Key events in 2016

I quarter

Changes in Enea’s authorities

On 7 January Wiesław Kowalik became the President of the Management Board of Enea, and Wiesław Piosik the Vice-President of the Management Board for Corporate Affairs, who in relation to the nomination into the Management Board resigned from the membership in the Supervisory Board. On the same day, the following people ceased to hold their functions: Dalida Gepfert, Vice-President of the Management Board for Financial Affairs and Grzegorz Kinelski, Vice-President of the Management Board for Commercial Affairs. The duties of the Vice-President for Commercial Affairs were temporarily taken by the Member of the Supervisory Board, Sławomir Brzeziński. On 15 January the following people were recalled from the composition of the Supervisory Board: Sandra Malinowska, Tomasz Gołębiowski and Radosław Winiarski, and the following people were nominated into it: Piotr Kossak, Rafał Bargiel, Roman Stryjski and Piotr Mirkowski. On 21 January the Supervisory Board nominated, as of 15 February, Mikołaj Franzkowiak to the position of the Vice-President of the Management Board for Financial Affairs and Piotr Adamczak to the position of the Vice-President of the Management Board for Commercial Affairs. On the same day Sławomir Brzeziński ceased to perform the duties of the Vice-President of the Management Board for Commercial Affairs.

Enea Wytwarzanie invests in new technologies

In Q1 2016 one of the most important stages of the new 1,075 MWe power unit construction was successfully completed. A water test of the boiler was successfully performed. In April, on the other hand, the boiler underwent a positive pressure test. Enea Wytwarzanie’s unit No. 11 will be the most modern generating unit based on bituminous coal in Poland and Europe.

A modern control station of Traffic Engineers on Duty was launched in Kozienice Power Plant. The facility is "the heart of the power plant", from which the electricity production may be managed. New posts are equipped with the most modern appliances, which enhances the safety and facilitates the work.

In care for the natural environment chemical laboratories belonging to Enea Wytwarzanie were equipped with the most modern control and metering devices of renowned companies. STARLIMS system which serves for the safe collection, archiving and browsing of data will be implemented there as well. It will be the first implementation of this type in the Polish power sector.

eCSC available for all Enea’s Customers

In Q1 2016, the process of implementing a modern electronic system of the Customer Service Centre was completed. The solution is both for households and companies as well. Due to eCSC Enea’s Customers may e.g. check the status of invoices, pay the bills and contact the company on any matter.

II quarter

Enea Wytwarzanie strengthens its capacity from renewable sources

In April a new Baczyna wind farm with the capacity of 14.1 MW was commissioned. The project is located in Lubno, Lubiszyn municipality in Lubuskie province. Enea Serwis was engaged in the construction, and electricity generated by the farm goes to the distribution network of Enea Operator. The anticipated annual electricity production will amount to over 30 thou. MWh.

Enea Operator with a prolonged licence

On 31 May the President of ERO prolonged Enea Operator’s licence for electricity distribution. The existing one is in force until 1 July 2017. The works over the preparation of the motion with all the required documents were conducted from March 2015. The new licence is valid until 1 July 2030.

Investments in innovative projects

On 7 June the National Centre for Nuclear Research, Warsaw University of Technology, Enea, Energa, PGE and Tauron Polska Energia signed a letter of intent relating to the joint actions towards the development, promotion and dissemination of electromobility in Poland and development of the industry connected with this area. Joining the powers of the power sector and scientific community is a chance for new, innovative services and products satisfying customers’ growing expectations, assuming building a durable energy security.

Enea Operator implements new solutions

Enea Operator is consistently strengthening the security of electricity supplies in north-western Poland.

In Q2 2016, an innovative technology was introduced allowing for an automatic detection of damages (short circuits) and limitation of their coverage to the place of their occurrence. The application of an innovative solution was possible due to launching by the company of another function of SCADA dispatcher system, and more accurately the so-called FDIR model (Eng. Fault Detection, Isolation and Restoration), which is able to "omit" the damaged section of the grid.

