UPDATE 2-Polish utility PGE scraps $3.6 bln coal power project

Fri Apr 5, 2013 11:04am EDT

* Project dropped because of low power prices, weak demand

* PGE shares jump as much as 3 pct (Adds ecologists' comments, more background)

By Chris Borowski and Agnieszka Barteczko

WARSAW, April 5 (Reuters) - Top Polish utility PGE scrapped plans to build coal-fired power units worth $3.6 billion at a plant near the southwestern city of Opole on Friday, citing falling electricity prices and weak demand.

Earlier this week sources close to the company said PGE's investment committee had recommended pulling out of the plans to build two 900-megawatt units at Opole.

"Changes on the energy market and the macroeconomic environment have limited the economic effectiveness of this investment for PGE," the state-controlled company said in a statement.

PGE shares surged as much as 3 percent after the announcement and were up 1.76 percent by 1503 GMT.

The investment in Opole had been keenly awaited by local construction companies that have been counting on several high profile power projects. Weak prices and tough competition for road-building deals had pushed them to the brink of insolvency.

The consortium to build Opole includes Polimex, Rafako, a unit of another troubled builder PBG , and Mostostal Warszawa, a unit of Spain's Acciona.

Shares in the builders, which dropped after the Reuters report on Wednesday, were steady on Friday.

Polimex, which had a 42 percent share of the Opole contract, has said that cancellation of the project would not destroy the terms of its debt restructuring.

The project at Opole, near Poland's border with the Czech Republic, was considered a strategic investment, because Poland needs to replace its outdated capacity with new power plants to avoid blackouts.

Grid operator PSE expects that 6.6 gigawatts of the current 37 gigawatts of installed capacity will be taken off the grid by 2020 as outdated plants close.

The project was on a government list of investments in the power sector next to Turow, Pulawy, Blachownia, Stalowa Wola, Jaworzno, Kozienice and Wloclawek, altogether valued at around 60 billion zlotys.

From that list, Enea's 1,075 megawatt coal-fired unit in Kozienice is the most advanced project.

Officials at the Treasury Ministry, which has a controlling stake in PGE, could not immediately be reached for comment.

Ecologists had earlier tried to block the project but failed.

"Future prosperity will be built on clean energy, not coal. The Polish government needs to take note and set a course for investment in clean energy and efficient modern energy infrastructure," Karla Hill, director of programmes at ClientEarth, said. (editing by Jane Baird)

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