The state-of-the-art 400 MW_e and 240 MW_t CCGT unit in Stalowa Wola is to be launched towards the end of 2014. It will be operated by Elektrociepłownia Stalowa Wola, the 50/50 special purpose vehicle owned by PGNiG SA and Tauron Polska Energia SA. Preparations for the project implementation are underway.

The three agreements signed define the terms and conditions for gas supplies to the new company, sale of electricity produced from the CCGT unit, and other key arrangements.

The CCGT project in Stalowa Wola is a joint initiative of the two partners, born out of the their respective corporate strategies. Tauron seeks to restore its production capacity and expand the share of power derived from own sources, while PGNiG aims to win a large customer for its gas and grow the power generation business. The project involves the construction of a high-efficiency cogeneration CCGT unit to produce electricity as well as heat in the form of water for municipal needs and process steam for local industry.

"The CCGT project in Stalowa Wola is a clear demonstration that Polish companies indeed exploit the highly advanced and globally renowned power-generation technology, which offers measurable benefits to the environment due to low carbon emissions. In the context of greenhouse gas emission limits and mandatory purchases of carbon allowances imposed under the EU energy and climate policies, new gas-fired power plants are found to be environmentally friendly and more economically viable compared with traditional projects using other types of fuel. I wish to congratulate both Tauron Polska Energia and Polskie Górnictwo Naftowe i Gazownictwo for their joint decision to go ahead with the project which is of great importance to Poland's economy," said Jan Bury, Secretary of State at the Ministry of State Treasury.

"The new CCGT unit in Stalowa Wola may prove to be of high strategic value for the country in the future considering the ongoing project to build an LNG terminal in Świnoujście, which is scheduled for launch in 2014 and which will initially handle 1.5-5bn cubic metres of gas supplies delivered by sea. These additional sources of fuel will potentially be used for power generation. The CCGT project is a huge step forward since a tepid 3% of domestic energy has so far been produced using the gas-fired technology. The figure is minuscule compared with other European countries, such as the Netherlands where the impressive 60% of energy is from gas-fired generation. All in all, we have enormous potential to exploit," said Mikołaj Budzanowski, Undersecretary of State at the Ministry of State Treasury.

"The CCGT unit in Stalowa Wola will be the largest and the most advanced structure of its type in Poland. It perfectly matches Tauron's corporate strategy which envisages the development of our production capacity based on coal, gas and RSE. The state-of-the-art high-efficiency technology will help reduce carbon dioxide and nitrogen oxides emissions and eliminate altogether the emissions of sulphur dioxide and fly ash. The environmental aspects, particularly in the context of strict climate policy pursued by the EU, and a short implementation time are key arguments for gas-fired projects," comments Dariusz Lubera, President of the Management Board of Tauron Polska Energia.

"The project located in Stalowa Wola is our chance to win a large customer and, most importantly, a milestone on the road to making the PGNiG Group a multi-energy conglomerate. We aim to undertake further projects in the power sector, which we think is the most promising segment of the Polish gas market. We hope that the successful cooperation with Tauron and our shared experience will bear fruit in the form of future projects aimed at modernising the Polish power generation assets and reducing their environmental impact. Therefore the construction of new power plants and CHPs is at the top of the PGNiG Group's list of priorities for the coming years,"  explains Michał Szubski, President of the Management Board of PGNiG.

The joint project was brought into existence on November 20th 2008 when Tauron Polska Energia and PGNiG signed a letter of intent confirming the parties' intention to cooperate. Subsequently, on December 7th 2009 an agreement outlining the project's framework was executed. The next step was to negotiate the execution agreement, which was signed on May 7th 2010 by Tauron, Elektrownia Stalowa Wola (the Tauron Group's subsidiary), PGNiG and PGNiG Energia. The agreement lay the groundwork for future cooperation.

