Poland's energy regulator rejected an 8 % natural-gas price boost requested by PGNiG, telling the company for the third time in a row to ask for a smaller increase. Since June, the regulator has rejected requests to lift gas prices by 12 % and 10.2 %. The company has time until Aug. 25 to amend its request to ask for a smaller increase.
This is not a calming news for PGNiG, however we also do not regard it as very negative. The company have already appealed against the URE decision requesting a 4.9% increase and there is a bigger chance that the regulator will approve it. Considering the strengthening of Polish zloty to the US dollar PGNiG feels a more moderate pressure on its margins than we have originally expected, so it seems that 4.9% tarrif increase could be satisfactory to deliver reasonable profits for the Trade and Storage segment in 4Q06.
Currently we have a Hold recommendation with a fair value of PLN 3.80 but we are revising our estimates/recommendation in the light of 2Q06 result.