Enea Operator launched the Connection Portal also for its Customers. The new platform is an electronic connection Customer service centre.

Additionally, the distribution company from Enea Group granted access on its website to new functionalities enabling Customers to obtain information on failures in the area of their interest or on cancellation of planned power switch-offs.

III quarter

LW Bogdanka further integrates with Enea Group

Enea continues the process of integration of LW Bogdanka with the Group which commenced last year. The course of the integration process is evolutionary from the moment Enea became a strategic investor in the mine from Lublin. In mid-April the first stage of this process was completed a part of which was amendment to the Statute of LW Bogdanka as regards the duty of acting in the interest of Enea Group by this Company. The second stage, finalised during the Extraordinary General Meeting of Shareholders of LW Bogdanka on 17 August, consisted in the maximum possible adaptation of LW Bogdanka’s Statute to Enea Group’s standard, adoption of Enea Group’s Code and joining Enea Group by LW Bogdanka. Due to the integration the whole value chain will be utilised optimally, and it will be possible to mutually exchange experiences and competences and develop the whole Group.

Enea joined TUW PZUW

On 7 September Enea joined the Mutual Insurance Company PZUW (TUW PZUW). Enea’s membership in TUW PZUW is part of the cooperation between strategic State-owned enterprises. A cooperative insurance association dedicated to Enea was created as part of TUW PZU. The company will use the possibility of concluding an agreement with the mutual insurance company of which it became a member, which will allow for achieving not only favourable terms but also shorten the process of concluding insurances. TUW PZUW insures only its members based on the mutuality principle. TUW members are its owners at the same time. The insurance company is supervised by KNF (Polish Financial Supervision Authority) and PZU SA is the capital guarantor.

Enea CG with the new development strategy until 2030

On 29 September the Company adopted Enea Capital Group’s Development Strategy until 2030 for implementation. The main goal of the strategy is increasing Enea CG’s value for Shareholders. Enea optimises and adjusts the commodity and energy corporation’s functioning model to the market environment. The Group will be an active participant of positive changes in the Polish economy and will strengthen the Polish energy security, becoming a part of the Responsible Development Plan for Poland and of the national energy policy. Enea will significantly increase its shares in particular market segments and focus on the development of new, innovative business lines and technologies.

The Company estimates that the basic capital expenditures on maintaining the continuity of the Group’s operation in 2016-2030 will total to ca. PLN 26.4 bln. Enea plans to implement the capital expenditures efficiency growth programme as well. As a result of conducted analyses, the Group optimised the capital expenditures within RES, cogeneration sources and heating networks planned in the previous strategy until 2020. CAPEX potential generated this way and the Group’s financial situation will enable Enea to designate additional PLN 6.2 bln until 2025 and PLN 5.3 bln in 2026-2030 on development investments. The expenditures constitute the maximum investment budget the Group may allocate to economically attractive investments, including acquisitions.

The Company will implement the efficiency improvement programme which foresees operating efficiency management within which it estimates the fixed cost optimisation by PLN 700 mln until 2025 in relation to 2016 base year.

Contract for flue gases denitrification installation in Kozienice Power Plant signed

On 30 September Enea Wytwarzanie and RAFAKO signed a contract for the construction of a modern flue gases denitrification installation together with the modernisation of electrostatic precipitators in Kozienice Power Plant. The value of the contract is PLN 289.2 mln net. The completion of the investment is planned for the end of 2018. The subject of the contract is delivery and assembly of a modern installation of the catalytic denitrogenation of flue gases (SCR) together with replacement of flue gas ventilators for AP-1650 boilers on 9 and 10 power units, 500 MW each. RAFAKO will also execute the project and replacement of the electrostatic precipitator with ash removal system and corresponding flue gas channels, and will also modernise the flue gas desulphurisation plant (IOS) for unit No. 9. The goal of the investment is guaranteeing an over five-fold reduction in the emission of nitric oxides from the current level of 500 - 550 mg/Nm³ to the level of below 100 mg/Nm³ NOx.

