Message-ID: <30816154.1075844206676.JavaMail.evans@thyme> Date: Tue, 15 May 2001 08:46:00 -0700 (PDT) From: katy.lomax@enron.com To: andrew.morrison@enron.com, jarek.astramowicz@enron.com, michael.brown@enron.com, brian.stanley@enron.com, doug.wood@enron.com, jarek.dybowski@enron.com, mjankowska@mmd.com.pl, smcgeachin@mmd.com.pl, wolfgang.skribot@enron.com, justyna.ozegalska@enron.com, krzysztof.forycki@enron.com, jaroslaw.ferenc@enron.com, paul.mead@enron.com, richard.shapiro@enron.com Subject: "Poland's SOK in limbo as Belchatow withdraws" - Power in Eastern Europe Mime-Version: 1.0 Content-Type: text/plain; charset=ANSI_X3.4-1968 Content-Transfer-Encoding: 7bit X-From: Katy Lomax X-To: Andrew Morrison, Jarek Astramowicz, Michael R Brown, Brian Stanley, Doug Wood, Jarek Dybowski, mjankowska@mmd.com.pl, smcgeachin@mmd.com.pl, Wolfgang Skribot, Justyna Ozegalska, Krzysztof Forycki, Jaroslaw Ferenc, Paul Mead, David Leboe/Enron@EnronXGate, Richard Shapiro X-cc: X-bcc: X-Folder: \Richard_Shapiro_June2001\Notes Folders\All documents X-Origin: SHAPIRO-R X-FileName: rshapiro.nsf Power in East Europe Issue?57 | 14/05/2001 Poland's SOK in limbo as Belchatow withdraws Will Poland's long-awaited transition levy scheme to dissolve long-term power purchase agreement's (PPAs) - System Oplat Kompensacyjnych (SOK) - see the light of day? This has become one of the burning issues in central European electricity deregulation ever since the first draft was published in April 2000. Subject to perennial delays and uncertainties surrounding its implementation as well as criticism from generators and banks, SOK has become the laughing stock of Polish power reform. This is a pity for it holds the key to price and regulatory transparency, as well as the proper functioning of the Polish Power Exchange (Gielda Energii) as its head, Jan Buczkowski, never ceases to point out. SOK's credibility has been dented by the decision of Elektrownia Belchatow, Poland's largest and most fuel-efficient generator and the linchpin to a competitive power market, to exclude itself from the first group of producers to be covered by the scheme. Belchatow, along with Elektrownia Opole and Elektrownia Jaworzno III, were to start dissolving their PPAs on 15 April. But Belchatow, afraid that if it joined SOK its financial condition would worsen considerably since it would be paying in to the system instead of receiving payments, is not renegotiating its PPA with state grid PSE. Unless the plant is able to rid itself of its punitive below-market contract, which relieves it of its low-cost advantage, the prospects for a competitive power market are dim. Opole and Jaworzno hope for 1 July In an article in the daily Puls Biznesu on 2 May, representatives from Opole, Jaworzno III and Elektrownia Dolna Odra (which has taken the place of Belchatow) are quoted as saying that they are optimistic that they will be able to start phasing out their long-term contracts on 1 July. But investors have heard it all before. SOK was supposed to be implemented in the second-half of last year, then in the first-half of this year, and now it's questionable whether the 1 July deadline is realistic. All this creates uncertainty. "This is what investors hate the most. What's more, it's extremely difficult to estimate the effects of SOK given that there isn't any historical precedent," Puls quotes Piotr Samojlik, general director of financial advisers CAIB in Warsaw, as saying. But even a botched SOK, many believe, is better than a dead SOK. One of the stumbling blocks concerns the ministry of finance's reservations regarding the calculation of VAT in the payments. Apparently, this has yet to be addressed. But Puls quotes Jozef Pekala, the president of Opole, as saying that his plant and PSE have already reached a tentative agreement on the model of the annex to the PPA and are now awaiting the final text. All Opole's units are under a long-term contract set to expire in 2012 and worth an estimated ZL5bn. Jan Kurp, meanwhile, the high-powered president of Jaworzno III (who also doubles as head of the mammoth Poludniowy Koncern Energetyczny), is also upbeat and hopes to close negotiations by the end of this month. The following month will be devoted to talks with the banks, Kurp tells Puls. Jaworzno has a long-term contract set to expire in 2008 and a smaller contract (covering 12-15% of capacity) expiring in 2012. Juchniewicz ready to free prices On 10 May, Leszek Juchniewicz, the head of Poland's energy watchdog URE, confirmed he would stick to his July plans to exempt generators from the obligation to submit tariffs for approval despite the distinct likelihood of a continuation of the PPA regime. This is one of the few pieces of good news that has come out of the Polish power sector for some time and will be greeted positively by investors. In an address to parliamentarians, Juchniewicz said that while wholesale prices will be freed, retail prices will, for the time being, be capped in order to protect small and medium-sized consumers. SOK's fate, however, ultimately rests with the banks and the plants who, for a variety of reasons, are not particularly enthusiastic about the programme and have serious doubts whether the issue of stranded costs can be resolved in a fair manner. With parliamentary elections looming, it is vital that SOK be implemented as quickly as possible in order for there to be no backtracking and/or revisions after the elections. Power in East Europe - Issue 57 - 14/05/2001 - 717 words