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Regulatory environment in Poland

The Energy Law of April 10th 1997 (consolidated text: Dz. U. of 2017, item 220, as amended; the „Energy Law”) is the main legal act governing the operation of the energy sector. In particular, it specifies the rules of development of the national energy policy, matters concerning the supply and use of fuels, energy and heat, and lays downs rules of operation applicable to energy companies. The Energy Law also defines the bodies competent for matters of fuel and energy management.

As at December 31st 2017, the PGNiG Group held the following licences granted by the President of Energy Regulatory Office under the Energy Law:

  • three licences to trade in gas fuels (PGNiG, PGNiG OD, PST),
  • one licence to trade in natural gas with foreign partners (PGNiG),
  • three licences to produce electricity (PGNiG, PGNiG TERMIKA, PGNiG TERMIKA EP),
  • four licences to trade in electricity (PGNiG, PGNiG OD, PGNiG TERMIKA, PGNiG TERMIKA EP),
  • two licences to produce heat (PGNiG TERMIKA, PGNiG TERMIKA EP),
  • one licence to trade in heat (TERMIKA EP),
  • two licences to transmit heat (PGNiG TERMIKA, PGNiG TERMIKA EP),
  • two licences to liquefy natural gas and regasify LNG at LNG regasification plants (PGNiG, PSG),
  • one licence to store gas fuel in storage facilities (GSP),
  • one licence to distribute gas fuels (PSG),
  • one licence to distribute electricity (PGNiG TERMIKA EP).

In 2017, the provisions of the Energy Law were not amended significantly. In connection with amendments to the Act on Emergency Stocks, the rules of granting licences to sell natural gas abroad were clarified.

The Act on Stocks of Crude Oil, Petroleum Products and Natural Gas, and on Rules to be Followed in the Event of Threat to National Fuel Security or Disruptions on the Petroleum Market of February 16th 2007 (consolidated text: Dz.U. of 2017, item 1210, as amended; the “Act on Emergency Stocks”) lays down the rules of creating and maintaining emergency stocks of natural gas, and procedures for monitoring and proper enforcement of the act. The act also sets out the rules to be followed in the event of threat to Poland’s energy security.

On July 7th 2017, the Act Amending the Act on Stocks of Crude Oil, Petroleum Products and Natural Gas, and on the Rules to be Followed in the Event of Threat to National Fuel Security or Disruptions on the Petroleum Market and Certain Other Acts (Dz.U. of 2017, item 1387) was passed. The amendments remove interpretation uncertainties reported by market participants and introduce a number of administrative improvements. The main changes include clarification regarding the principles of providing the ticketing service, introduction of transparent rules for release of emergency stocks, including related settlements, and further clarifications regarding the data and information exchanged between the transmission system operator and the storage system operator. The Act Amending the Act on Emergency Stocks also confirmed that the volume of emergency stocks of gas is calculated based on net imports. All of the aforementioned amendments have a positive effect for PGNiG as they dispel uncertainties in the interpretation of certain provisions of the Act on Emergency Stocks.

The Energy Efficiency Act of May 20th 2016 (Dz.U. of 2016, item 831; „Energy Efficiency Act”) establishes an energy efficiency obligation scheme, which implements into the Polish legal system the provisions of Directive 2012/27/EU of the European Parliament and of the Council of 25 October 2012 on energy efficiency, amending Directives 2009/125/EC and 2010/30/EU and repealing Directives 2004/8/EC and 2006/32/EC (OJ EU L 315 of November 14th 2012). According to these laws, entities covered by the statutory obligation are required to reach final energy savings of 1.5% each year. The Energy Efficiency Act references two principal ways to fulfil this obligation:

  • to implement a project or projects designed to improve end customers’ energy efficiency;
  • to obtain an energy efficiency certificates and to submit the certificates to the President of URE for redemption.

The act provides for the option to fulfil the obligation by paying a substitution fee. However, as a rule this option cannot be exercised to cover more than 30% of the obligation for 2016, 20% for 2017, and 10% for 2018. The act significantly increases the substitution fee and provides for its annual indexation. It also imposes an obligation to conduct an energy efficiency audit every four years.