III-IV quarter

The Group wishes to increase its generating and mining capacities in a balanced way - engagement in projects crucial for energy security in Poland in the period of Q3-Q4 2016

  • Initial offer submitted with partners for the acquisition of EDF assets in Poland

On 16 September, Enea and PGE, Energa and PGNiG Termika, made a joint initial, non-binding offer for the purchase of shares in companies belonging to EDF in Poland. These are conventional generation assets conducting business activities, including in particular: Rybnik Power Plant, Combined heat and power plant in Cracow, Combined heat and power plant in Gdańsk, Combined heat and power plant in Gdynia, Combined heat and power plant and heating network in Toruń, Combined heat and power plant and heating network in Wrocław agglomeration, Combined heat and power plant an heating network in Zielona Góra and a gas unit in Toruń.

In relation to the expiring date of the offer made on 16 September the business partners submitted a new offer on 30 November. On 27 January 2017 a Memorandum of Understanding was signed with EDF relating to the conduct of negotiations on the acquisition of EDF assets in Poland and due diligence analysis within this scope. On 15 March 2017 the business partners made amendments to the transaction structure, relating to:

    • withdrawal of PGNiG Termika from the transaction
    • takeover of the so far declared share of PGNiG Termika in the transaction by PGE, which results in the growth in PGE’s share in the transaction to 60%
    • maintaining the shares of Enea and Energa in the transaction on the same level of 20% for each company

Pursuant to the arrangements the aforementioned amendments confirm filing no objections by EDF.

  • Letter of Intent relating to the preliminary interest in the financial participation in Katowicki Holding Węglowy

In relation to the process of obtaining capital investors by Katowicki Holding Węglowy, in July the Company commenced talks with potential investors relating to a possibility of implementing a potential investment and its potential parameters. On 28 October Enea, Węglokoks and Towarzystwo Finansowe Silesia signed a letter of intent expressing a preliminary interest in the financial engagement in Katowicki Holding Węglowy or KHW’s assets. The Investors’ final decisions as regards the participation in KHW will be made e.g. after the analysis of the due diligence performed and after the determination of the final shape of all the other arrangements.

  • A joint investment with Energa by the realisation of a power unit in Ostrołeka Power Plant

On 19 September Enea and Energa signed a letter of intent relating to undertaking the cooperation on the preparation, implementation and operation of a modern 1,000 MW unit in Ostrołęka Power Plant (Ostrołęka C). On 8 December Energa SA, Enea SA and Elektrownia Ostrołeka SA, i.e. the special purpose vehicle established by Energa for the implementation of the project, signed an investment agreement. The companies split the planned cooperation into three stages. They will include, respectively: Development Stage, which will last until the instruction is given to commence works for the general contractor; Construction Stage, which will cover the period until the commissioning of Ostrołęka C Power Plant for commercial operation and Exploitation stage during which Ostrołęka C Power Plant will be used for commercial purposes. On 19 December Enea and Energa announced the tender procedure for the selection of the general contractor of Ostrołęka C - the deadline for submitting applications expired on 10 March 2017. The companies estimate that the preliminary term of their consideration will be 3 months.

Energa and Enea agree that the implementation of Ostrołęka C project will positively affect the Polish energy security, will satisfy the highest environmental standards and will guarantee a next highly-efficient and low-emission source of energy in the Polish Power System. The Companies foresee that the construction of the new unit will be completed in H2 2023, and the expenditures on the implementation of the investment will total to ca. 5.5-6 mln PLN/MW.

