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Limited market development in terms of supplying the distribution network

 

Limitations at the entry points to the distribution system result from the limitations of the supply network and insufficient capacity of gas stations. This may have an adverse effect on new customer connections and gas network roll-out. In addition, end users may switch to direct or substitute competitors.

Risk associated with direct competition

 

The activity of companies building and/or operating distribution networks and regasification plants limits the PGNiG Group’s growth opportunities and reduces the profitability of constructed networks.

Risk associated with lack of long-term regulatory policy

 

The risk is related to the lack of the Energy Regulatory Office’s approval for freezing the tariff prices. If the risk materialises, it may bring about reductions in tariff rates and difficulties in having each subsequent tariff approved. A protection against materialisation of this risk is the development of a regulatory and econometric model, subsequently agreed with the Energy Regulatory Office.

Claims raised by property owners

 

The risk arises from failure to secure a permanent legal title to property at the stage of project execution and property owners’ higher awareness of the related legal aspects. The consequences of materialisation of the risk include excessive (above market prices) claims made by property owners, increase in litigation, litigation costs, claims for removal or alteration of infrastructure, and claims related to extra-contractual use of property

Sources of gas supply for the distribution system

 

The limited throughput capacity of the transmission network operated by GAZ-SYSTEM results in a significant delay in the extension of distribution infrastructure by PSG. The risk may affect the pace at which new customers are connected to the PSG network and the volume of distributed gas.

Legislation

 

This risk may arise in connection with legislative processes aimed at amending the existing or introducing new laws. If materialised, the risk may hinder the preparation and implementation of projects related to amendment of applicable laws and their inconsistency. Additional costs may also arise as it may be necessary to prepare documentation required by new laws or obtain additional consents. Different interpretation of regulations by local authorities may result in a lengthy process of obtaining documents and decisions.

Substitution

 

The substitution risk is associated with a potential lower cost of using alternative fuels and with unavailability and insufficient capacity of the gas network. The risk may arise from the inability to use a wide range of marketing tools due to the nature of the business (separation of distribution and sales operations), from the direction of changes in the national energy policy, and from fuel prices on commodity exchanges. These circumstances may ultimately result in limited gas network roll-out to new areas, underperformance in terms of revenue and sales volume growth, and reduced efficiency of constructed gas networks

Lower amount of EU funds allocated for financing gas distribution projects

 

This risk may result from fund allocation priorities set by the institutions responsible for distribution of EU funding. Unfavourable fund allocation may result in unavailability of financing for submitted projects or in low efficiency of investment projects