Lex PGNiG – the government wants to freeze gas prices, while preparing a fat morsel for the gas champion

This year, PLN 10 billion is to be compensated for gas sellers at a regulated price, below the market price. The lion’s share will be won by PGNiG, which will additionally receive a credit line for PLN 20 billion and even 30 billion state guarantees for debt. There will also be changes in gas stocks.

As announced, the gas rescue act published on Tuesday covers a number of public utility institutions in gas tariffs. It is about health care facilities, schools, kindergartens, nurseries, universities, cultural institutions, archives, voluntary fire brigades and… churches and religious associations.

The act will additionally freeze tariff prices at the maximum level set by the tariff for the last resort supplier – PGNiG Obrót Detaliczny, which corresponds to the price paid by households today.

Those customers who previously concluded contracts with the lower price will keep it. Gas sellers who fail to comply with the obligation to apply the frozen prices and rates will be fined at least PLN 1 million. The rates for gas distribution are also frozen.

Compensation for everyone

The mechanism is simple – for a given volume, the difference between the purchase costs on the market and sales revenues at the tariff. If someone has a tariff lower than PGNiG OD, the difference is added to his tariff. The government estimates that compensation will amount to PLN 10bn this year. They will be paid by the Fund for Payment of Differences Prices, which will receive money from two sources: 40% of revenues from the sale of emission allowances in 2022, but not more than PLN 6.424 billion, and from the COVID-19 Counteracting Fund. The amount has not been specified here. Compensation will be paid by the company Zarządca Rozliczeń, which recently dealt with this after the freezing of electricity prices in 2019.

If the seller ceases the activities covered by the compensation within 12 months of the payment of the latter, he will have to reimburse the whole with interest.

Interestingly, the new system de facto abolishes the change adopted only in December, which allows the excessive increase in tariffs from 2022 to be spread over the next three years. PGNiG OD has already used it, and according to this mechanism, the customers of the largest seller received “only” an 80% increase this year, but they were to return the rest in their bills for the next 3 years. However, what the state will compensate the company for this year will also include those increases planned for the past. From 2023, tariffs will not be increased by the effects of 2022, so this mechanism lasted less than a month.

PGNiG OD will probably grab most of the 10 billion PLN compensation pool. The daughter company of the national champion serves at least 80% of individual recipients, but it is not known how many municipal institutions that will switch to tariffs are its customers.

But loans and guarantees only for PGNiG

The terms of compensation seem to be equal for all gas traders, but the next part of the project makes it safe to call it the PGNiG lex. This is because it concerns state aid for a gas champion.

To get money for the purchase of gas, PGNiG will be able to reach up to PLN 20 billion from the government’s COVID-19 Counteracting Fund. In the case of Retail Trade, the possible loan is to guarantee the continuity of supplies to households. But the “big” PGNiG can already borrow to buy gas, pay for the costs of transmission and distribution, LNG regasification and storage. The interest rate is to be at the deposit rate of the Minister of Finance + 1 point. Repayments will go back to the COVID-19 Counteracting Fund.

If PGNiG takes a loan or even issues bonds, they will automatically be guaranteed by the State Treasury for 4 years – until January 1, 2026. The guarantees cover 100% of liabilities and interest. For PGNiG itself, their maximum amount is PLN 10 billion, for the ex officio seller, PGNiG OD – PLN 20 billion. This will make the cost of debt lower, and financial institutions will simply charge lower interest rates on loans or bonds.

Revolution in compulsory gas reserves

According to the so-called the Storage Act, all gas importers must keep certain amounts of gas as mandatory stocks. Or physically, in the national storage system owned by Gas Storage Poland – a company from the PGNiG Group, designated as the Gas Storage System Operator (OSMG). Or they can buy the so-called a ticket service, i.e. pay for the fact that part of the stock in warehouses will be considered a mandatory reserve.

Such a service for gas is to be provided by the Governmental Agency for Strategic Reserves (RARS). What is more, at the moment of the entry into force of the act, by operation of law RARS will become a party to the agreements concluded with OSMG in order to fulfill the storage obligation. So it will simply take over the holding of stocks from Gas Storage Poland.

However, this is not the end of the Agency’s future tasks. Well, it will buy, on behalf of the State Treasury, gas for the maintenance of mandatory reserves – i.e. gas for which keeping can be paid as part of the ticket service. These purchases are to be exempt from the legal regime of public procurement. According to the authors of the act, supervision of the Prime Minister is sufficient.

In the justification to the act, the current volume of mandatory reserves was estimated at 13.5-14 million MWh, i.e. some 1.3 billion cubic meters, worth PLN 5.1-5.3 billion. The monthly cost of its storage, assuming the current GSP tariffs, is almost PLN 48 million. Only in 2022, the Agency is to have a limit of PLN 6 billion for gas purchases for the ticket service, and it has been estimated that it will spend no more than PLN 5.3 billion. The source of money will also be the COVID-19 Counteracting Fund. This seems to be an attempt to reassure the European Commission, which has reservations about the mandatory stock system. We have heard in government circles that there are plans to change regulations so that the rules for gas storage are the same as for oil and liquid fuels. And the Agency also provides ticketing services for them. Theoretically, because, according to its last announcement from December, it is currently unable to do so.

Earlier, the government planned that the transmission network operator Gaz-System would take over the operation of the warehouses from PGNiG and invest in the construction of new ones.

One more forum for PGNiG

By the end of March 2023, the possibility of introducing non-financial securities for exchange trading, introduced in March 2020, in the first wave of “covid” regulations, is also to be extended. The entity concluding transactions on the gas exchange was released in 75% from the obligation to establish collateral in the form of deposits, provided that it or its parent company has a sufficiently high credit rating. Of course, PGNiG has met this condition. Given the current gas prices, the system of security for exchange transactions is a significant burden for gas traders. The rationale for the extension of the preferences for PGNiG is that since it has to sell at least 55% of its gas through the exchange under the obligation, it is heavily burdened with collateral and should be relieved.

About Eric Wilson

The variety offered by video games never ceases to amaze him. He loves OutRun's drifting as well as the contemplative walks of Dear Esther. Immersing himself in other worlds is an incomparable feeling for him: he understood it by playing for the first time in Shenmue.

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