CapitalExpenditure Program

To optimize capital expenditures, the original amount of PLN 20.2 billion planned for expenditures in 2016-2020 was reduced to approximately PLN 18 billion.

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The Strategy calls for the continuation of commenced and significantly advanced capital expenditure projects, including the construction of a 910 MWe supercritical power generating unit at the Jaworzno Power Plant, a 449 MWe combined cycle gas turbine unit with a 240 MWt heating unit in Stalowa Wola, investments in heating networks, expansion and modernization of the distribution grid, construction of the 800m level in the Janina Mine in Libiąż, construction of the Grzegorz shaft with accompanying (surface and underground) infrastructure and accompanying excavations in the Sobieski Mine and planned investments in the Brzeszcze Mine. In 2016-2020, the largest chunk of the Group’s investments, comprising over 50% of expenditures, was spent on development of the Distribution segment.

The figure below presents the capital expenditures assumed in the Strategy broken down by segment in 2016-2020.

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# Investment project Investment project’s work progress
1. Construction of a new 910 MWe supercritical parameters power generation unit in Jaworzno

Contractor: RAFAKO S.A. and MOSTOSTAL WARSZAWA S.A. Consortium
Planned project completion date: Q3 2020
Work progress: 97 %
Expenditures incurred: PLN 5 347.5 million

 

The 910 MW unit construction project is at the test (trial) run stage. In the first half of 2019, after the key technological process systems had been handed over, a number of trials and tests were completed, the system’s readiness to supply the media was achieved which allowed for conducting of further start-up works. The carburization system and the railway tracks system were completed to the degree enabling storing of the coal at the storage (pre-picking) yard, as well as feeding of the coal to the unit. The works completed on the process systems enabled conducting, in May 2019, of the chemical cleaning of the unit’s high pressure part. In July 2019 the boiler was fired with oil burners for the first time and the process of drying the refractory brick furnace linings, used in places particularly exposed to the ash and slag erosion. In October 2019, the process of steam purging of the boiler’s high pressure part was completed, then the process systems were restored and the turbine shaft and the generator were intercoupled. In November 2019, the performance of the adjustment run trials and tests program for the balance of plant systems was completed. In December 2019 the first feeding of steam to the turbine set was carried out and the synchronization with the National Power System (KSE) was completed. The performance of the unit’s adjustment run trials and tests program the was commenced.

The amendment to the agreement was concluded with the General Contractor on December 19, 2019, which:

  • extended the scope of works under the agreement by adding the performance of additional tasks, including, among others: conducting the optimization efforts aimed at expanding the so-called fuel field (mix, range) of the unit (admission of a broader variety of coal types) in order to make the unit’s operational conditions more flexible and guarantee the compliance with the future environmental requirements for the expanded fuel field (mix, range) of the unit,
  • assumed that the acceptance (takeover) of the unit for operation would take place by January 31, 2020,
  • introduced a definition of a transition period (until May 2020) during which the Contractor would carry out additional optimizations and tests on the operating unit in order to ensure that the unit should meet the changed and new Guaranteed Technical Parameters (Performance Tests),
  • increased the net price specified in the agreement by PLN 52.3 million to PLN 4 537.8 million.

The change to the terms and conditions of the agreement with the Consortium did not cause an overrun of the assumed total budget envisaged for the implementation of the investment project, i.e. PLN 6.158 billion.

On January 30, 2020, the General Contractor provided information on a change of the date of commissioning the unit to February 4, 2020. The indicated date was not kept, the General Contractor informed about it in the current report.

On February 13, 2020, the General Contractor provided information that during the last phase of the unit’s tests one of the boiler’s elements had been damaged.

In consequence on March 6, 2020, the Consortium provided information that it estimated that the unit should be commissioned by July 31, 2020.

As of the date of drawing up this report, the General Contractor was in the process of analyzing the causes of the failure.

2. Construction of a 449 MWe CCGT unit, including a 240 MWt heat generation unit at Stalowa Wola (Project implemented jointly with the strategic partner – Polskie Górnictwo Naftowe i Gazownictwo S.A. (PGNiG)).

