10 December 2003 07:29
Polish Fuel Sector: Game Not Over
Polish petroleum refineries were not short on funds this year. What they wanted most was peace. In May, a huge fire
burst out in the Gdansk refinery of the Lotos Group. It took several hours before the fire was put out, and three poeple
died. PKN Orlen ? the Polish petroleum giant ? went through a series of shocks, including a lost tender for the purchase
of Rafineria Gdanska, and scandals tied to the current directors of the company. The fire in Gdansk is all but forgotten
? but Plock will feel the outcomes of unclear deals, ties and decisions for a long time to come. Even without fires or
scandals, the Polish petroleum market will not see peace for a long time. The game has begun for domination of the
market over the coming decades.
Poland is of strategic importance for the whole of Europe ? refineries, pipelines and harbours lie on the fuel
transit route from East to West. That explains the interest in Polish refineries by Russian fuel holdings ? they want to
process more of the crude oil they extract, to sell it to the West. Russian plans may go awry because of the Americans ?
they might start sending petroleum from Caspian deposits via the Odessa-Brody pipeline. Recently Russian fuel companies
have had a bout of bad luck, spurned by politicians from the Kremlin. When the head of Jukos, the largest petroleum
holding, was arrested, this immediately made foreign investors doubt the stability of the market. ExxonMobil put all
discussions on investing in Siberian petroleum fields on hold. Russian fuel companies are suffering from growing
distrust. Poland also does not offer political acceptance for the presence of Russians in its petroleum market.
Especially as they do not have to be the only providers of oil for Poland. Currently over 95 percent of crude oil is
imported from Russia. The situation may change, as the purchase of petroleum from the Caspian Sea is becoming
increasingly likely. At the end of November, an agreement was signed between Poland and Ukraine on extending the
Odessa-Brody pipeline to Plock. If that project falls through, the share of Russian petroleum would drop significantly.
Russia does not want to give up so easily, and still wants to buy Polish refineries. Orlen tries to defend itself by
increasing its value with mergers and acquisitions. It participates in privatisation projects in the Czech Republic and
Romania, and plans to merge with Hungary's MOL. The concept is supported by the government, which wants to sell
Orlen's shares in order to prop up the state budget. A merger of Orlen and MOL would create the largest petroleum
holding in Central Europe, and its market value would exceed EUR5bn. Such a merger has its bad aspects, too. After the
transaction, the share of the government in Orlen would be reduced dramatically ? from the current 28 to about 10
percent. The management board of the giant would gain more independence. For this reason, some fuel sector experts think
that there should be no rush for the merger with the Hungarians.
PKN Orlen can afford to make costly investments ? its net profit is twice as high as in the previous year. The market
was exceptionally good, and prices of petroleum keep rising. Under such circumstances, it would be difficult not to make
profits. However, the huge profits of Orlen are not coupled with its stock price. The atmosphere of scandal, surrounding
the company recently, does not help. Two large audit companies are checking issues tied to the purchase of petrol
stations and the rebranding process. The Securities and Exchange Commission asked a prosecutor to investigate whether
Orlen manipulated its share price. False information about the sale of Rafineria Gdanska to a Russian firm caused the
price of Orlen's shares to drop by more than 2 percent. The rumour was allegedly spread by Orlen, in order to
convince the government to sell it Rafineria Gdanska. That transaction would have given the Plock-based firm a monopoly
in the fuel market. PKN orlen lost its battle, but the war is still on. Pawel Olechnowicz, president of the Lotos Group,
says it is not over yet ? a takeover of the company he leads remains the primary goal of Orlen.
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