This restructuring enhances PSE's financial position by way of the sizeable generation (primarily BOT - Poland's largest generation group) and eight regional distribution assets it has received from the government. These are to compensate for the planned spin-off of its main asset-owning business, the transmission system operator, to the government later in 2007 as part of the ownership unbundling process. In Fitch's view, this move helps to underpin the creditworthiness of PSE as a counterparty for power purchase agreements (PPAs) with the existing 12 generation companies.
The creation of PGE is positive for some highly-leveraged generators of the BOT group, including BOT Elektrownia Turow S.A. (senior secured rating of 'B', Positive Outlook), which are now part of a stronger vertically integrated group. Fitch expects that these entities will be supported by PGE or BOT if / when their PPAs with PSE are terminated early without cash compensation (in line with the government's plan).
So far, the Polish power sector has been very fragmented with separately-owned power generators and distribution companies, as opposed to some of the large vertically integrated utilities which dominate the western European markets. It remains to be seen how the recently created Polish groups will integrate their operations and whether synergies and cost cutting will be achieved. The government now seems to be adopting a more positive stance towards the privatisation of the new groups, with IPOs planned for 2008 (though most likely to be only minority stakes).
The next major step in the Polish power sector restructuring is the resolution of the PPAs issue under the government's plan. The act calling for voluntary early termination of PPAs, which is currently in the Polish parliament, may be approved in Q307. This means PPAs may be terminated as early as the beginning of 2008.
