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Signing of a contract for the construction of Ostrołęka C power plant hits Energa. EuroRating agency has downgraded Energa's credit rating from BBB to BBB- and recommends giving up this project.

On July 12, Energa and Enea signed a contract with the general contractor of the planned Ostrołęka C power plant - a consortium of GE Power / Alstom - for launching preparatory works worth PLN 240 million. After a few days, EuroRating responded to this move by downgrading Energa's credit rating from BBB to BBB-. According to EuroRating, the loan profile of the company would be positively affected by the resignation from the Ostrołęka C project at the present early stage - before signing the NTP document and giving final consent for the construction of the power plant.

The reason for downgrading the rating is the signing of the contract which confirms that Energa is wading into the construction of Ostrołęka C. Experts warn that in the long run the project will be permanently unprofitable, especially if the CO2 emission allowances price continues to rise and energy costs from renewable sources keeps decreasing. According to the calculations of the Instrat Foundation analysts, the annual costs of allowances for Ostrołęka C may amount to as much as PLN 735 million in 2030, which is about 60% more than it was assumed in July 2016. Nobody counts on the reversal of these trends.

This means that Enea and Energa would bear the costs of both, construction and subsequent energy production, for many years. EuroRating also emphasizes that Energa will have to incur new, high financial liabilities to cover construction costs estimated at at least PLN 6.2 billion.

‘Meanwhile, Energa has systematically increased its debt in previous years and in the last few quarters. Interest-bearing debt has fluctuated around the company's highest levels of approximately PLN 7.5-8 billion. As a result, its current financing structure is already assessed by EuroRating as relatively weak, and another large expenditure (financed most probably by increasing debt) will affect its further deterioration’ - the agency said.

EuroRating draws attention to other facts affecting the unprofitability of Ostrołta C: high costs of coal transport to the power plant and a decrease in coal mining in Poland, which will mean the necessity of importing fuel from abroad, mainly from Russia.

‘The implementation of this project is therefore in contradiction with the need declared by the Polish government to increase country's energy independence’ - worns the agency.

EuroRating also warns that if Energa does not receive support from the capacity market and co-financing by state institutions, the company's rating will be further downgraded.

This scenario seems more and more likely. Major European financial institutions are unwilling to support new coal investments. Participation in the project was also refused by the Polish Development Fund, whose involvement was expected by the investor. Underwriting might be another problem of Elektrownia Ostrołęka C. International insurers refuse an involvement in harmful coal projects due to the obvious financial risk and growing reputational risk - no socially responsible bank or insurer wants to be indicated as an institution that supports burning of fossil fuels, and thus causing catastrophic climate change and loss of health and human life.

EuroRating is yet another institution confirming what social organizations have been saying for many months (for example in the appeal addressed to Prime Minister Morawiecki). Ostrołęka C is a socially, politically and economically harmful project. Participation in this project is entails major reputational risk. Ostrołęka C is a serious burden for State Treasury companies but it will be the consumers who will pay the final price for this project in their energy bills. The duty of the Polish government should be to stop this irrational idea and redirect the resources of companies to develop clean energy based on native, renewable energy sources, safe for health, the environment and the citizens' expenses.

Justification for the EuroRating decision (in Polish)

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