The balance that we follow in our activities also guides us in the financial sphere. Our priority is to maintain a stable level of debt while implementing an ambitious transformation plan.
Assumptions for financing the investment program
PGE Group’s existing financing model takes into account the use of funds from its core activities, debt financing in the form of commercial bank credit facilities and bond programmes, credit facilities from Bank Gospodarstwa Krajowego (“BGK”), credit facilities from multilateral institutions such as the European Investment Bank (“EIB”) or the European Bank for Reconstruction and Development (“EBRD”) as well as in the form of preferential financing. In order to effectively manage liquidity, within the Group we have introduced a cash-pooling system, with participation of 34 Group companies.
An ambitious investment programme of approx. PLN 75 billion scheduled for 2021-2030 will require long-term planning and securing external financing.
Currently, the most important available external financing sources for PGE Group are as follows:
- Domestic bond programme of PLN 5 billion.
- Euro Medium Term Note (EMTN) bond programme of up to EUR 2 billion.
- 2 credit facilities from BGK as part of the „Inwestycje polskie” (“Polish investments”) programme, amounting to PLN 1.5 billion in total.
- Syndicated loan – term facility of PLN 3.6 billion.
- PLN 1.99 billion credit facilities from the EIB – PLN 1.5 billion will be used for projects related to distribution network modernisation and expansion, while PLN 0.49 billion for financing and re-financing of the construction of cogeneration units.
- Green facility loan of PLN 272.5 million from EIB for financing of “green projects”.
- PLN 500 million credit facility from the EBRD to support implementation of a long-term programme for distribution network development and modernisation.
- Syndicated revolving loan of PLN 4.1 billion intended for financing of the ongoing operations, financing of the investment and capital expenses and refinancing of the financial liabilities.
- Current-account overdraft facilities
PGE Group’s financing policy features diverse maturities for specific financial instruments, which along with the diversification of financing sources, helps the Group to optimise its financing costs. The Group aspires to implement a responsible financial policy, which entails maintaining its net debt to EBITDA ratios at a level that makes it possible to retain investment-grade ratings
The recently observed dynamic changes on an unprecedented scale in the fuel and energy markets show the importance of the stability and liquidity of energy companies. PGE Group today provides this credibility. But we are still working to further strengthen the Group's finances when we will operate in a new business model after the coal asset spin-off. This is a prerequisite for delivering investments amounting to tens of billions of zlotys, which will transform not only PGE Group but the entire energy sector in Poland.
Effective use of available funding sources
The ongoing transformation of the Polish energy sector, including PGE, will be an extremely capital-intensive undertaking. The PGE Group’s capital expenditures by 2030 will reach even PLN 75 billion. Therefore, skilful use of financing sources will be very important in this process – funds available for Poland from funds under the Cohesion Policy, the Recovery and Resilience Facility, the Just Transition Fund, React EU or the Modernization Fund may exceed EUR 45 billion, and the funds available directly from the European Commission (guarantees from Invest EU, Innovation Fund, Horizon Europe, CEF) is another EUR 120 billion.
In the case of the power sector, financing can be obtained in areas such as:
- Renewable energy sources
- District and individual heating
- Energy and heating infrastructure
- Energetic efficiency
- Employees training
The PGE Group intends to use the available sources of financing from the assistance funds available to Poland in the field of energy transformation. PGE’s ambition is that the share of obtained financing should cover at least 25%. the Group’s investment needs.
In addition, we will consider other external sources of financing that may support PGE’s transformation towards achieving climate neutrality in 2050 – such as „green” bonds or ESG financing.
Limiting exposure to market changes and a stable return on investments based on dedicated support mechanisms, as well as the use of off-balance sheet financing will have a positive impact on the company’s risk profile and will support building shareholder value.
PGE Group finances its expenditures mainly with funds from on-going operations, i.e. revenue from sales, with a relatively stable structure. We are currently implementing a capital-intensive investment programme, which also requires external financing. Our aim is to build and maintain a diverse debt structure allowing us to flexibly manage financing costs.
Our debt structure is presented below, by type of financing, maturity, currency and type of interest as well as changes in gross and net debt in successive periods.
(including hedging transactions) as at 31 December 2021
(including hedging transactions) as at 31 December 2021
PGE S.A. has ratings assigned by two rating agencies: Fitch Ratings Ltd. (”Fitch”) and Moody’s Investors Service Limited (”Moody’s”).
|PGE’s long-term rating||Baa1||BBB+|
|Rating date||September 2, 2009||September 2, 2009|
|Last rating confirmation date||June 30, 2021||January 28, 2022|
|Poland’s long-term rating||A2||A-|
In 2021 and at the beginning of 2022 rating agencies: Moody’s and Fitch affirmed long-term rating of PGE S.A. at investment grade respectively at Baa1 and BBB+, both with stable outlook. Both agencies underline affirmation results from strong market position of PGE in the Polish electricity sector.
