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PGE Scraps Record $3.6 Billion Polish Power Plant Project

April 5 (Bloomberg) -- PGE SA, Poland’s biggest utility, canceled a record 11.6 billion-zloty ($3.6 billion) hard coal-fired power plant project as electricity prices slumped and the economy faces its worst slowdown in more than a decade.

State-controlled PGE signed a preliminary agreement with Rafako SA, Polimex-Mostostal SA and Mostostal Warszawa SA early last year to build the 1,800-megawatt plant in Opole, Poland. The start of the construction was delayed by protests by environmental groups.

PGE, whose profit fell 34 percent in 2012, is reviewing investment projects as the slowing economy pushed electricity prices down 16 percent last year, the most among any country in the European Union, while power demand fell for the first time in three years, according to the country’s transmission grid.

“It’s good news in the short term and the conclusion is simple: PGE’s dividend should be higher,” Flawiusz Pawluk, an analyst at UniCredit SpA in Warsaw said by phone today. “The Treasury Ministry probably won’t ask PGE to pay out the entire profit, but the dividend is likely to be above 80 percent.”

Shares Jump

Last month, PGE’s management proposed paying 50 percent of 2012 profit, or 1.61 billion zloty, as a dividend. Deputy Treasury Minister Pawel Tamborski said yesterday the ministry is waiting for a new strategy before deciding on the payout, adding “it may turn out the company has a lot of free cash.”

PGE shares jumped as much as 3.2 percent to 17.02 zloty, climbing the most since March 27, and traded 1 percent higher at 16.67 zloty as of 3:35 p.m. in Warsaw. The stock has lost 8.5 percent in 2013 to value the company at 31.1 billion zloty.

The company needs to adjust its expansion to changing market conditions and make “better use of capital,” it said on March 14, adding that its lignite-fired power plants are “best positioned” to stay profitable.

Electricity prices in Poland declined 8.9 percent this year, Polish output from more expensive hard coal-fired plants declined 7 percent in 2012, while lignite-fired units produced 3.7 percent more energy, according to the national grid operator.

To contact the reporters on this story: Maciej Martewicz in Warsaw at mmartewicz@bloomberg.net; Marek Strzelecki in Warsaw at mstrzelecki1@bloomberg.net

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

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