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Current Report No. 9/2011

11.03.2011 00:00

Signing material agreements under the Project for "Construction of a CCGT unit in Stalowa Wola"

The Management Board of TAURON Polska Energia S.A. inform that on 11 March 2011 in connection with execution of the project for “Construction of a CCGT unit in Stalowa Wola” (“Project”) the following material agreements have been signed:

1. Agreement for operation of Elektrociepłownia Stalowa Wola S.A. (“Operation Agreement”) concluded by TAURON Polska Energia S.A. (“TAURON”), PGNiG S.A. (“PGNiG”), PGNiG Energia S.A., (“PGNiG Energia”), Elektrownia Stalowa Wola S.A. (“ESW”) and Elektrociepłownia Stalowa Wola S.A. (“ECSW”);
2. Agreement for electricity supply (“Electricity Supply Agreement”) concluded by PGNiG Energia, TAURON and ECSW;
3. Agreement for gas supply (“Gas Supply Agreement”) concluded by PGNiG and ECSW.

Operation Agreement defines the principles of participation of Parties mentioned in item 1 hereinabove in execution of the Project and the principles of operation of the gas and steam and the turnover of the products generated through this operation, in particular it defines the principles for preparation and implementation of the investment process for construction of CCGT unit at Stalowa Wola and the rights and obligation of the Parties resulting from joint execution of the Project.

The upper limit of the value of Operation Agreement is PLN 1,95 billion net. The Project will be financed under “project finance” formula and participation of the TAURON Group in ECSW (special purpose vehicle, SPV) will be 50% of equity/ votes. Construction of CCGT unit will be financed by the Parties’ own funds, at the maximum level of 50% of total investment value. The Parties will do their best to acquire external financing for the Project in the amount of at least 70% of the total cost of construction of CCGT unit. ECSW will obtain a loan for execution of the investment that will be paid from cash surpluses generated by ECSW.

In the Operation Agreement the following assumptions for the ECSW business model were defined:
- TAURON and PGNiG Energia shall collect their volumes of electricity generated in the CCGT unit, proportionally to the number of shares they hold in ECSW;
- PGNiG will guarantee long-term gas supplies to ECSW;
- ECSW will be responsible for operation and maintenance of the CCGT unit or will have it commissioned to a company of their choice on arm’s length basis;
- the intention of the Parties is for TAURON to provide commercial and technical operator services for the benefit of ECSW and the services of greenhouse gases emission allowances trading;
- TAURON and PGNiG will sign long-term agreements with ECSW for purchase of property rights i.e. certificates of origin of electrical energy from high cogeneration, in the amount proportional to the volumes of purchased electricity;
- ECSW will take over heat supplies to local clients that to-date were executed by ESW.

The Agreement was concluded for a period of 25 years counting from the first date of CCGT unit operation and shall enter into force as of its signing date and be effective as of the day of obtaining all corporate permits by the Parties to the Project (condition precedent).

Should any of ECSW shareholders fail to exercise their pre-emptive right upon increase of SPV’s equity, they will pay for the benefit of the other shareholder a contractual penalty in the amount equal to the total issue price of the new ECSW shares they were offered. The resulting contractual penalty may exceed PLN equivalent of EUR 200,000. The Agreement does not contain provisions that would enable claiming additional damages in addition to the above mentioned penalties. The remaining provisions of the agreement do not vary from provisions typical for this type of agreements.

The above Agreement constitutes a material agreement under the Decree of the Minister of Finance of 19 February 2009 on current and periodical information because its estimated value exceeds 10% of TAURON’s equity.


The subject of the Electricity Supply Agreement is long-term supply of electricity generated by ECSW at Stalowa Wola CCGT unit to TAURON and PGNiG Energia. The Agreement has been concluded for a definite period of time, i.e. from the first collection of electricity from ECSW to the day of the expiry of Electricity Supply Agreement which will be after 14 years.
TAURON and PGNiG Energia will collect their volumes of generated electricity proportionally to the stock they hold in ECSW – 50% shares is held by Elektrownia Stalowa Wola (subsidiary of TAURON) and 50% is held by PGNiG Energia (subsidiary of PGNiG).

