PGE Polska Grupa Energetyczna SA

WSE:PGE

Earnings Call Transcript

[Malgorzata Babska;External Communication Manager, Spokesperson, executive]

Good morning, ladies and gentlemen. I would like to give you a warm welcome to this conference focused on the financial and operating results for the first quarter of 2022. The results of the Group PGE. We would like to welcome those present here and those who are following us online. It's good to see you again.

We have today President, Wojciech Dabrowski, President of the Management Board of Polish Energy Group; Lechoslaw Rojewski, Vice President of the Management Board for Financial Matters; and Piotr Sudol, Director of Finance Division at PGE. My name is Malgorzata Babska, and I will have the honor of chairing today's conference.

Let's move on to our presentation. Mr. President, the floor is yours.

[Wojciech Dabrowski, executive]

Good morning, ladies and gentlemen. The first quarter of 2022 showed that despite difficult market conditions and the uncertain geopolitical situation, PGE Group achieved stable financial results, PLN 2.6 billion EBITDA, which is more than in the first quarter 2021. Most of this EBITDA result comes from distribution of renewable energies, which reflects the right direction which we adopted sometime earlier, that is setting of coal assets and then focusing on renewable energy sources, distribution and generation. And that bodes well for the future.

Ladies and gentlemen, to effectively carry out energy transformation and enhance the areas that strong pillars of our group, that is distribution of renewable energy sources, we registered a new share ratio registered a change in the statute. We already have the funds on our account. We can sum up the results of this issuance. We obtained more than PLN 3 billion to develop distribution of renewable energy sources.

Indeed, we treated [indiscernible] in this difficult and stable situation. We managed to gain the trust of the investors who were willing to take up the new shares. So there were more than 140 entities participating in this project, funds, pension funds, state treasury, PLN 2.5 billion. And after this issuance after the state treasury took up a part of this new issue, the share of state treasury in our equity is now 60.68%. So to recap, we believe it is a major success and this issuance met a lot of interest in the market.

Despite the difficult geopolitical situation, we would like to thank our investors for the trust shown in us, those investors who are following us here in this room and those who are watching us online. The result of this issue project show that you trust us and we implement consistently what we presented in our strategy. We are going to continue this implementation so you can rest assured that the money you invested in our shares will generate appropriate profits in the future. We are not going to get off this path. We will pursue it consistently.

The commitment that we made to the market and investors will not be taken back. We will consistently follow the strategy of departing from fossil fuels and reaching emission neutrality by 2030. We implement our investment in a consistent and thought-out manner. First of all, we invest in renewable energy sources based on locally available natural energy sources in April. We signed a conditional agreement on buying 3 wind farms with the total capacity of 84 megawatts. That transaction has to be finalized by midyear, and it is going to increase our capacity and land energy up to 70 megawatts, and that will account for 11% of installed onshore capacity installed in Poland. We are the largest producer onshore and we intend -- after the liberalization of 10H law, we intend to invest in this energy on our own as well as through acquisitions of wind farms that we can -- farms that we can develop our potential onshore as regards offshore.

Together with Orsted, we started a new tender for Baltica wind farm. In May, we organized a joint online meeting for potential contractors with a participation of a record more than 800 entities interested in this investment. In mid-May, we started activities for Baltica 1 project that measurements that we, for the time being, have been conducting on our own. We also started analyzing the potential use of geothermal sources in Szczecin. We signed a relevant agreement on commencing joint work.

As regards digital transformation of the group, we have announced a tender for LDR 450 (sic) [ LTE 450 ] that is the communication system for PGE Group, but in the future for the entire energy sector because we will offer the service also to our other market players. We resolved the tender for the billing system and CRM for the group customers. So that is one of the largest projects of this kind in Europe nowadays.