Act on Special Hydrocarbon Tax of July 25th 2015 (consolidated text: Dz.U. of 2016, item 979; ‚Act on Special Hydrocarbon Tax’, ‚SHT’), stipulates a special tax regime, where the tax base is the surplus of revenue generated from hydrocarbon extraction activities in a given year over the qualifying expense incurred in a given tax year. The date of receipt of receivables is deemed the date on which revenue from hydrocarbon production is generated. The date of making payment is deemed the date on which qualified expenditure is incurred. The obligation to pay special hydrocarbon tax will apply in respect of revenue generated after January 1st 2020.

The Geological and Mining Law of June 9th 2011 specifies, among others, the rules, terms and conditions for performing geological work, extraction of minerals from deposits, storage of waste matter in rock mass (including in worked-out caverns), protection of mineral deposits, underground waters and other components of the environment in connection with geological works and extraction of minerals.

Business activities consisting in exploration for and appraisal of mineral deposits, extraction of minerals from deposits, tankless storage of substances and storage of waste in rock mass, including in worked-out caverns, require a licence. Geological and mining activities are subject to supervision by competent geological and mining supervision authorities. These authorities monitor the performance of licence obligations by businesses, with particular focus on timeliness of their performance and submission of current information based on the progress of geological work documentation.

In accordance with the amended Geological and Mining Law, for two years now, a new upstream business licensing system has been in force. A single licence is granted for exploration, appraisal, and extraction of hydrocarbons. The grant of such combined licence is only possible in tender proceedings carried out ex officio. It should be pointed out that in 2017 the Minister of the Environment announced the tender procedure for combined licence grant with respect to eight out of the ten areas. The Minister plans to announce tender procedures for 17 areas in 2018.

What is important for the industry, according to the geological and mining law, several entities may apply for a licence together if they jointly submit one tender bid and indicate the operator. Each entrepreneur applying for a licence must be assessed by the minister competent for the environment both in terms of national security and its experience in appraisal and documenting of hydrocarbon deposits.

In 2017, it was not possible to submit applications for conversion of existing licences for exploration and appraisal of hydrocarbons into combined licences. However, the unconverted licences remain valid and may be extended only once if specific conditions are met.

The obligation to provide security for non-performance or improper performance of the conditions specified in the licence in an amount not higher than the equivalent of 20% of the costs of geological work represents an additional and considerable financial burden for the industry. In 2017, such security was provided in 21 cases. The value of such security was established at PLN 100,000 per licence as a result of compromise reached between entrepreneurs and the licensing authority.

At present, there is also a problem relating to the prohibition of injecting water from underground gas storage facilities and water used to stimulate hydrocarbon extraction. The licensing authority’s position is that such water does not fall within the definition of water injection into the rock mass. The lack of approval of hydrogeological documentation for this type of water limits the possibility of conducting and expanding the exploration and production activities.


In 2017, additional secondary legislation to the law was announced:

  • Regulation of the Minister of the Environment of December 8th 2017 on mining plant operation plans;
  • Regulation of the Minister of the Environment of October 30th 2017 on collection and disclosure of geological information;
  • Regulation of the Minister of Energy of October 16th 2017 on the detailed scope of corporate policy on prevention of dangerous occurrences and accidents;
  • Regulation of the Minister of Energy on the minimum content of the report on implementation of a mining plant operation plan.

In 2017, the Minister of the Environment continued work on drafting another amendment to the Mining and Geological Law with respect to the matters excluded from the scope of the 2016 bill amending the Mining and Geological Law and implementing into the Polish legal system Directive 2013/30/EU of the European Parliament and of the Council of June 12th 2013 on safety of offshore oil and gas operations and amending Directive 2004/35/EC (OJ L 178 of June 28th 2013, p. 66). The draft amendment to the Geological and Mining Law of September 15th 2017 has not been submitted for public consultation.

