REGULATORY ENVIRONMENT

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Regulatory environment in Poland

Changes in Polish regulations and their impact on the PGNiG Group

Energy Law

Scope of the changes

Effect of the changes on the PGNiG Group

Amendments to the Energy Law that came into force in 2019 relate to the designation in contracts of an emergency supplier and introduce the requirement to sell all electricity output on the public market.
The Energy Law was amended to bring it in line with the new structure of the cogeneratton support system.
The obligations of gas system operators (including operators of the transmission, distribution and the entire connected gas system) were defined, and more specific regulations on the powers of the President of URE in defining the relationship between the gas network owner and its operator were introduced.
Amendments were also made to adapt the Energy Law to changes made to the RES support system in relation to prosumption.

The effect of the changes is neutral to the PGNiG Group.

Act on Mandatory Stocks

Scope of the changes	Effect of the changes on the PGNiG Group
In 2019, the rules governing the maintenance of crude oil stocks were amended.	The effect of the changes is neutral to the PGNiG Group.

Act on Electromobility

Scope of the changes

Effect of the changes on the PGNiG Group

An amendment to the Act on Electromobility that came into force in 2019 provides that small DSOs are not obliged to prepare programmes for the construction of natural gas stations.
Certain acts amending the Act on Electromobility were also enacted, establishing the reference roles of local government units and public administration authorities, and changing the definitions of liquefied natural gas bunkering (LNG) and liquefied natural gas bunkering points.

The effect of the amendments is favourable for the PGNiG Group.

Energy Efficiency Act

Scope of the changes

Effect of the changes on the PGNiG Group

An amendment to the Energy Efficiency Act that came into force in 2019 recognises the implementation of municipal low-carbon programmes as a measure improving the energy efficiency of public sector entities and provides for the possibility of obtaining energy efficiency certificates for such programmes.
It was also established that energy efficiency certificates issued under the previous Energy Efficiency Act of April 15th 2011 could be used until June 30th 2021 to meet the efficiency obligation.

The effect of the changes is neutral to the PGNiG Group.

Capacity Market Act

Scope of the changes	Effect of the changes on the PGNiG Group
No amendments to the Capacity Market Act were made in 2019.

Act on the Promotion of Electricity from High-Efficiency Cogeneration

Scope of the changes	Effect of the changes on the PGNiG Group
Amendments were made to the Act to align the rules for the provision of support to new units with the EU law.	The effect of the changes is neutral to the PGNiG Group.

Act on Special Hydrocarbon Tax

Scope of the changes	Effect of the changes on the PGNiG Group
In 2019, the special hydrocarbon tax was abolished.	The effect of the amendments is favourable for the PGNiG Group.

Diversification Regulation

Scope of the changes	Effect of the changes on the PGNiG Group
In 2019, no amendments were made to the Diversification Regulation.

System Regulation

Scope of the changes	Effect of the changes on the PGNiG Group
In 2019, no amendments were made to the System Regulation.

Tariff Regulation

Scope of the changes

Effect of the changes on the PGNiG Group

The amendments made in 2019 to the tariff Regulation clarified the method of calculating and making settlements on the gas fuel market.

The effect of the amendments is favourable for the PGNiG Group.

European regulatory environment

Changes in European regulations

Gas Directive (Directive 2009/73/EC)

Scope of the changes

Effect of the changes on the PGNiG Group

The amendment of the Gas Directive was intended to confirm applicability of the Directive to gas import infrastructure from third countries up to the territorial seas of the EU Member States.
The final text of the amended Gas Directive (Directive (EU) 2019/692 of the European Parliament and of the Council (EU) amending Directive 2009/73/EC concerning common rules for the internal market in natural gas – the “Amendment”) was adopted on April 17th 2019.
The Amendment provides for the application of the Gas Directive to offshore gas pipelines used to import gas into the European Union. The geographical limits for the applicability of the Gas Directive are defined as the boundaries of the territorial seas of the EU Member States.
There are two exceptions to the principle of applying the European law to import infrastructure from third countries. First, new gas infrastructure, just like European infrastructure, may be exempted from the above obligations in accordance with the rules provided in the Gas Directive. The second exception is where a Member State grants derogation from the obligations for infrastructure from a third country built before the effective date the Amendment to the Gas Directive (May 23rd 2019).