And as a result of this project, we will be able to address the needs of our customers in the future much better. And now, the market is changing. The customers are getting more and more demanding. So this CRM system and billing system will allow us to provide customers with services tailored to the needs and of high quality. Those investments consolidate the position of the group as a leader of transformation and changing environment. And eventually as a target solution, we want to achieve climate neutrality.

As regards Nabha and the reform of the EU climate policy, because that is probably initial interest to you, we usually receive a lot of questions related to that. The recent months were marked by intense activity related to Fit for 55 package and EU-ETS. SPG, we are active in Brussels. We convinced EU politicians to have a more equitable view of individual countries of the European Union, taking into account there are specific conditions, including the geopolitical situation, war in Ukraine. The geopolitical situation today is slightly changed, so appeal to the politicians to modify their thinking. There is no going back from the transformation. So this path will continue.

However, today, we are in a transition period, a difficult one. So given this situation, there should be some deeper thought about our circumstances and what is going on in the energy sector. The primary objective is to maintain energy security. This is what we should focus on. For example, Germany will operate all those coal mines. So certainly we are dealing with temporary but yet a renaissance of coal. So we appeal to the politicians to take into account our specific conditions.

In Katowice, during Economic Congress, I talked to [ Kathryn Simpson ], and I presented our postulates that changes deposited by Fit by 455 package. They do not quite fit Polish reality. So it would be good to take into account Polish-specific conditions, in particular with regard to heat energy. We also presented to you the conclusions of Compass Lexicon report, which we commissioned to this recognized international company, where we identified concrete problems linked to the functioning of ETS. We appealed for constraint of trade through institutions that were focused only on profit maximization and pure speculation on ETS market.

It seems that our appeal was received with approval of the EU politicians. [ Etrey and NV Commissions ] voted in favor of motions that are aligned with our expectations. So those entities which were engaged and trade purely on speculative basis are eliminated. We hope that the European Parliament will confirm this new direction. And we are still talking about the Article 22 and ETS that is giving up this 3x increase of price to -- instead of 2x times increase within 6 months, maybe it can be reduced even further.

We recommended -- rethinking this provision in general. This change is maybe not what we would dream for, but it is a visible change. And I must admit the discussion that started that was noted to a large extent by the Polish Energy Group, but also by the Polish government to start talks about modification of ETS, brought about some results. Maybe that is not the effect that would satisfy us 100%. Nevertheless, we hope we are on the right track to get ETS reformed so that it stimulates the development of renewable energy rather than constrain energy transformation. Because today, pushing up prices for CO2 is counterproductive for energy transformation, naturally a big company. And of course, we are coping with this. But it is common knowledge in Poland that small heat power plants already now say they won't buy rights in the future. So I think we should give some deeper thought to it.

So, there is something that EU politicians have started thinking about. So hopefully we will reach constructive solutions anytime soon. So I would like to also talk about the National Energy Security Agency. We are finishing 2 important spin-off moments where we are coming up with the financial and operational models. So these are 2 important directions in our work. But when it comes to anything specific, well, we would like to invite you to a dedicated conference about the National Energy Security Agency, NABE and ABE in Polish. And of course, such a conference should be happening in coordination with the remaining stakeholders who take part in this process. So I will not tell you any details right now, but we will organize a special separate conference about the National Energy Security Agency as soon as we can, as soon as we collate all the information that we need to in order to communicate with you comprehensively about the project we will set the date.

If you allow me, I would like to right now give the floor to Lechoslaw Rojewski, who is VP for Finance. And of course, then we are ready to take your questions. Please ask us questions that are brief. We don't have all that much time. There's many things that are keeping us these days, keeping us busy. If we can, we will answer in ratings. So we don't have all that much time for Q&A, but we are open to a few questions.

[Lechoslaw Rojewski, executive]

Ladies and gentlemen, I will be very brief talking about financials You, ladies and gentlemen, have had a chance to take a look at these results, they were published yesterday. So again, let me start by talking about the electricity market and the balance of energy, what's been happening in the system. Just like in the last quarters of 2021, in Q1 of 2022, we are observing dynamic output, dynamic growth of generation of electricity in Poland.

