB2 entered into contracts for the construction phase of the ongoing Baltica 2 Offshore Wind Farm project. There are provisions in these contracts according to which, in the event that the Final Investment Decision (FID) is not made and all concluded contracts are consequently cancelled, EWB2 will be obliged to pay cancellation fees. Accordingly, the potential value of the liability on the part of the PGE Capital Group, taking into account the shares referred to in note 1.3.2, was estimated at EUR 90.7 million. Given the progress of work on the Baltica 2 Offshore Wind Farm project, EWB2 assesses the need to incur cancellation fees as negligible. Accordingly, no liability or contingent liability was recognised on this account.
Energy efficiency certificates
PGE S.A. is in the process of administrative proceedings before the President of the Energy Regulatory Office concerning the imposition of a fine for failure to comply with the obligation to obtain and submit for redemption to the President energy efficiency certificates in the amount of approximately 29 certificates in total for 2017 and 2018. Due to the low value of the arrears, PGE S.A. estimates that the value of a potential penalty should not be material, so no provision for this is recognised in these financial statements.