Contractor: the contract with Abener Energia S.A. was terminated. The project’s completion is implemented under the EPCM formula (contract manager) – Energoprojekt Katowice – Energopomiar Gliwice consortium
Planned project completion date: Q2 2020
Work progress: 86 %
Expenditures incurred: PLN 1 260.4 million

As part of the tender proceedings aimed at selecting the contractors for the combined cycle power plant, announced by EC Stalowa Wola with the support of EPCM, the selection in all of the proceedings has been completed. All the contractors are conducting works at the construction site. The assembling of the steam piping, auxiliary installations and other steel structures has been completed. The minor construction and finishing works are also about to be completed. The unit’s chemical cleaning was successfully completed and the preparations for the steam purging have been commenced.

In 2019 the contractor responsible for the construction of the backup heat source completed the multi-disciplinary design works required to complete the investment project. The main civil construction works, required to place the boilers on the foundations, have been completed. The main civil construction works, required to place the boilers on the foundations, have been completed. The delivery of all boilers to the construction site was completed in July 2019 and the boilers were placed on the ultimate foundations. The other assembly works related to the technological process and the I&C systems are about to be completed.

Preparations are underway for the hot commissioning and the adjustment operation (run) of a Backup Heat Source.

On March 4, 2020, the first synchronization of the gas turbine with the electricity grid was carried out. The steam purging process was commenced.

The startup (commissioning) group is systematically testing and commissioning the individual systems of the combined cycle power plant that were completed by the original contractor, Abener Energia S.A. As a result of the inventory taking carried out by EPCM the assembly (installation) errors were identified as a consequence of which it was necessary to dismantle the steam piping, and then complete it again and reassemble. As a result the project’s schedule was revised and the new date for the commissioning of the unit was originally set as the first quarter of 2020, and subsequently, as a result of another verification (revision), it was shifted to the second quarter of 2020.

The total budget of the project remains unchanged and amounts to PLN 1.4 billion.

 

3. Construction of the ”Grzegorz” shaft (TAURON Wydobycie) including the infrastructure (above the ground and underground) and the accompanying longwall faces (headings).

Contractor: KOPEX Przedsiębiorstwo Budowy Szybów S.A., FAMUR Pemug sp. z o.o. (main task – Stage I), LINTER S.A. Consortium
Planned project completion date: 2023
Work progress: 47 %
Expenditures incurred: PLN 258.6 million

The drilling of the headings on the 800 m level was continued in 2019. 327/2120 meters of headings and 107/238 meters of longwall ventilation have been drilled on the 800 m level by the end of March 2020.

967 m long headings to the ”Grzegorz” shaft were drilled on the 540 m level in 2019. The works were halted due to the fault. The technology required to pass the fault including its dewatering (drainage) was prepared. A positive opinion of the State Mining Authority (Wyższy Urząd Górniczy) was obtained. The works related to passing the fault were commenced in the fourth quarter of 2019 and after it has been passed, the drilling towards the shaft will be resumed in order to merge the longwalls. The next step following the passing of the fault will be to complete the drilling towards the shaft. In the fourth quarter of 2019 and in January 2020 the deepening of the shaft in the freeze section was continued. In November 2019, the shaft foot was made at the level of -45 m together with the concrete final casing (enclosure). By March 2020, the shaft was deepened and the outer casing was completed down to the depth of -74.4 / -870 m.

4. Construction of the 800 m level at the Janina Coal Mine in Libiąż (TAURON Wydobycie).

Contractor: Mostostal Zabrze GPBP S.A. and SIEMAG TECBERG POLSKA S.A. Consortium (Construction of the ultimate above the ground and underground infrastructure including the Janina VI shaft mine shaft  elevator), KOPEX S.A. and KOPEX Przedsiębiorstwo Budowy Szybów S.A. (task completed – shaft drilling)
Planned project completion date: 2021
Work progress: 79 %
Expenditures incurred:  PLN 409.1 million

In the fourth quarter of 2019 the ultimate height of the shaft tower +62 m was reached. The tower facade was erected and a crane was installed in order to assemble the hoisting machine. The delivery of the equipment was begun, including delivery of the hoisting machine. The bridge (platform) enabling the staff to access the shaft, and connecting the new and the old infrastructure was completed. As part of the project the 20-2 mm class Coal Mechanical Processing Plant was upgraded with a new jig. Also the design and engineering of the main drainage of the 800 m level was completed. By March 2020, the motor of the hoisting machine had been installed. Installation works related to heating, ventilation, cabling, carpentry are conducted.

In 2019, the refurbishment works on the main transformer station and the main power supply sub-station were completed. The power supply sub-station has been prepared for connecting 3 power supply lines.

