Regulatory environment

The regulatory environment of the PGNiG Group is formed by a combination of national and EU laws.

PGNiG actively participated all key initiatives to amend the Energy Law, presenting its positions and proposals how to protect the interests of the PGNiG Group and its customers.

The Act on Emergency Stocks lays down the rules for creating and maintaining emergency stocks of natural gas and procedures for monitoring and proper enforcement of the act. The act also sets out the rules to be followed in the event of any threat to Poland’s energy security. On July 22nd, 2016, the Act Amending the Energy Law and Certain Other Acts was passed. With respect to emergency stocks of natural gas, the amendment extends the list of obligated entities to include gas importers, and removes exemptions from the obligation enjoyed by utilities with fewer than 100 thousand customers and importing less than 100 mcm of natural gas in a calendar year. Until the amendment of July 22nd, 2016, the obligation to maintain mandatory stocks of natural gas applied only to energy companies engaged in the business of importing natural gas for resale to customers. The obligation therefore applied only to trading companies. Under the amendment, however, the obligation was extended to cover companies importing natural gas for their own consumption. The Act on Emergency Stocks also allows those of the obligated entities which have no reserved storage capacities of their own to cover the obligation by contracting ticketing services from third parties. The developed solutions contribute to Poland’s energy security and provide a more level playing field for competitors on the Polish gas market.

The Energy Efficiency Act establishes an energy efficiency obligation scheme which implements into the Polish legal system the provisions of Directive 2012/27/EU of the European Parliament and of the Council of 25 October 2012 on energy efficiency, amending Directives 2009/125/EC and 2010/30/EU and repealing Directives 2004/8/EC and 2006/32/EC (OJ EU L 315 of November 14th 2012). Pursuant to the act, obligated entities are required to generate savings in final energy consumption of 1.5% each year. The Energy Efficiency Act references two principal methods to fulfil this obligation:

• to implement a project or projects designed to improve end customers’ energy efficiency;
• to obtain an energy efficiency certificate and to submit the certificate to the President of URE for.

The act provides for the option to fulfil the obligation by paying a substitution fee. However, as a rule this option cannot be exercised to cover more than 30% of the obligation for 2016, 20% for 2017, and 10% for 2018. In 2016, PGNiG was actively involved in the legislative process aimed at adopting the new Energy Efficiency Act. The Company’s proposals concerned abolishing the preferences given to natural gas purchases with delivery at the border and reinstatement of deductions from the basis used for calculation of the obligation.

The Act on Special Hydrocarbon Tax stipulates a special tax regime where the tax base is the surplus of revenue generated from hydrocarbon extraction activities in a given year over the eligible expenditures incurred in a given tax year. The date of receipt of receivables is deemed to be the date on which revenue from hydrocarbon production is generated. The date of payment of liabilities is deemed to be the date on which an eligible expenditure is incurred. The obligation to pay special hydrocarbon tax (SHT) will only apply in respect of revenue generated after January 1st, 2020. Nevertheless, the obligation to keep appropriate tax records and to file relevant tax returns with the competent tax authority have been in force since January 1st, 2016. In the first tax year, i.e. the year beginning January 1st, 2016, SHT payers may include in their eligible expenditures any expenditures they incurred in the four calendar years preceding January 1st, 2016, and also – to a specified extent – the value of property, plant and equipment associated with the hydrocarbon production business which they acquired or generated internally in earlier periods as well as the value of fixed assets under construction in the amount determined as at January 1st, 2012.

The Geological and Mining Law specifies, without limitation, the terms and conditions for performing geological work, extraction of minerals from deposits, storage of waste matter in rock mass (including in worked-out caverns), protection of mineral deposits, underground waters and other components of the environment in connection with geological works and extraction of minerals. Business activities involving the exploration and appraisal of mineral deposits, the extraction of minerals from deposits, tankless storage of substances and storage of waste matter in rock mass, including in worked-out caverns, require a licence. From the perspective of the conduct of such business, important is the obligation to provide security for non-compliance or improper compliance with the conditions specified in the license in an amount not exceeding the equivalent of up to 20% of the cost of geological work, which represents an additional and considerable financial burden for the industry. In 2016, the Minister of the Environment commenced work on a new amendment to the Geological and Mining Law. One of the purposes of the new regulations is to simplify provisions applicable to administrative proceedings. The main changes are expected to cover the following:

• imposing an obligation to submit opinions to an eligible entity in the form of decisions by bodies participating in the qualification procedure, not only to the minister in charge of the environment;
• allowing for the issue of a partially positive assessment in the qualification procedure (as regards safety) if in the course of the procedure it is found that the eligible entity does not have the required experience;
• waiver of security for non-compliance or improper compliance with the conditions of the licence,

introduction of a second, open-door procedure for granting hydrocarbon licences enabling the conduct of a tender procedure at the request of a commercial undertaking.

