Claims related to termination of long-term contracts
Claims relating to termination of long-term contracts against subsidiary Polska Energia – Pierwsza Kompania Handlowa Sp. z o.o.
In 2015 companies of the following capital groups: in.ventus, Polenergia and Wind Invest filed a case against Polska Energia-Pierwsza
Kompania Handlowa Sp. z o.o. to declare notices of termination of agreements submitted by Polska Energia-Pierwsza Kompania Handlowa Sp.
z o.o. with regard to power purchase and property rights concluded with these companies ineffective. In the course of court proceedings, plaintiffs extend their scope raising claims for damages and contractual penalty claims related to contract termination.
As at the date of approval of these consolidated financial statements for publication, the amount of damages claimed in the lawsuits amounts to: Polenergia Group companies – PLN 115,566 thousand (including Amon Sp. z o.o. – PLN 69,488 thousand, Talia Sp. z o.o. – PLN 46,078 thousand); Wind Invest group companies – PLN 322,313 thousand.
In the case filed by Amon Sp. z o.o. and Talia Sp. z o.o., partial and preliminary judgements were issued (judgement of 25 July 2019 in the Amon Sp. z o.o. lawsuit and judgement of 6 March 2020, supplemented by the court on 8 September 2020 in the Talia Sp. o.o. lawsuit), in which the courts determined that the statements of Polska Energia-Pierwsza Kompania Handlowa Sp. z o.o. on termination of long-term agreements concluded between Polska Energia-Pierwsza Kompania Handlowa Sp. z o.o. and Amon Sp. z o.o. and those concluded between Polska Energia-Pierwsza Kompania Handlowa Sp. z o.o. and Talia Sp. z o.o. for the purchase of electricity and property rights resulting from certificates of origin are ineffective and do not produce legal effect in the form of termination of both agreements, as a result of which the agreements after the notice period, i.e. after 30 April 2015, remain in force in respect of all provisions and are binding on the parties. Moreover, the courts also recognised the claims of Amon Sp. z o.o. and Talia Sp. z o.o. for payment of damages justified as to the merits, without, however, prejudging the amount of potential damages. The judgements are not final. Polska Energia-Pierwsza Kompania Handlowa sp. z o.o. filed a complaint against the judgments.
These partial and preliminary judgements, do not change the Group’s assessment that the chances of losing the case are not higher than the chances of winning it.
In the case filed by Pękanino Wind Invest Sp. z o.o. for the provision of security for claims for determining that the terminations of long-term contracts submitted by Polska Energia-Pierwsza Kompania Handlowa Sp. z o.o. are ineffective, the Court of Appeasl in Warsaw on 6 November 2019 partially granted the application for security by ordering Polska Energia-Pierwsza Kompania Handlowa Sp. z o.o. to perform the provisions of the contracts in their entirety on the existing terms and conditions, in accordance with their content, until the proceedings from the suit of Pękanino Wind Invest Sp. z o.o. are legally concluded against Polska Energia-Pierwsza Kompania Handlowa Sp. z o.o., pending before the Regional Court in Warsaw. The decision regarding the security is binding. This decision does not prejudge the merits of the action, which can only take place in a binding judgement, but only temporarily regulates the parties’ relations for the duration of the proceedings. In view of the need to realise the security provision referred to above, Polska Energia-Pierwsza Kompania Handlowa Sp. z o.o. created a provision for onerous contracts, the value of which as at the balance sheet date amounts to PLN 8 297 thousand.
Other cases are held at first instance courts (including one remanded for re-examination to the first- instance court by a second-instance court).
In light of the current status of the proceedings and the related circumstances, the Group believes that the probability of losing other cases related to the claims both as regards declaration of ineffectiveness of the termination notices and securing non-monetary claims and the claims for compensation is less than 50%. Therefore, no provision for the related costs has been recognized (except provision which have been made for cases filed by Pękanino Wind Invest Sp. z o.o., which have been discussed above).
In connection with the transaction of purchase on 3 September 2019 by the subsidiaries of TAURON Polska Energia S.A., i.e. TEC1 Sp. z o.o, TEC2 Sp. z o.o. and TEC3 Sp. z o.o. of five wind farms belonging to the in.ventus group and the financial receivables due to Hamburg Commercial Bank AG against the companies operating the wind farms, the lawsuits of the companies of the in.ventus group initiated against Polska Energia-Pierwsza Kompania Handlowa Sp. z o.o. were suspended by the court, at the joint request of the parties. In March 2020, the parties filed a motion to commence proceedings in order for the plaintiff to withdraw the lawsuit with a waiver of the claim. In June 2020, the court took up the proceedings and the companies filed statements of withdrawal of the lawsuits with waiver of claims. By its order of 3 July 2020, the court discontinued the proceedings in the case. The court order is final.