The drilling of the horizontal headings on the 800 m level by the coal mine in-house unit is continued. Additionally, the tender for the drilling of the horizontal headings on the 800 m level is being prepared, the announcement of which was delayed until 2020 due to the optimization of the scope thereof.

 

5. Brzeszcze CAPEX Program

Contractors: TRANS-JAN, FAMUR and KOPEX Machinery Consortium, FAMUR and KPRGiBSz Consortium, MAS and Carbospec Consortium, Elektrometal Cieszyn
Planned Program completion date: 2025
Work progress: 61%
Expenditures incurred: PLN 295.1 million

In the first three quarters of 2019 the extraction of the 510 deposit was conducted. Due to making the coal mine ventilation system independent of Spółka Restrukturyzacji Kopalń S.A. (SRK) in 2019, the works aimed at altering and improving the efficiency of the ventilation system are continued.

The construction of the primary compressor station and the water and ash mixture dumping station has been completed. In June 2019 one of the key tasks – the construction of the brine water channel – was completed. The small sales facility and the brine water channel were completed and commissioned in 2019. The powered supports for coal faces 194 and 125 have been upgraded.

As part of the program the total of 5 492 meters of headings had been drilled and altered by March 2020.

 

6. Implementing heat generation at unit no. 10 and the construction of the peaking and backup boilers in Łagisza

Contractor:

  • GE Power – steam turbine set refurbishment,
  • Mostostal Warszawa – implementing the heat generation unit including refurbishing the heat production part,
  • SBB Energy – construction of the peaking and backup boilers.

Planned project completion date: Q4 2019 / Q2 2020
Work progress: 90 %
Expenditures incurred: PLN 109.2 million

  • The steam turbine set refurbishment and the implementation of the heat generation unit including the station’s adaptation was completed. The systems were tested, commissioned and handed over for operation in the fourth quarter of 2019.

With respect to the peaking and backup boilers the final assembly works and preparation for the start-up and carrying out of the adjustment run are underway. With respect to the oil storage tanks the works related to the assembly of the end caps and outer jacket (cladding), including the erection of the oil installation, are underway. A part of the task was commissioned in the fourth quarter of 2019. The commissioning of the boiler house is planned for the first quarter of 2020.

7. Low Emission Elimination Program (PLNE – Program Likwidacji Niskiej Emisji) on the territory of the Silesia and Dąbrowa conurbation

Contractor: Contractors are being selected to carry out specific work (project) stages.
Planned project completion date: 2023
Work progress: 14 %
Expenditures incurred: PLN 15.7 million

The PLNE program is carried out on the territory of the following metropolitan areas: Będzin, Chorzów, Czeladź, Dąbrowa Górnicza, Katowice, Siemianowice Śląskie, Sosnowiec and Świętochłowice.

The PLNE Program underwent restructuring. Due to TAURON Ciepło’s failure to comply with the terms included in the representations in the Agreement on the co-financing of the original PLNE Program and a sudden steep rise of the contractors’ prices, TAURON Ciepło subsidiary terminated the funding agreements on March 22, 2019.

After a detailed analysis of the experiences from the previous Program, on June 25, 2019, TAURON Ciepło submitted a new application to the Regional Fund for Environmental Protection and Water Management (Wojewódzki Fundusz Ochrony Środowiska i Gospodarki Wodnej – WFOŚiGW) for the co-financing of the PLNE Program. WFOŚiGW issued a positive opinion of the company’s application and granted funding for a new scope of the program’s implementation in the form of 22 MWt in the Silesian-Dąbrowa conurbation area in the amount of more than PLN 32 million. The new agreement with WFOŚiGW was concluded on January 31, 2020.

8. TAURON Internet (POPC) – implementation of the project in the areas awarded (7 projects on the territory of the following areas: Rybnik, Katowice-Tychy, Oświęcim, Kraków, Wałbrzych A, Wałbrzych B, Sosnowiec)

Contractor: Atem Polska sp. z o.o. (Katowice-Tychy), MZUM sp. z o.o. (Sosnowiec), Atem Polska sp. z o.o. (Wałbrzych A), Mediamo Sp. z o.o. (Oświęcim), MX3 sp. z o.o. (Rybnik), MZUM sp. z o.o. (Wałbrzych B), ZICOM sp. z o.o. (Kraków-Tarnów)
Planned project completion date: 2021
Work progress: 5%
Expenditures incurred: PLN 15.63 million

The POPC program involves implementing an infrastructure to enable high speed internet connections for households (min 30 MB/s). The final product of the project will be the provision of the wholesale services enabling connecting of the end users by the retail operators.