We have observed 8.1% growth in Q1 production. And this was a result, not only by demand, it was around 1% -- or 1% was responsible for it, but most of it was exporting electricity to the outside markets. Our balance fell year-on-year by 3.1 terawatt hours. So we exported around 1 terawatt hour. This is mostly due to the fact that in the region, we are one of the cheapest countries in terms of production price for a unit of energy. Because when we're talking about our neighbors like Germany or Slovakia, this price was PLN 860 per megawatt hour in Germany or Czech and Slovakia, it was around PLN 900 per megawatt hour. In Poland, the price was at the level of PLN 624 per megawatt hour. What needs to be especially stressed is that in electricity production in Q1 of 2022, there was an important factor, namely wind because we had very good weather conditions. So wind increased output by 2.8 terawatt hours.

What's also important, and I'm sure you know this, and I suspect this is due to the fact that the law -- that the legislation changed on photovoltaics in our national systems. So definitely PV is growing in importance. As of the end of March 2022, installed capacity in PV plants went up to 9.5 gigawatt hours. So that was as much as it was, more by 4.9 gigawatt hours. So the amount of energy that went into the network in the first quarter of 2022 was around 700 gigawatt hours.

In my following slides, I would like to show you diversity and how our energy production has been diversified. I'll talk about lignite and I'll talk about coal. This is, of course, due to the fact that coal is available and its price has gone up. So let me move on to the following slide and take a look at this volatility, both when we're talking about energy, commodities like coal, but also you can see gas, how much volatility to experience, CO2 as well.

Let me remind you that due to the war in Ukraine, the prices of commodities as well as CO2 have been very volatile, very dynamic. Gas went up to EUR 300 per megawatt hour at one point, while coal at one point went up to $400 per ton. After the first shock, prices went back to being a little bit more steady, right now gas is at the level of EUR 90 to EUR 100 per megawatt hour, while coal is at the level of around PLN 300 per ton. After the fall to the level of around EUR 60, CO2 is, again, experiencing significant hikes.

Right now, CO2 is more or less at the level of EUR 80 to EUR 90. And due to this fact, in mid-May, we are already experiencing a growth in base contracts, base prices for electricity at the level of PLN 1,000, even more than PLN 1,150 per megawatt hour. So this whole situation riddled with uncertainty that we're dealing with, mostly resulting from the war, of course, affects the prices of electricity contracts for 2023. We're also observing a clean dark spread that's growing, so the difference between electricity and CO2 prices. But right now, these fluctuations, we don't know whether the clean dark spread is going to be at the level that we have right now, 680 or maybe it may fluctuate. We don't know this and it all depends on prices out there.

Overall, European strategy to get free from fossil fuels from Russia, of course, comes with a risk that prices of both fuels and availability of fuel may go down, may be limited, prices may go up. Therefore, we may expect quite a lot of volatility. When it comes to our operating results, let me tell you about 4 segments, namely electricity generation, distribution of electricity, sales to end users and the last segment will be heat sales.

Just like I mentioned before, we observed a growth in the first quarter of 2022 in coal production in PGE. This growth amounted to 18%. However, due to the fact that coal became more available and due to the fact that we had difficulties in supplies because there were overhauls, we noted a fall in electricity generation from coal at the level of 21%. Due to the fact that there was a failure in the Lublin power plant or heat plant, it actually went back to operation only in February, but there was quite a lot of demand on heat. So actually electricity generation from gas plants fell by 22%. However, and I mentioned it before, we observed a significant growth in production from renewable sources. So we can already point out that year-on-year, this output grew by 23%. And generation coming from wind farms alone was by 41% higher.

