2015 was another effective year of the PGNiG Group’s Strategy for 2014−2022, approved by the PGNiG Supervisory Board on December 29th 2014. The strategy covered four business areas and ten strategic initiatives, which, when fully implemented, were to allow the Group to achieve the following objectives:
The business areas covered by the PGNiG Group’s Strategy for 2014-2022 included:
Within this area, the PGNiG Group will seek to maintain its leading position on the natural gas market and remain the preferred gas supplier across all customer segments. The Group intends to achieve these objectives by developing and implementing mechanisms to improve customer service quality and encourage customers to continue their business relationships with the Group. The PGNiG Group also intends to maintain the high stability of gas supplies to end users and to enhance its product offering through initiatives such as the roll-out of dual fuel products. The priority in this area is to develop and implement mechanisms that would mitigate the risk related to the Company’s long-term gas import contracts. The PGNiG Group will also seek to introduce more flexibility into its natural gas portfolio and adjust the portfolio to the changing pricing and supply/ trading conditions on the market, while maintaining its ability to ensure energy security.
The PGNiG Group’s gas storage, and electricity and heat generation assets are a source of predictable, stable revenues and deliver attractive rates of return relative to the risks. In the coming years, the assets will prove important in stabilising the Group’s financial performance and enhancing its ability to finance new projects. In a highly competitive environment, it will be of key importance to maximise cash flows from this business area and to allocate any free cash to growth-oriented projects that will fully exploit the Group’s potential and synergies available in new growth areas. The Group intends to pursue new, profitable transmission infrastructure projects (heat networks) as one of its development directions.
The Exploration and Production segment will continue to play a major role in development of the PGNiG Group. The main objective is to maintain stable production of natural gas and crude oil in Poland. In addition, to secure a further meaningful growth of shareholder value, the Group intends to take active steps to build a portfolio of foreign exploration and production assets. The PGNiG Group will continue the exploration and appraisal of shale gas deposits in Poland within its most prospective licence areas, with a view to verifying the recoverable reserves of unconventional hydrocarbons and commencing their economically-viable production in the shortest possible time.
To ensure further growth at each stage of its value chain, the PGNiG Group will take steps to improve its cost effectiveness and organisational efficiency. These measures will include cost rationalisation, development of new business areas, and focus on the Group’s principal business activity, while disposing of non-core assets. Their implementation will improve the Group’s ability to finance new projects and enhance its competitive position.
Despite the challenging and volatile environment, the key Strategy tasks for 2015 were accomplished. This was facilitated by the precisely defined and effectively monitored strategic initiatives. Particularly noteworthy was the achievement of planned cost savings on enhanced organisational and process-related efficiencies across the Group, providing a springboard for the Group’s further growth. Initiatives taken as part of the Strategy helped improve the financial performance and reduce the debt ratio.
In 2015, in accordance with the Strategy, the PGNiG Management Board recommended, and the Annual General Meeting approved, dividend distribution. The dividend amounted to PLN 1.18bn, i.e. PLN 0.20 per share, which represented 62% of PGNiG’s net profit and 42% of the PGNiG Group’s consolidated net profit for 2014, the highest ever dividend paid by the Company. The results achieved by the Group in 2015 with respect to maintaining a stable value of sales confirmed that its strategic idea to provide a wide range of dedicated discount offers, especially to business customers, was correct. At the end of 2015, the tariff price was in fact the maximum price, as customers benefited from a number of discounts.
The results achieved in wholesale were better than originally assumed. Negotiations with Qatargas led to amendments to the contract with this supplier reducing the risk that PGNiG would have to cover the cost of gas volumes uncollected due to delays in the construction of the LNG terminal in Świnoujście. As a result, the losses were much lower than expected. Moreover, PGNiG commenced talks with Gazprom during a negotiation window provided for in the contract. In May 2015, PGNiG also filed for arbitration before the Arbitration Institute in Stockholm, which however does not preclude holding commercial negotiations with Gazprom to reach an agreement.
Gas distribution volumes grew faster than expected, on the back of a stronger growth in the number of new connections to the network and new customers, while the average distribution charge remained at the level assumed in the Strategy.
As part of plans to acquire further heat distribution assets, a detailed analysis of the heat market in Poland was performed. Following intensive search for acquisition targets, and based on discussions with the owners of municipal and private district heating businesses, the available acquisition opportunities were assessed.
In the generation area, a decision was made to proceed with the project to build a new 450 MWe CCGT unit at the Żerań CHP plant. The project will contribute to modernisation of the Żerań CHP plant, which will translate into improved reliability of heat and power supply in the Warsaw metropolitan area and a noticeable improvement in air quality. The CCGT unit is expected to come online in 2018. Technical parameters of the unit will meet the requirements of the IED, in force as of 2016, and BAT (Best Available Techniques). Furthermore, work on conversion of the K1 boiler at the Siekierki CHP plant was completed. On completion of the first stage of the boiler start-up process, it was possible to commence the process of connecting the boiler to the steam collector and launch of biomass -fired generation, scheduled for 2016. The project will help reduce air emissions, as required by the IED.
2015 was a successful year for the PGNiG Group also in the exploration and production business. The Group took a number of steps with a view to increasing both its conventional and unconventional gas reserves. The objective is to maintain stable production volumes in Poland in the coming years and to keep the leading market position in the segment. New discoveries in 2015 added about 27 mboe to the Group’s reserves, the highest amount in almost 10 years.
In the upstream area, a large number of acquisition opportunities in many parts of the world were analysed. The most attractive assets in the US and Canada were identified and shortlisted. The Company is primarily interested in acquiring reserves which are at an advanced stage of development (producing reserves), or companies holding interests in such reserves.
In the first half of 2016, as part of updating the Group’s Strategy, its implementation so far was reviewed and assessed, and the underlying assumptions were revised. Based on that, a detailed action plan was prepared, with the existing initiatives modified significantly and new strategic initiatives developed.
Programme objectives:
The Programme aims to permanently reduce the controllable cost base across core segments of the PGNiG Group.
Key non-controllable costs:
