PGE: To pay lower compensation than expected (positive)

The Vienna International Arbitral Centre (VIAC) has ruled the PGE (18,6 PLN, 0,32%) pay Alpiq Holding EUR 43.2m in compensation plus interest. Commenting on the verdict, the company underlines that the amount is three times lower than the claim of Alpiq, and half the size of the reserve PGE established for this purpose as of end of 1H12. After the compensation is paid, the remaining part of the reserve will be included and shown in the other operating results. The dispute broke out in 2008 after PGE's failure to supply electric power to the Polish-Slovak border. PGE was unable to perform this task due to lack of sufficient cross-border power transmission capacity. According to PGE, the problem resulted from the fact that the relevant EU regulations were being implemented to the Polish law in the period concerned and therefore it failure should be regarded as caused by force majeure. The company will consider appealing against the verdict.

The news is positive in a way that it would inflate the other operating by roughly PLN 200m (EUR 47.8m) due to provision release (given no other write-offs are created) in the upcoming quarters. We expect slightly positive market reaction.