The Amendment may have a positive effect on the operations of the PGNiG Group, depending on the implementation of the Gas Directive by the Member States.

European funds

Scope of the changes

Effect of the changes on the PGNiG Group

Work continued on legal acts setting out the framework for spending European funds in the 2021–2027 financial framework.
Under the previous financial framework, the PGNiG Group was primarily a beneficiary of the European Regional Development Fund (ERDF).
The ERDF funds are to be used to provide financial assistance to projects supporting the economic and social development of the European Union. Under both the previous and current financial frameworks, the ERDF was a significant source of funding for the extension of gas distribution network and gas storage facilities. The European Commission’s proposal carries a significant risk: no applications can be submitted to the ERDF for financial support for any project involving the transport, combustion or storage of fossil fuels. Work on the subject is being carried out by committees of the European Parliament and by the Council of the European Union. The final form of the regulation on the financing of natural gas will be the subject of interinstitutional negotiations between the European Parliament and the Council of the European Union. It is not possible to estimate the date of adoption of the final wording of the ERDF Regulation at this stage of legislative work.
Another instrument governing spending of European funds is the Regulation establishing the Connecting Europe Facility for natural gas. The PGNiG Group was not a direct beneficiary of the funds under the Facility, but the development of interconnections financed with such funds had a positive effect on the operations of the PGNiG Group.
With regard to natural gas, the Connecting Europe Facility is intended to support infrastructure projects which are part of the supply corridors enabling diversification of natural gas supplies to the European Union.

At the current stage, there are risks related to the potential ineligibility of gas infrastructure investments.

Communication on the European Green Deal

Scope of the changes

Effect of the changes on the PGNiG Group

The Communication on the European Green Deal was adopted and published by the European Commission in November 2019.
The Communication outlines the legislative and non-legislative plans for climate action. According to the Communication, the European Commission intends to introduce the 2050 climate neutrality objective in the EU legislation, increasing its 2030 greenhouse gas reduction targets to 50–55%.
In order to achieve those plans, the European Commission intends to propose a number of energy and climate policy and financing regulations during its current term of office.

The Communication will have no effect on PGNiG Group’s business. However, challenges for the PGNiG Group should be expected in relation to the legislative acts proposed by the European Commission.

Sustainable Finance Package

Scope of the changes

Effect of the changes on the PGNiG Group

The objective of the Sustainable Finance Package was to adopt regulations harmonising sustainable finance and promoting sustainable investment.
In 2019, the final shape of the Sustainable Finance Package was agreed. Two new sustainability benchmarks have been introduced as well as the framework requirements that must be met for operations to be qualified as sustainable investments.
Also in 2019, the European Commission’s Technical Expert Group on Sustainable Finance published reports aimed at providing technical support to the European Commission in the preparation of implementing and delegated acts based on the Sustainable Finance Package.
Work on the implementing and delegated acts is expected to commence in 2020.

At this stage, the effect of the regulations on the PGNiG Group’s operations is assessed as neutral.

Clean Energy for All Europeans Package

Scope of the changes

Effect of the changes on the PGNiG Group

The Clean Energy for All Europeans Package is a comprehensive reform of the European regulatory environment for the electricity sector.
All legislative procedures related to the Clean Energy for All Europeans Package were finally adopted in 2019.
The new regulations increased the 2030 target on the share of renewable energy in energy consumption (Directive 2018/2001/EC of the European Parliament and of the Council of 11 December 2018 on the promotion of the use of energy from renewable sources) to 32% (the previous target was 20% to be achieved by 2020), and increased the energy efficiency target to 32.5% (Directive (EU) 2018/2002 of the European Parliament and of the Council of 11 December 2018 amending Directive 2012/27/EU on energy efficiency).
The new regulation on the internal market for electricity (Regulation (EU) 2019/943 of the European Parliament and of the Council of 5 June 2019 on the internal market for electricity) also introduced harmonised requirements for capacity mechanisms, including by introducing climate requirements for installations eligible to participate in those mechanisms. Only installations that emit less than 550 g CO2/kWh will be eligible. At the same time, a transitional period until 2025 was introduced for installations which became operational before the effective date of the Regulation (July 4th 2019) and installations in respect of which commitments have been made under the capacity mechanisms.

