Responsible financing of infrastructural investments (2/12)
Investment Programme until 2014.
The Gas Transmission Operator GAZ-SYSTEM S.A. has completed work on organising optimal and sustainable financing for the performance of the investment programme until 2014, valued at approx. 8 bn PLN. The investments are mainly financed from Company own funds (over 30%), non-refundable EU grants, and loans obtained from commercial banks and European financial institutions.
In 2011, the Gas Transmission Operator GAZ-SYSTEM S.A. signed an agreement for funding strategic investments with a consortium of commercial banks. The financing will consist of the Gas Transmission Operator GAZ-SYSTEM S.A. issuing bonds at a value of 1.7 n PLN, which will be taken up by those commercial banks in seven tranches between 1 July 2011 and 20 December 2014. Their redemption date has been planned for 20 December 2018. This solution brings together the advantages of bond issue (flexible access to capital) and credit financing (guaranteed funds at a fixed price and term, irrespective of the market situation). The Company was particularly intent on a guaranteed issue of bonds, therefore, for banks to warrant taking them up and for the price to be fixed up front. The programme will ensure funding for all investment projects, not only selected investments.
The second, crucial source of funding for Gas Transmission Operator GAZ-SYSTEM S.A. investment projects are European Union funds, whose share amounts to 1.94 bn PLN. They will be allocated for the development and modernisation of the national transmission network. Investments will be financed mainly from two EU programmes: The Operational Programme Infrastructure and Environment (OPIE) and the European Energy Programme for Recovery (EEPR, also referred to as the Recovery Plan).
The EEPR is a one-off intervention fund established during the financial crisis. It was intended to contribute to the economic revival of the European Union and to raising the security of energy supplies thanks to the creation of cross-border infrastructure. The co-funding received from this programme encompassed projects fulfilled by the Gas Transmission Operator GAZ-SYSTEM S.A. that not only concerned the development of the Polish internal transmission infrastructure but also gave significant support to the development of the gas transmission system in the EU. They include the Skanled/Baltic Pipe, construction of the gas compressor station in Goleniów and the Świnoujście–Szczecin gas pipeline, as well as the development of the gas pipeline system in Lower Silesia and the Polish-Czech interconnector.
From the Operational Programme Infrastructure and Environment(OPIE), GAZ-SYSTEM S.A. obtained co-funding for the construction, development and modernisation of seven gas pipelines: Szczecin–Gdańsk, Rembelszczyzna–Gustorzyn, Włocławek–Gdynia, Szczecin–Lwówek, Gustorzyn–Odolanów, Jeleniów–Dziwiszów and Polkowice–Żary. More gas pipelines have also been listed on the reserve list: Strachocina–Pogórska Wola, Hermanowice–Strachocina, Zdzieszowice–Wrocław, Skoczów–Komorowice–Oświęcim, Lasów-Jeleniów, Gałów-Kiełczów and Czeszów-Wierzchowice. The Company originally received 774 m PLN of funding from the OPIE EU programme for projects from the primary list but after the signing of annexes to agreements for co-funding, this amount increased to 1.01 bn PLN.
For the Company to be eligible to apply for co-funding from both European Union programmes, many requirements had to be met, the most important of which included obtaining environmental decisions for the projects that are compliant with EU guidelines, and incurring expenses in agreement with the principles of fair competition and timing, meaning that all the tasks planned within the projects should be completed by the end of the budget perspective. Thus, a significant element evaluated by EU institutions is the maturity and feasibility of projects.
EU funding for the performance of investments also gives other benefits, apart from financial ones, to companies and the market. Firstly, it sets highly specific requirements for the beneficiary pertaining to the very manner of performing the project – the company is required to fulfil its investments in a truly professional and transparent way. It is for this reason that GAZ-SYSTEM S.A. places great emphasis on providing local communities with comprehensive information about the conducted investments and organises cyclical information meetings for local authorities and landowners, whose land is traversed by the gas pipelines constructed by the Company. Furthermore, the project has to strictly comply with the schedule and budget. This approach makes EU financing of projects a great incentive disciplining companies.
Another source of funding for investments of the Gas Transmission Operator GAZ-SYSTEM S.A. is the European Investment Bank (EIB) granting long-term loans for European projects to the public and private sector. The projects that the EIB invests in are stringently selected. They have to contribute to the fulfilment of EU goals, be viable from the economic, financial and technical point of view and be environmentally friendly. They should also attract funds from other sources. The projects of the Gas Transmission Operator GAZ-SYSTEM S.A. ideally fit these criteria. The Gas Transmission Operator GAZ-SYSTEM S.A. has obtained two loans from the EIB amounting to a total of 1.2 bn PLN, which will contribute to financing the construction of the new gas pipelines on the Rembelszczyzna–Gustorzyn and Szczecin–Gdańsk routes as well as the LNG terminal in Świnoujście.
