Information of the Ministry of the Treasury concerning the Polish Oil and Gas Company (PGNiG S.A.)
In response to various reports concerning security of transmission assets in the context of the ongoing process of public issue of shares in PGNiG S.A., the Ministry of the Treasury would like to provide the following information:
As a result of comprehensive restructuring and privatisation work conducted in the company, transmission assets still remain under state control. A number of safeguarding mechanisms was introduced in order to ensure state influence at an unchanged, or even higher, level and to make the ongoing processes more transparent for their participants and for the general public.
On 7 July 2005, the government program was completed which resulted in separation of transmission activity from the structures of PGNiG S.A. Under that process, on 28 April 2005, PGNiG S.A., by deed of gift, transferred to the Treasury 100% of shares in the Company OGP GAZ-System Sp. z o.o. It was separated on 16 April 2004 under the structure of the PGNiG S.A. Capital Group in order to perform the function of the transmission system operator.
After the Treasury took control over the Transmission System Operator, the Company was provided with necessary assets, in order to be able to perform the function of the transmission system operator, as set forth in the EU Directive and the amended Energy Law.
The Minister of the Treasury, acting as the General Meeting of PGNiG S.A., claimed non-pecuniary dividend from the net profit of PGNiG S.A. in the shape of asset components of the transmission system valued at PLN 500 million. Subsequently, acting as the General Assembly of OGP Gaz-System Sp. z o.o., the Minister of the Treasury raised the initial capital of that company by PLN 500 million, registered at the National Court Register on 1 August 2005.
On 31 August 2005, the Extraordinary General Meeting of PGNiG S.A. passed a resolution on the basis of which, pursuing the dividend policy goals, assets constituting the transmission system for natural gas, a part of the assets held by the Company PGNiG S.A., would be systematically transferred to the Treasury in the form of non-pecuniary dividend taken from the profit generated in the years 2005-2009. The assets taken by the Treasury in the form of a dividend will be contributed to increase the capital of the Company OGP Gaz – System Sp. z o.o., in a comparable manner as was the case of the dividend for the financial year 2004. The final effect of the process will be transfer of those asset components from the Company PGNiG S.A. to the Company OGP Gaz – System Sp. z o.o. proportionally to the profit generated by PGNiG S.A.
Moreover, on 7 July 2005, an agreement was signed between PGNiG S.A. and OGP GAZ – System Sp. z o.o. for leasing of the transmission system components, providing the transmission system operator with the possibility to use the remaining transmission assets. That agreement also provides the possibility to their successive buyout by the Operator. The document is not a standard leasing agreement, as it considerably reinforces the rights of the lessee. Moreover, resolutions stabilizing the durability of the existing legal relation have been introduced, as well as those ensuring against termination of the above mentioned agreement.
Additionally, according to the existing statutes of and privatisation assumptions adopted for the Company, any change in the leasing agreement or its termination requires a decision by the General Meeting, therefore, in practical terms, a decision made by the Treasury. Thus the Treasury remains “indefinitely” the majority shareholder of that Company (potential alteration of those assumptions can be made exclusively by the Council of Ministers).
It should be emphasised that conclusion of the agreement took place after numerous analyses, discussions and consultations with the Energy Regulatory Office (URE), the Ministry of Economy and Labour and the Ministry of the Treasury, which were concluded by favourable opinion expressed by those entities as regards implementation by the draft of the resolutions comprised in the Restructuring and Privatisation Program of PGNiG S.A.
At this point it should be noted that the press publishes confusing interpretations of the notion of the transmission system in the context of the Company EuRoPol Gaz S.A. which does not deal with transmission but only, and exclusively, with transit of Russian gas (in one direction - from the east to the west).
