PGE Restarts Investment to Build $3 Billion Power Plant

PGE SA (PGE), Poland’s largest utility, will go ahead with its 9.4 billion-zloty ($3 billion) project to build a power plant in Opole after a court lifted the ban on its biggest investment yesterday.

The state-controlled utility in February signed a deal with Rafako SA (RFK), Polimex-Mostostal SA (PXM) and Mostostal Warszawa SA (MSW) for the 1,800-megawatt, coal-fired plant in southern Poland. In January, PGE lost a permit for the project because of protests from environmental law organization ClientEarth. The Supreme Administrative Court overturned the cancellation of the permit yesterday and ordered a lower court to reconsider the case.

“The ruling is good news and there are no longer any legal barriers to starting construction,” Treasury Minister Mikolaj Budzanowski said in a e-mailed statement. “There’s a real opportunity to complete this project as originally planned, a state-of-the-art power plant on the biggest scale in Poland.”

Polish state-controlled utilities plan to spend about 170 billion zloty by 2020 to replace aging facilities and comply with European Union regulations. The majority of coal-fired plants in the country, which relies on the fuel for about 90 percent of its electricity, are more than 30 years old.

Mixed Signals

“The decision to continue the investment wasn’t unexpected after the court’s ruling,” Piotr Nawrocki, a Warsaw-based analyst at Bank Millennium SA (MIL), said by phone yesterday. “While there have been mixed signals about the project’s profitability, the ministry has always said it’s a strategic investment.”

PGE shares declined 0.1 percent to 18.4 zloty at 9:42 a.m. in Warsaw, extending this year’s drop to 11 percent and valuing the company at 34.4 billion zloty. Rafako gained 0.5 percent to 8.94 zloty, Polimex fell 2.3 percent to 0.85 zloty, while Mostostal Warszawa advanced 2.1 percent to 14.31 zloty.

PGE, in which the government has a 62 percent stake, said in February it’s seeking a buyer for half of the Opole project.

Power producers in Poland will probably delay investments in coal-fired plants to avoid the risk of overcapacity after electricity prices fell, Fitch Ratings said on Sept. 27. The prices have dropped 12 percent in 2012 as the economy expanded at the slowest pace in three years in the second quarter.

“The electricity prices at such levels increase the risk of the Opole project,” Pawel Puchalski, a Warsaw-based analyst at Bank Zachodni WBK SA, said yesterday. “On the other hand, declining coal prices will help offset this risk.”

Last month Enea SA (ENA), Poland’s third-biggest utility, signed a deal to build a 1,075-megawatt facility in Kozienice, while smaller Energa SA suspended a project for a 1,000-megawatt plant in Ostroleka.

Kulczyk Investments, Electricite de France SA and Tauron Polska Energia SA (TPE) earlier announced plans to build coal-fired power plants in Poland.

To contact the reporter on this story: Maciej Martewicz in Warsaw at mmartewicz@bloomberg.net

To contact the editor responsible for this story: James M. Gomez at jagomez@bloomberg.net

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