Corporate governance

PGE Polska Grupa Energetyczna S.A. is a joint stock company. Pursuant to the Polish Commercial Companies Code, a joint stock company has the following corporate bodies:

• General meeting, which is where the company's shareholders (co-owners) meet.
• Supervisory board.
• Management board.

Competences of the governing bodies are specified in the company's statutes, the content of which is established by the company's general meeting.

The following diagram presents a simplified management structure and the key tasks for the management board and supervisory board:

PGE Polska Grupa Energetyczna S.A. is also the parent company of PGE Group. PGE Polska Grupa Energetyczna S.A. serves as a Corporate Centre managing the group based on information coming in from PGE Group companies. The Corporate Centre makes important decisions regarding the operations of specific business lines, as well as strategic directions for the development of both the business lines and the Group as a whole. To this end, PGE Polska Grupa Energetyczna is responsible for:

• Shaping PGE Group's strategy.
• Managing the entire margin chain, in combination with optimal use of production assets.
• Supervising and optimising PGE Group's operating and investing activities.
• Regulatory management, risk management.
• Direct ownership supervision over the Group's companies.
• Building innovation strategies and supervising their implementation.
• Building PGE's image and brand.
• Developing the Group's human resources management strategy.
• Finance and insurance management.

Companies managing business lines are responsible for:

• Focusing on carrying out operating and investing activities.
• Striving to improve the efficiency of operational processes.
• Supporting decision-making processes at the Corporate Centre.

GENERAL MEETING

Detailed competences of the general meeting of PGE Polska Grupa Energetyczna S.A. include:

• Review and approval of the report of the Management Board on the activities of the Company, financial statements and the consolidated financial statements for the past financial year.
• Granting votes of approval to Members of the Supervisory Board and Members of the Management Board.
• Decision on the allocation of profit or coverage of loss.
• Appointment and recalls Members of the Supervisory Board and determines rules of remuneration for Members of the Supervisory Board.
• Approval of the acquisition and lease of an undertaking or its organised part and placing a limited material right thereon.
• Entering into credit, loan, surety or similar agreements with a member of the Management Board, Supervisory Board, proxy, liquidator or in the name of any such persons.
• Increasing and reducing the share capital of the Company.
• Mergers, transformations and de-mergers.
• Share cancellations.
• Amendments of the statutes and changes in economic activities.
• Dissolution and liquidation of the Company.

Resolutions of the General Meeting are passed with an absolute majority of votes, subject to other provisions of the Code of Commercial Companies and the Company's statutes. One share entitles to one vote at the General Meeting.

Detailed rules for the General Meeting are specified in the Polish Commercial Companies Code and the Company's statutes. Additional issues related to General Meetings are regulated by the General Meeting Rules.

The Company's statutes and the General Meeting Rules are available at PGE's website. 

SUPERVISORY BOARD

The supervisory board of a public limited company is a control body in relation to the company's management board and exercises continuous supervision over the company's activities in all of its operating areas.

According to the statutes, PGE's Supervisory Board includes from five to nine members. Supervisory board members are selected by shareholders during a general meeting. In the case of PGE Polska Grupa Energetyczna, the largest shareholders - State Treasury - holds additional authorisation to appoint one supervisory board member through a decision delivered to the Management Board.

The Supervisory Board's competences include:

• Appointing and dismissing Management Board members.
• Evaluating the Management Board report on the Company's activities and the Company's separate financial statements for the preceding financial year as regards their compliance with accounts, documents and actual state; this also pertains to the Management Board report on the Group's activities and the Group's consolidated financial statements, if applicable.
• Evaluating Management Board motions on profit allocation or loss coverage.
• Selecting a statutory auditor to audit or review separate financial statements and consolidated financial statements.
• Approving the Company's annual and multi-year financial plans, including investment, marketing and sponsoring plans, as well as specifies their scope and deadlines for presenting them by the Management Board,   
• Approving the Company's growth strategy.
• Establishing a consolidated text of the Company's statutes.
• Setting remuneration and other terms of agreements and concludes agreements with the members of the Management Board (including the President of the Management Board), subject to competencies of the General Meeting resulting from the binding laws.
• Providing opinions on all the motions for resolutions submitted by the Management Board to the General Meeting.

