Polish Billionaire Joins State Utilities in Power Support Plea

  • Polish utilities await govt plan to start capacity payments
  • ZE PAK may forgo a dividend as write-offs push it into loss

ZE PAK SA, the Polish power producer owned by billionaire Zygmunt Solorz-Zak, said it awaits government decisions on a support system for coal-fired plants before it proceeds with an expansion of its current fleet.

PAK, which with a 72 percent decline in share price is the worst-performing utility on the Warsaw bourse in the last 17 months, said the support plan would allow it to start a 1.1 billion-zloty ($290 million) lignite power plant project. The stock soared 13 percent by 3:12 p.m. in Warsaw, extending its four-day increase to 28 percent as the company reported “a positive” set of earnings, adjusted for the earlier announced asset write-off, according to Pekao Investment Banking SA.

ZE PAK performance depends to a large extent on the Polish electricity price.

The company’s views echoed those earlier presented by the country’s four biggest power groups, all state-controlled, which argued that a so-called capacity market, in which the utilities are remunerated by the operator for making their power units available, is necessary to expand coal-fired generation. The government said it may lay out its proposal in the next three months, as it sees it as a tool for bolstering Poland’s energy security by basing the electricity generation on local resources.

As low power prices and the burden of carbon-dioxide emissions make coal-fired power plants unprofitable and increasingly difficult to finance, the new mechanism is needed to avoid situations similar to that last August, when due to low river levels and lack of wind, the operator had to limit electricity supplies to biggest customers for the first time in 25 years.

“The August example helped us realize how important it is to maintain a high capacity reserve in the system,” Chief Executive Officer Aleksander Grad wrote in a letter to shareholders on Monday. “Such reserve can be provided by new or upgraded coal-fired units, but for this to happen current regulatory plans have to be implemented.”

Apart from helping the company revive its lignite project, the capacity market could also aid PAK’s decision on building a 400-megawatt gas-fired power plant, which would replace the 600-megawatt Adamow plant that it needs to shut down by early 2018. In the worst-case scenario and without the support system, PAK may need to close about 1,000-megawatts, or 40 percent of its capacity, by 2020, the CEO said.

The company will also implement a cost cutting program through 2018 that could bring savings at an “absolute minimum” level of 250 million zloty. Late on Monday, PAK said the impairments of its generation assets pushed it into a net loss of 1.88 billion zloty last year, while sales rose 10 percent to 2.95 billion zloty. Net income adjusted for impairments fell to 50 million zloty from 125 million zloty in 2014.

PAK may also skip a dividend payout as 2015 results are “an argument for a certain solution” as far as dividend is concerned, Grad said, adding that the management hasn’t yet made its final decision.

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