  • Acquisition of Połaniec Power Plant from ENGIE

On 30 September Enea submitted an offer for the purchase of 100% of shares in ENGIE Energia Polska SA (EEP), the owner of Połaniec Power Plant. On 2 December it was granted the right of exclusivity for conducting negotiations. On 23 December Enea and ENGIE International Holdings B.V. signed a conditional agreement on the acquisition of 100% of shares in EEP. On 28 February 2017 Enea received the information on the satisfaction of the last of four conditions precedent of the conditional purchase agreement. On 2 March 2017 the Company received the calculation of the initial selling price of 100% of shares in EEP from ENGIE International Holdings B.V. on the level of PLN 1,264 mln. It was stipulated in accordance with the contractual terms, however it will be subject to verification by the Company and potential adjustments in the period occurring directly after taking the control over EEP, under the terms specified in the agreement, compliant with the market standards applying to such transactions. On 14 March 2017 Enea acquired 100% shares in EEP for the initial price of PLN 1,264 mln.

The investment is in line with Enea Capital Group’s new Development Strategy. The acquisition of Połaniec Power Plant will strengthen Enea’s positions as one of the leading electricity generators in Poland and will strengthen the Group’s position on the market. EEP is the fifth energy producer in Poland which, together with ca. 1.9 GW Połaniec Power Plant, accounts for around 6% of energy generation in Poland.

IV quarter

Electromobility a chance for a growth in the innovativeness of the energy industry

On 19 October PGE Polska Grupa Energetyczna, Energa, Enea and Tauron Polska Energia incorporated ElectroMobility Poland. The new company’s share capital is PLN 10 mln. Each of the companies incorporating ElectroMobility Poland holds 25% in the share capital with 25% of votes at a general meeting. The operations of the new company are to contribute to the creation of the electromobility system in Poland.

The Memorandum and Articles of Association of the Polish National Foundation are executed

On 17 November Enea, as one of 17 key Polish enterprises, executed a notarial deed on the incorporation of the Polish National Foundation and its articles of association. The organisation’s duty is promoting the Polish economy and shaping the image of State-owned enterprises and their investments carried out in Poland and abroad.

Fitch Ratings agencyy affirmed Enea’s credit rating

On 30 November Fitch Ratings agency upheld long-term ratings for our Company in national and foreign currency on the level of "BBB" and a long-term national rating on the level of "A+(pol)". The outlook of the ratings is stable. The Agency affirmed the rating for the Company on the same level since 2011.

Enea, Energa, PGE and PGNiG subscribed for shares in Polimex-Mostostal

On 6 December targeted talks commenced between Enea and companies: Energa, PGE Polska Grupa Energetyczna, PGNiG SA and Polimex Mostostal, with the aim of elaborating the structure of a potential equity involvement of investors in Polimex and developing a potential cooperation model among investors by the involvement implementation. On 27 December a letter of intent was signed, and on 18 January 2017 an investment agreement and other transaction-related agreements were concluded. On 20 January 2017, after satisfaction of conditions precedent, foreseen in the investment agreement of 18 January 2017, Enea, Energa, PGE and PGNiG Technologie took up shares in Polimex-Mostostal. The investors took up cumulatively 150 mln, i.e. 37.5 mln shares in Polimex-Mostostal each, as part of the planned capital raising. The issue price per share was set at PLN 2. As a consequence of recapitalisation and redemption of the shareholding in SPV Operator the investors subscribed for a total of 65.93% of shares (complaint with the new shareholding structure). On 21 March 2017 the Investors published a tender offer for shares in Polimex in relation to exceeding (as the parties to the memorandum of understanding) of the 33% threshold of the general number of votes at a general meeting of Polimex. The tender offer is consequent and as the result of it the Investors intend to acquire the shares guaranteeing holding not more than 66% of the total number of votes at a general meeting of Polimex.

Polimex-Mostostal holds the largest, over 23% share in the implementation of core projects in the conventional energy sector. Due to this fact, the company is present in contractor consortia of the largest energy related investments in Poland, whose cumulative budget is ca. PLN 30 bln.