Supervisory Board competences also include granting consent for the following:

• Purchase (acquisition) or disposal by the Company of selected asset items valued at EUR 5 million or more, as well as encumbering such assets with limited property rights amounting to (value of collateral) EUR 5 million or more.
• Granting sureties and guarantees by the Company on behalf of entities other than direct and indirect subsidiaries (in the meaning of the Commercial Companies Code).
• Incurring other liabilities by the Company worth EUR 100 million or more, excluding agreements or liabilities related to transactions involving trade in electricity and gas, related products and rights as well as the purchase and sale of fuels and production commodities.
• Investment undertakings related or connected to a production unit or cogeneration unit worth in excess of EUR 50 million or a distribution grid worth in excess of EUR 5 million in the meaning of the Energy Law, carried out or co-financed or secured by the Company or on the Company's assets.
• Projects related or connected to prospecting and exploring mineral deposits or extraction of deposits worth in excess of EUR 50 million in the meaning of the Geological and Mining Law, carried out or co-financed or secured by the Company or on the Company's assets.

In 2017, PGE's Supervisory Board held 16 meetings and adopted 151 resolutions.

Composition of PGE's Supervisory Board in 2017 and 2018

The Supervisory Board had the following composition until April 5, 2017:

On April 6, 2017, the Company received Mateusz Gramza's resignation as member of the Supervisory Board of PGE S.A., effective immediately.

On June 26, 2017, the State Treasury, represented by the Minister of Energy, through a written statement submitted to the Company's Management Board, dismissed Radosław Osiński from the Supervisory Board. On June 27, 2017, Radosław Osiński was appointed by the Ordinary General Meeting as Supervisory Board member.

On November 21, 2017, Radosław Osiński resigned as member of the Supervisory Board.

On December 29, 2017, the Company received Jarosław Głowacki's resignation as member of the Supervisory Board.

As at December 31, 2017, the Supervisory Board had the following composition:

On January 9, 2018, the State Treasury, represented by the Minister of Energy, through a written statement submitted to the Company's Management Board, appointed Tomasz Hapunowicz to the Supervisory Board. 

On July 9, 2018 Witold Kozłowski resigned from the position of the Supervisory Board member.

On July 19, 2018 the Ordinary General Meeting  of the Company appointed Jerzy Sawicki and Artur Bartoszewicz to the Supervisory Board.

At the date on which this report was published, PGE's Supervisory Board consisted of 8 members.

Supervisory Board diversity and experience

The following charts depict the diversity of PGE's Supervisory Board.

Independence criteria

PGE meets the rule II.Z.3 of Best Practices for WSE-Listed Companies, pursuant to which at least two Supervisory Board members should meet the independence criteria - in our case, the number of members who have declared compliance with independence criteria is five.

Supervisory Board committees

PGE's Supervisory Board has the following permanent committees: Audit Committee, Strategy and Development Committee, Nomination and Remuneration Committee, Corporate Governance Committee.

A detailed scope of competences for each of the Supervisory Board's permanent committees is presented in the Supervisory Board Regulations, available at PGE S.A.'s website.

• Audit Committee
  The Audit Committee is responsible for verifying whether internal financial controls are performed in a correct and effective manner at the Company and PGE Group as well as for cooperation with the Company's statutory auditors. The Committee held 12 meetings in 2017.
• Corporate Governance Committee
  The Corporate Governance Committee evaluates implementation of corporate governance principles at the Company and presents the Supervisory Board with initiatives in this area, provides opinions on normative acts and other documents of the Company presented to the Supervisory Board, which considerably affect the corporate governance, initiates and prepares proposals of changes in normative acts of the Supervisory Board. The Committee held 1 meeting in 2017 and 1 joint meeting with the Audit Committee.

• Strategy and Development Committee
  The Strategy and Development Committee provides opinions and recommendations to the Supervisory Board regarding planned investments that considerably affect the Company’s assets. The Committee held 2 meetings in 2017.

• Nomination and Remuneration Committee
  The Nomination and Remuneration Committee is responsible for facilitating achievement of strategic goals of the Company by presenting the Supervisory Board with opinions and motions on the development of the management structure, including remuneration system and selection of properly qualified personnel. The Committee held 4 meetings in 2017.

Committee composition in 2017

MANAGEMENT BOARD

Currently, at the date on which this report is published, the Management Board of PGE Polska Grupa Energetyczna S.A. consists of 6 people.

