News
05.09.2012 Gas trading losses cited by Standard & Poor’s as the key reason behind PGNiG rating downgrade
In reference to an update published by the rating agency Standard & Poor's Financial Services on September 5th 2012 to announce that PGNiG credit rating was lowered from "BBB+" to "BBB" and placed on CreditWatch with negative implications, the Management Board of PGNiG SA asserts that the rating downgrade was caused by factors largely beyond the Company's control. These primarily include the rising cost of gas imports, coupled with unfavourable PLN exchange rate movements, which the tariff approved by the President of the Energy Regulatory Authority (URE) failed to offset.
In the update, S&P emphasised that the key reason for the downgrade is the growing loss on gas sold on the domestic market at regulated prices which fail to match the cost of gas imports. Profits earned by other business segments failed to offset the gas trading losses.
The agency further pointed out that the procedures and regulations currently in effect prevent the Company from covering the cost of imported gas on a full and timely basis, with the resultant losses threatening the Company's profitability. In the Agency's view, should domestic gas tariffs not be allowed to increase materially PGNiG will likely post an operating loss for 2012.
At the same time, Standard & Poor's found the Company's liquidity "adequate" in the context of its investment programme, thus recognising the available significant sources of financing.
The Management Board of PGNiG considers the Company's liquidity position secure, with the 2012 financing needs under the investment programme fully met. However, the Management Board deems a sound investment rating a priority, particularly in the context of the ongoing investment projects designed to enhance the national energy security, as it facilitates better and less costly access to financing for the projects.
In light of the foregoing, the Management Board expects that the right decisions regarding the price of gas and launch of production from new gas fields will bolster the Company's financial ratios and provide rationale for an upgrade in credit ratings.
Aiming to improve the Company's financial standing, the Management Board has taken steps to tighten its cost base. Volumes of cheaper gas imported from countries west and south of Poland have increased materially since last year (in H1 2012, the volumes rose by 700 million cubic metres year on year). In addition, a restructuring process was launched at the end of 2011; it covers selected parts of the PGNiG Group, including construction and assembly subsidiaries, the Company's Head Office and, as of September 1st 2012, Gas Trading Divisions and Production Branches.
Furthermore, in November 2011 the Management Board of PGNiG filed an arbitration claim against OAO Gazprom and OOO Gazprom Export to change the pricing terms under the long-term gas supply contract.
Joanna Zakrzewska
Press Officer
