VILNIUS - Fears that Russian oil majors might attempt a hostile takeover of Polish-owned PKN Orlen, the largest oil refiner and fuel retailer in Central Europe and which controls Lithuania's Mazeikiu Nafta, have forced private and state officials in Poland to adopt defenive measures.
According to reports, Poland's Economy Ministry is developing a strategic plan that would shield PKN Orlen from a contingency whereby Russian interests would buy a large stake on the open market.
Wprost, a Polish weekly, wrote that PKN Orlen's share price may have been pushed up in recent months due to active buying on the open market, possibly by Russian interests. The ministry was not available for comment, the weekly wrote.
The Polish state owns 30 percent of PKN Orlen, as well as blocking rights.
PKN Orlen seems to harbor the same fears. The Puls Biznesu daily cited the CEO of Poland's second largest fuel retailer, Grupa Lotos, as saying that he was approached by PKN Orlen's boss, who floated the idea of a defensive merger.
As Pawel Olechnowicz said, "I agreed to take part in work in preparing an analysis relating to a merger" for the sake of Poland's interests.
"If the results of the model that we prepare show that uniting the companies would remove the threat of a hostile takeover of Orlen by the Russians, and this would improve Poland's energy security, I would support it," said Olechnowicz.
PKN Orlen's new CEO, Piotr Kownacki, said a merger between the two companies would generate synergies for both firms.
"Sector consolidation has in recent years become a common thing in Europe," Kownacki, citing a possible merger between Austria's OMV and Hungary's MOL as an example. "We would then be in line with the ongoing trend, and synergies would be numerous."
PKN Orlen bought a combined 84.4 percent of Mazeikiu Nafta, the Baltics' only refinery and Lithuania's largest corporation, from Yukos and the Lithuanian government for $2.3 billion last December. It has since increased the stake to 90 percent, with the government owning the remaining 10 percent.
The sale, concluded in May 2006, irked the Kremlin, which had wanted a Russian oil major, particularly state-owned Rosneft, to take over the refinery, which has a throughput capacity of 15 million tons of crude and other feedstock.
After PKN Orlen was chosen as the strategic investor, the Kremlin took umbrage and responded by cutting off crude oil supplies in July 2006. For a year now Mazeikiu Nafta has been forced to import oil via crude tankers at the Butinge terminal, which the refinery owns. Analysts say this is $2 - $2.5 per ton more expensive than pipeline crude.
In June PKN Orlen announced that it was planning to invest $1.6 billion in the Lithuanian refinery over the next six years in order to stimulate growth and create value. The bulk of the investment, according to the company, will be used to boost infrastructure 's pipelines and terminals 's and operation efficiency.
Meanwhile, Russian officials have continued to stonewall as to whether they will resume crude oil supplies to the Mazeikiai plant via the Druzhba pipeline, which supposedly suffered damage last July and had to be shut for repairs.
In an interview with Kauno Diena, Sergei Yastrzhembsky, the Kremlin's envoy to the EU, seemed to suggest there was little hope the situation would change anytime soon and that a new pipeline may have to be built.
"The pipeline has been closed due to ecological requirements," he said. "Experts have submitted over 7,000 critical remarks [concerning the pipeline's bill of health]. This is an old pipeline, which may pose problems to the environment. Experts are still trying to estimate whether it is worth getting repaired," he said.
"Repairs might be out of the question, he said. "We are still researching whether it's worth repairing it. But we're leaning towards the opinion that a new pipeline should be built instead," he told the paper.
Yastrzhembsky added that the prevailing opinion was that a new pipeline should be built.
Lithuanian Prime Minister Gediminas Kirkilas, speaking at a recent energy conference in Riga, said that despite repeated requests Lithuanian officials have not been allowed to see the damaged pipeline, which has led to suspicion that either the damage did not occur or is far less than Russian authorities are passing off.
"Mazeikiu Nafta gets crude by tankers. Naturally, this is more expensive, yet, this is a problem of a private Polish company," he noted.
Divert from Eastern Europe?
According to an industry report, Russia may cut crude oil deliveries to Central and Eastern Europe after it builds a new 1,000-kilometer pipeline from Unecha near the border with Belarus to Primorsk, the export terminal on the Gulf of Finland.
The new pipeline would curtail deliveries of Urals crude through the Druzhba pipeline to Europe, forcing Central European refiners like PKN Orlen to purchase more expensive oil from elsewhere, according to PVN Oil Associates, an industry consultancy.
"The reduction of supplies through the Druzhba line will wipe out the price advantage of lower pipeline tariffs compared to seaborne barrels," PVM director Johannes Benigni said in a statement. "Thanks to cheap crude supplies, refiners along the pipeline enjoy healthier margins than their counterparts who depend on supplies from sea."
Central European refineries will have to pay from 50 cents to $4 more per barrel for seaborne oil deliveries, PVM said, Reuters reported.