News

On February 20th 2008, PGNiG S.A. filed with the Energy Regulatory Authority (URE) an application, amended in line with the new Tariff Regulation, for the approval of the Gaseous Fuel Tariff. The Company seeks to increase its gas price by approx. 30%, which is a much higher increase than the one applied for in November 2007. PGNiG S.A.'s intention is for the new Tariff to be effective until the end of the year.

In the Application filed by PGNiG S.A. in November 2007, the effective period of the Gaseous Fuel Tariff was set only for the first quarter of 2008, i.e. the Tariff was to be in effect until March 31st 2008. However, considering the fact that the approval proceedings with respect to the Tariff application are still pending before the President of the Energy Regulatory Authority and no decision regarding its approval has been issued yet, PGNiG S.A. is forced to sell gas at the price calculated based on the rates applicable in 2006.

Meanwhile, the high cost of imported gas expressed in foreign currencies (which increased by over 40%) is driven by the high prices of crude oil and petroleum fuels prevailing on the international markets. Consequently, because the new Tariff has not been approved, the Company's Q1 2008 sales revenue will be lower than anticipated due to the higher cost of gas purchases. This situation exposes the Company to losses.

Due to oil price fluctuations on the international markets, analysts' earlier price forecasts have failed to materialise. Oil prices have reached their historic highs recently, with the resulting strong uptrend in prices of petroleum fuels. It should be emphasised here that the currently applicable price for gaseous fuel was calculated when oil price stood at approx. USD 61 per bbl. However, for several months now it has stayed above USD 90 per bbl.

To illustrate the situation, the chart below shows the development of oil prices in the period from Q4 2006 to Q1 2008:

Source: The Rzeczpospolita daily

The cost of imported gas is also materially affected by the assumptions on the level of foreign exchange rates. The situation on the currency markets has been unstable recently. Here, though, the USD exchange rate has been at a very low level (the lowest in recent years). However, despite the low USD exchange rate, the cost of imported gas planned for 2008 will be substantially higher than in 2007 because of the dramatic increase in prices of crude oil and petroleum fuels.

To illustrate foreign exchange rates, the chart below shows the PLN/USD rates quoted by the National Bank of Poland over the last ten months.

Moreover, in 2007 all operations concerning wholesale and retail sale of gaseous fuels within the PGNiG Group were integrated into PGNiG S.A.'s newly established Trading Division. These organisational changes were necessary in view of the provisions of the Polish Energy Law and Directive 2003/55/EC of the European Parliament and of the Council concerning common rules for the internal market in natural gas and repealing Directive 98/30/EC. Changes in the Polish Energy Law required subsequent alignment of the secondary legislation, in particular the Regulation on detailed rules for preparing and calculating tariffs and on settlements in gaseous fuels trade (the so-called Tariff Regulation).

In view of the grounds presented by PGNiG S.A. in the Application, the Company hopes that the approval of the Gaseous Fuel Tariff by the President of URE will make it possible for the new tariff to become effective as of April 1st 2008 at the latest.