The new strategy was developed in response to a number of changes in the external and internal environment of the PGNiG Group.
The key external changes were of macroeconomic nature (e.g. falling crude oil and natural gas prices), but also changes arising from other market developments, including the rapidly accelerating competition on the Polish gas market, the need to diversify gas imports from 2022 onwards (expiry of the Yamal contract), and changes in the regulatory regime (gradual exemption from the obligation to seek tariff approval, unpredictable future of the support mechanism for power generation beyond 2018). Following an analytical review, key macroeconomic assumptions underlying the strategic forecasts were updated, including those related to gas, oil and electricity prices. Also, new strategic objectives and ambitions for the Group until 2022 were formulated.
A major internal change associated with the adoption of the new Strategy is a novel approach to strategic management at the PGNiG Group. Its essential element is the methodology of sustainable strategic management − the Balanced Scorecard (BSC), which enables the balancing of financial, operating and development goals based on four key ‘perspectives’ (financial, customers, processes, and resources and growth).
The result is a new approach to define the main strategic objectives, where targets and ambitions are set at the Group level and then cascaded to the Group’s key business areas.
The Strategy Objectives at the Group level
The Strategy defines a new paramount objective for PGNiG Group, which is to increase the Group’s value and ensure its financial stability. It will be pursued through sustainable development of the Group driven by parallel investments in riskier business areas yielding relatively high rates of return (upstream projects – ca. 45% of total planned capex) and in regulated areas offering considerable investment safety (gas distribution, power and heat generation – ca. 42% of total capex). Additionally, ca. PLN 4bn of capex will be allocated to other growth projects, primarily in distribution, trading, power and heat generation. The Company assumes its total capex to exceed PLN 34bn in 2017–2022. The investment programme should deliver cumulative 2017–2022 EBITDA of ca. PLN 33.7bn, driving long-term growth of the Group’s EBITDA in 2023–2026 to the annual average of ca. PLN 9.2bn. At the same time, the net debt to EBITDA ratio should stay below 2.0 over the Strategy term, with the current dividend policy up to 50% of the Group’s consolidated net profit upheld*.
The Strategy Objectives for the Group’s key business areas
The Strategy identifies seven key business areas, with the following strategic objectives and ambitions for 2017−2022 defined for them:
1. Exploration and production – increase the current base of documented hydrocarbon reserves by ca. 35%, increase hydrocarbon production by ca. 41%, significantly reduce unit costs of exploration and deposit appraisal, and maintain unit cost of field development and hydrocarbon production.
2. Wholesale – build a diversified and competitive gas supply portfolio beyond 2022 and increase the overall volume of natural gas sales by ca. 7%.
3. Retail – maximise retail margins, while maintaining the total volume of retail gas sales at ca. 67–69 TWh/year.
4. Storage – secure access to storage capacities adjusted to actual demand and improve storage efficiency.
5. Distribution – build more than 300 thousand new service lines and increase gas distribution volume by ca. 16%.
6. Power and heat generation – increase power and heat sales volumes by ca. 20%.
7. Corporate Centre – increase involvement in and effective execution of R&D&I projects (target outlay of ca. PLN 680m), improve operational efficiency across PGNiG Group and enhance the Group’s image.
* PGNiG Management Board will always take into account the current financial standing of PGNiG Group and its investment plans before giving the recommendation on dividend payment and PGNiG will recognise net profits of its subsidiaries in the consolidated accounts net of any dividends paid by the subsidiaries, so achieving the planned level of dividend payments may be postponed by one year.