Henryk Baranowski
President of the Management Board

Experience: Former Director for Business Development and later Director for Energy Sector Sales and Marketing at Alstom Power Polska. Vice-President of PGE's Management Board in 2006-2008. From November 2015 to March 2016, under-secretary of state at the Ministry of State Treasury, overseeing the Key Company Department and Corporate Governance Department.

Wojciech Kowalczyk
Vice-President of the Management Board for Equity Investments

Experience: Former Secretary and Under-secretary of State in Ministries of Economy, State Treasury and Energy – by 2016 the Government Plenipotentiary for the restructuring of coal mining. In 2012-2014, under-secretary of state at the Ministry of Finance. Previously employed in the banking sector at BGK (as Vice-President), Bank Handlowy and Merrill Lynch International in London.

Marek Pastuszko
Vice-President of the Management Board for Corporate Affairs

Experience: Director of Legal Division at PGE's Organisation Department, in charge of preparing the Company for its debut on the WSE. Later, President of the Management Board at PGE Energia and legal counsel at Bird & Bird. From May 2010 Deputy Director of Legal and Organisational Department at GAZ-SYSTEM.

Paweł Śliwa
Vice-President of the Management Board for Innovations

Experience: In 2002-2016 he ran a law firm in Gorlice. Since October 2010 a councillor at the legislative assembly of Małopolskie voivodship. In 2005-2012, ran a Solicitor's Partnership in Gorlice. In 2006-2007 he served as vice-chairman of the supervisory board of Ruch S.A.

Ryszard Wasiłek
Vice-President of the Management Board for Operations

Experience: Former President of the Management Board of a district heating company Przedsiębiorstwo Energetyki Cieplnej Sp. z o.o. in Stargard. Previously acting in local government as Deputy President of Stargard, responsible for economic policy and afterwards as Chairman and CEO of KielArt.

Emil Wojtowicz
Vice-President of the Management Board for Finance

Experience: Vice-President of PGE's Management Board in 2007-2008, overseeing the finance division. Responsible for preparations ahead of PGE's stock market debut. Has experience in consulting from Deloitte and Ernst & Young.

Management Board diversity and declaration

The following diagram shows the experience of members of PGE's Management Board.

The management board of a public limited company conducts the company's affairs and represents it in all activities in and out of court. The management board is responsible for managing the company's on-going business, e.g. making economic decisions, representing the company before administrative or government authorities and signing agreements with other entities. The activities of the management board and the achievement of objectives are monitored by the supervisory board, and the company's annual ordinary general meeting adopts resolutions on votes of approval - an evaluation of the work performed by management board members in the most recent financial year. The Management Board of PGE Polska Grupa Energetyczna S.A. consists of one to seven members, including the President; other members serve as Vice-Presidents. Management Board members are appointed for a joint term, which lasts three years. The Management Board or individual members of the Management Board are appointed and recalled by the Supervisory Board.

At PGE Polska Grupa Energetyczna S.A., the Management Board's competences include all matters related to conducting the Company's affairs such as are not reserved by law or the statutes for the General Meeting or the Supervisory Board.

The modus operandi of the Management Board and internal division of competence among Management Board members as regards managing the Company’s affairs are specified in regulations of the Management Board (available at the Company's website).

Management Board resolutions are required in the following instances:

• The Company's acquisition or disposal of the following components of assets: real property, perpetual usufruct, interest in real property or perpetual usufruct, shares, interests or other participation rights.
• Incurring credits and loans.
• Granting sureties and guarantees by the Company and issuance of promissory notes.
• Making donations and releasing from debts.
• Concluding agreements not related to the Company's business activities specified in § 3 sec. 1 of the articles of association.
• Appointing commercial proxies.
• Appointing Company proxies authorised to incur liabilities with a value exceeding EUR 100 000, excluding 
  • the powers of attorney to conclude agreements or incur liabilities related to trade in electricity and gas, related products and rights related thereto, and related to the purchase and sale of fuels and raw materials,
  • powers of attorney ad litem.
• Adopting the Regulations of the Management Board.
• Approving the Company's Organisational Regulations.
• Forming other companies.
• Adopting the Company's annual and multi-year financial plans, including investment, marketing and sponsoring plans.
• Approving rules for conducting sponsorship activity.
• Adopting the Company's growth strategy.
• Determining the method of exercising the voting right at general meetings or general meetings of the companies in which the Company holds shares or interests.
• Approving the materials submitted by the Management Board to the Supervisory Board.