The purpose of the new law is to simplify the regulations applicable to administrative proceedings with regard to exploration, appraisal and extraction of hydrocarbons. The main changes will be as follows:

  • Withdrawal from assessing an entity’s experience in the qualification procedure;
  • In the event of changes to the data of the entity subject to the qualification procedure, removal of the obligation to re-conduct full procedure, which requires the entity to prepare a full application; instead, the authority will decide whether it is reasonable to initiate the procedure and if so, only to the extent pertaining to the changes, and the entity will only provide evidence of the circumstances of such changes;
  • Waiver of security for non-performance or improper performance of the licence conditions;
  • Introduction of a second, open-door procedure for granting hydrocarbon licences, which allows for tender proceedings to be carried out at the request of the entrepreneur.
  • Inclusion in the definition of ‘injection of water into rock mass’ of water from underground tankless hydrocarbon storage (but not the process water requested by PGNiG).

The new regulations are expected to bring about:

  • higher transparency of the provisions of the Act following removal of problems with correct interpretation of the provisions of the Act and errors preventing proper conduct of administrative proceedings with respect to exploration, appraisal and extraction of hydrocarbons, which will result in faster and more transparent proceedings;
  • performance by entrepreneurs of geological work to a wider extent than before by allowing them to apply for licences for areas they consider prospective (entrepreneurs will themselves request the authority to conduct the proceedings).

The Capacity Market Act of December 8th 2017 defines the organisation of the capacity market and sets out the rules of provision of the service consisting in remaining on standby to supply electricity to the power system, including to supply electricity to the power system in emergency periods. The purpose of the act is to ensure medium-term and long-term security of electricity supply to end users in a cost-effective, non-discriminatory and sustainable manner.

The provisions of the Act enable energy generators to earn additional revenues (besides those from sale of electricity) from the provision of a service consisting in ensuring the availability of generation capacities. Such revenues will be determined using an auction system. Detailed terms of operation of the capacity market will be specified in secondary regulations which will be prepared in 2018. Auctions for 2021-2023 are planned to be carried out in November and December 2018. Market operators will be able to derive revenue from the capacity market starting from 2021. The Capacity Market Act was notified to the European Commission and received approval on February 7th 2018.

The Council of Ministers’ Regulation of April 24th 2017 on the minimum level of diversification of foreign sources of gas supplies (Dz.U. of 2017, item 902; ‘Diversification Regulation’) prescribes the maximum share of gas that may be imported from a single country of origin in the total volume of gas imported in a given year. For 2017-2022, the maximum share is 70%, and for 2023-2026 – 33%.

The thresholds defined in the Diversification Regulation are convenient for PGNiG as they allow the Group to continue the performance of long-term import contracts concluded under the auspices of the Republic of Poland.

Regulation of the Minister of Economy of July 2nd 2010 on specific conditions for the operation of the gas system (consolidated text: Dz.U. of 2014, item 1059, as amended; ‚System Regulation‚) specifies the rules of operation of the gas system set forth in the Energy Law. In particular, it lays down the rules and conditions for applying for grid connection, procedure for trading in gas fuel and ability to provide services in the gas system, including the manner of handling complaints, balancing and transmission constraints management; it also outlines the terms of cooperation between market participants.

According to the Minister of Energy’s Regulation of January 10th 2017 amending the Regulation on detailed conditions of operation of the gas system (Dz.U. 2017, item 150), equipment and installations used for gas fuel transmission may be only connected to gas transmission networks with a diameter of DN 1,300 or higher. The Regulation has also raised the capacity threshold for customers authorised to be connected to the transmission network from 5,000 to 45,000 cm/h, thus expanding the operating reach of distribution companies and stabilising the transmission and distribution market.

Regulation of the Minister of Economy of June 28th 2013 on detailed rules for determining and calculating tariffs for gas fuels and on settlement of transactions in gas fuels trade (Dz. U. of 2013, item 820; „Tariff Regulation„) sets out the principles for determining tariffs for gas fuels, in particular the calculation of prices and rates, as well as the rules of settlements between market participants.

In 2017, PGNiG S.A. applied the following tariffs:

  • from January 1st 2017 to March 31st 2017 – PGNiG Gas Fuel Supply Tariff No. 13/2017, approved by President of URE on December 16th 2016; the tariff increased the average prices of high-methane gas and nitrogen-rich gas by 12.2% and 13.4%, respectively;
  • from April 1st 2017 to June 30th 2017 – PGNiG S.A. Gas Fuel Supply Tariff No. 14/2017, approved by the President of URE on March 17th 2017; the tariff increased the average prices of high-methane gas and nitrogen-rich gas by 8% and 7.9%, respectively (the tariff was also in effect in July 2017);
  • from August 1st 2017 to September 30th 2017 – PGNiG S.A. Gas Fuel Supply Tariff No. 15/2017, approved by the President of URE on July 12th 2017; the tariff reduced the average prices of high-methane gas and nitrogen-rich gas by 6.7% and 6.8%, respectively.

