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Ladies and Gentlemen,

It is my pleasure to present to you the 2017 Annual Report of the PGNiG Group.

This past year was full of developments and decisions that set the direction of growth for the PGNiG Group in the coming years. In March, we unveiled a new strategy, which outlines our targets and aspirations for 2017−2022. The plan is ambitious, but we believe it is necessary to successfully meet the challenges of the rapidly changing market and technology environment. I am pleased to say that in the first year of the new strategy we already made substantial progress towards many of its objectives.

Our primary goal is to increase the PGNiG Group’s value and ensure its financial stability. 2017 was successful in this respect. Revenue increased 8% year on year, to PLN 35.86bn, and EBITDA reached an all-time high of PLN 6.58bn. PGNiG S.A. was the fifth largest company on the Warsaw Stock Exchange in terms of market capitalisation.

Oil and gas prices rose significantly year on year, supporting the stellar performance delivered by our upstream business. But rising oil and gas prices had a major adverse impact on cost of gas, which was reflected by a negative contribution of the trading segment to EBITDA.

The performance of the gas distribution segment remained strong, fuelled by the robust growth of Poland’s economy and stronger natural gas demand. Another important fact is that the heat and power generation business delivered solid performance for another consecutive year. The segment posted a year-on-year growth in revenue and record sales volumes of heat and power from our own sources.

In 2017, we successfully implemented a plan to diversify our sources of gas imports, leveraging the opportunities offered by the expanding LNG market. We diversified supply sources and contract types. For instance, we signed a supplementary agreement to the long-term contract with Qatargas increasing gas supplies from Qatar, as well as a medium-term contract for the supply of LNG from the US. We also imported gas from Norway and the US under spot contracts.

An important element of our diversification efforts is to increase our own production on the Norwegian Continental Shelf. After 2022 we want to produce 2.5 bcm of natural gas a year from our Norwegian assets, hence the decision to reserve capacity in the planned gas link between Poland and Denmark. The pipeline will be connected to the North Sea transmission system, enabling us to bring gas extracted in Norway to Poland.

Last year, retail gas sales recorded solid performance, with a series of contracts signed with new and existing strategic customers. We prepared attractive new deals for households.

Our strategy puts a strong focus on the heat and power generation business. A project to build a CCGT unit at the Żerań CHP plant in Warsaw with an electrical capacity of 497 MW and a maximum thermal capacity of 326 MW will help us to deliver on our plans. The unit will replace the old coal-fired plant, not only increasing the output, but also reducing air pollution in Warsaw. In 2018, we also plan to complete the construction of a 70 MWe and 120 MWt cogeneration unit at the Zofiówka CHP plant that will help to consolidate our position in the heat and power market in the Upper Silesia region.

In April 2017, we adopted the new PGNiG Group’s Sustainable Development Strategy for 2017-2022, which supports and complements our business objectives. The awareness of the impact on the environment and the responsibility for energy security are the foundations of this document. The CSR strategy obliges us to meet the highest standards in terms of transparent organizational culture, relations with employees and customers, pro-social attitude, as well as environmental protection activities.

In 2017, we moved forward on our research and development projects. The initial results of our coal bed methane production programme are very promising and have prompted a decision to expand and step up methane extraction.

I am confident that in 2018 we will continue to deliver on our commitment to strengthening our position in Poland and internationally and to building the PGNiG Group’s value. We would like to thank our Shareholders, Customers and Contractors for the trust they place in us.

Kind regards,

Piotr Woźniak
President of the PGNiG Management Board