Irrespective of the above-mentioned matters, resolutions of the Management Board are required for any matter referred by the Management Board to the Supervisory Board or the General Meeting.

Management Board composition in 2017 and 2018

Until February 13, 2017, the Management Board had the following composition:

With the 9th term of the Management Board expiring on February 13, 2017, a resolution was adopted to dismiss from the 9th term of the Management, effective from February 13, 2017, the following:

• Henryk Baranowski, President of the Management Board.
• Marta Gajęcka, Vice-President of the Management Board for Market Development and International Relations.
• Bolesław Jankowski, Vice-President of the Management Board for Trade.
• Marek Pastuszko, Vice-President of the Management Board for Corporate Affairs.
• Paweł Śliwa, Vice-President of the Management Board for Innovations.
• Ryszard Wasiłek, Vice-President of the Management Board for Development.
• Emil Wojtowicz, Vice-President of the Management Board for Finance.

At the same time, the Supervisory Board on February 13, 2017, adopted resolutions on the appointment of the following for the 10th term of the Management Board, effective from February 14, 2017:

• Henryk Baranowski as President of the Management Board.
• Bolesław Jankowski as Vice-President of the Management Board for International Affairs.
• Wojciech Kowalczyk as Vice-President of the Management Board for Equity Investments.
• Marek Pastuszko as Vice-President of the Management Board for Corporate Affairs.
• Paweł Śliwa as Vice-President of the Management Board for Innovations.
• Ryszard Wasiłek as Vice-President of the Management Board for Operations.
• Emil Wojtowicz as Vice-President of the Management Board for Finance.

Given the above, from February 14, 2017, the Management Board had the following composition:

On June 20, 2017, Bolesław Jankowski resigned from the Management Board, effective from July 1, 2017.

The Company's Management was composed as follows on December 31, 2017:

By the date on which this report was published, the Management Board of PGE Polska Grupa Energetyczna S.A. did not change.

The following diagram presents the organisational structure and responsibility of each member of the Management Board as at the date on which this report was published.

BEST PRACTICES

As a company listed on the Warsaw Stock Exchange, we apply the corporate governance rules specified in Best Practices for WSE-Listed Companies. 

More on corporate governance rules and best practices.

Here you can find a statement on PGE's application of rules and best practices  

Aside from the rules specified in Best Practices, PGE tries to maintain the best possible communications with capital market participants by publishing materials that respond to investor needs, such as:

• PGE Big Book with complete equity story.
• Credit Fact Book with complete debt story.
• Files with seven years of the Group's quarterly data, available in the analyst section.
• Analyst tool kit with a release for investors after each earnings publication and key financial data for the period, e.g. after FY2017 results.

The Company also publishes estimated financial and operating data for each reporting period in the form of current reports - approximate dates for their publication are available in the analyst section 

In the acquisition of EDF's Polish assets, PGE transparently communicated every stage of the transaction, supplementing the legally required reports with supporting materials in the form of a presentation:
"Acquisition of district heating assets and Elektrownia Rybnik, and PGE Group's growth perspectives for the district heating and cogeneration segment" 

Respect Index

As a responsible business, we continually strive to optimally manage the Group and to apply corporate governance rules and the highest standards of conduct. The best proof of this is the fact that we were once again included in the RESPECT Index, 10th edition, an index of socially responsible companies that are listed on the Warsaw Stock Exchange. RESPECT Index includes only listed companies that operate in line with the highest management standards as regards corporate governance, information governance and relations with investors as well as ecological, social and ethical factors.

PGE has been a part of this group of responsible companies continuously since 2011.

DEVELOPMENT INVESTMENT PROCESS MANAGEMENT AT PGE GROUP

Implementing development projects in the energy industry is a complex, multi-stage process, often unique due to the specific nature of each project. It takes many years, requires the involvement of numerous specialists and substantial costs. This is why PGE places exceptionally strong emphasis on proper preparations for such processes, starting from pre-investment analysis.

