Office for Energy Regulation (URE) refused to approve a 4.9% increase in
gas tariffs submitted by PGNiG, claiming that situation on the market does
not threaten a loss in the company's profitability. URE says that in favorable
circumstances it is possible to reverse trend of increasing costs of imported
gas purchase due to both imported prices and dollar exchange rate.
In its comment on the URE decision, PGNiG said that the decision was made
with disregard to the merits of the case and it is considering appealing the
decision and has two weeks for that.
Our view:
With no changes in gas tariffs profits of PGNiG's utility segment could remain
under pressure. Recent decline in crude oil prices will have come positive
impact through lowering natural gas import costs, however, due to the price
calculation formula (which takes the average price of the previous 6-9
months) the company would feel the healing impact in 1Q07 rather than in
4Q06. According to our calculation the refusal to hike the tariffs – ceteris paribus –
might cause about PLN 200m losses for full year 2006 on the EBIT line,
which made us to consider amending to our model. However, the company
told us yesterday, that they are going to appeal the URE decision in the
Ministry of Economics and in the court as well. Thus we are waiting to get
more colours on this issue and until that reiterate our Buy call with a Fair
Value of PLN 3.78.