In 2017, PGNiG OD applied the following tariffs:

  • Until February 18st 2017 – PGNiG Obrót Detaliczny sp. z o.o. Gas Fuel Trading Tariff No. 4, approved on October 17th 2016;
  • From February 18th to March 31st 2017 – PGNiG Obrót Detaliczny sp. z o.o. Gas Fuel Trading Tariff No. 5, approved by the President of URE on January 4th 2017; subscription fees remained unchanged; the Tariff provided for a 7% average reduction in gas fuel prices relative to the previous tariff of PGNiG OD for all tariff groups, including:
    • for consumers from tariff groups with gas fuel consumption rates of up to 110 kWh/h – the gas fuel price was reduced by 6.0%,
    • ofor consumers from tariff groups with gas fuel consumption rates of more than 110 kWh/h – the gas fuel price was reduced by 8.6% on average.
  • From April 1st to December 31st 2017 – PGNiG Obrót Detaliczny sp. z o.o. Gas Fuel Trading Tariff No. 5, approved by the President of URE on March 17th 2017; an amendment to the tariff extended its validity period; subscription fees remained unchanged; the tariff provided for a 1.6% increase in gas fuel prices for all tariff groups relative to the previous tariff of PGNiG OD.

Furthermore, on December 14th 2017 the President of URE approved PGNiG Obrót Detaliczny sp. z o.o. Gas Fuel Trading Tariff No. 6 for the period from January 1st to March 31st 2018. This tariff is for household consumers only and in relation to Tariff No. 5 the prices and subscription fees did not change. Based on a decision by PGNiG OD, the new tariff launch date was set at January 1st 2018.

In 2016, PSG applied Tariff No. 3 for Gas Fuel Distribution Services and LNG Regasification Services, approved on December 17th 2014 (as amended with effect from January 1st 2016 and July 1st 2016). In 2017, there was no change in the level of tariff rates relative to 2016. In 2017, events concerning new tariff approvals included the following:

  • On April 21st 2017, PSG filed an application for approval of Tariff No. 5 with the President of URE. On July 31st 2017, a decision refusing approval of the tariff was issued. PSG filed an appeal against the decision of the President of URE with the Competition and Consumer Protection Court at the Regional Court of Warsaw. In compliance with the Energy Law, PSG continued to apply the previously effective tariff until the closing of the appeal proceedings.
  • On October 5th 2017, the President of URE called upon PSG to submit an application for approval of another tariff. On November 6th, Tariff No. 6 for Gas Fuel Distribution Services and LNG Regasification Services was submitted by PSG for approval and was finally approved by the President of URE on January 25th 2018. The average reduction of prices and rates of network fees used for settlements with customers in relation to the current tariff of PSG for all tariff groups is 7.37%. The new Distribution Tariff expires on December 31st 2018.

In 2017, GSP applied the following tariffs:

  • From January 1st to May 31st 2017 – Gas Fuel Storage Tariff No. 1/2016, approved by the President of URE on April 22nd 2016;
  • From June 1st 2017 – Gas Fuel Storage Tariff No. 1/2017, approved by the President of URE on April 18th 2017 for a period until March 31st 2018, lowering the average rate for the provision of storage services relative to Tariff No. 1/2016 by
    -0.3%. The amount of the reduction was determined based on the average charges, taking account of the amount of storage capacity reservations for the 2017/2018 storage year.

In 2017, PGNiG TERMIKA applied the following tariff:

  • March 17th 2017 – a tariff for heat generated at PGNiG TERMIKA’s heat generating sources: the Żerań CHP plant, Siekierki CHP plant, Pruszków CHP plant, Wola heating plant and Kawęczyn heating plant, and for transmission and distribution of heat via the heating networks in the Pruszków area (supplied from the company’s own heat generating source: Pruszków CHP plant) and in the Annopol, Chełmżyńska, Jana Kazimierza, Marsa Park and Marynarska areas, approved by the President of URE on January 25th 2017; the tariff remains effective until March 17th 2018; the introduction of this tariff resulted in a decrease of the average prices applied by the company by 0.26%.

