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Press release: 1 August 2019
The future of Poland’s ‘last coal plant’, Ostrołęka C, hangs in the balance following a court ruling.
The District Court in Poznań held that the company resolution authorising construction of the €1.2bn, 1GW coal-fired power plant, a joint venture between two Polish energy companies, Enea and Energa, was legally invalid. This should prompt a major rethink by the companies and their boards, and could spell the end for the costly project, which still lacks over PLN 3 billion in necessary financing.
The ruling represents a major step in the shareholder lawsuit, the first of its kind, brought by ClientEarth.
ClientEarth lawyer Peter Barnett said: “This is an excellent result for Enea’s shareholders and for the climate. The plant is a stranded asset in the making, facing clear and well-documented financial risks.
“Companies and their directors are legally responsible for managing climate-related risks and face potential liability if they fail to do so. Enea and Energa should lay this project to rest before it incurs any further costs to the companies and their shareholders.”
ClientEarth brought the legal case against Enea over the Ostrołęka C project in October 2018, based on evidence that it poses unjustifiable financial risk to shareholders.
Polish energy market experts had long raised questions over the plant’s economic viability and failure to secure financing. The €1 trillion global asset manager Legal & General Investment Management, which is invested in both Enea and Energa, expressed “serious concerns” about the project and has written to the two companies with four other major institutional investors.
The plant is exposed to the risks posed by the plummeting cost of renewables and rising carbon prices. Since late 2016, when the plans for the plant’s construction were resumed, EU carbon prices have soared fourfold from below €6 to nearly €30 per tonne.
At Enea’s joint venture partner Energa’s latest general meeting on 25 June 2019, shareholders further interrogated the economic viability of the project. Despite maintaining that it is viable, Energa admitted that “the scale of the investment poses a significant challenge to the closure of its financing”.
The company also confirmed concerns about delays, indicating that Ostrołęka C will face at least eight months of financial penalties for failing to deliver electricity it has committed to under the Polish capacity market – where a major share of its expected income comes from.
Head of ClientEarth Poland Marcin Stoczkiewicz said: “This is a clear signal and major opportunity for the companies, and for the industry at large. Pursuing this project puts an unnecessary burden on the state and taxpayers and is in no way necessary for national energy security.
“Enea and Energa need to look at what the future of energy is in Poland. There is vast employment potential in cheaper, domestic renewables.”
Non-profit legal organisation ClientEarth launched legal action in October 2018. The case relates to a resolution adopted at Enea’s extraordinary general meeting on 24 September 2018, consenting to the construction of Ostrołęka C. The resolution was a precondition to commencing the construction stage of the project on 28 December 2018.
ClientEarth challenged the resolution on the grounds, among others, that: (i) it was an impermissible instruction to the management board of the company and therefore legally invalid and (ii) would harm the economic interests of the company and should therefore be annulled.
The Court found in favour of ClientEarth on the first ground – i.e. the resolution consenting to the construction of the plant was legally invalid. This makes it unnecessary to proceed to determine whether it would harm the economic interests of the company based on climate-related financial risks.
The proposed plant has been the subject of fierce debate in the Polish media for years, as Polish energy market experts try to understand how the project could possibly be financially viable.
Rating agency Fitch previously warned that Enea could face ‘negative rating action’ if it proceeded with to the construction phase of the project without third-party financing.
EuroRating downgraded Enea’s joint venture partner Energa last July, citing the main reason as Energa’s signing of the construction contract for Ostrołęka C.
Investor Legal & General Investment Management raised major concerns over the project, with Head of Sustainability and Responsible Investment Meryam Omi telling Bloomberg: “This project doesn’t stack up…It’s a really worrying case for us that doesn’t make financial sense – we are very much in the dark about the future.” The article says that LGIM said further investigation was needed to check “if the companies, controlled by the government, are acting in the interests of all shareholders.” Giant Pension Fund Says Polish Coal Power Plan Doesn’t Stack Up – Bloomberg Terminal, 18 Oct 2018. Mathew Carr and Maciej Martewicz.
PGE’s former president has described the project as “completely pointless” and emphasised that ultimate responsibility for the project and any losses to the companies rests with their board members.
Read ClientEarth’s document: “Ostroleka C: The €1.2bn white elephant in the room at COP24”.
ClientEarth was represented by KARASEK & WEJMAN in the Polish court proceedings and pro bono by litigation specialist firm Boies Schiller Flexner as international counsel in the dispute.
The written judgment from Wednesday’s hearing will be released in the coming months. Enea will have the option of appealing the judgment.
ClientEarth is a charity that uses the power of the law to protect people and the planet. We are international lawyers finding practical solutions for the world’s biggest environmental challenges. We are fighting climate change, protecting oceans and wildlife, making forest governance stronger, greening energy, making business more responsible and pushing for government transparency. We believe the law is a tool for positive change. From our offices in London, Brussels, Warsaw, Berlin and Beijing, we work on laws throughout their lifetime, from the earliest stages to implementation. And when those laws are broken, we go to court to enforce them.