KGHM intends to renegotiate a 20-year contract with PGNIG for gas supplies signed in 2003, Parkiet reported today. According to this contract (as described by daily) a special gas pipeline was supposed to be built to supply new KGHM's energy facilities. The contract was for 10bn m3 of gas and was supposed to provide KGHM some PLN 100-150m of annual savings. According to the deputy CEO of KGHM quoted in Parkiet their needs for gas will be lower by some 50-60% than previously expected because they want to produce 40% of the energy needs internally versus some 15% currently.
Our view: The renegotiation of the contract might have negative consequences for PGNiG as since it has the fixed import contracts with Russian suppliers. Since the imported proce currently exceed the retail price for the natural gas, the company might suffer losses if the domestic demand decreases but imported amounts will remain the same.