In 2017, PGNiG TERMIKA EP applied, among others, the following tariffs:

  • From November 2016 – a tariff for heat generated at PGNiG TERMIKA EP’s heat generating sources, approved by the President of URE on October 10th 2016;
  • From December 2016 – a tariff for heat generated at PEC’s (Przedsiębiorstwo Energetyki Cieplnej) heat generating sources, approved by the President of URE on November 15th 2016.

The above tariffs were effective throughout 2017. Proceedings are under way at the Energy Regulatory Office concerning a new, combined tariff.

  • From November 2017 to October 2018 – a tariff for PGNiG TERMIKA EP’s electricity distribution services approved by the President of URE on November 17th 2017 applies.

Pursuant to the transitional provisions for the Energy Efficiency Act, the current Tariff Regulation will cease to apply on or before March 31st 2018. Legislative work on a new regulation commenced in 2017. PGNiG has been actively participating in this work, presenting its positions and putting forward proposals aimed at protecting the interests of the PGNiG Group and its customers.

In connection with the statutory removal of tariffs, in 2017 PGNiG did not file any applications for administrative exemption from the obligation to seek tariff approval.

Statutory exemption from the obligation to seek tariff approval

The Act Amending the Energy Law and Certain Other Acts of November 30th 2016 (Dz.U., item 1986) gradually abolishes the system of administrative regulation of natural gas prices. The adopted schedule provides for exemptions from the obligation to submit gas tariffs for approval for:

  • wholesale and supplies to end customers purchasing gas fuel (i) at a virtual gas trading point, (ii) in the form of LNG or CNG, and (iii) under tender, auction or public procurement procedures pursuant to the provisions of the Public Procurement Law – as of January 1st 2017,
  • supplies to other end customers (businesses), other than household customers – as of October 1st 2017;
  • supplies to households – as of January 1st 2024.

In 2017, the Minister of the Environment continued work on the draft act modifying the organisation of geological services – the Draft Act on the Polish Geological Agency (in 2016 the draft envisaged the establishment of the National Geological Service).

In addition, in 2017 the Minister of the Environment announced the draft assumptions for the National Commodity Policy, which sets out the key actions to be undertaken as part of identified objectives while providing for the possibility of their revision and modification at further stages of the policy implementation process. This document is the basis for further work on the National Commodity Policy that may be undertaken and continued by representatives of all ministries, businesses operating in the sectors concerned, scientific institutions and social groups. Proposed areas to work on:

  • Primary commodities (extracted from the interior of the earth): metals, rare-earth elements, noble gases, chemical raw materials, mineral resources, precious, semi-precious and decorative stones, groundwater, curative waters, energy raw materials, radioactive elements, heat of the Earth;
  • Secondary commodities: produced by recycling, circular economy, substitution;
  • Other issues/Other areas to work on: tankless storage of substances and storage of waste in rock mass, education, protection of geodiversity, e.g. through creation of geoparks, technological development.

The adoption of the National Commodity Policy is expected to lead to a number of legislative changes that will affect the terms on which licensed activities are conducted in Poland.

European regulatory environment

In 2017, the Third Energy Package continued to be the all-inclusive framework governing the European energy (gas and electricity) market. The Package included five acts of law drawn up by EU institutions in 2009:

  • Directive 2009/72/EC of the European Parliament and of the Council of July 13th 2009 concerning common rules for the internal market in electricity and repealing Directive 2003/54/EC;
  • Directive 2009/73/EC of the European Parliament and of the Council of July 13th 2009 concerning common rules for the internal market in natural gas and repealing Directive 2003/55/EC;
  • Regulation (EC) No 714/2009 of the European Parliament and of the Council of July 13th 2009 on conditions for access to the network for cross-border exchanges in electricity and repealing Regulation (EC) No 1228/2003;
  • Regulation (EC) No 715/2009 of the European Parliament and of the Council of July 13th 2009 on conditions for access to the natural gas transmission networks and repealing Regulation (EC) No 1775/2005;
  • Regulation (EC) No 713/2009 of the European Parliament and of the Council of July 13th 2009 establishing an Agency for the Cooperation of Energy Regulators (ACER).