On March 11th 2011 the following agreements were signed:

- agreement on the operation of Elektrociepłownia Stalowa Wola between Tauron Polska Energia, PGNiG, PGNiG Energia, Elektrownia Stalowa Wola and Elektrociepłownia Stalowa Wola,

- agreement for the sale of electricity between PGNiG Energia, Tauron and Elektrociepłownia Stalowa Wola,

- agreement for the supply of gaseous fuel between PGNiG and Elektrociepłownia Stalowa Wola.

The agreement on the operation of Elektrociepłownia Stalowa Wola provides details on project implementation and defines assumptions for the final business model. While negotiating the agreement, a business model and key commercial contracts (agreement for the sale of electricity and agreement for the supply of gaseous) were drafted. The negotiated agreements provided the basis for developing the final business model for the SPV and putting down on paper the requirements related to project management, including the partners' rights and obligations.

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t is expected that during project implementation the partners will be treated on equal footing, both in terms of their rights and obligations.

The parties will provide approx. 30% of the project funding, with the balance being financed with debt.

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n the agreement the following assumptions were defined:

• PGNiG will guarantee long-term gas supplies to ECSW,
• PGNiG Energia and Tauron will receive electricity generated by the CCGT in volumes proportional to their interests in the SPV,
• PGNiG Energia and Tauron will execute with Elektrociepłownia Stalowa Wola long-term agreements for the purchase of proprietary rights - certificates of origin of electricity generated in high efficiency cogeneration, in quantities corresponding to the purchased volumes of electricity,
• Elektrociepłownia Stalowa Wola will take over the heat supplies to local customers so far provided by Elektrownia Stalowa Wola. As a result, ESW will become a reserve provider, which will additionally enhance the security of supplies,
• additionally, it the partners' intention that Tauron should provide to ECSW the Trade and Technical Operator services and the emission allowance trading services.

The agreement for the sale of electricity provides for long-term sale of electricity by Elektrociepłownia Stalowa Wola to Tauron and PGNiG Energia. The term of the agreement is 14 years. The partners will receive electricity volumes proportional to their interests in Elektrociepłownia Stalowa Wola (each party holds 50% of the SPV's share capital). The agreement for the supply of natural gas provides for the supply of gaseous fuel for a definite term of 14 years. PGNiG will ensure gas supplies of approx. 540m cubic metres per annum.

In addition to formal arrangements, preparations to start the construction work have been launched. In October 2010, applications for admission were accepted in the procedures for awarding contracts related to the construction of the ca. 400 MW CCGT unit, announced by Elektrociepłownia Stalowa Wola. In the procedure to select the general contractor, 12 bids were received, while in the procedure to select the contract engineer five bids were submitted. The company has already selected the contract engineer, and the name of the general contractor will be known in the second half of 2011.

Earlier on in the process, clearance was obtained from the Polish Financial Supervision Authority (UOKiK) for the business combination involving the establishment by TAURON and PGNiG of a joint business enterprise in the form of a special purpose vehicle under the name of Elektrociepłownia Stalowa Wola. Through their subsidiaries, the partners in the project each hold 50% of the shares in the newly established SPV.

The total cost of the Stalowa Wola-based project is estimated at approx. PLN 1.9bn, with the completion date scheduled for the end of 2014. The applied technology will ensure very high efficiency of the unit, with all environmental parameters maintained at proper levels.

Key unit parameters:

Source: ENERGOPROJEKT-KATOWICE S.A

Tauron Polska Energia SA, ranking among the largest business organisations in Poland, is the holding company of a group of subsidiaries operating in the areas of coal mining, power and heat generation, electricity trading and distribution, and heat sales and distribution. The leading electricity retailer in Poland and the second-largest power producer, the Tauron Group aims to diversify its generation portfolio with gas-based assets.

Polskie Górnictwo Naftowe i Gazownictwo SA is the leader on the Polish natural gas market involved in exploration and production of natural gas and crude oil, as well as import sales, storage, trading in and distribution of gaseous and liquid fuels. PGNiG's strategic objective is to increase its presence across the value chain by expanding into new areas of business, such as gas-based power generation and electricity trading.