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Lack of reliable assessment of project’s rationale, high risk of delays and corresponding liquidity risks due to lack of financing, unavoidable financial penalties which may reach several hundred million PLN - the report of the Supreme Audit Office (NIK) confirms serious problems of Ostrołęka C and undermines rationale for its construction.

On 3 December 2019, the Supreme Audit Office published a report on the audit of the Ostrołęka C project and eight other coal-fired power plants. The conclusions of the report savage Ostroleka C, confirming the concerns of industry experts and social organisations.

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It is already well known that Ostrołęka C will be obliged to pay a penalty for failing to meet its obligations due to at least nine-month delay in providing power under its capacity market contract which comes into force on January 1st 2023. As NIK explains, the concluded power agreement obliges the Company to make a certain amount of power available to the grid from January 1st 2023. At the same time, another contract specifies that the unit under construction is going to be commissioned only in September 2023. The investor himself confirms the delay of the investment which will result in an increase in this penalty for each subsequent month. Such penalties could reach almost 10% of CAPEX.

According to the editor Karolina Baca-Pogorzelska, it would be 202,99/PLN/kW/year, i.e. PLN 14.4 million per month, reaching PLN 554 million over a maximum period of three years from January 2023. The delay is already nine months which translates into a penalty of at least PLN 130 million.

The penalty may still increase. As stated by NIK, all the investments under control were undertaken or completed with a delay in relation to the original assumptions, and there were delays at practically every stage of the investment process, from preparation, through selection of the contractor and execution of construction works.

The final cost of the power plant is also in question. Only one of the investments controlled by NIK fit into the expenses assumed before construction. The budgets of all the others were exceeded. This sheds a completely new light on the statement of development minister Jadwiga Emilewicz, who pointed out that the costs of Ostrołęka C may increase from 6 to even 9 billion PLN.

Main conclusions of the audit of the Ostrołęka C power plant construction project:

  • The technical assumptions (hard coal-fired unit, installed capacity of 1 000 MW) adopted in 2010 were not verified at the time of its resumption in 2016, with changed conditions of the electricity market and its environment, thus there was no reliable assessment of rationale of building a unit with the above mentioned parameters.
  • The investment was started without full financing and the NTP was issued under these conditions.
  • The investment is subject to high risk resulting from the fact that no financing has been provided so far.
  • Until the completion of the audit (January 2019), the activities in this respect were not finalised and the risk of loss of liquidity by the Company will increase if this situation continues.
  • The funds declared so far by the shareholders do not allow the investment to be finalized.
  • From the time of selecting the contractor until the time of issuing NTP (notice to proceed), there already was a four-month delay in relation to the investment schedule. The lack of time reserve for possible future delays in project execution significantly increases the risk of not completing the investment on time and exposes the project to a decrease in its profitability.
  • Taking into account the fact that in the domestic conditions investments in new generation capacities implemented in the years 2012-2018 were delayed (from about 5 to 18 months), the risk of delay is high.
  • There is a very high risk that the deadline for completion of the investment will not be met and its materialisation will result in penalties for failure to meet the capacity obligation.
  • The auditor also notes that a significant risk for coal projects is posed by rising prices of CO2 emission allowances and by withdrawal of banks from financing coal investments.

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