The objective of the Package is to boost competition on the European energy market and create the internal energy market based on mechanisms such as ownership unbundling, organisation of cooperation between regulators and energy companies (ACER, ENTSO-E and ENTSO-G), or introduction of network codes.

On November 30th 2016, the European Commission announced a package of legislative proposals amending the acts included in the Third Energy Package. The aim of the ‘Clean Energy for All Europeans’ package of legislative proposals is to ensure a transition of the European economy to one based on electricity, fulfilment of the commitments made by the European Union under the Paris Agreement of 2015 and implementation of the energy and climate policy objectives. The changes relate mainly to the electricity market, but there are also amendments to the Regulation establishing an Agency for the Cooperation of Energy Regulators (ACER) and a new Regulation on the Governance of the Energy Union is to be introduced, both of which may have significant implications for the gas market and PGNiG’s operations.

Until the end of 2017, the European Parliament worked on the proposals and relevant EP committees prepared reports (leading committees: ITRE and ENVI) concerning the European Commission’s proposal. In parallel, the Council of the European Union reached an agreement and adopted the general approach for most of the acts included in the Clean Energy Package (with the exception of the ACER Regulation), largely consistent with the solutions the Company proposed.

Furthermore, in the third quarter of 2017 the European Commission announced proposed amendments to the Gas Directive (Directive 2009/73/EC of the European Parliament and of the Council of July 13th 2009 concerning common rules for the internal market in natural gas and repealing Directive 2003/55/EC), the objective of which is to ensure that the Directive’s requirements also apply to the key infrastructure used for importing natural gas to the EU.

In 2017, work on a report analysing the LNG and gas storage market in the European Union was completed. PGNiG actively participated in the work – it submitted its official positions and its employees participated in meetings. Despite its active engagement in the process, the Company did not succeed in eliminating all the risks implicated by the report. However, according to the information given by the European Commission, no legislative measures are currently planned to implement the recommendations from the report.

In 2016, studies were conducted as part of the ‘Quo Vadis EU Gas Market Regulatory Framework – A Study on a Gas Market Design for Europe’ initiative launched with a view to reforming the legal framework of the European gas market. The aim of the report is to provide an analysis of the regulatory environment following the implementation of the Third Energy Package and to potentially address the regulatory gaps in the development of the EU gas market that exist despite the introduction of the Package. In its comments, PGNiG emphasises that at the present stage it is too early to investigate the legal gaps existing despite the implementation of the Package. In PGNiG’s opinion, not all provisions of the legal acts adopted in 2009 have been implemented, and full implementation should be a prerequisite for any investigation into their effectiveness – also with regard to the infrastructure bringing gas to the EU. In addition, the Company draws attention to the importance and necessity of continuing the diversification of gas supply sources to the European Union, including the gas import infrastructure. Any decision as to potential legislative action is to be taken by the European Commission composed of members appointed to it after the elections to the European Parliament in 2019.

Regulation (EU) No. 994/2010 of the European Parliament and of the Council of October 20th 2010 concerning measures to safeguard security of gas supply (‚SoS Regulation‚) is aimed at preventing disruptions in the supply of natural gas to Member States, or mitigating their effects if they occur.

To that end, in case of gas supply shortage, the Member States may announce one of the three crisis levels in their territory: early warning level, alert level, and emergency level. Each subsequent crisis level allows the Member State to take specific measures to minimise related risks. The regulation defines a group of ‚protected customers’, which includes all households connected to the distribution network. In addition, each Member State may extend the ‚protected customer’ definition to include also small and medium-sized enterprises (provided that they do not represent more than 20% of the final use of gas) and district heating installations (to the extent they deliver heat to household customers and to small and medium-sized enterprises).

On February 16th 2016, the European Commission published a new draft of the SoS Regulation. In the new draft, the role of regional cooperation in the event of gas supply disruptions was given a greater priority, and a new solidarity mechanism was introduced.

Regulation (EU) 2017/1938 of the European Parliament and of the Council of October 25th 2017 concerning measures to safeguard security of gas supply and repealing Regulation (EU) No 994/2010 entered into force on November 1st 2017.

