PGE, Coal Group Sign Deal to Build $3.5 Billion Plant

PGE SA, Poland’s largest utility, signed an agreement with Kompania Weglowa SA, the country’s biggest coal producer, to resume an 11.6 billion-zloty ($3.5 billion) project to expand its Opole power plant.

The agreement signed today will limit the risk of the project being unprofitable, Treasury Minister Wlodzimierz Karpinski said at a televised ceremony in Opole, Poland. PGE also signed a separate deal with Polskie Inwestycje Rozwojowe, a state investment fund, on the project, he said. The investment, key to the government’s energy security plans, will start this summer, Prime Minister Donald Tusk said in Opole.

“Coal will again find its place in the Polish energy mix,” Tusk said. “We have to build a model for Opole that will make the project profitable or at least safe for PGE. It’s not about business for the company but the national interest of all Poles.”

The government, which controls both companies, said this month it will find “means and ways” to build the 1,800-megawatt plant after PGE canceled the project in April, saying a slump in power prices and demand for electricity made it unprofitable.

Kompania, based in Katowice, may sign a long-term deal to supply coal to the Opole plant and may also consider investment in the project, PGE said in an e-mailed statement later today.

PGE shares slumped to a four-month low after the deal, losing 2.9 percent to 15.53 zloty at 12:30 p.m. in Warsaw. Kompania isn’t publicly traded.

Power prices declined 30 percent in the last 12 month. Poland will need to switch off 6,600 megawatts of electricity generation capacity by 2020, according to PSE SA, the power grid operator.

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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