Poland: Gas Trading Losses Cited by Moody’s as Key Reason Behind PGNiG Rating Downgrade

In connection with Moody’s press release , on downgrading PGNiG’s ratings from Baa1 to Baa2, with a negative outlook, PGNiG reported that the Company’s liquidity position is secure.

PGNiG’s financing requirements connected with the implementation of the capital expenditure programme in 2012 and 2013 are fully covered, especially following the execution of annex to the Yamal Contract, resulting in much more favourable pricing terms in the long-term gas supply contract. This fact had been taken into account by Moody’s, which noted the measures taken by PGNiG to improve its operational efficiency. However, the rating agency also notes that the scale of future benefits from the lower price will be limited by the extent to which such reduction is passed through to final customers.

The key reasons behind the rating downgrade was a decline in PGNiG’s operating performance in the first nine months of 2012 relative to the same period of 2011, caused by a negative gas margin in its trade operations, and a rise in debt following the acquisition of PGNiG Termika.

The agency also pointed to the uncertainty concerning the future shape of the gas market in Poland and the potential impact of such a situation on the Company’s performance. Moody’s also mentioned changes in PGNiG’s business risk profile, resulting from higher spending on upstream operations – an unregulated segment which may be additionally subject to planned taxation of oil and gas in Poland.

PGNiG’s 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 has a material effect on the feasibility and costs of such 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.

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LNG World News Staff, November 20, 2012