Following the publication of the new draft SoS Regulation, PGNiG informed competent public authorities of the risks related to PGNiG’s activities, and presented the position of the PGNiG Group to representatives of the European Commission and the European Parliament.

Negotiations regarding the final provisions of the new SoS Regulation continued also in 2017. PGNiG actively participated in the work and provided support to other entities involved in the process, in particular with regard to the negotiations concerning the final form of the transparency and solidarity mechanisms. Thanks to PGNiG’s active involvement in the negotiations, the final version of the SoS Regulation is a compromise that takes into account to a satisfactory extent the solutions advocated by the Company

September 30th 2016 saw the adoption of Commission Regulation (EU) establishing a network code on harmonised transmission tariff structures for gas, with the effective date on April 6th 2017. Work on the Regulation had begun in 2011. The objective of the Regulation is to gradually reduce discrepancies between tariff models applied in individual Member States. Legislation work carried out by the European Commission, aiming to unify the tariff structures in the EU, is designed to facilitate cross-border trade conducted by participants of the European gas market.

Commission Regulation (EU) No 459/2017 of 16 March 2017 establishing a Network Code on Capacity Allocation Mechanisms in Gas Transmission Systems and repealing Regulation (EU) No 984/2013 (the ‘NC CAM Regulation’) is to promote the building of correctly operating interconnected transmission network systems, which would provide the foundation for further development of the EU internal energy market through harmonisation of mechanisms that ensure transparent and non-discriminatory terms of transmission capacity allocation.

The provisions of the NC CAM Regulation apply to interconnections between Member States. In order to ensure that all parties can gain access to interconnector transmission capacities on equal and non-discriminatory terms, the allocation of capacity is made through auctions organised by transmission system operators, at which intraday, daily, monthly, quarterly and annual products are offered. Compared to the repealed Regulation 984/2013, the new law introduces a detailed framework for the Open Season procedure. It is a process supporting the development of gas transmission systems, in which transmission capacities are offered for both completely new interconnectors as well as for the expansion of gas transmission infrastructure.

The EU Emission Trading Scheme (EU ETS) imposes the obligation to account for CO2 emissions and regulates the allocation of free emission allowances for heat and electricity. Under the ETS Directive, emitters of greenhouse gases (including CO2) are obliged to account for their emissions by surrendering their CO2 emission allowances by April 30th each year for the preceding year. If the number of emission allowances is too small, the excess emissions penalty of EUR 100 per tonne of CO2 is imposed, and the operator must acquire and surrender the necessary number of emission allowances.

Pursuant to the EU ETS Directive, industrial installations, including heat plants and combined heat and power (CHP) plants, may apply for free emission allowances. In the case of power systems, only eight Member States meeting the criteria set out in the EU ETS Directive could apply for the allocation of free emission allowances.

In the case of heat, emission allowances are granted on the basis of historical production data. Power generation installations may receive free allowances in exchange for execution of projects reducing CO2 emissions. The PGNiG Group submitted ten investment projects to the National Investment Plan and may receive free emission allowances in exchange for their implementation.

In November 2017, an agreement was reached between the Council of the European Union and the European Parliament regarding the framework for the emission allowance trading system after 2020. The agreement assumes a linear decline in the number of emission allowances (the reduction coefficient) by 2.2% per year, with a potential for increasing this number in connection with the implementation of the Paris Agreements. The modernisation fund, i.e. the instrument designed to provide funding for modernisation and improvement of energy efficiency of installations, was set at 2% of the total EU ETS allowances. It will apply to 10 member states with a gross domestic product below 60% of the EU average (including Poland). The modernisation fund will not support any fossil fuel facilities (with the exception of Romania and Bulgaria, which can support their district heating facilities). A derogation mechanism was introduced for the member states with the GDP per capita below 60% of the EU average (including Poland), which may decide to continue to allocate free allowances to the energy sector. The maximum quota to be allocated for free to the energy sector must not exceed 60% of all EU ETS allowances allocated to the member state. In addition, the compromise does not include the European Parliament’s proposal under which the derogation mechanism would not cover any power installations which produce more than 450 grams of CO2 per 1 kWh of energy.