The Gas Transmission Operator GAZ-SYSTEM S.A. has also signed an agreement with the European Bank for Reconstruction and Development for the granting of an investment loan amounting to 300 m PLN, which is intended for the construction of the LNG terminal in Świnoujście.
The Company has organised advantageous funding based on flexible conditions for the investment programme. The large proportion of funds from European Union institutions present in the funding proves that the investment projects undertaken by the Gas Transmission Operator GAZ-SYSTEM S.A. are well rated in terms of meeting the economic, financial, technical and environmental criteria. Furthermore, they constitute the most advantageous sources of funding for investors that are available on the market. The organisation of appropriate funding based on the cheapest sources of raising capital was the Company's priority and has enabled the Gas Transmission Operator GAZ-SYSTEM S.A. to minimise operational costs, which is translated into lower gas transmission tariff rates.
“In our negotiations with the funding institutions, the Company managed to take advantage of a propitious moment on financial markets - the agreements were discussed before the exacerbation of the financial crisis, as well as an expedient time in terms of Company standing – funding was being obtained by a Company that was not in debt and that had excellent EBIDTA. Both of these strengths resulting from selecting the right moment and the good Company standing gave rise to very flexible financial documentation and low finance charges,” Adam Bryszewski, Chief Financial Officer at the Gas Transmission Operator GAZ-SYSTEM S.A., explained.
Infrastructural investments financed in this manner also have their social impact in the form of reductions of costs that will have to be incurred by customers as they constitute a non-refundable grant and do not have to be recovered from the market. Thus, the consumer will not be required to pay for the gas transmission infrastructure in the future that was built thanks to EU funding.
Interesting Facts:
Did you know that GAZ-SYSTEM S.A. has a guaranteed amount of almost 3.5 bn PLN for investment funding from banks?
2014-2017 Investment Programme
Another stage in the development of the Polish transmission system is the construction of new gas pipelines within the North-South Gas Corridor. For this purpose, the Gas Transmission Operator GAZ-SYSTEM S.A. is planning to build another 940 km of gas pipelines in the years 2014-2018. Within the new investment programme, the Company wants to commence with the construction of 7 new gas pipelines with a total length of approx. 460 km in western Poland. The Polish-Czech interconnector, which possesses a large capacity and is approx. 60 km in length, will be an extension of this system. The second part of the investment programme includes the construction of 4 gas pipelines approx. 420 km in length in eastern Poland where there are plans to develop the transmission system in the Sub Carpathian region in order to make best use of the Polish-Slovakian interconnector. The Company plans to obtain funding from the “Polish Investments" government programme.
"These investments have been valued at 4.5-5 bn PLN. Financing these investments from the "Polish Investments" government programme would greatly facilitate obtaining the funding necessary to successfully carry them out," Jan Chadam, President of the Gas Transmission Operator GAZ-SYSTEM S.A., commented.
The Gas Transmission Operator GAZ-SYSTEM S.A. can benefit from the "Polish Investments" programme in one of the following ways: by taking up stocks or shares in a special purpose vehicle established to fulfil a specific investment project, through a loan from the Bank Gospodarstwa Krajowego (BGK), or obtain a guarantee from BGK for soliciting funds from the market.
Opinion of Expert Wojciech Słowiński, Partner at PwC, Chemicals, Oil and Gas Group in Poland, Team Leader of PwC Oil&Gas in Central and Eastern Europe Group.
Companies often decide to increase their debt at the time of performing investment plans, thereby consenting for their business risk to temporarily increase. In supporting company development, it is important to responsibly take advantage of the products and forms of debt offered by investors and financial institutions. The basic concerns of borrowers include the costs of funding, its stability and absence of significant restrictions for the conducted operational activity. It is in the best interests of the Company, its employees, shareholders and customers alike to consider how best to build a long-term and secure funding structure. One of the solutions is a wise diversification of debt financing. This can be carried out with the aid of several instruments (e.g. loans, leasing, and bonds). However, attention should be paid to ensure that the given elements of the debt have been appropriately adapted to each other, for instance, in terms of repayment schedules and their cohesion with the investment and financial plans.
This Newsletter was prepared in cooperation with PwC
Editorial Board:
The Gas Transmission Operator GAZ-SYSTEM S. A.
Communication Team
Małgorzata Polkowska - Press Spokesperson
tel. +48 22 220 15 46, mob. + 48 691 911 217
e-mail: pr@gaz-system.pl
Aneta Szczepańska – PR Coordinator
Tel. +48 22 220 18 79, mob. + 48 607 630 514
e-mail: pr@gaz-system.pl
