Merger against competitors

Polish state oil companies are trying to unite

Poland has decided to merge two state-controlled oil companies. Yesterday, the head of PKN Orlen, Piotr Kownacki, said that he supports the proposal of the Polish Ministry of Finance to merge his company with another oil refining state-owned enterprise in Poland - the Lotos Group company. “I’m surprised that this hasn’t happened yet,” he was quoted as saying by the Polish newspaper Puls Biznesu. “This is a good decision for both the economy and shareholders.” According to him, the combined company could gain a strong position in negotiations on the purchase of raw materials, optimize fuel distribution and simplify the process of investing in oil exploration. On the Polish oil market, such a merger is associated with the government’s desire to protect its companies from the aggression of foreign companies, primarily Russian ones.

Orlen is the largest oil producer and marketer in Poland and one of the largest in Europe. He owns seven oil refineries in Poland, the Czech Republic and Lithuania, including a controlling stake in the Czech Unipetrol, the Lithuanian oil concern Mazeikiu Nafta and a petrochemical complex in Plock. The total processing volume is 32 million tons. In addition, the concern owns 1,910 gas stations in Poland and 477 in Germany. Lotos owns the Gdansk Refinery with a capacity of 6 million tons of oil per year, which allows it to supply more than 27% of the entire Polish petroleum products market, as well as a network of more than 400 gas stations operating in Poland. In addition, last year Lotos, together with Petrobaltic, began a project to develop a small area in the Baltic Sea. Belarusian President Alexander Lukashenko called on both companies in January this year to supply oil to his country’s refineries.

PKN Orlen and Lotos are controlled by the state through the Nafta Polska concern. In the first, the state concern owns 17.32% of the shares, the government owns another 10.2% of the shares directly, and the rest is in the hands of minority shareholders. At the same time, Nafta Polska exercises operational management. In the second, Nafta Polska has 51.9%, the rest also belongs to minority shareholders. Poland has been looking for an opportunity to strengthen control over these two enterprises for quite some time. One of the options was to abolish the state concern and transfer its shares directly to the state treasury. Last year it was proposed to increase government stakes in two companies. In mid-August this year, Polish Finance Minister Wojciech Jaszczynski proposed a new idea - to merge PKN Orlen and Lotos. According to him, now “two state-owned companies are competing with each other and this is a problem.” However, when this will happen and under what conditions, Mr. Yaschinsky did not say, citing the lack of a government decision. “There are problems,” he noted briefly.

Polish companies are quite dependent on Russian oil suppliers. PKN Orlen, according to Dow Jones, annually purchases approximately 12 million tons of Russian raw materials through traders from companies such as LUKOIL or Rosneft. Therefore, according to Warsaw, they pose the greatest threat to Polish oil refiners. In 2003, LUKOIL tried to acquire Lotos, but received a rather harsh refusal from the government, which feared that the Russian company would quickly subjugate the local fuel market. Since then, LUKOIL has not laid claim to Lotos, but in the spring of this year it managed to gain almost 6% of the Polish retail market. “At the end of spring, we closed the deal to purchase the Jet gas station network from ConocoPhillips. It included, among other things, 89 gas stations in Poland, a LUKOIL representative recalled yesterday. “In addition, we own another 149 gas filling stations.” But the company is not yet planning to claim more, he added.

Having united, Orlen and Lotos will become a fairly strong player and will be able to dictate their terms both on the domestic retail market for petroleum products and on the external wholesale market for raw materials. And then, perhaps, it will become easier for them to compete in the European market, especially with Russian traders.

Anna GORSHKOVA