In the pipeline

Prospects of domestic shale gas supplies and a steady stream of EU regulatory changes mean Polish lawyers should see even more work flowing in

Poland’s energy sector stepped into the spotlight late last year when Polish gas monopoly Polskie Górnictwo Naftowe i Gazownictwo (better known as PGNiG – pronounced ‘pig nig’) settled a landmark dispute over the price of natural gas against Russia’s Gazprom, an agreement that is expected to save PGNiG around $750m (£500m) a year.

gas

Since then the company has completed its first shale gas horizontal fracturing well in northern Poland, a move that should loosen the country’s dependence on Russia and take advantage of its own fuel reserves, believed to be the largest in the EU.

Potential

“The Polish authorities promised to introduce regulations covering its burgeoning shale gas sector in September 2011 and investors are showing strong interest in the country,” says Gide Loyrette Nouel Warsaw partner Robert Jedrzejczyk, referring to a proposed tax law on natural gas and crude oil production which will bring the country an estimated $73m a year.

“In July 2012 five Polish firms signed an agreement on shale gas exploration and exploitation. Media reports suggest this could lead to gas flowing from 2016.”

That doesn’t mean a dash for gas is inevitable, however. The country’s shale potential is still not clear, as was highlighted when US giant ExxonMobil pulled its exploration projects out of Poland last year.

“Shale gas development in our country remains a challenge,” continues Jedrzejczyk. “ExxonMobil pulled its shale gas explorations because of disappointing results from test wells.”

Challenges are thought to include environmental concerns regarding the process of hydraulic fracturing, or ‘fracking’, which countries such as France and Bulgaria have banned, as well as uncertainties in shale potential.

“The bottom line is that it’s premature to discuss the realistic prospects for shale gas in Poland,” argues Warsaw-based Greenberg Traurig senior partner Lejb Fogelman. “People are cautious about spending money until they get a better understanding of what’s actually there. A lot of people are sitting on the fence waiting for some good results, and if they get good reports there will be a gold rush. However, for the moment, there’s no way to tell how much shale gas there is or whether it’s exploitable. And assuming there is sufficient amounts, this will not bring work to lawyers in the short term. Now is not the time for lawyers [in this area], but for geologists.”

Nevertheless, gas is an area to watch for Poland’s legal market. In the meantime, other areas in energy tell a more certain story.

“Projects in the energy sector ‘electrify’ the legal market because of their size, transaction value and significance to the economy,” says Domanski Zakrzewski Palinka managing partner Krzysztof Zakrzewski. “Even areas that have seen a cooling off, such as renewable energy services (RES) have seen transactions related to the selling off of wind projects by foreign investors who, for various reasons, have decided to withdraw from Poland. If we add to this changes arising from the need to implement constantly developing European legislation, which has a colossal impact on the Polish energy sector, we can say this is one of the hottest areas for business lawyers in Poland.”

In line with EU policies, Poland is under pressure to find cleaner sources of energy, a tough task when more than 90 per cent of its electricity reportedly comes from coal.

“The European Commission’s July 2012 decision to allow Poland to have free carbon allowances, offers the coal sector some scope for continuity but this is just a temporary fix as the EU will push for greener sources of electricity later in our 10-year forecast period,” highlights Jedrzejczyk. “The need to change the energy mix in Poland, resulting in particular from the EU energy package, means extensive changes for the Polish economy.

“These changes will consist mainly of decisions to cease constructing large coal-based facilities and instead endeavouring to construct dispersed energy facilities based on RES. The potential problem in using RES in Poland is the absence of a legal framework supporting the construction of facilities using this type of energy. This hinders the investment process. New regulations should be adopted in the middle of this year and provide a legal regime for systems -supporting the respective energy sources.”

Looking at the field of energy for law firms, which practices are thriving and which are having a tougher time?

“The time for energy practices in Poland has definitely arrived but their development should be strategic and thoroughly thought through, as the market is big and highly competitive,” cautions one partner, adding that some international and domestic firms are finding the going tough.

Chadbourne & Parke is more active. They bought in a new partner who gave them added muscle and they play a role in shale gas. Equally, Norton Rose’s practice has been reinvigorated and is developing, -especially in conjunction with the London branch that has enabled it to handle project financing. Several small energy boutiques, meanwhile, have appeared, although they tend to focus on RES, smaller topics or day-to-day advisory work rather than projects.”

All types of firms can expect to get more work in the energy field in future. Expect significant investment in the coming months.

Key figures: Poland

GDP (2011): $514.5bn

Inflation (Dec 2012): 2.4%

Population (2011): 38.5m

Life expectancy at birth: 76

Unemployment rate (Jan 2013): 14.2%

Source: World Bank, Central Statistical Office