Claims relating to termination of long-term contracts against TAURON Polska Energia S.A.
In 2017 and 2018 companies of the following capital groups: in.ventus, Polenergia and Wind Invest filed cases against TAURON Polska Energia S.A. regarding damages and liability for potential future losses resulting from tort, including unfair competition. According to the plaintiffs notices of termination submitted by Polska – Energia Pierwsza Kompania Handlowa Sp. z o.o. regarding long-term contracts for the purchase of power and property rights related to energy certificates allegedly directed by TAURON Polska Energia S.A., provided the factual basis for these claims.
As at the date of approval of these consolidated financial statements for publication, the amount of damages claimed in the lawsuits amounts to: Polenergia Group companies – PLN 78 855 thousand, Wind Invest group companies – PLN 272,450 thousand.
Moreover, in their claims, the plaintiffs indicate the following values of estimated damages that may arise in the future: Polenergia Group companies – PLN 265,227 thousand, Wind Invest Group companies – PLN 1,119,363 thousand.
The District Court in Katowice has jurisdiction to hear the lawsuits. All cases are held before the first instance courts. Those filed by Wind Invest group companies are held in camera. As at the date of approval of these consolidated financial statements for publication, the Company’s chances of obtaining a favourable resolution of the disputes should be assessed positively, i.e. the chances of losing are not higher than the chances of winning.
In connection with the transaction of purchase on 3 September 2019 by the subsidiaries of TAURON Polska Energia S.A., i.e. TEC1 Sp. z o.o, TEC2 Sp. z o.o. and TEC3 Sp. z o.o. of five wind farms belonging to the in.ventus group and the financial receivables due to Hamburg Commercial Bank AG against the companies operating the wind farms, the lawsuits of the companies of the in.ventus group initiated against TAURON Polska Energia S.A. were suspended by the court, at the joint request of the parties. In the first quarter of 2020, the parties filed a motion to commence proceedings in order for the plaintiff to withdraw the lawsuit with a waiver of the claim. At the unanimous request of the parties, the court resumed the proceedings. By its letter dated 5 June 2020, the plaintiff withdrew the claim with a disclaimer. By its order of 6 August 2020, the court discontinued the proceedings in the case. The court order is final.
Claims relating to termination of long-term contracts against a subsidiary TAURON Sprzedaż Sp. z o.o.
In 2018, the subsidiary TAURON Sprzedaż Sp. z o.o. received notices in cases from motions filed by two Polenergia group companies against TAURON Sprzedaż Sp. z o.o. for a settlement attempt as to a total amount of PLN 78 855 thousand as compensation for alleged damage caused to Polenergia group companies as a result of the unjustified termination of the long-term contract concluded between these companies and Polska Energia-Pierwsza Kompania Handlowa Sp. z o.o. The companies indicated in their motions that the Company, Polska Energia-Pierwsza Kompania Handlowa Sp. z o.o. and the liquidators of Polska Energia-Pierwsza Kompania Handlowa Sp. z o.o. had caused and continue to cause damage to Polenergia Group companies, and TAURON Sprzedaż Sp. z o.o. has deliberately taken advantage of this damage and – according to Polenergia Group companies – is liable for it. TAURON Sprzedaż Sp. z o.o. considered the demands of the Polenergia group companies as unjustified, and therefore no settlement was concluded. Based on the analysis of the legal situation, in the opinion of the Management Board of TAURON Sprzedaż Sp. z o.o. there are no grounds to create a provision for the above case. The case is not subject to legal proceedings.
Claims filed by Huta Łaziska S.A.
In connection with the merger of the Company with Górnośląski Zakład Elektroenergetyczny S.A. (GZE), TAURON Polska Energia S.A. became the party to the court dispute with Huta Łaziska S.A. (“Huta”) against GZE and the State Treasury represented by the President of the ERO. Currently, the proceedings are pending before the Court of Appeals in Warsaw.