In 2019 the contractors for all of the areas covered by the funding were selected. The inventory taking of the schools in all areas was completed and the update was provided to Centrum Projektów Polska Cyfrowa (Digital Poland Project Center).

Each of the contractors presented the concept of the implementation of the works and proceeded to the implementation. In the fourth quarter of 2019, each of the contractors achieved a milestone in the form of 50% of completion with respect to the passive infrastructure construction for schools and 25% of completion with respect to the construction of the network infrastructure. In the fourth quarter of 2019, a market survey was conducted for the needs of the tender for the construction of the backbone network. In January 2020, a contractor for the construction of the backbone network was selected. In 2020, all contractors began the deployment of the fiber optic network. By March 2020, the contractors began actively connecting schools and installing the fiber optic terminal cabinets.

9. Program aimed at adapting TAURON Wytwarzanie’s generating units to comply with the operational conditions in force beyond 2021

Contractor: Contractors are being selected to carry out specific projects.
Planned project completion date: 2021
Work progress: 19.1%
Expenditures incurred: PLN 42.8 million

As part of the program the refurbishment of the following power generating units, in accordance with the following scope of works, is planned:

  • Jaworzno II Power Plant, units no. 2 and 3 – the construction of the flue gas desulfurization (FGD) installation. All foundations were erected and secured. All major deliveries were contracted. The agreement with the contractor was suspended due to the derogation from the BATConclusions,
  • Jaworzno III Power Plant, units no. 1, 3, 5 – the construction of the selective catalytic reduction (SCR) installation. Project works were accepted for unit no. 3, the building permission was obtained for units No. 1 and 5, a heat exchanger and reactor were delivered, foundations were completed and the assembly of the main and auxiliary structure for unit no. 3 was completed, the construction works related the reagent feeding installation were completed. The contractor has contracted all of the major supplies and most subcontractors,
  • Łaziska Power Plant, units no. 9, 10, 11, 12 – the refurbishment of the selective catalytic reduction (SCR) installation. The installation of the catalysts (2 of 4) has been completed. The contractor has contracted all of the major supplies and most subcontractors,
  • Łaziska Power Plant, units no. 11 and 12 – the refurbishment of the flue gas desulfurization (FGD) installation. The adaptation works on the existing stack with respect to the landings have been completed. The production of the plastic flue gas piping is underway. The contractor has contracted all of the major supplies and most subcontractors.
  • Łaziska Power Plant – the refurbishment of the sewage treatment plant. The tests with respect to the selection of the chemicals were carried out in the field, optimizing the scope of work, the technical dialogue was conducted with the potential contractors, the decision was taken to carry out the refurbishment based on the optimized scope of works in 2021,
  • Siersza Power Plant – the adaptation of the existing selective catalytic reduction (SCR) installation. The repeated bidding procedure was declared null and void, a turnaround plan to meet the Capacity Market Operational Milestone was developed,
  • Łagisza Power Plant – the company withdrew from the construction of the flue gas desulfurization (FGD) installation in favor of the dry additives feeding installation. The tender procedure was carried out. The project implementation was halted due to the obtained derogations from the BAT Conclusions.
10. Program aimed at adapting TAURON Ciepło’s generating units to comply with the operational conditions in force beyond 2021

Contractor: Contractors are being selected to carry out specific projects.
Planned project completion date: 2021
Work progress: 7.5 %
Expenditures incurred: PLN 1.4 million

As part of the program the refurbishment of the following generating units, in accordance with the following scope of works, is planned:

  • Katowice Generation Plant (ZW Katowice) – the erection of the semi-dry flue gas cleaning installation,
  • Tychy Generation Plant (ZW Tychy) – the erection of the semi-dry flue gas cleaning installation.

Derogations from the BAT conclusions were obtained, as a result of which the need to implement the flue gas cleaning installation became irrelevant. The agreements with the Contractors were terminated and the BAT Program closing procedure was initiated.

Other investment projects

Nuclear power plant construction project

PGE EJ 1 was carrying out the scope of works related to conducting environmental and siting studies at Żarnowiec and Lubiatowo-Kopalino sites in 2019.

