Risks

Poland:

Norway:

Reserves estimates and production projections may be erroneous due to imperfections inherent in the applied equipment and technology, which affect the quality of the acquired geological information. Irrespective of the methods applied, data on the volume and quality of commercial reserves of crude oil and natural gas is always an estimate. Actual production, income and expenses relating to a given deposit may significantly differ from estimates. The weight of this risk is further increased by the fact that in the full business cycle the period from start of exploration to the launch of production from a developed field takes six to eight years, while the production lasts from 10 to 40 years. Formation characteristics determined at the stage of preparing the relevant documentation are reviewed after production launch. Any downward adjustment of the reserves or production volumes may lead to lower revenue and adversely affect the PGNiG Group’s financial performance.

In the Exploration and Production segment:

Poland:

Norway:

In the Trade and Storage segment: As in previous years, competitors seek to increase gas fuel sales by offering competitive prices of the fuel or dual fuel (gas and electricity) bundles. A noteworthy development is also the growing activity of large energy companies on the Polish natural gas market.

Given the prevailing trend in supplier switch numbers (according to URE data), the number of people switching energy supplier should increase in the coming years.

Poland:

Norway:

• local governments’ failure to approve local zoning plans or amendments to those already approved;
• obstacles in having investment projects incorporated into the local zoning plans;
• requirement to obtain and comply with administrative or other formal and legal decisions, including environmental decisions or building permits;
• amendments to the current investment project;
• difficulties in obtaining the landowners’ consent for access to the area.

These factors materially delay investment activities and entering the area to commence construction work. Further, PGNiG’s obligation to comply with the Public Procurement Law frequently protracts tender procedures. A protracting project exacerbates the risk related to estimation of capital expenditure.

Poland:

Norway:

Poland:

Norway:

Poland:

Norway:

Poland:

Norway:

GK PGNIG:

The PGNiG Group’s operations are also exposed to the risk of social or political unrest in some regions. Changes of governments may result in withholding issuance of petroleum licences. Those countries are also at risk of internal conflicts and civil unrest due to poverty and demographic issues. If these risks materialise, the Company’s activities may be limited, suspended or discontinued.

In certain countries, operations of exploration companies may be hindered by the absence of adequate infrastructure, which may be an obstacle in transporting equipment, personnel and materials to the sites. Problems may also arise in providing supplies and ensuring appropriate health care. These risks may lead to limitation or suspension of the Company’s exploration activities.

Dependence of PGNiG OD’s revenue on tariffs approved by the President of URE is the key factor affecting the company’s regulated business. Tariffs are crucial to the company’s ability to generate revenue that would cover its reasonable costs and deliver a return on the capital employed. Currently, a significant portion of that revenue depends on the selling prices of gas fuel and is regulated. Inaccurate estimates of demand for gas (affecting the accuracy of projected purchase volumes) and changes in prices of gas purchased on the Polish Power Exchange, which cannot be accurately projected, may have an adverse effect on the financial performance of PGNiG OD.

Compliance risks (risks of breaching compliance standards) may arise in various areas and may materialise:

• Immediately as fines, damages, compensation or other liabilities the Company may be required to pay,
• as damage to the Company’s image, which could also have its financial implications;
• in the Company’s operations
• and as a factor affecting the value for stakeholders, including shareholders.

As part of anti-corruption measures, the Company put in place the Anti-Corruption and Gift Policy of the PGNiG Group. In addition, the Ethics and Compliance Management System of the PGNiG Group was adopted, as a result of which the ethics and compliance areas were integrated in the Compliance Department. The Transparency Policy for Managers was introduced, with the principal objective of eliminating the risk of conflicts of interest and lack of transparency in decision-making processes within the Group. The Group also follows the PGNiG Group Code of Ethics, which is based on four values: quality, reliability, responsibility and partnership. The Procedure for Reporting Cases of Misconduct and Handling the Reports at PGNiG was also adopted, setting out the rules for reporting violations of laws, procedures and ethical standards by employees, as well as the procedure for handling such reports.

• Waste handling manual,
• Process manual for bunkering,
• Fire safety instructions for CNG stations,
• Explosion Protection Documents for all CNG stations

• Identify pre-existing pollution and its locations,
• Plan decommissioning along with full restoration only where pre-existing pollution has been identified earlier in the process,
• Ensure that environmental damage sites are restored by PGNiG Group companies

• Meet the obligations of upper tier establishment operators by developing and applying SEVESO documents,
• Carry out periodic inspections and audits of buildings, equipment and systems according to manufacturers’ recommendations and regulatory requirements,
• Perform periodic operation and effectiveness checks of security and alarm systems,
• Control access to site, train visitors,
• Providing periodic training on relevant procedures to employees,
• Supervise the selection of work contractors,
• Comply with OHS and fire safety regulations and cooperate with competent authorities (State Fire Service, Provincial Inspectorate for Environmental Protection).