Estimated value of the Electricity Supply Agreement throughout its entire term is PLN 6.78 billion net and was estimated as of the day of planned commencement of unit construction at Stalowa Wola in accordance with the assumptions adopted for the Project and based on the discount rate adopted for the purpose of estimation. The obligation to supply and collect electricity depends on meeting the condition precedent in the form of signing agreement/ agreements to finance the construction, start-up and commissioning of the CCGT unit. In the case of failure to acquire financing by 31 December 2012 each of the Parties is entitled to withdraw from the agreement by submitting a relevant declaration to the other Parties, in a written form.

The agreement comes into force as of the day of coming into force of the Operation Agreement, however the obligation to supply and collect electricity depends on meeting the condition precedent described in the Operating Agreement.

Estimated maximum value of contractual penalties may exceed PLN equivalent of EUR 200,000. In the case of partial or complete failure to fulfil the obligations under the Electricity Supply Agreement, the Party that fails, in part or in whole, to fulfil their obligations should be obliged to pay to the other Party (Parties) damages for losses incurred by this Party (Parties) limited to the amount of actual loss. The remaining provisions of the agreement do not vary from provisions typical for this type of agreements.

The above mentioned Agreement constitutes a material agreement under the Decree of the Ministry of Finance of 19 February 2009 on current and periodical information because the estimated its estimated value exceeds 10% of TAURON’s equity.


The subject of the Gas Supply Agreement is the supply of gas fuel for a definite period of time, i.e. for 14 years from the beginning of supplies. The supplies must begin no later than 48 months from the day on which ECSW submits confirmation that they acquired financing for the project “Construction of a gas and steam-fired CCGT unit in Stalowa Wola” and the agreement for connection to the gas supply network. Annual volume of gas supplies to CCGT unit at Stalowa Wola has been defined at 540 million cubic meters. Estimated value of the Gas Supply Agreement through its entire term is approx. PLN 9.66 billion net.

Estimated maximum value of contractual penalties may exceed PLN equivalent of EUR 200,000. The basis for exceeding the above limit would be the requirement to pay by ECSW to the benefit of PGNiG a contractual penalty for failure to collect the minimum annual amount, which depends on the amount of uncollected gas fuel in a given year.
Moreover, should ECSW fail to inform about the final date of beginning of supplies or should that date fall after 31 October 2015, PGNiG is entitled to calculate contractual penalties starting from 31 October 2015 connected with collection of minimum amount of fuel. The Agreement does not contain provisions that would enable claiming additional damages in addition to the above mentioned penalties. The remaining provisions of the agreement do not vary from provisions typical for this type of agreements.

The agreement comes into force as of the day of coming into force of the Operation Agreement, however the obligation to supply and collect electricity depends on meeting the condition precedent described in the Operating Agreement.

The agreement includes the following conditions precedent:
- submission by ECSW to PGNiG of an agreement for connection of Stalowa WolaCCGT unit to OSD transmission grid by 31 December 2012;
- submission by ECSW to PGNiG of a confirmation that financing has been acquired for construction of CCGT unit at Stalowa Wola by 31 December 2012.

The above Gas Supply Agreement constitutes a material agreement under Decree of the Ministry of Finance of 19 February 2009 on current and periodical information, because the estimated value of the agreement exceeds 10% of TAURON’s equity.

Article 56 section 1 item 2 of the Act on Public Offering – current and periodic information §5 section 1 item 3 §9 of the Decree of the Minister of Finance of 19 February 2009 on current and periodic information disclosed by issuers of securities and conditions for recognising as equivalent information required by the laws of a non-member state (Journal of Laws of 2009 No. 33, item 259, with amendments).
 

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