When we're talking about distribution of electricity, the volume of electricity in Q1 2022 grew by 3%. So it's above national domestic demand. Demand was at the level of 1.1%. The highest hike or the highest increase in distributed energy was observed in customers with medium voltage, so tariff B. However, for a while now, we haven't seen any decreases or drops in tariff G, so retail or individual customers. And we noticed lower consumption by 0.4% year-on-year. We mostly believe that it is due to the fact that COVID ended and people started leaving home more. They started going back to normal, going back to work, so households simply use less electricity in their homes. However, also weather, when we're talking about temperature compared to a similar period last year, higher temperature by 2.3 degrees centigrade. Again, this led to the fact that people used electricity less.

When it comes to sales to end users in Q1 similarly to previous quarters dropped. We saw a drop of around 6% year-on-year. And again, this drop was mostly in tariff G, namely we're talking about retail users. Another important element is that of so-called prosumers who use photovoltaic installations. As you know, right now, individual households don't have it that easy as of the end of March. So those who manage to file their application for an installation till the end of March, they still get 70% to 80% reimbursement, and they will -- we, as the trading company, will have to cover the costs for 15 years, cover the cost of distribution where prosumers will not have to do that. So as I said before, compared to Q1 2021, we have seen growth of 3.6 gigawatts and generation grew by 5 terawatt hours. Heat sales fell by 1.7, so -- around 7%, so 1.7 petajoule because our heating season was a little bit shorter.

So now let's move on to talking about our EBITDA and its structure. You can see that EBITDA in Q1 is at a high level. EBITDA at the -- recurring EBITDA at the level of EUR 2.2 billion. Well, we only had one extraordinary event, namely the reserve for prosumers was dissolved. It was around EUR 19 million. And this led to the fact that reported EBITDA and recurring EBITDA are at the same level.

Result on energy sales and related cost of emissions rights -- CO2 emissions rights, so high growth dynamics in prices of energy as well as increase in CO2 prices. It should be stressed by the market average price of energy at PGE Group. So taking into account 3 generation segments, conventional energy, heat energy and renewable energy, the price growth was within PLN 201 per megawatt hour.

Last year, the principal factor driving the prices of energy was the growth in CO2 prices that grew by PLN 165 per ton. Additionally, in fuel costs, we should emphasize a very major growth in gas prices. That unfortunately reduced our margin on energy production. And what were the positive contributions? First of all, margin on production generation related to higher price of green certificates and support of highly efficient cogeneration. Here we should stress that there was the LEAP increase in the prices of gas. And therefore, the regulator granted to our heat energy plant's subsidies to generate this energy. And last year, we had about PLN 121 million in the form of such subsidy.

So to recap, due to high energy prices, which covered cost of CO2 and fuels, we were able to achieve a higher margin on electrical energy generation. Additionally, on top of that, we have a positive contribution of higher prices of green certificates and obviously the support for gas cogeneration. Unfortunately, in the first quarter, we recorded a lower amount resulting from power capacity market revenues. And that was mainly due to the actions of 2022 that is where the share prices dropped. Taking into account lower revenues from regulatory system services, the total revenues from services of generation units dropped by PLN 60 million year-on-year.

It is worth stressing that the result on distribution as shown here by 130, mainly driven by higher volume of distribution services, higher distribution tariff and obviously lower costs and balance sheet difference. If we sum up the results of the first quarter of 2022, you will see the growth of EBITDA by PLN 390 million reported EBITDA in connection with this dissolving of the provision for prosumers by PLN 409 million and no major write-offs on impairment. That is why net profit and EBIT were at PLN 1 million, which means a growth by about PLN 214 million.

If we look at capital expenditures, unfortunately in CapEx, we recorded a year-on-year drop by about PLN 160 million. And that is aligned with our policy in our strategy in connection with this departure of conventional energy segment, we do not incur any CapEx there. We limit our expenditures in conventional energy sector. A major element in our expenditures are low-emission sources. And here, the units are operating at full capacity in Dolna Odra, we have the construction of a unit with a significant growth to PLN 335 million.

