Regulatory environment

Introduced through the Act of 16 May 2016 on amendment of the Labour Code and certain other acts (Polish Journal of Laws of 2019, item 1043). This update introduced expanded rights for reincorporated employees, employees exposed to harassment and employees who were subject to a breach of the rules of law in terminating fixed-term contracts and employees seeking payment of remuneration for work. The update also introduced an unambiguous deadline for issuing work certificates and extended the deadline for employees to request corrections in work certificates from their employers.

The update introduced numerous changes, modifying the procedural steps taken by JSW and Group entities in common courts. The update introduced the rationalisation of the place of jurisdiction as well as: the possibility for charging statutory interest for delays in the repayment of amounts awarded for the cost of court proceedings, stricter rules regarding the return of procedural documents, the possibility of delivering documents in electronic form, the right for courts to instruct on the likely outcome of a case, the necessity to prove that it is not possible to obtain a requested piece of evidence.

From JSW's and the Group's financial and liquidity perspective, the introduction of strict basis for an alleged set-off and its deadline and form are of exceptional importance. The legislators also intended to optimise the speed at which courts proceed. A separate procedure was introduced for economic cases that is quicker and features stricter evidence preclusion while at the same time limiting cases examined in simplified procedures.

The Act on amending certain acts in order to reduce payment delays (Polish Journal of Laws of 2019, item 1649) was passed on 19 July 2019. It states that the payment deadline specified in a contract may not exceed 60 days, counting from the invoice delivery date, if the debtor is a large enterprise, and the creditor a micro-enterprise, small enterprise or mid-sized enterprise. The creditor has also received the right to terminate an agreement or serve notice if the contractual payment deadline exceeds 120 days, counting from the invoice delivery date. The act also introduced new amounts of compensation for recovery of debts. Directly selling a claim without this compensation is now prohibited.

The Act of 28 December 2018 on amendment of the act on excise duty and certain other acts entered into force at the beginning of 2019, intended to protect electricity customers against incurring higher electricity costs in 2019.

Aside from reducing the excise duty rate and temporary fee rates, the act introduced a "freeze" on prices and rates resulting from electricity tariffs and price lists for 2019 by companies trading in electricity at the level of prices and fees applied in 2018. The Act of 13 June 2019 amending the act on amendment of the act on excise duty and certain other acts, the act on energy efficiency and the act on bio-components and liquid bio-fuels upheld the right to reduced electricity prices for the entire year 2019 only to end customers in households and micro-enterprises, small enterprises, hospitals, public finance sector entities and other state organisational units which lack legal personality. Mid-sized and large enterprises (including JSW): for H1 2019 they were entitled to receive a "price difference amount" from their electricity suppliers (trading companies), and for H2 2019 they are entitled to support in the form of co-funding for electricity under de minimis aid.

It should be noted that the Group's operations are affected by the Ordinance of the Council of Ministers on the minimum amount of remuneration and minimum hourly wages in 2020 - this implementing act set the minimum remuneration at PLN 2600 and the minimum hourly wage at PLN 17.

This update was introduced through the Act of 21 February 2019 on amendment of the act on rules for managing state assets and certain other acts (Polish Journal of Laws item 492). The updated Act clarified certain provisions that had been causing interpretation concerns since entering into force on 16 December 2016. This concerned art. 17 sec. 2 point 1 of the Act, where it was clarified that agreements on legal services, marketing services, public relations and social communication services and management consulting services will require supervisory consent if the total fee envisaged for the services within this contract or other contracts executed with the same entity exceeds PLN 500 000 net per year. This is intended to avoid executing contracts that exceed this threshold by splitting remuneration into several contracts with the same entity. In art. 17 sec. 4 of the Act, concerning rules for disposing of non-current assets in a tender or auction and exemptions from the requirement to apply them, it was clarified that the PLN 20 000 threshold applies to market value (these changes are reflected in § 20 and § 29¹ of the Articles of Association).

The updated act also makes it possible to assign the competences referred to in art. 17 sec. 1 of the Act on rules for managing state assets to the company's supervisory board. Taking the above into account, appropriate changes were introduced in § 20 sec. 3 and § 26 sec. 3 of the Articles of Association with regard to the disposal of non-current assets.

Furthermore, changes concern an obligation introduced by the Act for the Management Board to prepare a report on the application of the good practices specified by the President of the Council of Ministers pursuant to art. 7 sec. 3 of the Act on rules for managing state assets as regards corporate governance, corporate social responsibility and sponsoring. The Act of 21 February 2019 on amendment of the act on rules for managing state assets and certain other acts introduced the possibility to provide to the supervisory organ instead of the General Meeting the reports referred to in art. 17 sec. 6 of the Act on rules for managing state assets. The remaining changes are purely editorial.

In force since April 2015, the Act on renewable energy sources contains a mechanism for protecting industries that need relatively large amounts of electricity against an excessive growth in the cost of support for renewable sources. The electricity consumption intensity coefficient decides whether the rebates provided in the Act are available. If the coefficient is between 3 and 20%, the customer must pay for green and blue certificates only for 80% of the energy it consumes. The Parent has a coefficient in the range of 3-20% and uses over 100 GWh per year.

The Act on amendment of the act on renewable energy sources and certain other acts was passed on 19 July 2019, specifying the minimum share of electricity from renewable energy sources in total annual volume of electricity sales for 2020: 19.50% - in reference to electricity generated from agricultural bio-gas prior to the entry into force of section 4 of the act or other renewable energy sources than agricultural bio-gas or payment of a substitute fee; 0.50% - in reference to electricity generated from agricultural bio-gas since the entry into force of section 4 of the act or the equivalent volume of electricity resulting from redeemed certificates of agricultural bio-gas origin, or payment of a substitute fee. The increase of the obligation from 18.5% to 19.5% will cause JSW's cost to purchase origin certificates to rise by approx. PLN 1.1 million.