New tariffs for individual customers

On 15 December the President of the Energy Regulatory Office approved the tariff of Enea Operator for 2017. The distribution tariff grew by 5.2% yoy. The rates of fees for the distribution services approved for 2017 resulted in the following changes in the average payments for customers in particular tariff groups as regards 2016 (including the shifted and additional fees): A tariff group - growth by 0.96%, B tariff group - growth by 5.73%, C tariff group - growth by 4.91%, G tariff group - growth by 5.61%. It is translated into the average growth for all the group sets amounting to 5.2%. The rise in rates of distribution fees in 2017 in relation to 2016 stems mainly from the significant increase in the rate of shifted charges: transitory charge and RES fee.

At the same time, the President of ERO approved Enea’s tariff as of the so-called nominated vendor, for customers in G groups, which dropped in relation to 2016 by 4.8% yoy. 2017 tariff takes into account the reduction in energy selling prices for households stemming mainly from lower costs of purchasing energy and lower costs of the so-called green certificates.

The amendment concerning deadlines of the agreement on the construction of a power unit in Kozienice Power Plant

On 23 December Enea Wytwarzanie and the Consortium of Mitsubishi Hitachi Power Systems Europe and Polimex-Mostostal signed an annex amending the deadlines foreseen in the agreement on the construction of a power unit in Kozienice Power Plant. The Annex extends the deadline for the investment completion until 19 December 2017.

Extension of the investment completion date by around five months stems from objective reasons beyond the control of the contractual parties. The annex execution does not affect the value of the agreement signed with Mitsubishi Hitachi Power Systems Europe and Polimex-Mostostal Consortium relating to the construction of the power unit.

The whole investment, comprising 30 thou. detailed tasks, is already very advanced.

Over PLN 250 mln funding for investments within the Infrastructure and Environment Operational Programme until 2020 for Enea Operator

On 28 December Enea Operator and the Ministry of Energy signed the first three agreements for financing the investments out of the Community funds. The value of the projects is over PLN 67 mln. The obtained funds totalling to almost PLN 37 mln will be allocated to the development of the distribution network, increasing the available connection capacity, among other things for RES generators and prosumers and also a growth in the energy security. Until the end of December Enea Operator signed other 3 agreements on funding within the following measure: Development of electricity and gas smart storing, transmission and distribution systems. The value of the projects reported within this area is almost PLN 50 mln, of which over PLN 33 mln will be the Community funds.

In H1 2017 it is planned to sign next 18 agreements for funding the investment out of the Infrastructure and Environment Operational Programme. The obtained funds will be allocated to the construction and reconstruction of the grid enabling connecting RES generators and also the development and implementation of the distribution network automation on medium and low voltage. The total value of 18 projects is almost PLN 300 mln. The funding will oscillate around 60%.

Notwithstanding the participation in support programmes realised on the national level, Enea Operator applies also for co-funding its projects as part of Regional Operational Programmes in the provinces on their respective areas of operations.

Modernisation of generation assets in Kozienice Power Plant

On 7 December Enea Wytwarzanie and GE Power signed a contract for the modernisation of 560 MW turbine sets No. 9 and 10 in Kozienice Power Plant. The value of the contract is PLN 65.5 mln net. The investment is planned to be completed in May 2018.

The purpose of the investment is extending the service-life of turbine sets and enhancing the efficiency via modernisation of the medium- and low-pressure parts and performing a comprehensive repair of the other elements. As a result of works performed the efficiency of turbine sets will increase and the unit consumption of heat will decrease. The electric power of each unit will increase by at least 4 MW. The dynamic state of turbine sets will be also improved.