We also expect growth in renewable energy. And here that will be linked not only to the effect of organic growth, but also to the implementation of the program of photovoltaic capacity construction in the second quarter. We will also finalize a transaction related to the acquisition of wind farm with a joint capacity of 84 megawatts.

As regards distribution segment, in the first quarter, unfortunately there was a decrease in CapEx. But we hope that it is a temporary situation and in connection with the share issue that the President mentioned at the beginning and major funds for CapEx we expect to rebound in the following quarters.

Now, debt -- net debt. As in previous quarters where we achieved a high EBITDA 2.6%, additional increased by PLN 5 billion, which we have in provision on CO2 costs. Of course, in cash that will be covered in the following periods. On the other hand, in the first quarter, we made payments for the previous year 2021 with the effect of growing prices of CO2 and energy led to our debt remaining low. But if we adjust this by debt related to future payments for CO2, then our net debt will be at PLN 11.8 billion versus PLN 10.3 billion in 2022. Here you can see the difference in CO2. Therefore, net debt-to-EBITDA ratio will be at 1.4.

And summary of all segments. We changed our view of conventional energy. We transitioned to a stable level because here we called growth compared to previous quarters when we forecast energy unit price at PLN 480. Here, it is -- higher expected average price of energy sales at PLN 510, PLN 520. Average annual cost of CO2 at PLN 300 per ton.

Consequently, our projections expect stable perspective rather than a downward trend. We take into account lack of stability in the market and continued pressure on volumes due to renewable capacity growth. On the other hand, we feel pressure of the growing prices of coal. And here, we need to take into consideration availability of volumes of coal, accessibility of price of this coal. And I would like to remind you that we still have a contract that we signed for coal deliveries with a fixed price. And probably, as you also know, in the market with the influence of external factors, there is a strong pressure to change this price.

As regards heat energy, here unfortunately the trend is downward. There was doubling of CO2 prices and gas prices. And we can expect the price 150% or 200% higher. To some extent, that will be improved by the cogeneration premium that we obtained for gas units. Nevertheless, we are optimistic about renewable energy, which is one of the drivers of our results. Currently, EBIT went up very high, 390% up from the previous period. And here, we expect very good results on renewable energy.

In trade segment, we still see stable perspective. We continue to expect pressure on margins. Nevertheless, this decline should be offset by wholesale activity in this segment from commercial management, trade management within PGE Group. And in distribution also, we maintain stable perspective. We believe the prospects are good, given the good results of the quarter. And if the trend of the market changes, we see a possibility of going from stable to even growing position. Thank you very much for your attention.

[Malgorzata Babska;External Communication Manager, Spokesperson, executive]

Now, the favorite part of all those who are with us here, Q&A session. I would like to read a few questions that we got online. And in a moment, I will give the floor to you. I think we still have some time left to answer part of those questions.

The first question concerns energy price and the impact of those prices separating -- offsetting the coal assets. Will those high prices make it more likely for you to set up coal assets? That is the question to Wojciech Dabrowski.

[Wojciech Dabrowski, executive]

As regards this process, it is going on regardless of market changes. The situation in the market is dynamic and higher prices indeed may contribute to the fact that the National Energy Security Agency will have very good prospects for its functioning right at the beginning. For details, as I mentioned before, I would like to remind you that the host of this project, the sponsor of this project is the Ministry of State Assets. So details of this process will probably be communicated by the Ministry together with stakeholders, with members of the agency, and I think it will happen soon. So I think we'll be able to share more information with you.

[Malgorzata Babska;External Communication Manager, Spokesperson, executive]

Another question also regards prices in the energy market. How come there is this huge leap in price and the contracts for 2023, reaching over PLN 1,000 per megawatt hour, which is not confirmed in the prices of CO2 and coal. That is the question to Mr. Lechoslaw Rojewski.

