Purchasing platform

Execution of a contract with Pojazdy Szynowe PESA Bydgoszcz S.A. to conduct level five maintenance repairs and replace the combustion engine in 38 series ST44 diesel locomotives

Legal basis (selected in ESPI):
Article 17 Section 1 of MAR – confidential information.

The Management Board of PKP CARGO S.A. (“Company”, “PKP CARGO”) hereby reports that on 21 May 2018 it signed a contract with Pojazdy Szynowe PESA Bydgoszcz S.A. with its registered office in Bydgoszcz (“PESA”) to conduct level five maintenance repairs and replace the combustion engine with a new one in 38 ST44 diesel locomotives in the period from January 2019 to September 2020 (“Contract”).

The subject matter of the Contract entails (i) level five maintenance repairs and replacement of the combustion engine with a new one in 38 series ST44 locomotives. Material modifications will be made to the locomotives through these repairs. In particular, the obsolete, two-stroke combustion engine will be replaced with a new generation 12CzN26/26 four-stroke engine fulfilling the UICIIIA emission standards affording a guarantee of reducing the consumption of diesel fuel and engine oil. The locomotives will also be equipped with a new ergonomic driver’s cab, (ii) delivery of software and licenses required to operate the locomotive and (iii) delivery of a set of specialized tools to perform inspection and repair work on the combustion engine. As a result of repair and modernization the locomotives will have a high guaranteed reliability factor.

The contract performance schedule calls for a total of 38 repairs as follows: (i) 20 units in 2019; (ii) 18 units in 2020.

The estimated net value of the Contract is PLN 176.3 million.

The Contract is in effect from the date of its execution until the end of the quality warranty period for the last repaired locomotive.

Payment for the repaired locomotives will be made separately for each vehicle after completing the repair within 60 days from the date of receiving the invoice.

The Contract contemplates contractual penalties payable to PKP CARGO by PESA for the following reasons: (i) delays in repairing each locomotive, (ii) delays in the performance of warranty obligations and delays in the performance of obligations under the seller’s warranty, (iii) failure to maintain the reliability factor, (iv) withdrawal from the Contract for reasons attributable to PESA.

The contractual penalties for withdrawal from the Contract for reasons attributable to PESA may not in aggregate exceed 10% of the net value of the part of the subject matter of the Contract that has not been done.

If the contractual penalties do not cover all the losses, then PKP CARGO will have the right to pursue damages in excess of the contractual penalties on general terms.

Other terms and conditions of the Contract are substantially similar to those generally used in contracts of this type.

Executing this Contract is part of pursuing the Company’s strategy of unwaveringly growing its market share and building competitive advantages and it constitutes a material part of PKP CARGO’s strong and stable position. The repaired and modernized series ST44 locomotives will be used to drive trains carrying solid fuels and aggregates on unelectrified detours during a period of infrastructural investments proceeding to a great extent. The application of a modern combustion engine will make it possible to cut the consumption of fuel and engine oil materially and enhance railway vehicle availability. Another noteworthy consequence is the positive effect of locomotive modernization on the natural environment due to the replacement of obsolete combustion engines.

At the same time, the Company’s Management Board reports that on 21 May 2018 PKP CARGO signed a Letter of Intent with PESA pertaining to the construction of a dual mode electro-diesel locomotive (“Letter of Intent”). The Parties express their interest in establishing cooperation to execute joint ventures in research and development work to build a new generation of rolling stock, especially a dual mode (electro-diesel) locomotive to drive cargo trains along electrified and unelectrified lines as well as an autonomous locomotive.

The Parties also express their intention of entering into talks concerning the execution of a consortium agreement whose purpose would be to construe, build and then operate a sample prototype of a dual mode locomotive and an autonomous locomotive. Subsequently, the purpose would be to generate positive operating results and the required level of admittance for operation.

The Letter of Intent constitutes an expression of interest by PKP CARGO and PESA in undertaking cooperation while it does not instill any obligations to execute contracts, nor any other obligations of a financial or legal nature.

The signing of this Letter of Intent proves that PKP CARGO is interested in innovative projects and assigns a significant place to innovative solutions in rail transport in its plans and its strategy. Having a dual mode locomotive would help PKP CARGO become a more competitive entity on the rail freight market.

Legal basis:
Article 17 Sec. 1 of Regulation (EU) No. 596/2014 of the European Parliament and of the Council on Market Abuse.