The state aid for energy-intensive industries was aimed to alleviate the effects of rapid energy increases with regard to purchasing more and more expensive EU ETS allowances. Poland was the last EU Member State to introduce compensation payments under the European Commission Guidelines of 2012. The support was planned in a way that did not fully protect the businesses’ competitiveness. Nearly half of the audited companies posted a negative financial result, e.g. in 2023, although it was also driven by other factors, independent of the compensated emission cost and the increase in energy prices. Effective implementation of programmes was also impaired by the absence of proper monitoring and evaluation of programmes by the Minister of Development and Technology (MDT) and insufficient cooperation between the Minister and the entities supporting energy-intensive entrepreneurs. As a consequence, expenditures for the implementation of support programmes in 2020–2023 were much lower than planned.
Audit no. P/24/014/KGP
The costs of greenhouse gas emission allowances (EU ETS) significantly impact electricity prices, thus representing a considerable part of electricity production costs. That influences the operation of energy-intensive businesses which produce goods and materials that require high energy expenditure. In 2020, for the first time, a system of state aid (compensation scheme) was introduced in Poland because of transferring costs of greenhouse gas emission allowances to electricity prices, which also covered payments for 2019. Similar aid mechanisms were launched on a facultative basis – already since 2013 – e.g. in Germany, Great Britain, Norway, the Netherlands, France and Belgium, although their power industry was based more on renewable and low-emission energy sources.
Poland was the last EU Member State to implement the compensation system in 2019 under the EU Guidelines on certain state aid measures in the context of the greenhouse gas emission allowance trading scheme post-2012. Additionally, due to a rapid increase in the prices of electricity and earth gas in 2022 – caused by the aggression of Russia against Ukraine – a decision was taken to launch extra aid. Besides, the Council of Ministers, acting under the Act on the principles of implementing business support programmes due to the energy market condition in 2022-2024, adopted two government programmes for 2022 and 2023.
The audit covered two support programmes in particular, i.e. the compensation system and government programmes as well as their impact on the protection of competitiveness and the companies’ economic activity in view of threats resulting from the prices of electricity and earth gas.
The compensation system provided for spending nearly PLN 6.2 billion in 2020–2023, whereas the support for energy-intensive industries assumed as part of the government programmes for 2022 and 2023 totalled over PLN 5 billion and PLN 5.5 billion, respectively.
There was one more reason why NIK took up this audit. Since 2020, significant public funds have been earmarked from the Energy-Intensive Industries Compensation Scheme, managed by the Minister of Economy. At the same time, the actual spending on the implementation of aid programmes in 2020–2023 was much lower than planned: as for the compensation scheme almost 60% of the earmarked funds were used, whereas in the programmes for 2022 and 2023 it was 46% and 45%, correspondingly.
Key audit findings
The public support in the form of aid programmes did not ensure complex protection of competitiveness of energy-intensive businesses. Reasons included, among others, the price increase resulting in limited demand for products of energy-intensive companies, influx of cheaper competition from non-EU countries, as well as irregularities and mistakes in developing, implementing and monitoring aid programmes. Moreover, the MDT failed to monitor and evaluate deliverables of the aid programmes until the first half of 2024 which made it much more difficult to evaluate their effectiveness and potentially improve their formula.
The aid programmes did not enable full protection of competitiveness of energy-intensive businesses. The MDT made sure the legal framework was developed to support energy-intensive industries and protect their competitiveness. A draft Act on the compensation scheme was prepared as well as a draft Act on the principles of implementing aid programmes, as well as the drafts of two government programmes. In developing aid programmes the Minister cooperated with the Energy Regulatory Office (ERO) and the National Fund for Environmental Protection and Water Management (or: the Fund).
The NIK audit revealed some irregularities which reduced the effectiveness of support granted as part of these programmes. For instance, the participation of energy-intensive companies was limited in the government programme for 2022. Also, the Minister’s delays in issuing executive regulations to the Act on the compensation scheme made it difficult for entrepreneurs to apply for aid. At the same time, in the draft government programme for 2022 the Minister made calculations contrary to the decision of the European Commission. Later the draft was accepted by the Council of Ministers and was the basis for granting support.
The entities supporting energy-intensive entrepreneurs properly performed their tasks in most cases. NIK found some irregularities, though, related to reviewing appeals against decisions of the ERO President and mistakes in auditing beneficiaries by the National Fund for Environmental Protection and Water Management.
The MDT, the ERO and the Fund took efforts to properly implement aid programmes. In some cases appeals against decisions of the ERO President were reviewed with delays. Also, justifications for compensation decisions were prepared in a not fully reliable manner.
In one case the Fund improperly verified an application and granted a subsidy. At the same time, as part of individual government programmes, the National Fund for Environmental Protection and Water Management did not audit beneficiaries at all or audited them in a way contrary to concluded agreements.
In most cases the beneficiaries of the aid programmes properly used the public funds they acquired. The results of audits of 15 beneficiaries show that except for one case the beneficiaries properly applied for and settled the financial aid they received and the identified irregularities did not have impact on the level of settled and received subsidies. The NIK audit revealed that the aid from the programmes had special significance for entities which reported worse financial results. However, the difficult situation of some entrepreneurs was largely impacted by factors not directly related to the compensated emission cost or the increase in energy prices.
Recommendations
To the Minister of Development and Technology to:
- prepare programmes supporting entrepreneurs with the broadest possible participation of stakeholders, also without resigning from public consultations,
- introduce the system of monitoring and evaluation of aid granted to energy-intensive businesses under the Act on the compensation scheme and the government aid programmes for energy-intensive entrepreneurs, among others in terms of results defined in the regulatory impact analysis for normative acts defining the system of support for energy-intensive industries,
- cooperate with the National Fund for Environmental Protection and Water Management in terms of auditing beneficiaries in line with the agreements signed by the Minister of Economy, the Fund and beneficiaries.
To the President of the Management Board of the National Fund for Environmental Protection and Water Management to:
- conduct audits (as the programme operator) of the government programmes adequately to the existing risks and in accordance with the concluded agreements,
- strengthen the mechanisms of verifying applications for public support in a way minimising the consequences of human errors, particularly in case of new aid programmes.
To the President of the Energy Regulatory Office to:
- provide organisational conditions to enable proceeding cases related to issuing administrative decisions on aiding entrepreneurs under the Act on the compensation scheme, in line with the principles and deadlines set out in the Code of Administrative Procedure and the Code of Civil Procedure.
To beneficiaries of the government aid programmes to:
- develop and implement procedures, in cooperation with the National Fund for Environmental Protection and Water Management, involving verification and adjustment of hardware and software used in the process of applying for aid programmes, to the requirements of IT systems.
