The key reason behind the outlook upgrade was the ongoing process of acquiring the heating and power generation assets of Vattenfall Heat Poland, which Standard & Poor's regards as a meaningful diversification of PGNiG's business. The agency believes that PGNiG's strategy to diversify its business from gas production and supply to other energy-related services on the domestic market and to continue investing in its gas infrastructure outside of domestic supply and trading will support its business risk profile in medium term.

The affirmed rating reflects the Company's position as Poland's leading domestic gas supplier. PGNiG's business risk profile is viewed as satisfactory, thanks to its strong market position as the country's leading domestic gas producer and importer, as well as owner and operator of the Polish gas storage system and main distribution networks. At the same time, PGNiG's liquidity position is considered adequate.

According to Standard & Poor's, the outlook revision to stable reflects the agency's belief that the benefits of PGNiG's expansion of its regulated domestic gas storage and heating activities, as well as business diversification into power generation, could offset the negative impact on its business risk profile from expanding E&P activities. The expected weak profitability in 2011 combined with planned investments, especially the acquisition of VHP's assets, will likely result in significant deterioration of PGNiG's key credit ratios in 2011. However, Standard & Poor's Financial Services expects that the ratios will remain commensurate with the current rating over the medium term.

Nevertheless, Standard & Poor's Financial Services indicates that the Company's credit strengths are offset by earnings volatility and the risk of less than full and timely cost recovery in tariffs in the event of rising import gas prices. Another rating weakness of PGNiG is its dependence on gas imports from Russia and increasing share of earnings derived from higher risk exploration and production (E&P) segment.

Press Office of PGNiG