[Lechoslaw Rojewski, executive]

Ladies and gentlemen, during my presentation, I mentioned that such high price of contracting for 2023 in excess of PLN 1,000 per megawatt hour, that is affected mainly by the geopolitical situation. Please take into consideration a few factors. The first is linked to the war in Ukraine. And here, any market, not just Polish market, but also foreign markets, each market values a certain level of uncertainty. So that is why there was this dramatic leap in prices of commodities.

And as I mentioned, those prices of commodities related to above all to the growth of gas price. This was even as much as EUR 300. So that is a dramatic increase in gas prices. And another commodity coal to 60 gigajoules -- PLN 60 per gigajoule. All this leads to the fact that prices for contracts for the following periods grow. But also remember about yet another factor. Unfortunately these commodities, well, right now, have to be imported because, for example, gas is coming from other markets than Russia. So we stopped dealing with Russia, stopped dealing and delivering gas to us. We terminated these contracts. So now we have some logistical costs related from getting our gas from elsewhere. And of course, these costs affect the whole picture.

Secondly, take a look at availability. I do understand that the market should be transparent and all the mechanisms should be transparent, especially the ones that form prices. But today, we are in a situation where we're dealing with certain macroeconomic indicators, and they all go up. This leads to or translates into higher price for megawatt hour, drastically higher prices.

[Malgorzata Babska;External Communication Manager, Spokesperson, executive]

Another question is about onshore wind farms. Why is PGE buying ready farms instead of building new ones, especially that the cost per megawatt hour seems lower?

[Wojciech Dabrowski, executive]

Well, the cost of construction per megawatt being lower, well, this can only be determined via a tender process, we don't know, especially that costs are really like the cost of turbines, for example. These are a big component when you build the farm. But I'm just saying that by 2030, we want to have 1.7 gigawatt in onshore wind farms. Right now, we have 770 megawatts, including the new farm that we've bought recently. I mean, still it's all conditional, we're waiting for the competition authority to approve.

And of course, we will invest. We will build when regulations change, namely 10H is going to be amended. So we are ready. But for now, given the current regulatory framework, we're acquiring. And well, we are continuing with acquisitions. We look at profitability. Of course, we have certain hurdles. Well, it's hard to tell right now whether it could be built more cheaply compared to what we have paid for already existing onshore farms. It's not determined. We are actually quite satisfied with the transactions, with the deals that we made recently.

[Malgorzata Babska;External Communication Manager, Spokesperson, executive]

One more question about coal prices. And So the President of the Energy Regulatory Office said that according to the market, prices for coal next market might go up, like to up to PLN 300 per gigajoule. So what kind of price are you expecting after renegotiating with the Polish mining group, Polska Grupa Gornicza?

[Lechoslaw Rojewski, executive]

So let me tell you briefly. Right now, the contract that we have with the Polish mining group, there is a contract, there is a price in it. We do understand that prices out there in international markets are much higher than prices in Poland. And we do appreciate that there is a certain pressure from suppliers to renegotiate existing prices. Currently, we are at the table. We are negotiating, and we're expecting that we will get to such conditions that will allow us to generate electricity at the level of -- well, at such a level with such a price that will be still cheap. And our customers will get affordable energy.

On the other hand, we, of course, want to have sustainable supplies. We want to have supply stability. So we do have to listen to what the other party is saying at the table. Right now, we are negotiating, and we will see what will happen. Thank you so much for this.

[Malgorzata Babska;External Communication Manager, Spokesperson, executive]

And now, I would like to give the floor to, ladies and gentlemen, from the media who are here in the room. So please take the microphone and ask away. [ Thomas Brezinski ].

[Unknown Analyst]

Sir, I would like to ask about the sources of funding for the deal with the [ Maguire ] farm, PLN 900 million. So is it your cash flow? Or is it a loan? Or are you getting something from your issue to fund it?

[Lechoslaw Rojewski, executive]

Let me answer this. These farms that we will acquire from Maguire, so we're talking about coalfield, we will be funding this partially from our issue. There was a last issue of, well, 3.2. We do have an amount set aside to renewables. And partially, the funding will be coming from our cash flow. And that's it.