The Capital Market Development Strategy, agreed with the European Bank for Reconstruction and Development, was adopted through Council of Ministers Resolution 114 of 1 October 2019.

The Capital Market Development Strategy, prepared on the basis of far-reaching cooperation with all stakeholders, constitutes a framework document containing an assessment of the state of the Polish capital market as well as proposed solutions for the future. Given the above, it should be noted that the Strategy's assumptions will indirectly impact JSW as a major participant of the Polish capital market due to its market capitalisation and inclusion in the WIG 20 index.

It should especially be noted that the Capital Market Development Strategy includes activities intended to combine the development policy with care for protecting investors. In this regard, it is becoming increasingly important for all companies listed on the Warsaw Stock Exchange, including JSW, as directly noted in the Capital Market Development Strategy, to make every effort to align their activities with properly formulated and transparent corporate governance rules.

According to the Capital Market Development Strategy, in the coming years from the viewpoint of WSE-listed companies sustainable financing will become a much more important aspect, understood as incorporation of environmental, social and management factors into investments, intended to increase investment in long-term actions targeting sustainable development. This will certainly have an impact on the content and scope of JSW's sustainable development policy and its activities in the area of corporate social responsibility.

In the context of JSW's activities, having regulatory and supervisory stability as one of the core rules in the Capital Market Development Strategy is certainly a positive.

In the context of these provisions of the Capital Market Development Strategy, WSE-listed companies, including JSW, may expect lower volatility of legal regulations addressed to equity issuers, which will also limit the identified legal risk.

Poland's Energy Policy 2040 (PEP2040) constitutes one of nine strategies that result from the state development management system and constitutes a response to the most important challenges facing the Polish energy industry.

PEP2040 specifies the objective of the national energy policy, i.e. energy security in parallel with the competitiveness of economy, energy efficiency and the reduction of the energy sector's impact on the environment, while optimally using own energy resources. PEP2040's global targets are as follows:

• 56-60% share of coal in electricity generation by 2030,
• 21-23% share of renewables in gross energy end-use by 2030,
• deployment of nuclear energy in 2033,
• 23% improvement in energy efficiency by 2030, as compared to forecasts from 2007,
• reduction of CO₂ emissions by 30% by 2030 (from 1990).

PEP2040 also sets out directions for the energy sector's development, taking into account tasks that are essential in the short-term.

From JSW's perspective, Direction 1 (Optimal use of own energy resources) is one of the more important ones. Demand for hard coal will be met using own resources, therefore import-export relations with be supplementary. In order to make this possible, it is necessary to ensure the sector's profitability and the rational exploitation, use and distribution of the commodity. Another element includes deploying innovations in the mining and using of coal in order to enhance the Polish coal sector's competitiveness vs imports and vs other fuels, and to reduce its adverse impact on the environment. A restructuring of post-mining areas will be taking place, mainly for industrial purposes, due to social and environmental considerations.

In connection with the assumption that demand for hard coal will be met using own resources, it can be stated that this type of direction may potentially have an impact on JSW expanding its sales markets and gaining new potential customers, which in consequence should positively affect JSW's sales volumes.

Direction 2 (Expansion of electricity generation and distribution infrastructure) is another important element, which states that Poland will be striving to meet demand for capacity using its own resources. National coal resources will remain the key element of Poland's energy security and the basis for the country's energy balance, but growth in demand will be met using sources other than conventional coal capacities. The use of coal in the energy industry will remain at a stable level, but the share of coal in energy consumption will be decreasing (to approx. 56-60% in 2030). Due to the contribution in EU-wide target for renewables in overall energy end-use, renewable sources will be playing a larger role - their share in the national structure of energy consumption might reach approx. 32%.

The National plan for energy and climate for 2021-2030 will have a systemic impact on JSW, resulting from implementing its assumptions, objectives, policies and tasks.

In the energy area, as regards the structure of energy fuels, the role of coal is expected to remain substantial, however due to a forecast increase in demand for energy, the need to reduce CO₂ emissions and the rule of rational management, taking into account commodity cost analysis, fees for CO₂ emissions and the use of new technologies, there will be a gradual decline in the percentage share of this fuel in the overall electricity generation structure to approx. 56-60% in 2030. At the same time, the diversification of energy sources will be successively increased, including nuclear power, renewables, other low- and zero-emission technologies, and their growth in the country's energy balance will be stimulated. 

In an energy security dimension, it was noted that coal will remain the main fuel in the power generation sector until 2030. In this aspect, it is necessary to ensure that coal mining and use are optimised. The issue of using gas from mine drainage falls within this scope. Hard coal will have decisive impact on the energy market for years to come. The sector should secure supplies to the energy market, heat market and coke market. At the same time, the sector should also secure supplies for small and individual customers - which implies the need to ramp up production and expand high-quality offerings and develop sales of mining by-products (methane, hydrogen, minerals).

Taking into account the planned changes as Poland heads towards a low-emission economy, it will be attempting, in cooperation with the EU, to develop financial instruments to support this energy transformation, such as the Just Transition Fund and the use of these funds by those regions in Poland that are dependent on coal and feature high employment in the coal sector. To this end, in 2020 a restructuring plan will be devised for hard coal and lignite mining areas. The "Programme for the hard coal mining sector in Poland 2016-2030," which aims to create conditions to build a profitable, effective and modern hard coal sector, based on cooperation, knowledge and innovations, and which, while operating in a friendly and predictable programme and legal environment, will make it possible to effectively use resource, social and economic capital to ensure substantial energy independence for Poland and to support the competitiveness of the national economy. This programme will involve adaptations to the dynamically changing conditions in the mining sector.