June 27 (Bloomberg) -- PGE SA fell to a record as Poland’s biggest power utility signed an agreement to resume an 11.6 billion-zloty ($3.5 billion) project to expand its Opole plant and the state backed a cut in its dividend by 53 percent.
PGE and Kompania Weglowa SA, the country’s biggest coal producer, today signed a letter of intent to help revive the project, which Prime Minister Donald Tusk’s government sees as key to the country’s energy security. PGE canceled its biggest investment two months ago, saying a slump in Polish power prices and falling demand for electricity made it unprofitable.
“The Opole project poses cost risk,” Pawel Puchalski, a Warsaw-based analyst at Bank Zachodni WBK SA, said by phone today. “Since the company earlier said the project won’t generate profit, we still don’t know whether after today’s deal coal from Kompania will be cheap enough to make it work.”
Kompania, based in Katowice, Poland, may supply coal to the Opole plant under a long-term contract and may consider investing in the project, PGE said in a regulatory statement. Warsaw-based PGE also signed a separate agreement on the project with state investment fund Polskie Inwestycje Rozwojowe.
PGE shares tumbled as much as 12 percent and closed 8.1 percent lower at 14.7 zloty in Warsaw, the lowest since the stock started trading in December 2009. The stock has declined 19 percent this year. Turnover amounted to 249 percent of the three-month daily average, data compiled by Bloomberg show.
The agreement with Kompania should limit the risk of the Opole project being unprofitable, Treasury Minister Wlodzimierz Karpinski said at a televised ceremony in Opole. The investment will start this summer, Premier Tusk said today. Tusk said earlier this month that his government will find “means and ways” to build the 1,800-megawatt coal-fired plant.
“Coal will again find its place in the Polish energy mix,” Tusk said today. “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 holds a 62 percent stake in PGE, today approved the management’s proposal to cut a dividend to 0.86 zloty a share from 1.83 zloty a share paid in 2012. Last year PGE paid out 39 percent more than initially planned after the government submitted its own proposal. This year Poland increased dividends from utility Tauron Polska Energia SA, copper producer KGHM Polska Miedz SA and gas company Polskie Gornictwo Naftowe i Gazownictwo SA.
Power prices declined 30 percent in the last 12 months. Poland will need to switch off 6,600 megawatts of electricity generation capacity by 2020 because of aging infrastructure and European Union norms on emissions, according to PSE SA, the country’s power grid operator.
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