One cannot identify the share of PGNiG S.A. in EuRoPol Gaz S.A. (48%) with the gas transmission system. Those shares do not constitute a component of the PGNiG SA transmission infrastructure; they are, however, a part of financial assets of PGNiG S.A. Similarly, the Yamal pipeline is not a part of PGNiG S.A. transmission system, which transmits gas all over the country, but it is property of an independent commercial code entity, i.e. property of EuRoPolGaz S.A. It arises from article 8 of the Protocol of 25 August 1993 on Organisational Undertakings aimed at ensuring Agreement between the Government of the Republic of Poland and the Government of the Russian Federation which says that transit pipelines constructed for transit of Russian natural gas and supply of Russian natural gas to the Republic of Poland, as well as property and facilities acquired by EuRoPol Gaz S.A. in the course of its conduct of business activity, will be its property”.
The Council of Ministers, in the annex to the “Restructuring and Privatisation Program of PGNiG S.A. of 5 October 2004 described precisely the components comprising the national gas transmission system among which there is no mention of the Yamal pipeline. The Program, together with the annex, was forwarded to members of Parliamentary Commissions: of the Treasury and of the Economy. It was discussed in the context of transmission components with the understanding that neither EuRoPol Gaz S.A., nor the Polish part of the Yamal pipeline constitute the transmission part of PGNiG S.A. and, due to its separation and specificity it cannot constitute an element of separation.
The transit Yamal pipeline itself accounts for a mere 0.5% of the gas networks installed in Poland. The volumes of gas coming from the Yamal pipeline (according to various data between 2.7 – 2.88 billion cubic meters) only account for approximately 20% of domestic demand and 34% of supplies from the eastern direction.
Opinions suggesting that OGP Gaz-System Sp. z o.o., and not PGNiG S.A., should be the entity holding shares in the company EuRoPol Gaz S.A., carry with them risks inherent in such an approach.
One should remember that any changes concerning the shareholding of the Company EuRoPol Gaz S.A. must not be taken unilaterally. That could result in legal consequences and would risk deterioration of economic relations between Russia and Poland. Ownership structure relations in EuRoPol Gaz S.A. were established not by the shareholders themselves but by the governments of both states. Therefore the issue of any changes as regards that Company must be viewed through the perspective of economic and political Russian-Polish relations.
The status of shareholder in EuRoPol Gaz S.A. is connected with the obligation to finance construction and extension of the Polish part of the Yamal – Europe gas pipeline (credits or loans are arranged or granted by RSA GAZPROM and PGNiG S.A. on commercial terms; debt payment resulting from the credits and loans which were granted is made from the funds generated by transit of gas through the territory of the Republic of Poland) and giving up payment of dividends by EuRoPol Gaz S.A. by the time the company has fully fulfilled its obligations connected with credits and loans used for construction of the gas pipeline.
The statutes of the Company EuRoPol Gaz envisages limitations within the scope of disposal of its shares. Pursuant to that act “disbursement of shares requires permission of the General Meeting expressed in the form of a resolution passed by the majority of shareholders present, including the votes “for” of all shareholders-founders holding no less than 30% of shares”. The statutes of EuRoPol Gaz S.A. also envisage that, prior to granting permission by the General Meeting for acquisition of shares by a third party, the shareholders-founders may submit purchase bids for shares proportionally to the shares they currently hold. Only in the case when shareholders-founders do not express their will to acquire the shares offered for sale, the General Meeting, by way of the procedure described above (i.e. by agreement of all shareholders-founders holding no less than 30% of shares), may pass a resolution on making shares available to third parties or on their redemption.
In accordance with the government plans for the sale of shares in PGNiG S.A., the Treasury is to remain a shareholder which holds over 51% of shares in PGNiG S.A. in the long-term. Thus PGNiG S.A. will remain a Treasury-controlled company. Therefore the Treasury, as a shareholder in PGNiG S.A., will have the ability to affect the way the corporate bodies of SGT EuRoPol Gaz S.A. function.