Presented below is a simplified diagram for investment processes in the energy industry:

The entire investment process may be divided into three key phases. Each of them is basically a separate project with its own goals (products), implemented according to its own schedule. Scheduling risks, i.e. the possibilities and reasons for delays, are different for each phase. Successfully completing one phase is a pre-condition for moving on to the next phase.

1. Preliminary phase – pre-investment analysis
   
   The pre-investment analysis phase covers a preliminary concept for the investment project and preliminary analysis of feasibility (in formal, legal and business terms, including economic analysis and risk analysis).
   
   The pre-investment analysis phase is usually implemented by in-house specialists (sometimes assisted by external advisers). Depending on the project's complexity, this phase typically takes between 3 and 12 months. The duration of this phase is determined by, aside from substantive tasks, the complexity and length of intra-corporate decision processes.
   
   The pre-investment analysis phase's result (product) is a preliminary feasibility study, based on which the investor decides to move on to the next phase of preparations, specifying its budget and schedule.
   
   
2. Investment preparations phase
   
   The aim of the preparatory phase is compliance with all conditions that are necessary to commence construction. These activities may be broken down into several key areas:
   
   
   • Clarifying the planned investment's business and technological concept (full feasibility study).
   • Securing construction permits (preceded by a decision on environmental determinants, which in turn usually requires an environmental impact assessment report, which necessitates environmental surveys and community consultations and - in the case of locations near borders - inter-state cross-border consultations).
   • Securing other essential administrative decisions (e.g. concessions, conditions for network connections) and concluding agreements that reduce the project's business risk (fuel supply agreements, energy off-take agreements, etc.).
   • Drafting technical specifications and other documents (terms of reference) necessary to select contractors for the investment and subsequently making this selection and concluding the relevant agreements;
   • Preparing an organisational structure to provide effective assistance for the investment on the Investor's end.
   • Securing financing for the investment.
   
   The time needed to carry out the aforementioned tasks depends on the project's technology, fuel, capacity and local conditions. The preparations phase for a PV farm might take just 2 years whereas for a large coal unit - even 5 years.
   
   The preparations phase ends with a final investment decision (FID).
   
   
3. Performance phase
   
   The performance phase symbolically starts with a notice to proceed being handed to the contractor(s).
   
   PGE Group most often used the EPC (Engineering, Procurement, Construction) contract for investment performance, i.e. turn-key construction. Within the EPC contract, the contractor undertakes to design, procure supplies, construct, and put the object of the contract into service and hand it over to the investor ready for use. In PGE Group's preferred version thus far, the EPC contract specifies a lump sum payment and deadline for performance and transfers most of the risks related to implementing the investment onto the contractor.
   
   The overall duration of investment processes in the energy industry depends on scale, fuel, technology and local conditions.

PGE'S INVESTMENT COMMITTEE

As results from the description above, proper preparations of the entire investment process for a development project require corporate investment decisions to be made (at least between each of the phases). To ensure an appropriate substantive quality of these decisions, PGE Group has an Investment Committee.

The Investment Committee is an opinion body that provides decision-making support to the Management Board of PGE S.A. and the management boards of other PGE Group companies by providing opinions on asset and equity investments, assuming that the criteria for investments to qualify for examination are met.

PGE Group's Investment Committee consists of over a dozen people, both from the corporate centre, i.e. PGE Polska Grupa Energetyczna S.A., and from companies managing business lines, which directly oversee investments. The Committee's work is directed by the Vice-President of PGE's Management Board in charge of investments.

Based on analysis of documents received (Investment Application), the Committee issues a recommendation concerning investment preparation and implementation. Obtaining a recommendation from the Investment Committee is especially required in the following cases:

1. investment progressing from pre-investment analysis phase to investment preparations phase - by obtaining approval of the preliminary assumptions included in the Investment Application,
2. start of procedure to select a contractor in a public tender, by obtaining approval for the assumptions included in the Investment Application, including approval for the proposed financing sources for the investment,
3. investment progressing to performance phase,
4. significant changes in investment parameters (including especially: budget, schedule and scope), which are subject to analysis by the Committee.

The Investment Committee may recommend that an investment project be implemented, cancelled or suspended.

According to its regulations, the Investment Committee prepares recommendations not only for development projects (asset and equity) but also for significant modernisation investments and annual investment plans for the entire PGE Group.