PGE GiEK, a PGE Group company, has signed an agreement to purchase ultimately a 17.1% stake in Polska Grupa Górnicza (PGG). This financial investment will be carried out on market terms and is in line with PGE Group’s strategy as it secures a raw material base with parameters complying with the Group’s energy units, both existing and those currently under construction.
Aside from PGE GiEK, other parties to the investment agreement are: Energa Kogeneracja, PGNiG Termika, Węglokoks, Towarzystwo Finansowe Silesia, Fundusz Inwestycji Polskich Przedsiębiorstw FIZAN and Polska Grupa Górnicza. The recapitalisation of PGG, amounting to a total of PLN 2.417 billion, will take place in three stages, in which PGE GiEK will contribute a total of PLN 500 million, eventually bringing its stake in PGG’s share capital to 17.1%.
The agreement is based on the market principles pertaining to implementing such projects and is aimed at ensuring an expected rate of return on investment, through improving the effectiveness of the mines belonging to PGG among others and – as a consequence – having them reach specified profitability levels.
“PGE Group is the leader of the energy industry in Poland, manufacturing about 40% of electricity consumed in the country, therefore an investment designed to secure supply of highly-energetic coal for the Group’s asset base is well in line with our business strategy. Once two new highly efficient units at Opole power plant with total capacity of 1,800MW are commissioned, the Group’s demand for coal will increase from about 5.6 million tonnes currently to approximately 7.5 million tonnes,” says Henryk Baranowski, CEO of PGE Polska Grupa Energetyczna.
According to the investment agreement, PGG will operate based on a business plan with the aim to optimise production costs, improve the company’s operational effectiveness and reach specified profitability levels. PGG’s business plan sees the company generating positive cash flows for investors in 2017. These cash flows will make it possible to generate a rate of return above the cost of capital employed.
The investment agreement contains a number of mechanisms designed to allow investors to monitor PGG’s financial situation, including business plan implementation as well as further optimisation activities, also in the event of adverse changes in market conditions. Moreover, the investors will appoint their representatives to PGG’s supervisory board, further enhancing oversight.
The investment agreement is another step following an agreement reached on 26 April 2016 in Katowice regarding the launch of PGG, which comprises 11 mines, 4 facilities and parts of the headquarters of Kompania Węglowa. Aside from the investors, the agreement was signed by banks – Kompania Węglowa’s bondholders – Alior Bank, BGK, BGŻ BNP Paribas, PKO BP, Bank Zachodni WBK, and 13 trade union organisations at Kompania Węglowa.