The Tariff Regulation sets out the principles for determining tariffs for gas fuels, in particular the calculation of prices and rates, as well as the rules of settlements between market participants. In 2016, PGNiG and PGNiG Obrót Detaliczny Sp. z o.o. held gas fuel trading tariffs. Moreover, in 2016 Gas Storage Poland Sp. z o.o. applied gas storage services tariffs, whereas Polska Spółka Gazownictwa Sp. z o.o. applied gas distribution services tariffs and liquefied natural gas services tariffs. In the Generation segment, the following companies held their own tariffs: PGNiG TERMIKA SA (for heat generation and transmission), Przedsiębiorstwo Energetyki Cieplnej S.A. (for heat generation) and Spółka Energetyczna Jastrzębie S.A. (for heat and electricity generation). Pursuant to the transitional provisions to the Energy Efficiency Act, the current Tariff Regulation will expire by March 31st, 2018. Therefore, legislative work on the new regulation is expected to commence in 2017. On February 19th, 2013, the President of URE issued Communication No. 2/2013 on the exemption of energy utilities holding gas fuel trading licences from the obligation to seek approval of wholesale gas trading tariffs. On August 30th, 2013, PGNiG applied to the President of URE for an exemption from the obligation to seek approval for tariffs for the sale of natural gas to energy utilities which purchase gas as part of their gas fuel trading business. By decision of August 4th, 2016, the President of URE exempted PGNiG from this obligation in relation to high-methane gas, but refused to grant an exemption in relation to nitrogen-rich gas. On August 10th, 2015, PGNiG applied to the President of URE for an exemption from the obligation to seek approval for tariffs for the sale of natural gas to energy utilities purchasing it for the purposes of gas transmission, distribution, storage, liquefaction or regasification activities. By decision of August 4th, 2016, the President of URE exempted the Company from this obligation. On January 26th, 2016, PGNiG applied to the President of URE for an exemption from the obligation to seek approval for tariffs for liquefied natural gas (LNG). By decision of February 3rd, 2016, the President of URE exempted PGNiG from this obligation.

The SoS Regulation is aimed at preventing disruptions in the supply of natural gas to Member States or mitigating their effects if they occur. To that end, in the case of a shortage in gas supply, Member States may announce one of the three crisis levels in their territory: early warning level, alert level and emergency level. Each subsequent crisis level allows the Member State to take specific measures to minimise related risks. The regulation defines a group of ‘protected customers’ which includes all households connected to the distribution network. The mechanisms for securing the supply of gas to customers are set out in Preventive Action Plans and Emergency Plans adopted by the Member States. On February 16th, 2016, the European Commission published a draft of the new SoS Regulation, which is slated to supersede the current version. In the new draft, the role of regional cooperation in the event of gas supply disruptions was given a greater priority and a new solidarity mechanism was introduced. In the course of the work at the EU Council and the European Parliament, the risks identified by PGNiG were discussed. It seems that the EU Council and the European Parliament intend to address at least some of those risks and PGNiG will continue to keep monitoring the legislative process.

On September 30th, 2016, a Commission Regulation (EU) was adopted establishing a network code on rules regarding harmonised gas transmission tariff structures. According to ACER, the Regulation is planned to be published in the spring of 2017. Work on the adoption of this Regulation began in 2011. The PGNiG Group participated in public consultations organised by the European Commission and devoted to discussing the extent of the effect of the new regulation on the tariff systems in force in Member States.

Commission Regulation (EU) No 984/2013 of 14 October 2013 establishing a Network Code on Capacity Allocation Mechanisms in Gas Transmission Systems and supplementing Regulation (EC) No 715/2009 of the European Parliament and of the Council (the ‘NC CAM Regulation’) has been designed to promote the building of correctly operating interconnected transmission network systems, which would provide the foundation for further development of the EU internal energy market through harmonisation of mechanisms that ensure transparent and non-discriminating rules for transmission capacity allocation. One of the proposals brought forward by the PGNiG Group as part of consultations organised by the European Commission was that appropriate mechanisms be put in place to provide for auctions for quarterly capacity allocation to be held four times a year (previously they were held once a year).

The EU Emission Trading Scheme (‘EU ETS’), imposes the obligation to account for CO₂ emissions and regulates the allocation of free emission allowances for heat and electricity. Under the ETS Directive, emitters of greenhouse gases (including CO₂) are under the obligation to account for their emissions by surrendering their CO₂ emission allowances by April 30th each year for the preceding year. If the number of emission allowances is too small, the excess emissions penalty of EUR 100 per tonne of CO₂ is imposed and the operator must acquire and surrender the necessary number of emission allowances. Work on draft amendments to the EU ETS Directive, which were presented on July 15th, 2015, was continued in 2016. If the proposed solutions are adopted, the prices of emission allowances may rise, which may have a negative impact on the PGNiG Group’s electricity and heat business.