It is expected that the new regulations for the electricity market will have a neutral effect on the PGNiG Group’s operations.

Directive on the Promotion of Clean and Energy Efficient Road Transport Vehicles

Scope of the changes

Effect of the changes on the PGNiG Group

In 2019, Directive (EU) 2019/1161 of the European Parliament and of the Council of 20 June 2019 amending Directive 2009/33/EC on the promotion of clean and energy-efficient road transport vehicles (“CVD Amendment”) was also adopted. The purpose of the CVD Amendment was to increase the obligation for the share of clean and energy-efficient vehicles imposed on the public procurement sector.
In the final version of the Amendment to the Clean Vehicle Directive, heavy-duty vehicles using natural gas (LNG/CNG) as fuel were classified as clean vehicles. This means that by procuring such vehicles a public body can achieve the target for the share of clean vehicles. Poland is obliged to ensure by 2025 that 32% of buses meet the definition of a clean vehicle; by 2030, this share should increase to 46%.

The regulations will have a positive effect on the operations of the PGNiG Group.

NC CAM Regulation

Scope of the changes

Effect of the changes on the PGNiG Group

The purpose of Commission Regulation (EU) 2017/459 of 16 March 2017 establishing a network code on capacity allocation mechanisms in gas transmission systems and repealing Regulation (EU) No 984/2013 (“NC CAM”) is to introduce harmonised allocation mechanisms for interconnectors. The harmonisation is intended to facilitate cross-border trading in natural gas in case of disruption in gas supplies.

EU ETS

Scope of the changes

Effect of the changes on the PGNiG Group

The EU ETS Directive (Directive (EU) 2018/410 of the European Parliament and of the Council of 14 March 2018 amending Directive 2003/87/EC to enhance cost-effective emission reductions and low-carbon investments, and Decision (EU) 2015/1814 – the “Amendment to the EU ETS Directive) is designed to limit the amount of emission allowances available on the European market for emissions trading. The Amendment to the EU ETS Directive has also created a dedicated fund supporting the development of RES, low-carbon technologies (mainly CCS/CCU) and energy storage technologies.
In 2019, the European Commission adopted a delegated act establishing the Innovation Fund (Commission Delegated Regulation (EU) 2019/856 of 26 February 2019 supplementing Directive 2003/87/EC of the European Parliament and of the Council with regard to the operation of the Innovation Fund). The Fund will be financed with proceeds from the sale of 450 million CO2 emission allowances and its purpose will be to support the development of renewable energy, energy storage solutions and carbon capture and utilisation technologies (CCS/CCU).
In addition, in the Communication on the European Green Deal, the European Commission announced its plans to modify the EU ETS so that the emission trading mechanism supports increased EU’s climate ambition.

The Amendment to the EU ETS Directive affected the cost of emission allowances, thus having a negative effect on the PGNiG Group’s operations.

SoS Regulation

Scope of the changes

Effect of the changes on the PGNiG Group

Regulation (EU) 2017/1938 of the European Parliament and of the Council of 25 October 2017 concerning measures to safeguard security of gas supply and repealing Regulation (EU) No 994/2010 (“SoS Regulation”). The purpose of the SoS Regulation was to improve the security of natural gas supplies to the European Union and its Member States and to introduce regional measures to improve security of supply.
In 2019, work continued to adapt the national regulatory framework to the new requirements of the SoS Regulation. The PGNiG Group worked on harmonising its procedure to be followed in the event of gas supply disruptions.

TAR NC Regulation

Scope of the changes

Effect of the changes on the PGNiG Group

Commission Regulation (EU) 2017/460 of 16 March 2017 establishing a network code on harmonised transmission tariff structures for gas (the “NC TAR Regulation”), aimed at enhancing the transparency of transmission tariff structures and procedures for their determination by, inter alia, setting out requirements for publishing information on the determination of transmission system operators’ revenue and the determination of different transmission and non-transmission tariffs.
In 2019, the NC TAR Regulation was not amended.

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