PGNiG: Execution of an agreement with Grupa Azoty SA

Current Report No. 31/2016The Management Board of Polskie Górnictwo Naftowe i Gazownictwo S.A. (“PGNiG”, the “Seller”) announces that on April 13th 2016 a Framework Agreement for gas fuel supply and bilateral Individual Contracts were concluded with Grupa Azoty S.A. and its subsidiaries: Grupa Azoty Zakłady Azotowe Puławy S.A., Grupa Azoty Zakłady Chemiczne Police S.A., Grupa Azoty Zakłady Azotowe Kędzierzyn S.A., and Grupa Azoty Kopalnie i Zakłady Chemiczne Siarki Siarkopol S.A. (the “Customers”).
The Framework Agreement defines the procedures, the same for each Customer, for the execution and termination of Individual Contracts, placing orders and making payments, suspension and reduction of supply, renegotiation, and terms of joint settlement of supplies.
An Individual Contract is a fixed-term contract executed under the Framework Agreement in the form of a sale or master agreement, specifying the volumes, schedule, pricing formulas based on exchange indices, and detailed commercial parameters of gas fuel supplies to a given Customer.
The Framework Agreement has been concluded for an indefinite term and its provisions apply to supplies made as of April 1st 2016. The Individual Contracts have been made for various supply periods, with the longest one ending on September 30th 2019.
The estimated value of the Framework Agreement, including the Individual Contracts, is about PLN 3,3 bn, and the maximum volume of supplies throughout the Agreement term totals 4,5 bcm.
Unless otherwise provided for in the Individual Contracts, each Customer may terminate the Framework Agreement and one or more Individual Contracts at one month’s notice with effect from the end of a gas month or at six months’ notice in the case of an Individual Contract for the sale of gas at a virtual gas trading point.
The Individual Contracts provide for contractual fees and penalties for their non-performance or improper performance both by the Seller and the Customer(s), depending on current and periodic execution of supplies, including for failure to deliver or accept the minimum contracted volume of gas fuel and for termination of an Individual Contract. The maximum amount of contractual penalties should not exceed 10% of the value of the Framework Agreement and Individual Contracts, however, given the value of the Individual Contracts, it may exceed EUR 200 thousand. Payment of the contractual penalties precludes the right to seek compensation in excess of penalty amounts.
Any disputes that may arise will be resolved by the court of general jurisdiction competent for the registered office of the defendant except where a dispute concerns price renegotiation, in which case it will be resolved by the Arbitration Court selected by the parties to the Framework Agreement in line with the procedure set out therein.
The other terms of the Framework Agreement do not differ from standard terms used in agreements of such type.