[Malgorzata Babska;External Communication Manager, Spokesperson, executive]

I saw someone else wanting to ask. Pawel Puchalski, Santander.

[Pawel Puchalski, analyst]

So, to continue in the same vein, namely I want to continue about coal. You said you were at the negotiating table. When are you expecting negotiations to come to an end?

[Wojciech Dabrowski, executive]

Well, right now, we are talking. There is no deadline for this, and we will inform you as we go. Right now, we are performing under the contract that was signed with the price that's in the contract, and we're negotiating.

[Pawel Puchalski, analyst]

My second question, current prices, let's say, offer amazing profits for all generation sources for the time being and for the future. So my question is, have you heard about any possible ideas to implement some sort of a tax on these extraordinary profits?

[Wojciech Dabrowski, executive]

We haven't heard about any such ideas. I have heard that they are considering this in Great Britain. In Poland, I haven't heard anything about such an idea. The needs of the sector and the transformation is putting so much pressure on everyone that I hope no one will come up with an idea of adding more burdens and more taxes to the sector because, well, we are only -- well, we're going to spend PLN 75 billion only by 2030. So we do have a lot of needs.

[Pawel Puchalski, analyst]

If I may, I would like to add to my previous question, namely the deal, the acquisition I asked before. Can you imagine how it will contribute to your EBITDA, given your results for the first quarter because you're talking about 11%, 12% of increase in capacity, right? And I'm talking about those farms that you've just bought, whereas thinking we're estimating that it's going to be around 20 gigawatt hour per month net.

[Wojciech Dabrowski, executive]

The question is asked without the microphone. The interpreters cannot hear. The answer is, we can send you our information in writing, but we're not acquiring anything with ROI that would be below our hurdle that would be unsatisfactory. We don't just go out acquiring stuff for the sake of it.

Well, there was one Internet user who said it's cheaper to build rather than acquire. Well, someone said that. Sure. Anyone can say anything or ask about anything, of course, but it's very difficult to answer definitively. We believe that with the prices that we are observing right now, and we, of course, do market reviews. We believe that the transaction that we concluded was a very attractive one. We always do financial reviews. So if IRR or PV are at the right level, we do this. If not, no one is going to pay anything extra, anything more than they have to.

[Unknown Analyst]

[ Eric Honaski] with [indiscernible]. I have 2 questions. One is about coal, given your data for the first quarter. What about the perspective of the rest of the year? What about availability of coal for your units? Are you maybe reckoning with the fact that you may have to import? And what about fuels? It seems that the company responsible for fuels is in your group, right? And another question is about offshore farms. What key decisions are you expecting -- should we be expecting in your offshore project, maybe the guaranteed price or at least initial selection of your preferred turbine supplier, can such decisions be made this year or maybe your final decision, can it be made this year still?

[Wojciech Dabrowski, executive]

When it comes to PGE Paliwa, our fuel company, will still have it, and it's a good asset in our group right now. Historically speaking, we did import coal to our sources along the coast like Gdansk-Gdynia. It's fueled by imported fuel because actually it doesn't make sense to bring anything from the south of Poland to the coast. When it comes to our security of supply, we have a long-term agreement with the Polska Grupa Gornicza, Polish Mining Group, we're using imports. PGE Paliwa is actually a company that's going through a revival currently. And I'm very happy that we have it among our assets. This company, I believe, will get to record-breaking financial results, everything is pointing to that. And it may be one of our main, let's say, stabilizing factors in terms of hedging and making sure that the Polish energy sector is fueled the right way. So PGE is actually one of the most important factors providing for energy security in Poland. And PGE Paliwa is one company that will definitely help us stabilize demand on coal in Poland.