Programme of Voluntary Redundancy

The Programme of Voluntary Redundancy, being a part of the Generation Change Programme, is being carried out in Enea SA. It has been in force since 28 December 2016 and will last until 30 September 2017. Its major objective is spreading the risk of uncontrolled outflow of competence over time, in particular in relation to the acquisition by Employees of pension rights. In Q4 2016 a provision was established for that purpose in the amount of PLN 54 mln, of which Enea SA informed in the current report No. 9/2017.

Changes in the authorities of Enea’s core subsidiaries in whole 2016

  • LW Bogdanka

Krzysztof Szlaga became a new President of LW Bogdanka. The other newly appointed Members of the Management Board are: Stanisław Misterek – Vice-President of the Management Board for Economic and Commercial Affairs and Adam Partyka – Vice-President of the Management Board for HR and Social Affairs. The new Management Board commenced their operation on 1 April. At the same time, as of 31 March, the so far Members of the Management Board were recalled: Zbigniew Stopa, Waldemar Bernaciak, Piotr Janicki and Jakub Stęchły. On 13 May the Company’s Supervisory Board adopted resolutions in the area of nomination as of 23 May of Sławomir Karlikowski to the position of the Vice-President of the Management Board for Production - Head of Traffic in Zakład Górniczy and Marcin Kapkowski to the position of the Vice-President of the Management Board for purchases and investment.

  • Enea Operator

Two new Members were nominated into the Management Board of Enea Operator as of 1 April. Wojciech Drożdż became the Vice-President for Economic and Financial Affairs, and Dariusz Szymczak the Vice-President for Distribution Service. Marek Lelątko retired from the Management Board. The President of Enea Operator is still Michał Jarczyński, and the Vice-President: Marek Szymankiewicz. Jakub Kamyk was nominated to the position of a Vice-President on behalf of the Employees, and was re-elected to this position. In July, Enea Operator’s Meeting of Shareholders appointed the Management Board for a new term. Since11 July Andrzej Kojro has presided it. The following people remain in the composition of the Management Board: Marek Szymankiewicz, Wojciech Drożdż and Jakub Kamyk. The existing president, Michał Jarczyński, and vice-president, Dariusz Szymczak, left the company. On 30 September Wojciech Dróżdż was nominated to the position of the Vice-President for Innovation and Logistics of Enea Operator who previously was the Vice-President of this Company for Economic and Financial Affairs.

Next, the Extraordinary General Meeting of Shareholders nominated Sławomir Mirkowski to the position of the Vice-President of Enea Operator for Economic and Financial Affairs. The changes entered into force on 10 October. On 2 November the Extraordinary General Meeting of Shareholders recalled Jakub Kamyk - Vice-President for HR. On 25 January 2017 Tadeusz Dachowski was nominated to the position of the Vice-President for OSH.

  • Enea Wytwarzanie

Wacław Bilnicki became a new President of the Company which is responsible for the generation of energy and heat in Enea Group. The other new Members of Enea Wytwarzanie’s Management Board are: Grzegorz Kotte - Vice-President for Technical Affairs, Elżbieta Piwoński - Vice-President for Corporate Affairs, Stefan Pacyński - Vice-President for Development Strategy and Dariusz Skiba – Vice-President for Economic and Financial Affairs. The sixth Member of the Board remains, selected by the team, the Vice-President for HR, Grzegorz Mierzejewski. The new Management Board commenced their operation on 14 March. As of 13 March, the so far Members of the Board of Enea Wytwarzanie were recalled: Krzysztof Sadowski, Piotr Andrusiewicz, Grzegorz Staniewski and Michał Prażyński. On 29 September Elżbieta Piwoński resigned from the position. On 30 September the Extraordinary General Meeting of Shareholders of Enea Wytwarzanie recalled Wacław Bilnicki from the position of the President of the Board and nominated Krzysztof Figat to the position of the President of the

Company. Jan Mazurkiewicz was also appointed to the Management Board on the position of the Vice-President for Corporate Affairs. Krzysztof Figat and Jan Mazurkiewicz held their positions on 17 October.