The project is carried out under the Partners’ (Shareholders’) Agreement concluded in 2014 by TAURON, ENEA S.A. (ENEA) and KGHM Polska Miedź S.A. (KGHM Polska Miedź) (Business Partners) with Polska Grupa Energetyczna S.A. (PGE). In accordance with the above agreement each of the Business Partners holds 10% of shares in PGE EJ 1 – a special purpose vehicle responsible for preparing and implementing an investment project involving the construction and operation of a nuclear power plant. The Partners’ (Shareholders’) Agreement governs the principles of cooperation in the project implementation, including the parties’ commitment to jointly, in proportion to the stakes held, finance the operations as part of a project development milestone (stage).

In November 2018 TAURON received a letter from PGE, in which PGE expressed preliminary interest in acquiring all of the shares in PGE EJ 1 owned by TAURON. In response to the letter TAURON expressed preliminary interest in selling all of its shares in PGE EJ 1. Talks and negotiations were conducted between the parties with respect to the said issue in the first quarter of 2019.

On April 17, 2019 TAURON received a letter from PGE, in which PGE informed that it had withdrawn from the process of acquiring the shares in PGE EJ 1 owned by the minority shareholders of PGE EJ 1.

In view of the above, as of the date of drawing up this report the activities that are a part of the project’s preliminary stage are continued. The successive decisions related to the project, including the decision on the declaration to further continue participation in the subsequent project stage by the individual parties (including TAURON), will be taken following the completion of the preliminary stage.

Coal gasification project

The Coal2Gas project involves looking into the area of constructing a hard coal gasification installation, jointly with Grupa Azoty S.A. (Grupa Azoty), for the needs of the chemical industry – ammonia or methanol.

The works related the formal matters required for the implementation of the project by TAURON and Grupa Azoty, were continued in the first half of 2019. The Partners’ Agreement was signed in January 2019, while the amendments changing the dates of setting up a special purpose vehicle were signed in May and August 2019.

In November 2019, by way of the decision of the President of the Office for Competition and Consumer Protection (UOKiK), the clearance for the concentration involving the creation of a joint venture by TAURON and Grupa Azoty to set up a joint venture was issued.

413 MWe CCGT unit construction project including an approx. 250 MWt, heat generation unit at TAURON Wytwarzanie Łagisza Power Plant Branch in Będzin

In September 2016, in accordance with the Strategy, as part of the priority of ensuring financial stability of TAURON Capital Group, the 413 MWe CCGT unit construction project including a heat production unit at TAURON Wytwarzanie Łagisza Power Plant Branch in Będzin was halted due to the loss of its business justification.

TAURON Capital Group is currently conducting analyses, as well as works that would enable a potential resumption of the project. Taking of the investment decision will, on one hand, be based on the assessment of the project’s profitability, and, on the other hand, on TAURON Capital Group’s financial standing. The possibility of involving an equity partner to implement the project cannot be excluded. Due to the capacity auctions planned, TAURON Capital Group assumes that the final decision regarding the resumption of the project’s implementation will be taken in 2020.

Capital expenditures

TAURON Capital Group’s capital expenditures reached PLN 4 128 million in 2019 and they were 8% higher than the expenditures incurred in 2018 that stood at approx. PLN 3 838 million (excluding equity investments). This is primarily due to the higher outlays in the Distribution, Mining Segments and Other operations.

 

The highest by value capital expenditures incurred by TAURON Capital Group’s Lines of Business in 2019.

# Item Capital expenditures (PLN m)
1. Distribution
Existing grid assets’ upgrades (refurbishments) and replacements 996
Installation of new connections 667
2. Generation
Construction of a 910 MWe super critical parameters generation unit in Jaworzno 1 020
CAPEX on replacements and upgrades (refurbishments), as well as components at TAURON Wytwarzanie 215
Implementing heat generation at the Łagisza Power Plant 104
Adaptation of TAURON Wytwarzanie generation units to BAT conclusions 42
Restoration of the SUW demineralized water preparation station 32
Connecting of new facilities 27
Investment projects related to the maintenance and development of district heating networks 25
3. Mining
Construction of the “Grzegorz” shaft, including the infrastructure and the accompanying headings 94
Brzeszcze Coal Mine’s (ZG Brzeszcze) Investment Program 70
Construction of the 800 m level at the Janina Coal Mine (ZG Janina) 81
Preparation of the future production 185
4. Wind farms acquisition – equity investment 601

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