You asked us about offshore. This year, we're going to finalize our tender for turbines. When it comes to the CfD contract that you mentioned, the guaranteed prices and everything, we're now analyzing this, and we're trying to see whether the amount that we thought is going to be enough to make a final decision to invest. But after the initial shock coming from the war, the situation is becoming a little bit more stable slowly but surely, the initial shock, of course, and huge spikes in prices. To me, there was no need for that. But anyway, right now, situation is sort of getting back to equilibrium very slowly. Still, we cannot say that we're stable, like 100%, and I cannot responsibly say or certainly say that we can plan our investments, but still a little bit of stability.

The market is stabilizing supply chains that were fragmented or actually replaced by other supply chains, like -- we're talking about directions like Egypt or India, for example. So I certainly hope that the market will get to equilibrium as soon as possible. We don't see any threats. Our project is going on schedule and our final decision based on our schedule is supposed to be taken next year. So we're not thinking that it will happen anytime sooner. We're, of course, collating data. We're going to sit at the table with our partner and finally decide whether we're going to build or not. But we only do this -- we will only do this when we have all the data.

[Unknown Analyst]

I understand that the situation now is such that the PGE Group through PGE fuels imports coal for the purposes of its own companies situated along the coast and generally for the needs of the market. And if So what is the expected scale of imports for the needs for the group and imports for general needs with traditional import to the coast?

[Wojciech Dabrowski, executive]

As you know, [ ports ] have limited throughput capacity. Today, PGE fuels sold not only to us but also to other clients. It is a trading company that does not only import fuel for us exclusively, but also for others. There is a major interest in the market in buying such fuel. Given the uncertainty in the market linked to the war in Ukraine and availability of gas, we see greater interest as well as an acceleration in stockpiling by companies, mainly heat companies because naturally, a lot of heat energy companies, especially those located in the east of Poland, had supplies from the East. And as a result of sanction and closing of the Russian market, those heat energy plants now are looking for other suppliers. Naturally, they turn to importers. We do import and enhance this increased interest.

[Malgorzata Babska;External Communication Manager, Spokesperson, executive]

Thank you very much. Any other questions?

[Unknown Analyst]

[indiscernible]. I have a question about the distribution segment because as we know, a new tariff model is being designed for the upcoming years. Do you expect, gentlemen, that in this new model higher risk-free rate will be included?

[Wojciech Dabrowski, executive]

Looking at the increase in the profitability of Polish bonds, we could expect that this rate could grow by as much as 3%, 4%. Of course, we would wish that, but it is not our decisions only, and they will be made in the energy regulatory authority.

[Unknown Analyst]

One more question, the last one. Okay. May I 2, 1.5? One is about the farms that Mr. Rojewski mentioned, the photovoltaic farms with a capacity of 84 megawatts. Okay, I got something wrong. I'm sorry. So another question. [ KPO ], the money will probably come to Poland. Could you tell us what amount you expect within this program to support investments of the Polish Energy Group this year and for what project?

[Wojciech Dabrowski, executive]

We submitted many projects. As regards investments in renewable energy sources offshore, altogether we need more than PLN 30 billion. We are aware that financing all those items will not be possible, but we submitted a lot of proposals. So we hope that at least partially our applications will be approved and we'll get the funds. But obviously we also apply for funds from other sources, not only from the transformation fund for Bogota, for example. We hope that energy transformation fund in Poland will be established. And here we also are going to apply. So we simply apply wherever we can, whatever funds are available. Now we apply for them. We will seek funds for distribution and very dynamically, so we are active in this area. So our ambitions are quite high. We'll see how that will end up in real terms.

[Malgorzata Babska;External Communication Manager, Spokesperson, executive]

Thank you very much. We have a lot of other questions, but we have no longer any time to answer them all. We will be back with you, especially those who are watching us following us online. And today, I would like to thank you very much for participation in today's conference. I would like to thank those in the room, those who followed us online and see you at the presentation of half year results. Thank you very much.

[Statements in English on this transcript were spoken by an interpreter present on the live call.]