PGE Gains as Polish, Czech Leaders Discuss Ending Coal Lawsuit

Shares in Poland’s largest utility rose on news that talks between Polish and Czech leaders were progressing, boding well for a deal to resolve a court case threatening to idle a strategic power plant.

PGE SA jumped as much as 4.7% on Tuesday after Polish Prime Minister Mateusz Morawiecki said the two countries were on the cusp of a settlement, and pared gains when Czech Premier Andrej Babis said that his country wouldn’t withdraw the lawsuit yet as talks continue.

The case poses a big risk for Poland, the European Union’s most coal-dependent country, as it threatens power supplies to 3 million households. It may also further sour relations with Brussels at a time Warsaw is desperate for more funds from the bloc to finance its green revolution.

Poland was told by the EU court last week to halt the Turow lignite mine until a final verdict is reached in a case about risks to Czech ground waters around the giant pit. Defiantly, Poland has rejected the interim order, arguing it would force the closing of PGE’s adjacent power plant, which supplies 7% of the country’s electricity.

“Given the tightening of cross-border cooperation with the Czech Republic, it seems that we are already very close to agreement,” Morawiecki said after meeting Babis on the sidelines of an EU summit.

Co-Financing

Morawiecki said that as part of the agreement, Poland would co-finance projects in the Czech Republic worth as much as 45 million euro ($55 million) to help maintain the groundwater levels affected by the Turow mine, which is located just kilometers from the border.

Babis said he was pleased talks with Poland started but stressed that the Czechs won’t withdraw their lawsuit as no deal has been finalized. A spokeswoman at the Czech Environment Ministry said that Poland has agreed in principle to its demands and that a bilateral accord would need to be signed before Prague will consider dropping the case.

“The risks of operational, financial turbulence in PGE are neutralized,” said Kamil Kliszcz, an analyst at MBank SA. If confirmed in a final deal, “a consensual solution is also positive for future negotiations on the Polish energy transition plan, as ignoring the European Court ruling would complicate these talks.”

Failure to reach the agreement would cost state-controlled PGE as much as 13.5 billion zloty ($3.7 billion), according to its website. PGE will help fund the cross-border projects. Its shares traded at 9.518 zloty, up 1.6% on the day, at 12:20 p.m. in Warsaw.

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