25.3 Credit risk

Credit risk is connected with a potential credit event which may have the form of a business partner’s insolvency, partial payment of liabilities, significant delay in the payment of liabilities or any other default with respect to contractual conditions (in particular a failure to make a delivery of or to accept goods under a concluded contract or to pay damages and contractual penalties).

The PGE Group companies are exposed to credit risk arising in the following areas:

• principal activities of its companies – credit risk results from, among others, purchases and sales of electricity, heat, origin energy rights arising from certificates of origin for electricity, CO₂ emission allowances, fuels etc. This includes the possibility that the Group’s counterparties and customers may fail to make payments when due or fail to fulfil their delivery obligations to a PGE Group company if the fair value of the transaction is positive from the Group’s point of view;
• investing activities of the companies – credit risk results from transactions resulting from investment projects whose success depends on the financial standing of the Group’s suppliers;
• investing free cash of PGE Group companies – credit risk results from investing free cash of the PGE Group companies in securities bearing credit risk, i.e. financial instruments other than those issued by the State Treasury..

To monitor credit risk in operations, the Group’s most commercially important companies follow an internal ratings approach, using rating models implemented with the assistance of an external provider.

In the PGE Capital Group there is a concentration of credit risk related to trade receivables. The three most significant customers account for approximately 7% of the trade receivables balance.

The maximum exposure to credit risk resulting from the financial assets of the PGE Capital Group is equal to the book values of these items.