By the statement of claim of 12 March 2007 Huta demands from GZE and the State Treasury – the President of the Energy Regulatory Office (in solidum) to adjudicate the amount of PLN 182,060 thousand with interest from the date of filing the statement of claim to the date of payment as compensation for the alleged damage caused by the failure of GZE to implement the decision of the President of the Energy Regulatory Office of 12 October 2001 concerning resumption of deliveries of electricity to Huta.
In this case, the courts of the first and second instance passed judgements favourable for GZE; however, in its judgement of 29 November 2011 the Supreme Court overruled the judgement of the Court of Appeals and remanded the case for re-examination by that Court. On 5 June 2012, the Court of Appeals overruled the decision of the Regional Court and remanded the case for re-examination by the latter. By judgement of 28 May 2019, the Regional Court in Warsaw dismissed Huta’s claim in its entirety and ruled that Huta reimbursed each of the defendant for the costs of the proceedings. The judgement is not legally binding. Huta appealed (dated 25 July 2019), challenging the above judgement in its entirety and requesting that it be amended by upholding the claim in its entirety and ordering the defendants to pay the costs of the proceedings in favour of Huta, or, in the alternative, that the contested judgement be set aside in its entirety and the case be referred back to the court of first instance. In response to the appeal of 9 August 2019, the Company requested that the appeal be dismissed in its entirety as manifestly unfounded and that the costs of the appeal proceedings be awarded against Huta in favour of the Company.
Based on a legal analysis of claims, as well as taking into account the said judgement, the Company believes that they are unjustified and the risk that they must be satisfied is remote. As a result, no provision has been recognized by the Company for any costs associated with those claims.
Claim against PGE EJ 1 Sp. z o.o.
On 13 March 2015, a consortium of WorleyParsons Nuclear Services JSC, WorleyParsons International Inc, WorleyParsons Group Inc (hereinafter referred to as the “WorleyParsons consortium”), which is a research contractor within the investment process related to the construction of a nuclear power plant by PGE EJ 1 Sp. z o.o. (hereinafter referred to as: “the Agreement”), reported in connection with the Agreement – in a call for payment to the PGE EJ 1 Sp. z o.o. – claims for the total amount of PLN 92,315 thousand. As a result, on 15 April 2015 the Company (as a holder of 10% of shares in the issued capital of PGE EJ 1 Sp. z o.o.) concluded an agreement with PGE EJ 1 Sp. z o.o. and its other shareholders (i.e. PGE Polska Grupa Energetyczna S.A., KGHM Polska Miedź S.A. and ENEA S.A.) that regulated mutual relations of the parties to the agreement as regards the claims, including principles of providing additional funds (if any) to PGE EJ 1 Sp. z o.o. by its shareholders.
In the company’s view, its potential additional exposure to PGE EJ 1 Sp. z o.o. arising from the agreement shall not exceed its percentage equity share in PGE EJ 1 Sp. z o.o.
In November 2015, the District Court in Warsaw served PGE EJ 1 Sp. z o.o. with the claim made by the WorleyParsons consortium for the amount approximating PLN 59 million, in 2017 and 2019 to approx. PLN 128 million. PGE EJ 1 Sp. z o.o. did not accept the claim and believed that the probability that the court would decide in favour of the plaintiffs was remote. No provision was recognised in relation to the above events.
Case filed by ENEA S.A.
Case filed by ENEA S.A. (“ENEA”) against TAURON Polska Energia S.A., which has been heard by the Regional Court in Katowice since 2016, regards the payment of PLN 17 086 thousand with statutory interest from 30 June 2015 until the payment date. The actual basis of ENEA’s claim are allegations concerning unjust enrichment of the Company in connection with possible errors in the determination of the aggregated measurement and settlement data by ENEA Operator Sp. z o.o. constituting the basis for settlements between ENEA and the Company and Polskie Sieci Elektroenergetyczne S.A. on account of imbalance on the Balancing Market in the period from January to December 2012. In the course of the proceedings at the request of ENEA additional sellers were summoned, for whom TAURON Polska Energia S.A. acted as an entity responsible for trade balancing, including the Company’s subsidiaries, i.e. TAURON Sprzedaż Sp. z o.o. and TAURON Sprzedaż GZE Sp. z o.o. The claim for payment by the above subsidiaries amounting in total to PLN 8,414 thousand, together with statutory interest, was submitted by the claimant in the event the action against TAURON Polska Energia S.A. is dismissed.
