Energy GAS Nuclear 19 October, 2022 11:00 am   
Anna Moskwa. Fot. Ministerstwo klimatu i środowiska.
COMMENTS: Anna Moskwa

Moskwa: State-owned companies will pay for frozen energy prices (INTERVIEW)


The freezing of energy prices has a wide scope. In addition to households and vulnerable actors, the scheme now includes local governments and micro, small and medium-sized businesses. We applied a maximum energy price for this entire group. This approach is different from the previous solutions, because of financing, which will come from, among others, revenue of state-owned companies – explains Anna Moskwa, the Minister of Climate and Environment, in an interview with The Orlen-Lotos-PGNiG merger has been completed. How will it affect Poland’s energy security?

Anna Moskwa: The mergers with Energa, Lotos and then with PGNiG, are all important milestones for our security. In times of crisis, large players that guarantee energy independence play an important role. Across Europe large energy companies that also have renewable businesses, the so-called multi-energy concerns, are dominant. It’s good Orlen is joining this group. Considering the level of business diversification and total capitalization of PLN 87 billion, revenues of PLN 200 billion and EBITDA of approx. 20 billion PLN, these results are comparable with other companies. In this context, Orlen is starting to become a serious player in the energy market as it has it easier to, for instance, engage in gas talks. This was certainly an important argument during the negotiations of the last PGNiG-Equinor agreement. We showed the Norwegians the plans for the new group, and the plans for the transformation using renewable energy in this group: onshore and offshore wind energy, hydrogen, research and development. The Norwegians are after the same thing, and for them these were important arguments for cooperation. We continue to discuss this topic with consideration to the financial strength of the new company. We have started talks on an agreement to establish close cooperation with the Norwegians on, among others, hydrogen through the creation of working teams in our governments. After the merger of PGNiG-Lotos-Orlen it will be easier to invest on better terms and without this we will not be able to carry out the transformation. Considering the challenges of 2022 and the changes across the world after February 24th, the merger definitely came at the right time.

Is there a chance the cooperation with Norway will be extended to offshore wind?

An administrative proceeding on access to 11 offshore locations is taking place. Today Orlen operates there on its own, but for Poles and Norwegians it is a strategic area. No one excludes cooperation in this area or the presence of Norwegian entities on the market; moreover, the Norwegian company is present on the Polish market and conducts projects. Orlen already has experience thanks to Baltic Power. New Polish projects will therefore have a different format, because Orlen knows how to prepare a project, it will soon be able to build it and implement technology. The cooperation with Vestas on a turbine factory that will be implemented in 2026 offers hope that that’s what is going to happen.

Meanwhile, an energy crisis is unfolding in Europe. How does Poland position itself in this conversation?

Poland was in an initiative group with the Greeks, Belgians and Italy proposing a maximum price for gas supplies to the EU. We are making sure that the Commission prepares a legislative proposal. We put forward a proposal which was then supported by 17 countries. These proportions are reversed to such an extent that we can say today that only the Netherlands, Germany, Denmark and Hungary are against it, that not all countries said a firm “no”. Germany and the Netherlands are the most resistant. They are against it, because they are afraid the supply market will be disrupted, even though the entire EU is already handling these challenges, we have record reserves at storage facilities that are full at over 80 percent, in Poland they are full completely; nevertheless, our economies have to continue to struggle with horrendous gas prices. We hope that the Commission will act rationally under such pressure and with a strong majority. There is no reason to ignore the EU and listen to only one, even the largest, member state. Germany will be so isolated that it will have to join the agreement. No country can act alone, we must act together.

We have several suppliers and only a joint mechanism will reverse the negative tendency to impose a high price. There was a kind of strike at the last Council meeting. We had everything discussed about income taxation, the maximum price. We refused to discuss this again and moved on to the maximum price of gas, which was the point of the negotiations. This discussion did not end with a legislative proposal. We’re much closer now.

In turn, joint purchases of gas have been proposed for a long time, but no one knows how they would work in practice. We can talk about it, but with regard to gas that has not yet been contracted, that is, a small percentage of it. This solution is important, but complementary, it impacts relations with existing suppliers. This is a bit of a substitute topic for us. It looks like Germany and the Netherlands will be isolated. Due to the lack of arguments, they segued to joint purchases or mandatory reduction. We can talk, but first we need to close the topic of the maximum price. Germany is concerned about supply cuts. There was no maximum price at the beginning of the year, and Gazprom still cut off some states and limited supplies. The Hungarian argument that Gazprom can cut Europe off by applying the maximum price mechanism is invalid. Putin can cut Europe off from fossil fuels at any time, as he did in the case of Bulgaria and Poland. Putin’s actions in this matter are neither predictable nor rational, and certainly have nothing to do with the proposed mechanism of the maximum price. Only becoming independent of Russian gas as soon as possible will make it possible to become free of its blackmail. It is necessary to cripple Russian revenues. It is pointless to conduct scenario-based exercises in this regard, because we don’t know what will happen. Their behavior should not be taken into account. I am counting on the wisdom of the President of the Commission, who will not want to stand on the side of high gas prices. Otherwise, she would admit that she is indifferent to high gas prices and does not intend to deal with this crisis. Germany believes that further mandatory consumption reductions will affect the price. However, this is not a helpful tool at the current price limits. Only the maximum price and the large purchasing power of European countries can improve the conditions for gas supply. We can’t pretend there’s no problem anymore.

