26. Objectives and principles of financial risk management

The main goal of financial risk management at PGE Group is to support the process of creating value for shareholders and to implement business strategies of the Group through maintaining the financial risk at the level acceptable for the Group management.

Responsibility for managing financial risk in PGE Group lies with the Management Board of PGE S.A. The Management Board specifies risk appetite, understood as an acceptable level of deterioration of PGE Group’s financial results, taking into consideration its current and planned economic and financial situation. The Management Board also decides on the allocation of risk appetite to specific business areas.

The organisation of the financial risk management function in PGE Group is based on the principle of independence of an entity responsible for measurement and control of risk in PGE Group (the Risk and Insurance Department of PGE Group) vs business entities (risk owners) responsible for taking and managing the risk on an ongoing basis. Risk reports are submitted directly to the Risk Committee, Audit Committee and the Management Board of PGE S.A.

PGE Group has a Risk Committee that exercises oversight of the financial and corporate risk management process at PGE Group. The Risk Committee monitors exposure levels at PGE Group, sets limits for significant financial risks, accepts methodologies in financial risk resulting from trade and finance activities, permits expansions of activities in new business areas and makes key decisions regarding risk management.

Financial risk is managed at Group level, in an integrated manner. This process is implemented or supervised by PGE Group’s Corporate Centre, which is a centre of competences in this area. Exposures to risk generated by business areas are examined on a comprehensive basis, taking into account interdependencies, the possibility of using natural hedging effects and the overall impact on PGE Group’s risk profile and financial situation.

The financial risk management model includes:

• collection and analysis of market data and data on exposure to particular categories of financial risk;
• calculation of financial risk measures, such as Value-at-Risk and Profit-at-Risk for specific risk factors and overall for all risk factors;
• management of the PGE Group’s consolidated exposure in relation to capital at risk and risk limits established based on it (including the identification and implementation of hedging strategies).

In key areas of financial risk, PGE Group has implemented internal regulations for managing these risks.

PGE Group is exposed to various financial risks:

• market risk (commodity risk, interest rate risk, currency risk);
• liquidity risk;
• credit risk.

PGE Group’s exposure to specific financial risks depends on the scope of activities in commodity and financial markets.