Poland's biggest power investment gets green light from court

By bne IntelliNews October 3, 2012

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Poland's top utility PGE saw a court lift an investment ban on a PLN11.6bn (€2.8bn) flagship project to build 1.8-gigawatt (GW) of new capacity in the south of the country on October 2, even as the judge sent the case back to a lower court. The company, which insists the project is vital to the wider economy, says the project will now go ahead.

After months of delay, Poland's Supreme Administrative Court sent the case on the environmental terms for PGE's planned expansion of its Opole power plant back to a lower court. However, it also lifted the block on construction, which has been in place since the environmental impact report on the two 900-MW coal-fired units planned was successfully challenged by environmentalists in January.

The state-controlled utility immediately announced that it will go forward with the project, news that will be welcomed by the group of struggling construction companies set to build it.

"The ruling passed today by the Supreme Administrative Court (NSA) means that the environmental decision is subject to execution," PGE said in a statement. "Thanks to that, PGE... holding final permits for the construction, is continuing the investment process at Elektrownia Opole power station."

As the leader of the Polish government's drive to add huge capacity to the country's generation sector over the next decade or so, PGE has been highly vocal in attempting to connect the issue with the struggling construction sector, and the possible knock-on effects for the slowing economy.

The consortium to build Opole includes Polimex - which is about to sell a stake to state development agency ARP; Rafako - a unit of PBG, which is in bankruptcy protection; and Mostostal Warszawa. The country's builders have been lobbying Warsaw to help them avoid dropping into a deep financial pit dug by razor thin margins on infrastructure contracts in the run-up to the Euro 2012 football championships, which Poland co-hosted in the summer.

The government's new energy drive - which encompasses power and shale gas projects - has been identified as the prime vehicle to help pull them back into shape, while Warsaw's recent moves to offer improved support to the companies stems to no small extent from concern that its bid to improve energy security could be left with no one to build the necessary infrastructure.

At the same time, the country's banks are reported to be exposed to the construction sector to the tune of PLN60bn. Should the likes of Polimex and PBG go under, that would see lending to the economy tighten even further, with obvious consequences for the already sharply slowing economy.

PGE has clearly seen that line as its best tactic to push Opole through. "The court's decision means much more than just the green light for this particular investment," CEO Krzysztof Kilian told local press in early September. "It might be crucial for the future of the economy as it might launch a catastrophic chain reaction."

The PGE head added that a speedy resolution is needed as Polimex may not last the two to four months that it will take to submit a new environmental application. Should the company go bankrupt, and PBG fail to get back on its feet, Poland will have huge problems finding builders ready to carry out the country's strategic investments, he warned.

The government stepped in on September 21 to push through a stalled PLN6.3bn (€1.52) contract for Polimex to build a giant coal-fired power plant for state-controlled utility Enea, after creditors threatened to block it. Warsaw welcomed the news that the court appears to have also got the message.

"The ruling is good news and there are no longer any legal barriers to starting construction," Treasury Minister Mikolaj Budzanowski said in a e-mailed statement, according to Bloomberg. "There's a real opportunity to complete this project as originally planned, a state-of-the-art power plant on the biggest scale in Poland."

However, a representative for ClientEarth, the group which secured the original construction ban on environmental grounds, told Reuters that it is ready to launch fresh action against the project. "We are considering placing a motion to the local court to block the environment clearance for the Opole project," Marcin Stoczkiewicz said, adding that the motion could be placed within a week.

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