• Construction of pipeline according to Office of Technical Inspection and District Mining Office requirements,
• Ensure proper selection of materials,
• Carry out pressure testing and scan all welds before placement in service,
• Ensure continuous process control,
• Use a range of protective systems (grounding, gas detection, light and sound signalling, leak detection),
• Carry out regular inspection and maintenance of security and alarm systems,
• Select and provide training to operation staff,
• Accident handling manuals.

• Monitor electricity consumption, upgrade or replace captive heat sources.
• Energy efficiency improvement – PPEE

• Prepare annual reports for environmental use locations to be submitted to the national database on emissions of greenhouse gases and other substances (KOBIZE) by technology: plants, sources, emitters. Regular KOBIZE reporting makes it possible to compare and verify emission volumes of greenhouse gases and other substances into the air.
• Implement appropriate procedures, such as the ECO DRIVING procedure for business car users at PGNiG OD

• Choose locations outside of seismic hazard zones and floodplains,
• Fabricate infrastructure according to Office of Technical Inspection and District Mining Office requirements, using appropriate technology and materials, and ensure proper infrastructure monitoring – periodic inspections of all technical systems.

• Internal rules governing contacts with the media and use of social media by employees,
• Building lasting media relations,
• Ongoing monitoring and contact with key journalists,
• Quick analysis and response to negative publicity,
• Ongoing social media monitoring,
• Internal regulations on crisis communication,
• Good practices with respect to field business operations, including dialogue with stakeholders concerning new projects.

• Use of new technology solutions. Development projects,
• Fair analysis of the location of planned work, cooperation between organisational units responsible for the design of exploration work (land surveyors, geologists, drillers) and identification of its environmental impact (environmental protection units), cooperation with local authorities,
• Education and information initiatives intended to provide project updates.

• Fostering cooperation through sponsorship, image-building and CSR projects and events,
• Cooperation with local authorities,
• Education and information initiatives intended to provide project updates,
• Interviews with local communities, open/one-on-one meetings, negotiations and mediation.

• Inviting visitors or allowing tours around gas extraction facilities, gas storage facilities, etc.
• Information meetings with local authorities and local communities.

• Operations of the Sponsorship Committee,
• Activities coordinated with the Foundation.
• Channels in social media allowing quick and interesting communication.

• Appointment of the COVID-19 Prevention and Response Team; one of the Team’s objectives was to maintain business continuity of the Company and the Group in the context of ensuring Poland’s energy security and supporting efficient communication, employee safety and customer service during the pandemic,
• Development of remote comprehensive customer service – at times, contact only via the telephone and Internet,
• Ongoing monitoring of the epidemiological situation.

The halted economic growth, increased unemployment, as well as high COVID-19 incidence and morbidity rates during the pandemic period are generating substantial concerns not only about jobs, but also about personal safety

• Appointment of the COVID-19 Prevention and Response Team; one of the Team’s objectives is to maintain business continuity of the Company and the Group in the context of ensuring Poland’s energy security and supporting efficient communication and employee safety during the pandemic.
• Employees worked in split teams. Where presence on site was not absolutely necessary for the sake of business continuity, employees were requested to work remotely. Employees who had to work from the office were provided with the safest possible working environment, social distancing measures were applied between employees, personal protective equipment was available everywhere on site, and air purifiers were used.
• Online communication was enhanced and face-to-face training was replaced with online courses. The internal communication system was improved.

Due to the specific nature of the PGNiG Group, a wide range of competencies are unique to its industry. These competencies are hard to find, so if employees leave or their competencies are not improved, they will be difficult to restore or acquire from the market.

• Continuous improvement of competencies through various forms of training (mainly online training in 2020),
• Implementation of a leadership and management training programme,
• A key roles identification system was implemented and key competencies were described at PGNiG with a view to identifying them and providing informed development opportunities.

• Implementation and operation of incentive and loyalty schemes, pay and fringe benefits,
• List of key roles, a competency model prepared to track and develop universal, management and technical competencies,
• Provision of replacements for key roles.

• Identification of challenges, referral programme.
• This risk is mitigated through:
  • the Company’s recognition on the local market
  • a broad range of non-pay (fringe) benefits
  • the Company’s participation in job fairs,
  • recruiting candidates using alternative channels, including: Career Office, OLX website, pracuj.pl
  • the internally implemented employee recruitment procedure defining the rules and stages of recruitment process.
• Monitoring pay rates offered on the market.
• Offering staff incentives, also to improve their skills, and guidance developed on employee upskilling.
• Policy on updating job descriptions and job evaluation.

• Regular meetings with social partners. (In 2020, more meetings were held online due to the pandemic).
• Providing periodic information on the condition and plans of a given company,
• Preparation of reliable documents, submitted for approval to trade unions, which enables efficient content review.

