Poland’s energy market regulator URE refused to accept PGNiG's tariff increase motion as the requested price increase was “unjustified,” Ms Agnieszka Glosniewska, a spokesperson for the energy regulator said.
However, URE’s President Marek Woszczyk said he would expect to see a potential new motion from PGNiG for a lower price hike given the justification of the decision. PGNiG said it is considering an appeal against the decision. According to Polish law, the company may appeal against the decision within 14 days.
Consensus expectations for a tariff hike were high after PGNiG’s weak 2Q12 results, although our base-case scenario assumed no further increase in domestic gas prices this year. We argued (and still believe) that PGNiG is unlikely to enter the 2012/2013 winter season under a new tariff regime after it received a massive 17% wholesale tariff hike in April.
Although the words of URE’s President Marek Woszczyk may be encouraging, we have few doubts that any potential increase will be confined to the low single-digits. Hence, even if URE allows PGNiG to increase the domestic natgas price (contrary to our base case assumption), the earnings impact is likely to remain mitigated. This suggests the deteriorating trend of key credit metrics will continue going into 2H12. Also, on a 2012F EV/EBITDA of 11.4x, PGNiG’s valuation remains unattractive.