Pursuant to the provisions of the statutes of EuRoPol Gaz S.A., the President of the Board is selected by the General Meeting on the basis of the Polish shareholder holding the largest number of shares. PGNiG S.A. is the largest Polish shareholder of EuRoPol Gaz S.A. Therefore PGNiG S.A. has substantial influence on nomination of the President of the Management Board in the aforementioned entity. According to the statutes, establishment of the internal structure of the enterprise EuRoPol Gaz S.A., taking loans, disposal and acquisition of fixed assets by the Company, require a resolution to be passed by the Management Board. Pursuant to §32 par. 3 of the statutes of EuRoPol Gaz S.A. “a resolution of the Management Board is not passed if the President of the Management Board voted against it, in that case the President of the Management Board is obliged to notify the Supervisory Board”. The right of PGNiG to recommend a candidate for the President of the Management Board of EuRoPol Gaz S.A. and providing the President of the Management Board with a sort of veto power against other members of the Management Board makes the position of the President of the Management Board in the company a relatively strong one. PGNiG S.A. also has the right to appoint 4 out of 9 members of the Supervisory Board in EuRoPol Gaz S.A., including the right to recommend a candidate for its vice-president.
Moreover, the Minister of the Treasury informed members of the Parliamentary Commission that, in order to strengthen Treasury governance (ownership rights) as regards influence on SGT EuRoPol Gaz S.A., work is under way concerning relevant provisions into the statutes of PGNiG S.A.
In July 2005, the General Meeting of PGNiG S.A. introduced into the statutes of the Company changes which shifted the following competencies to the Supervisory Board:
- pronouncing an opinion concerning recommendation of the Management Board of the Company as regards indication of PGNiG S.A. representatives to the Management Board and to the Supervisory Board of the company SGT EuRoPol Gaz S.A. or to their removal from those Boards; it is later submitted to the Minister of the Treasury for approval.
- pronouncing an opinion concerning the manner in which the voting rights of PGNiG S.A. representative are exercised at the General Meeting of the company SGT EuRoPol Gaz S.A.
Work is also conducted aimed at legal definition of economic relations between OGP Gaz-System Sp. z o.o. and PGNiG S.A. within the scope of performance of acts connected with maintenance and traffic control on the so-called “Yamal gas pipeline” on the basis of relevant civil code agreements. According to the information provided by the Management Board of Gaz-System, contracts were concluded on entrusting the maintenance service of the line part of the first thread of the Transit Gas Pipeline System (System Gazociągów Tranzytowych) within the territory of the Republic of Poland and on performance of tasks entrusted by the entity exercising the function of the Transit Gas Pipeline Operator from the Russian Federation to Europe on the territory of the Republic of Poland.
Pursuant to the above-mentioned, Gaz-System Sp. z o.o. is under obligation to render, for the benefit of PGNiG S.A., services consisting in performance of acts for the benefit of SGT EuRoPolGaz S.A., on behalf of PGNiG S.A., which are envisaged by the agreement, comprising the entirety of gas pipeline maintenance and use, as well as steering the lines of the Polish part of the gas pipelines, taking into account contractual requirements.
Moreover, the privatisation example of the French gas monopoly, Gaz de France, should be brought to attention – the process was conducted in July 2005 by way of a public offer. The Company conducts activity in all segments of the gas market: E&P, Transmission, Distribution, International Trade; it also owns almost the whole transmission and distribution infrastructure in France. The French government, while embarking on privatisation of Gaz de France through the stock exchange, decided that the company would be strengthened economically which is the best guarantee for retaining the national character of that firm.
Recapitulating the arguments presented above, which confirm the integrity of activities conducted by the government, the Minister of the Treasury and the Company PGNiG S.A., the environment connected with implementation of PGNiG S.A. transformation. In 2003, the European Parliament and the European Council adopted Directive 2003/55/WE on common principles for the internal natural gas market which put Member States under obligation to separate transmission system operators (1 July 2004) and distribution systems (1 July 2006). At the same time the Directive specifies the date for full liberalisation (opening) of the EU gas market (1 July 2007). After that date the third party access (to the network) principle kicks in.
Therefore it is of utmost importance for the “national gas concern” PGNiG S.A. to be possibly quickly injected with capital from a public issue of its shares which would substantially improve its economic potential. This will allow the company to function in the competitive environment after July 1 2007 and to maintain its national character.
Spokesperson for the Minister of the Treasury