Risks

Gas trading on the exchange market has been excluded from the tariff regime. Prices of gas paid by end users are also expected to be gradually liberalised as the process of deregulation advances. The first customer groups in respect of which the tariff requirement will be disapplied are wholesale customers and the largest business customers. As regards gas trading on the Polish Power Exchange or direct sales to customers at prices similar to those quoted on the exchange, there is a risk that revenues from such sales will be lower than gas procurement costs due to the growing disconnect between the market prices of gas and of petroleum products, to which gas prices under the long-term import contracts continue to be linked. The obligation to submit gas fuel tariffs for approval by the President of URE adds to that risk, since tariffs are crucial to the Company’s ability to generate revenue sufficient to cover its reasonable costs and deliver a return on capital employed. As a consequence, revenue is subject to forecasting risk. Inaccurate estimates of costs (particularly the cost of gas purchase) may result in a risk of miscalculation of selling prices and charges, which may adversely affect financial results.

Key

Competitors seek to increase gas fuel sales by offering competitive prices of the fuel or dual fuel (gas and electricity) deals. In response to changes taking place on the natural gas market in Poland, the PGNiG Group introduced a number of discount schemes.

PGNiG is a party to two long-term take-or-pay contracts for gas supply to Poland − the Yamal Contract and the Qatar Contract. Assuming that PGNiG’s customer portfolio remains unchanged, the volume of gas imports specified in the take-or-pay contracts will limit its purchases of spot gas, which are currently most attractive in price terms. If PGNiG loses its market share, there is a risk that the Company would be forced to look for new ways to utilise the surplus volumes of gas in its portfolio.

Given the continuing political instability in Ukraine and experience from late 2014 and early 2015, a risk of limitations in gas supplied by OOO Gazprom Export cannot be discounted.