32.1 Impact of the war on the territory of Ukraine on the activity of the PGE Group

In connection with the situation in Ukraine, the Crisis Team has been established at the central level of the PGE Group to continuously monitor threats and identify potential risks. As part of the Team’s work, monitoring is carried out which covers the security of electricity and heat generation and supply, as well as the protection of the critical and IT infrastructure. The Crisis Team is also responsible for taking actions to minimise the risk of an emergency situation, preparing the companies belonging to the Group for an emergency situation and planning, organising and coordinating works to ensure the continuity of operations of the Company and the PGE Group.

In the current geopolitical situation, also the importance of cyber security has increased significantly. The PGE Group has implemented special procedures for monitoring ICT networks due to the increased activity of criminal groups aiming to attack ICT and OT systems. The following incidents are regularly identified: phishing, attempts to install malware and DDoS (Distributed Denial of Service) attacks. Safeguards adequate to the changing risks are being implemented. The physical protection of the Group’s facilities has also been strengthened.

Key areas within the PGE Capital Group affected by the war in Ukraine

• the level of margin generated,
• fuel availability and prices,
• the prices of CO₂ emission allowances,
• disruption to the supply chain of components or a significant increase in their prices,
• an increase in inflation and interest rates and a weakening of the national currency,
• capital raising opportunities,
• hard coal imports,
• cyber security and physical security,
• geopolitics,
• new legal regulations,
• business partners (sanction lists).

Key risks of the PGE Capital Group’s operations related to the war in Ukraine

• a significant reduction in the availability of low-sulphur coal,
• a possibility of sharp fluctuations in hard coal and natural gas prices on international markets.

Risks associated with gas supplies

• The Gorzów CHP plant and the Zielona Góra CHP plant are supplied with field gas (so-called Ln gas). Due to the use of a dedicated transmission infrastructure between the mine and the CHP plant, the indicated generation assets are neutral to disruptions in supply to the National Gas Transmission System.
• The Toruń, Zawidawie, Czechnica, Lublin Wrotków, Rzeszów, Zgierz, Bydgoszcz and Kielce CHP plants are supplied with high-methane gas (so-called E gas). E gas taken from the National Gas Transmission System is secured in the form of adequate storage volumes and is at a relatively high level in Poland.

The PGE Group has no influence on the directions of supply and management of the transmission of the gaseous fuel, therefore the risk of possible disruptions lies with the company ORLEN S.A. (formerly PGNiG) and the Gas Transmission System Operator (Gaz-System S.A.). The PGE Group has established communication channels with ORLEN S.A. and Gaz-System S.A. for the purposes of commercial and operational management in cooperation with particular PGE Group sites. In accordance with national gas supply constraint management programmes, security of supply for electricity and heat generation is privileged over other corporate customers.

Impact of fuel availability constraints on electricity and heat generation

• In the case of the gaseous fuel, due to the inability to hold stocks of this fuel, the reduction in availability translates into an immediate interruption in the generation of electricity and heat. However, if there are reserve coal-fired water boilers at a CHP plant, heat generation is possible until stocks are exhausted (in the case of the Lublin Wrotków and Rzeszów CPH plants). In the case of the Gorzów CHP plant, the stand-by generation capacity is provided by the OP-140 coal-fired steam boiler. At the Zielona Góra CHP plant, the stand-by heat generation capacity is provided by oil-fired boilers.
• At present, the main suppliers of hard coal for electricity and heat generation are Polish mining companies. Coal supplied by importing companies complements the main, domestic supply channel. At present, CHP plants and centrally managed generating units have high stocks of hard coal, which allows for uninterrupted generation of electricity and heat. The supply of electricity to PGE Dystrybucja S.A. and PGE Obrót S.A. is guaranteed in the form of commercial security. Physical supplies of energy are determined by the current balancing and functioning situation of the National Power System. At present, the PGE Group has not identified any threats to electricity or heat supply to residents, institutions and enterprises.

Risk of the impact of the war on future financial results

The risks described above may have a significant impact on the PGE Capital Group’s individual areas of operations and future financial performance. In particular, the recoverable amount of selected asset items, the level of expected credit losses and the valuation of financial instruments may change.

In view of the dynamic course of the war in the territory of Ukraine and its macroeconomic and market consequences, the PGE Group will monitor its development on an ongoing basis and any events that occur will be reflected accordingly in future financial statements of the Group.