Poland wants to become independent from gas by building nuclear power. Will the decision on the choice of a technology partner be made in October?

We are doing everything to take the decision quickly and efficiently. Given the complexity of this decision and the long-term consequences, as well as the fact that this is a collegial decision on 3000 pages of documentation, it must be admitted that this process takes time. We have sent the proposal of the Poland-USA agreement to the Council of Ministers and we are waiting for the response of the remaining members of the government. We do not want to prolong this process unnecessarily, but considering the seriousness of this decision, we will need some more time.

Once Poland gives an answer to Americans, will it have to choose a different offer?

We are not saying “yes”, and we are not saying “no”. This decision results from the Polish-American agreement, which obliges us to accept or reject the American offer. If Poland does not accept the American offer, it will not have to accept another one immediately. The Polish nuclear project includes two locations and from 6 to 9 reactors, and therefore there are a lot of decisions to make, not only about the technology, but the contractors and the entire supply chain. This great project has room for many actors, in no country is such a project carried out by one partner or one company.

Russia’s missile strikes have forced Ukraine to suspend its energy export. Will Poland also suspend cooperation in this area?

Currently, almost 30 percent of Ukraine’s transmission infrastructure has been put offline. The Russian military and Rosatom employees are still present at the Zaporizhzhya Nuclear Power Plant. The situation is critical and much worse than in the first days of the war. This leads to even greater solidarity in Poland. We want to help Ukraine rebuild the network through hardware support. We want to intensify these activities. It is good that Ukraine joined the International Energy Agency thanks to the support of Poland. It has a strong partner which provides political, technical and economic support. We do not abandon our plans about the Khmelnitsky-Rzeszów power line. We are confident that Ukraine will rebuild this system after every bombing. Grids have already been restored there and it is obvious that the local operator is very efficient. We believe that sooner or later the plan to deliver energy to Poland will be possible again. Ukrainians are also saying that they would not withdraw from any projects. They believe that they will be able to send this energy to us, and the attacks will soon end. I’ve visited Bucha and the surrounding areas. I saw that just a few days after the tragic events and destruction, the energy infrastructure was restored. Poland can participate in the reconstruction of Ukraine in the energy sector. We are also considering various projects, a new gas connection and the development of supplies using the FSRU. Due to recent events, we spend less time on working meetings, because the Ukrainian administration now has other challenges, but we have agreed to another meeting on further cooperation in the near future. All ideas of cooperation in the field of fuels, gas, energy transmission are on the table and we intend to pursue them further.

Can the Ukrainians use the Baltic Pipe, as Naftogaz suggested? Will the Czechs and Slovaks benefit from our FSRU, which we discussed in the spring?

Gas cooperation with our southern partners is developing very well. In August, we opened a gas pipeline connecting the Polish and Slovak gas systems. In September, the Czech minister and I sent a joint letter to the European Commission regarding the reactivation of the expansion of the Polish-Czech connection. We are developing all technical possibilities so that the use of the Polish Baltic LNG Gateway is possible and beneficial for our partners. Already today, nothing prevents gas from the Norwegian Continental Shelf to flow to Ukraine.

How to reconcile support during the energy crisis with the need to maintain budgetary discipline in order to avoid too much inflation? Is the logic behind the recent energy price freeze heading in that direction?

The energy price freeze is wide-ranging. In addition to households and vulnerable actors, they now include local governments and micro, small and medium-sized businesses. We applied a maximum energy price for this entire group. This approach is different from the previous solutions, because of financing, which will come from, among others, revenue of state-owned companies. A methodology for calculating costs such as the purchase of fossil fuels, environmental fees, EU ETS and other taxes, as well as ongoing and planned investments and a reasonable margin is being developed. What remains in the company’s revenues will be transferred to the settlement manager, and the distribution mechanism will support a long list of entities, which is also being drafted. We are not able to predict the ETS or the price of fossil fuels, so if it turns out that these instruments are not sufficient during the crisis, the state budget will be a complementary tool. The regulation that will set the margin levels by source and determine a complete catalogue of acceptable costs remains to be drafted. After the adoption of the law by the Sejm, we will start detailed consultations so as not to slow down the transformation, but to support the recipients. Now we are focusing on the levels and the list of entities. It seems necessary to stress that this is a revenue cap, not a windfall tax. The latter involves taxing the balance sheet profit. It is therefore deferred because we would have to wait for companies to settle in accordance with tax planning after the end of the tax year. Thanks to the revenue cap, we can bring energy prices for the final customer closer to the cost of production right now.

Interview by Wojciech Jakóbik