In its latest release of Janaury 2022, Fitch indicates that rating reflects PGE’s business profile as the largest Polish integrated electric utility with large electricity generation and distribution businesses, and moderate financial leverage. The key positive factors include PGE Group’s Strategy, intending transition of the Group’s profile towards renewables and low-emission sources, stable revenues from regulated businesses like distribution and Capacity Market. In addition, the divestment of PGE’s coal assets to National Agency for Energy Security, would likely be positive for PGE’s credit profile. The potential risk include margin levels in supply segment and a temporary increase in debt related to a high level of investment expenditures.
Moreover, Fitch positively assessed the planned new issue of shares, from which the proceeds are to be spent on development in distribution, renewables and low-emission sources.
Moody’s analytics affirmed rating for PGE S.A. at Baa1 and its stable outlook in June 2021. According to the opinion issued by this institution, the rating affirmation reflects PGE’s currently strong financial risk profile, which provides the Company with some flexibility to absorb a large investment program and withstand potential changes in Poland’s electricity market.
According to Moody’s, the Polish government’s plan to transform the domestic utility sector will be supportive of PGE’s credit risk profile. A spin-off of the coal assets would strengthen the company’s business risk profile since PGE Group would be able to implement its corporate strategy, focused on increasing already high share of regulated earnings from distribution grid operations and district heating and growth of generation from renewable energy sources.
Moreover, in Janaury 2022 Moody’s positively assessed the planned new issue of shares, stating in a comment that this would be to the benefit of the company’s credit profile.
Ratings assigned by both agencies confirm PGE’s long-term credibility on the capital and credit market.
PGE’s rating vs other Polish utilities:
|Spółka||Rating Fitch||Rating Moody’s||Rating S&P|
|PGE||BBB+ stable||Baa1 stable||n/a|
|PKN Orlen||BBB-Rating watch, positive||Baa1 positive||n/a|
|Energa||BBB-Lista Rating watch, positive||Baa2 stable||n/a|
|PGNiG||BBB stable||Baa2 stable||n/a|
|Polska||A- stable||A2 stable||A- stable|
As a power consortium, we possess a series of high-value assets and our activities feature a very broad spectrum of operations. As a company that is aware of the risk of accidents, natural disasters, as well as failures, destruction or theft, we try to address these risks. For this purpose, we established an insurance management procedure within the Group. Its introduction served to create a coherent insurance management system in the Group, which takes place in a manner organised by the PGE’s Corporate Centre, i.e. PGE Polska Grupa Energetyczna S.A. Thanks to these activities, we possess a standardised, uniform rules, forms and procedures related to obtaining protection and settlement of damages, we also reinforced the PGE Group’s position in the insurance market.
The crucial insurance areas in the PGE Group include insurances of the most important assets in terms of risk related to natural disasters and failures as well as the resulting loss of revenue. Furthermore, we insure the Group’s civil liability on the executed activity and possessed property.
From 2016, PGE is part of the PZUW Mutual Insurance Company (TUW PZUW). TUW is an alternative to classic insurance companies that act as joint-stock companies and their purpose is to achieve profit. TUWs are associations of persons or entities that have the same objective and interest, identifying not through capital relations (like a joint-stock company), but through affiliation and common purpose – instead of profit, the main objective of a TUW is to satisfy the needs of its members in terms of insurance coverage. By joining the TUW PZUW as a member, we guaranteed an alternative method of transferring risk based on the reciprocity rule as part of our own PGE CG Reciprocity Association (hereinafter referred to as the Association) and the ability to build lasting relations with the insurance and reinsurance markets. This form of risk transfer is based on a cost transparency, which allows for optimising the insurance programme, costs of a possible insurance and reinsurance brokerage, and in consequence – the premiums paid. The system of premium settlement as part of the Association allows for achieving returns or lowering the premium at a low ratio of damages. Any surcharges are only projected in the case of the Association’s negative result and can amount to max. 50% of the assigned premium. The Association does not take part in covering the TUW PZUW losses or in covering the losses of other functioning associations. According to Article 103 of the Act of 11 September 2015 on insurance and reinsurance activity, the regulations on public procurements do not apply to insurance agreements concluded with a mutual insurance company by entities constituting members of the given company, which mainly allows to negotiate the price and makes the agreement conclusion process much more flexible and shorter.
It is however necessary to note that the membership in the TUW PZUW does not mean that we do not use other insurance methods – depending on the needs and estimated costs, we co-operate in a broad scope with insurance and reinsurance companies and use the services of insurance and reinsurance brokers.