After the balance sheet date, on 22 March 2021, the Regional Court in Katowice dismissed ENEA’s claim in its entirety and ruled that ENEA reimbursed the Company the costs of the proceedings. The judgement is not legally binding.
The Company did not recognize any provision as, in the opinion of the Company, the risk of losing the case is below 50%. Provisions were recognized by the subsidiaries of TAURON Polska Energia S.A. in the total amount of PLN 5,928 thousand in case of TAURON Sprzedaż Sp. z o.o. and in the total amount of PLN 4,214 thousand in case of TAURON Sprzedaż GZE Sp. z o.o.
Administrative proceedings initiated by the President of the Energy Regulatory Office (“ERO”)
Administrative proceedings initiated by the President of the ERO are pending against companies in the Sales segment. The Companies provide clarifications in the respective cases on an ongoing basis. The companies do not create provisions for potential penalties related to initiated proceedings, since in the opinion of the Management Boards of the companies the risk of unfavourable resolution of cases and imposition of a penalty is low.
With regard to proceedings initiated against a company in the Distribution segment and a company in the Sales segment for which the ERO President has issued decisions imposing fines, the companies have established provisions for pending proceedings. The companies appealed to the SOKiK against the ERO President’s decision to impose a penalty in the cases.
Administrative proceedings initiated by the President of the Office for Competition and Consumer Protection (“UOKiK”)
Administrative and explanatory proceedings initiated by the UOKiK President are pending against companies in the Sales segment. The Companies provide clarifications in the respective cases on an ongoing basis and undertakes remedying actions. The companies do not create provisions for potential penalties related to initiated proceedings, since in the opinion of the Management Boards of the companies the risk of unfavourable resolution of cases and imposition of a penalty is low.
Use of real estate without a contract
The companies belonging to Group do not hold legal titles to all plots of land on which the distribution grids and the related equipment and installations are situated. In the future, the Group may be required to incur costs for the use of real estate without the underlying contracts; however, it must be emphasised that the risk of loss of assets is minor. The Group recognizes the provision for all court disputes filed in this respect. The provision is not established for unreported potential claims from owners of land of unregulated status due to the lack of detailed record of unregulated land and the resulting inability to reliably estimate the amount of potential claims. However, considering the history of the reported claims and the costs incurred in this respect in previous years, the risk of incurring significant costs due to such claims can be considered as remote.
As at the balance sheet date, provisions in the amount of PLN 47,090 thousand were created, recognised in the statement of financial position within other provisions (Note 43.1) and PLN 29,589 thousand recognised within liabilities relating to assets classified as held for sale (created by a subsidiary classified as a disposal group as at the balance sheet date).
Claim for reimbursement of expenses incurred to protect a facility against the effects of mining operations
In December 2017, the subsidiary, TAURON Wydobycie S.A. received a claim from Galeria Galena Sp. z o.o., with its registered office in Gliwice, for payment of the amount of PLN 22 785 thousand as reimbursement of expenses for protecting the facility located in Jaworzno against the effects of mining exploitation. In addition, on 5 April 2018, company received a claim for payment filed by Galeria Galena Sp. z o.o. against the legal successors of Kompania Węglowa S.A. together with an application for merging this case for joint consideration with the case against TAURON Wydobycie S.A. Currently, the case has been combined for joint examination against the defendants by Galeria Galena Sp. z o.o., i.e. against the State Treasury – Director of the Regional Mining Office in Katowice and legal successors of Kompania Węglowa S.A. in Katowice. The parties have been providing explanations and serving pleadings on an ongoing basis. The case is pending before District Court in Katowice (the first instance). In the course of the proceedings, an expert opinion was drawn up by a court expert, to which objections were raised. A supplementary opinion was requested in February 2020.
Due to the extension of the claim to additional defendants represented by legal successors of the former Kompania Węglowa S.A. and doubts of factual and legal nature preventing an unambiguous determination of the direction of the Court’s adjudication of the case as well as the amount of the adjudicated claim, company does not recognize a provision for the above event.
The commitment of the Funds in the subsidiary Nowe Jaworzno Grupa TAURON Sp. z o.o.
