PGE Slumps as CEO Quits After $3.8 Billion Project Row

PGE SA, Poland’s biggest power producer, plunged from a 10-month high after Chief Executive Officer Krzysztof Kilian resigned amid a dispute over an 11.6 billion-zloty ($3.8 billion) investment.

Kilian quit less than a month before the deadline by which the state-controlled utility was to sign the contract to expand its coal-fired plant in Opole. PGE in April suspended the industry’s biggest post-communist investment, saying a slump in power prices made it unprofitable. Prime Minister Donald Tusk revived the 1,800-megawatt project in June, saying the expansion “is not about business for the company but the national interest of all Poles.”

“Investors on the whole very much appreciated Kilian’s cautious approach toward future power prices in Poland and the economics of new investments in conventional generation, like Opole,” Leszek Iwaszko and Alberto Ponti, analysts at Societe Generale SA, said in a research note today.

Poland sits atop Europe’s largest reserve of coal and is the European Union’s most-dependent country on the fuel. It has sought to block European action to unilaterally step up emissions reductions and unsuccessfully opposed an EU measure that would help push up the price of carbon offsets.

PGE shares slumped as much as 4.5 percent and traded 2.4 percent lower at 18.93 zloty at the 5 p.m. close in Warsaw, falling for the first time in six days and cutting this year’s gain to 4 percent. The benchmark WIG30 Index fell 0.8 percent today.

Management Changes

Kilian resigned for “important reasons, including changes in management” last month, the Warsaw-based company said in a regulatory filing yesterday. The supervisory board on Oct. 25 fired Chief Financial Officer Wojciech Ostrowski and Strategy Chief Boguslawa Matuszewska from its four-member management, saying the evaluation of their work wasn’t “satisfactory.” Kilian said in an interview on Oct. 28 that the decision was a sign of “no-confidence” in his management.

Piotr Szymanek, deputy CEO in charge of corporate issues, was appointed acting CEO yesterday, PGE said. The company will start procedures to pick a new CEO and other management board members tomorrow, Agnieszka Jablonska-Twarog, a Treasury Ministry spokeswoman, said in an e-mail today.

“New management will be considerably more compliant with the State Treasury regarding projects in the national interest,” Bram Buring, an analyst at Wood & Co. in Prague, said in a note today. That “could mean a worsening outlook for dividends and the company’s balance sheet over the rest of this decade.”

Kilian, who said in August power prices should increase by about 50 percent for Opole to be profitable, lobbied for the government to introduce capacity market and guaranteed price contracts to help build power units. Polish power prices have slumped 15 percent this year as the country’s economic growth is set to slow to the lowest pace in more than a decade.

Power Shortage

Poland’s power shortfall may be as much as 1,100 megawatts at peak demand times in 2017, enough to supply more than 2 million European homes, the Economy Ministry said in July. The shortage may increase in following years without Opole, which is set to start operating in 2018.

At the same time coal prices at four-year low pushed state-owned Kompania Weglowa SA, the EU’s biggest coal producer, to report a 295 million-zloty nine-month loss. Kompania in August signed a 20-year deal valued at as much as 22 billion zloty to supply the fuel to the Opole plant.

Tusk said in September Poland will “take care of the coal industry” and it will be “very cautious” with subsidies for renewable energy because the government would rather use the funds to support the coal mining industry.

The government holds a 62 percent stake in PGE.

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