• Planning employee recruitment, using incentives to encourage employees to announce planned retirement in advance. Programmes supporting effective talent pipeline development, such as:
  • Hooked on Science (technicians),
  • Termika for Power Engineers (engineers),
  • Mentoring Academy – an innovative development programme for employees of the Production Branches and the Odolanów Branch of PGNiG.
• Provisions of Collective Bargaining Agreements governing the retirement programme, knowledge-sharing incentives etc.

• Requesting competent authorities and institutions to issue opinions and interpretations,
• Internal legal opinion obtained from the legal and compliance units,
• Following uniform rules of conduct across the organisation and communicating them during training sessions for employees and managers, to trade unions, at periodic meetings, and making appropriate changes in internal regulations.

• Appointment of the COVID-19 Prevention and Response Team; one of the Team’s objectives is to maintain business continuity of the Company and the Group in the context of ensuring Poland’s energy security,
• Observing sanitary rules at work and maintaining safe working conditions,
• Implementing more remote work options.

• The Occupational Risk Assessment Team periodically reviews occupational risks using the Risk Score method (a quantitative approach),
• The Hazard Identification and Occupational Risk Assessment Procedure, with the Risk Score Occupational Risk Assessment Manual and the Occupational Risk Scorecard Review and Archiving Manual as its integral part,
• Executive order appointing the Occupational Risk Assessment Team

• Implementation of the IMS and HSE system, including an observation and incentive programme for employees,
• Regular OHS training,
• Identification of near misses,
• Ongoing supervision during the performance of high-risk work,
• Choice of adequate safeguards against hazards,
• Taking active and proactive measures to improve working conditions.

• Regular OHS training for employees
• Implementing and updating procedures and regulations to ensure that adequate working conditions are maintained – implementing the QHSE system,
• Internal audits (including cross-audits), inspections and checks,
• Ongoing supervision during the performance of high-risk work,
• Identification of near misses,
• Awareness-building through training, campaigns, drills, HSE meetings,
• Dialogue with employees,
• Investing in human resources and equipment,
• Continuous improvement of the Integrated Management System,
• Developing OHS staff competencies – training courses, industry meetings, also at the PGNiG Group,
• Activity of the OHS Committee,
• Up-to-date inspections and oversights.

• Developing an OHS hazard reporting system including allocation of responsibilities and supervision of the hazard identification process in occupational risk assessment,
• Fire alarm drills,
• Additional rescue training for staff.

• Compliance with the principles set out in the PGNiG Group Anti-Corruption and Gift Policy, the PGNiG Group Code of Ethics, the PGNiG Group Ethics and Compliance Management System and the Transparency Policy for Managers. In particular, these documents support and regulate the management of the above risks.
• Information and education activities addressed to employees to improve their understanding of pertinent regulations and values and to raise their awareness of potential consequences of violations, including ethics and anti-corruption training.

• Legal regulations adopted by the Group, i.e. the PGNiG Group Anti-Corruption and Gift Policy, the PGNiG Group Code of Ethics, the PGNiG Group Ethics and Compliance Management System.
• Making employees aware of the applicable regulations, availability of documents, obligation to know the regulations in place and staff training.

• fraud (misrepresentation concerning the provision of a service),
• theft of property,
• obtaining and unlawful use of any information constituting trade secrets, commercially sensitive information, personal data or classified information,
• tampering with reported data in order to avoid disciplinary measures or to obtain a bonus,
• conflict of interest,
• bid rigging,
• cybercrime,
• disclosure of contact details of prospective PGNiG Group customers,
• misappropriation of the PGNiG Group’s assets.

• Compliance with the provisions of:
  • Code of Ethics,
  • Rules of personal data protection,
  • Rules of preventing fraud and anti-corruption guidance,
  • Compliance Programme,
  • Instruction on the protection of trade secrets,
  • Instruction on contract awards and expenditures,
  • Investment project execution procedure,
  • Rules for calculation of contractual penalties,
  • Contract and agreement templates.
• eB2B procurement platform,
• Institutional control,
• Functional control.

• report any gifts accepted or offered,
• report any instances of corruption identified,
• submit declarations on the absence of any instances of corruption

• Preparation of newsletters to support internal communication,
• Provision of training to improve awareness and knowledge,
• Appropriate internal regulation.

• Emergency Procedure,
• Trade Secret Procedure.

• Compliance with the provisions of the Code of Ethics on the prevention of workplace harassment, which apply to all employees and define preventive measures and rules of handling harassment reports.
• In addition, all newly hired employees must read and sign the Notice on legal provisions governing equal treatment in the workplace (Article 941 of the Labour Code) and familiarise themselves with the company’s Work Rules.
• Training and education in this area, especially for managers.