The investment agreement signed by the Company with the Closed-End Investment Funds (the “Funds”) managed by Polish Development Found provides for a number of situations the occurrence of which constitutes a material breach of the agreement on the part of the Company. The above situations, some of which are beyond the direct control of the Company, include, among others, the occurrence of events of a legal nature, events relating to the financial situation of the TAURON Group, decisions of an investment and operational nature taken by the Group with respect to the financing and construction of the 910 MW unit, as well as events relating to the future operation of the unit. Any possible material breach of the agreement on the part of the Group’s companies may lead to the potential launch of a procedure, the effect of which may be a request (activation of an option) by the Closed-End Investment Funds to repurchase from the Closed Investment Funds the shares in the subsidiary Nowe Jaworzno Grupa TAURON Sp. z o.o. held by those Funds, in the amount invested by the Funds in the shares, increased by the agreed return and a material breach bonus and reduced by the distribution of funds by Nowe Jaworzno Grupa TAURON Sp. z o.o. to the Funds.
On 27 March 2020, an annex to the investment agreement was concluded, removing from the catalogue of significant breaches of the agreement on the part of the Company the breaches referring to debt ratios combined with a simultaneous amendment to the shareholders’ agreement, consisting in granting the Funds special rights in case of exceeding the agreed levels of these ratios.
On 4 May 2020, the subsidiary company Nowe Jaworzno Grupa TAURON Sp. z o.o. and the contractor signed an agreement related to the execution of the contract for the construction of the 910 MW unit, in which the estimated date of commissioning of the 910 MW unit was postponed to 15 November 2020, which is further described in Note 54 to these consolidated financial statements. On 5 August 2020, annexes to the investment agreement were concluded between the Company, the subsidiary Nowe Jaworzno Grupa TAURON Sp. z o.o. and the Funds, as well as an annex to the contingency agreement on the sale of the Funds’ shares in Nowe Jaworzno Grupa TAURON Sp. z o.o. concluded by the Company with the Funds. By virtue of these annexes, in particular, the commissioning cut-off date set in the investment agreement has been postponed by six months. On 13 November 2020, the 910 MW unit was commissioned, which, in the context of the signed annexes to the investment agreement, means that the cut-off date for commissioning the block was not exceeded, and therefore there was no breach of the investment agreement.
As at the date of approval of these consolidated financial statements for publication, the Company does not identify on its side any risk of material breach of agreement beyond the Company’s direct control and takes the view that there is no realistic possibility, including in the future, of such breaches occurring. Accordingly, the Group, having regard to the provisions of IAS 32 Financial Instruments: Presentation, does not recognise the Funds’ involvement as a liability but as a non-controlling interest.
As at the balance sheet date, the Closed-end Investment Funds hold shares in Nowe Jaworzno Grupa TAURON Sp. z o.o. in the amount of PLN 880,000 thousand.
Claim for amendment to the agreement for the construction of the Grzegorz Shaft in TAURON Wydobycie S.A.
The general contractor for TAURON Wydobycie S.A. investment project entitled “Construction works performed by the General Contractor for Stage I of the construction of the Grzegorz Shaft along with the construction of surface infrastructure for TAURON Wydobycie S.A.” suspended the works, indicating as the reason the risk to safety caused by the disclosure of changes in hydrogeological conditions in the area of the works and applied to the company for an amendment to the underlying agreement, including changes in the scope of the amount of the remuneration. TAURON Wydobycie S.A., having analysed materials related to claims for amendments to the agreement by the contractor and having obtained an expert opinion on the correctness of execution of hydrogeological and geological and engineering documentation for the needs of the sinking of the Grzegorz Shaft, which did not confirm the thesis of the General Contractor, as well as on the basis of an expert opinion which indicated significant errors in the design of the shaft enclosure making it impossible to continue execution of the agreement with the General Contractor, requested the designer of the design documentation to remove significant defects in the technical design of the shaft enclosure of the Grzegorz Shaft. In the opinion of company, in order to execute the investment in a manner consistent with the agreement concluded with the General Contractor, it is necessary to improve the design of the shaft enclosure and remove design errors.
In response to the contractor’s request for a guarantee of payment for the construction works, TAURON Wydobycie S.A. granted the contractor a guarantee of payment in the form of a bank letter of credit valid until 18 January 2021. The bank letter of credit has not been extended.
The Group assesses that there is no basis to create provisions for the effects of the above events as at the balance sheet date. The case is not
subject to legal proceedings.
After the balance sheet date, in February 2021, company filed a request for mediation with the Court of Arbitration at the Polish Attorney General’s Office.