The Warsaw Voice | 30 maj 2006
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PKN Orlen, Poland's largest petrochemical company, has clinched a deal with Russia's Yukos to take control of Lithuania's Mazeikiu Nafta refinery. This marks the largest Polish investment abroad to date, and will lead to the mergence of the largest fuel corporation in Central and Eastern Europe.
After 10 months of intensive negotiations with the Lithuanian government and Yukos International UK BV, the acquisition of Mazeikiu Nafta (MN) has finally been agreed upon. The eventual purchase of a controlling stake in Mazeikiu Nafta comes hot on the heels of a few other important agreements between PKN, Yukos International and the Lithuanian government. The first step was a May 26 agreement with Yukos for the Orlen purchase of a 53.7-percent stake in Mazeikiu Nafta for almost $1.5 billion. At the same time, a package of agreements was signed and submitted to the Lithuanian government, including an agreement regarding the purchase of a 30.7-percent stake in Mazeikiu Nafta for $852 million. The Lithuanian government has initiated procedures to enable the signing of this last agreement on the condition that the Lithuanian parliament agrees to the transaction. Under the relevant agreements, the Lithuanian government will keep a 10-percent stake in Mazeikiu Nafta and receive a five-year option for the sale of this package in favor of PKN Orlen. At the same time, the price offered for this package will fall from $284 million to $278 million after three years. PKN Orlen executives say that to finance the transaction, the Polish fuel corporation will use both its own funds and credit. Loans will be refinanced with funds raised from bond issues on both the Polish and European markets. “This will be largest foreign investment by a Polish company ever, resulting in the emergence of the largest corporation in Central Europe in terms of the volume of oil petroleum processed and the amount of revenue”, said Igor Chalupec, president of PKN Orlen. The transaction is also a great success for Lithuania, because it finalizes a long-standing and difficult process of privatization, and the decision of the Lithuanian government makes it possible to secure a reliable, stable investor for the refinery. PKN Orlen said that immediately after signing the agreement with Yukos International, it would ask the European Commission to approve the transaction. At the same time, the corporation will try to secure formal approval for its agreement with Yukos International from the Lithuanian government. To this end, the sale agreement will be submitted to the Lithuanian government, which will be able to exercise its preemptive rights within 30 days. After all these conditions are met, the transaction will be finalized with the two partners at the same time. This should occur in the first quarter of 2007 at the latest. The next step will be an obligatory public bid announced by PKN Orlen for 5.8 percent of Mazeikiu Nafta traded on the Vilnius stock exchange.
As a result of this transaction, Orlen will become an unquestioned leader in Central and Eastern Europe, with operations covering markets from Poland, the Czech Republic and Germany to the Baltic states - Lithuania, Latvia and Estonia. Mazeikiu Nafta meets a major part of the demand for fuel in the Baltics. This will increase the number of markets where Orlen is active. The inclusion of Mazeikiu Nafta in the PKN Orlen group carries major opportunities - including the possibility of synergy in areas such as joint procurement of oil, optimized markups, costs, and commercial activity. There are also plans for the development of retail sales and petrochemical production. Chalupec says that the transaction for the acquisition of the Lithuanian refinery increases Poland’s energy security. The Orlen CEO vehemently denied that Russian companies, especially Transnieft, the monopoly managing export pipelines, might seek to block oil deliveries to Mazeikiu. “I can see no reason why Russian companies should not be selling us oil”, Chalupec said. Mazeikiu Nafta is the only Baltic refinery that conducts wide-ranging exports to Western Europe and the United States. It is a complex refinery with a maximum processing capacity of 10 million tonnes of oil per year. The company is also the owner and operator of a system of pipelines for the transmission of oil and petroleum products in Lithuania, as well as of an export-import reloading terminal on the Baltic Sea (Butinga Sea Terminal). It also has a small sales network of 27 stations that can serve as the basis for retail expansion. The investment program planned by Orlen at Mazeikiu Nafta requires outlays ranging from anywhere from $720 million to $950 million over the next five years. The program provides for around $228 million intended for investment to upgrade the quality of fuel and adapt the refinery to environmental protection regulations. Around $212 million will be spent to modernize a heavy petroleum processing installation, and $55 million will be invested in a pipeline to Klaipeda. Finally, increasing the production capacity of the existing installations to 11 million tonnes per year will cost around $45 million. If economically justified, PKN will consider building a $230-million unit for polypropylene production. The program will ensure Mazeikiu Nafta improved quality of fuel in compliance with environmental protection requirements. The refinery’s efficiency will also improve, accompanied by a major improvement in its economic performance.
Andrzej Ratajczyk
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