Risk related to pension fund regulations in Poland

Pension funds are an important group of participants of the markets operated by the GPW Group. They generate ca. 5% of trade in shares on the GPW Main Market and hold shares which represent 21% of the capitalisation of domestic companies, equal to 43.1% of the free float at the end of 2015. Legislative amendments which restrict pension funds’ business and affect cash flows to/from pension funds could impair the activity of this investor group on GPW. They could also augment the risk of a large surplus of shares listed on GPW and curb the interest of other investors in such shares.

 

As a consequence, this could cause a significant decrease of trade in shares on GPW, a reduction of the number and value of issues of shares and bonds in Poland, and consequently a reduction of the GPW Group’s revenue and profit.

 

Regulatory risk related to the Polish legal system

The GPW Group operates primarily in Poland, where the financial market and the commodity market are widely subject to government regulation and strict regulation. The Polish legal system and regulatory environment can be subject to frequent and sometimes significant unanticipated changes and its laws and regulations may be subject to conflicting official interpretations.

 

Regulatory change may affect the GPW Group as well as existing and prospective customers of its services. For instance, regulatory changes may affect the attractiveness of listing or trading on the markets organised and operated by GPW, which could affect the GPW Group’s financial position.

 

Regulatory risk related to EU law

European Union regulation increasingly impacts the GPW Group, especially in the area of trading and post-trade services. It could hurt the competiveness of smaller European exchanges, such as GPW, in favour of larger market players.

 

Changes to regulations could require the harmonisation of the Group’s trading systems and operations, which could entail additional capital and operating expenditures, resulting in reduction of the Group’s profit.

 

Specific risks of regulation affecting the business of the TGE Group

The Energy Law requires energy companies which generate electricity to sell at least 15% of electricity produced within a year among others on commodity exchanges. Energy companies trading in gas fuels are required to sell at least 55% of high-methane natural gas introduced to the transmission grid within the year on an exchange. Amendments to or cancellation of these requirements could reduce the activity of certain participants of the Polish Power Exchange, the liquidity of trade in electricity and natural gas, and the attractiveness of the commodity market for other participants.

The Energy Law requires energy companies which generate electricity and are entitled to compensation (offsetting stranded costs) for early termination of long-term power and electricity contracts1 to sell the remaining amount of generated electricity (not covered by the 15 percent obligation) in a way that ensures equal public access to energy in an open tender on a market organised by the operator of a regulated market in Poland or on commodity exchanges. The number of entities subject to the obligation decreases with time, which could reduce their activity on the Polish Power Exchange, the liquidity of trade in electricity, and the attractiveness of the commodity market for other participants.

[1] According to the Act of 29 June 2007 concerning the rules of the compensation of costs incurred by generators due to early termination of long-term contracts for the sale of power and electricity

 

Amendments of Poland’s energy law to the extent of the obligation to sell electricity and natural gas on the public market could affect the activity of participants of the Polish Power Exchange as well as the financial standing and results of TGE.

 

The Renewable Energy Sources Act of 20 February 2015 implements, as of 2016, a new support scheme for the production of energy from renewable energy sources (RES), which is to be based on auctions. The existing system of green certificates of origin will expire on or before 31 December 2035. The support scheme may be phased out even earlier as certificates of origin are available within 15 years after the first day of power generation (as confirmed by a certificate of origin). For RES installations which were the first to produce energy eligible for green certificates of origin (in 2005), the period of 15 years under the Act will expire in 2020, after which the existing support scheme will be gradually phased out over the years. Furthermore, the Act allows market players eligible for support under certificates of origin to move to the auction system earlier than after 15 years. Consequently, some of them may move to the auction system early (before 2020), which could affect the results of the TGE Group, potentially in a material way.

The Act also limits the group of entities eligible for support under green certificates and imposes restrictions on the issuance of certificates of origin for multi-fuel combustion plants.

 

These amendments and other provisions of the Renewable Energy Sources Act of 20 February 2015 and its implementing regulations could affect the activity of participants of the Property Rights Market and the Register of Certificates of Origin operated by the Polish Power Exchange and, consequently, the results of the TGE Group.