Foreign gas cos play EU card to open market
Now, at the end of their lobby tether and as they make plans to take complaints to top officials, they may just get a little help from their biggest foe.
At issue is unfair competition, gas companies said. From finding a retail site to storage space to wholesale fuel purchases, foreign gas firms said they've been locked out of the market. Those difficulties have even caused one retailer, the U.S.'s Texaco, to pull out of this market. Texaco has agreed to swap its 19 gas stations in Poland for 25 stations Dutch-British multinational Shell owns in the U.K.
In what appeared to make matters worse for independent firms, last week the state merged the nation's largest oil refinery, Petrochemia Plock, and largest retailer Centrala Produktow Naftowych (CPN). The megamerger essentially folds 30% of the retail gas business and more than two-thirds of the nation's fuel production under Polski Koncern Naftowy (PKN), the merged company's name.
But consolidation of retail and refining operations under one roof may not be the nail in the coffin for independent gas firms. The creation of PKN represents a major step in the long-awaited restructuring of the gas sector, which involves partial privatization through a 30% share sale of PKN slated later this year.
Once the state gets fair money for its assets, officials might be more likely to entertain a regulatory rather than ownership role and level the playing field among domestic and foreign players. That's the theory, at least.
"I am optimistic," said Paul Myers, country chairman at Shell Polska, about sector restructuring.
But he's also not putting all his money on that dark horse. Myers and others are looking to Poland's quest for membership in the European Union (EU) to sway officials to give private firms more favorable business conditions.
"They need to be receptive to how the oil industry works in the rest of the EU," Myers said.
In the next few weeks the Polish Organization of the Oil Industry and Trade (POPiHN), an employers' association representing 10 foreign fuel firms, plans to speak directly with treasury, finance and economy ministers.
"We'll say that we think that Europe won't think we're on a level playing field," Myers said. "But we want to work together, help each other, and take the oil industry here into the EU.
"The approach will be in that vein. We hope that they'll be very receptive," he said.
The list of complaints is long, but the main points focus on the monopolistic position of major Polish companies and a regulatory framework that raises the cost of business, impedes competition and nurtures state-owned players at the expense of the private sector.
Whether the government will decide to open the market remains to be seen, especially before the privatization of the state's new trophy gas company.
"Petrochemia Plock and CPN will create a large monopoly supplier," Myers said. "All foreign oil companies will find it difficult."
The many problems the industry is facing is why Texaco decided to pull out. Its deal with Shell still must go through due diligence and receive government approval, said Marian Sewerski, vice president at Texaco Polska.
The agreement will make Shell, with 105 service stations to its name, the largest network among international investors here, said Ania Kruszko, Shell's press spokeswoman. At the same time, where Poland was the only country in the region where Texaco was based, Shell can build on its Central European network, Sewerski said. The company also has stations in Hungary and the Czech Republic. Texaco, having pulled out of gas retailing here, intends to concentrate on the lubricants market.
Although the largest among international investors, Shell's holding is miniscule compared to PKN. The firm's court registration last week gives PKN 1,400 retail outlets, or 30% of the stations nationwide, and 70% of the nation's refinery business. The other leading operator is state-owned Rafineria Gdanska, with 3% of retail outlets and 10% of fuel production, industry members said. Foreign investors account for 8% of the total retail business, with the remainder being made up by a fragmented bunch of small independent national retailers that own a few stations each.
While PKN maintains a 70% chokehold on fuel production, it also can offer its retail network better prices for fuel, industry members said. Moreover, foreign firms complain they can't make long-term contracts with domestic suppliers, a practice common in Western Europe.
"We have no guarantee of volume at a certain price," said Jaroslaw Krynski, supply manager at Shell Polska. "We have no guarantee of product."
Furthermore, foreigners are not offered the discounts on large volumes that in-house outlets enjoy. "In normal commercial conditions, if someone picks up a bigger volume, they have a volume discount," he said.
In addition, investors object to Petrochemia Plock's hold over state-owned distribution pipelines. "They won't let anyone else use them," Krynski said. "We would like to have clear rules (as to) how everyone can use them."
Foreign gas companies have also faced difficulties in buying land and fear being barred from hooking into prestigious sites on planned roadways, companies said.
CPN and Petrochemia Plock have outflanked private firms by obtaining seats on the boards of the consortiums set to build two major motorways, one from Gdansk to the Czech border, and the other from Warsaw to Germany.
"We are not in the best position," Krynski said about Shell's chances of placing its stations on the new highways. "We are worried the selection will not be fair enough," he said.
He added that on the existing Krakow-Katowice motorway, there are only CPN and Petrochemia Plock stations.
Attempts to buy land to build necessary storage facilities – the state owns existing facilities – have fallen on deaf ears, companies said. The government rejected Preem Polska's application to buy a storage facility in Gdansk, and the Swedish firm has waited more than a year for any word on its appeal to reverse the decision, said Kinga Lozinska, the firm's vice president.
The matter is now being resolved by the Polish and Swedish governments, Lozinska said. The company had tried to buy the land from the Gdansk harbor, which had given the sale its blessing, only to be turned down by the state treasury over concern about the impact on finding a strategic investor for Rafineria Gdanska, said Texaco's Sewerski.
Tight regulations on import permits and fuel-reserve requirements also narrow the field for players and drive up business costs, companies said. In addition, they said those practices are out of line with EU norms.
"Any investment is a risk," said Myers of Shell, adding that foreign investors have pumped $1.5 billion-$2 billion into the gas sector here. "But we are taking the view that it is going to improve."
At issue is unfair competition, gas companies said. From finding a retail site to storage space to wholesale fuel purchases, foreign gas firms said they've been locked out of the market. Those difficulties have even caused one retailer, the U.S.'s Texaco, to pull out of this market. Texaco has agreed to swap its 19 gas stations in Poland for 25 stations Dutch-British multinational Shell owns in the U.K.
In what appeared to make matters worse for independent firms, last week the state merged the nation's largest oil refinery, Petrochemia Plock, and largest retailer Centrala Produktow Naftowych (CPN). The megamerger essentially folds 30% of the retail gas business and more than two-thirds of the nation's fuel production under Polski Koncern Naftowy (PKN), the merged company's name.
But consolidation of retail and refining operations under one roof may not be the nail in the coffin for independent gas firms. The creation of PKN represents a major step in the long-awaited restructuring of the gas sector, which involves partial privatization through a 30% share sale of PKN slated later this year.
Once the state gets fair money for its assets, officials might be more likely to entertain a regulatory rather than ownership role and level the playing field among domestic and foreign players. That's the theory, at least.
"I am optimistic," said Paul Myers, country chairman at Shell Polska, about sector restructuring.
But he's also not putting all his money on that dark horse. Myers and others are looking to Poland's quest for membership in the European Union (EU) to sway officials to give private firms more favorable business conditions.
"They need to be receptive to how the oil industry works in the rest of the EU," Myers said.
In the next few weeks the Polish Organization of the Oil Industry and Trade (POPiHN), an employers' association representing 10 foreign fuel firms, plans to speak directly with treasury, finance and economy ministers.
"We'll say that we think that Europe won't think we're on a level playing field," Myers said. "But we want to work together, help each other, and take the oil industry here into the EU.
"The approach will be in that vein. We hope that they'll be very receptive," he said.
The list of complaints is long, but the main points focus on the monopolistic position of major Polish companies and a regulatory framework that raises the cost of business, impedes competition and nurtures state-owned players at the expense of the private sector.
Whether the government will decide to open the market remains to be seen, especially before the privatization of the state's new trophy gas company.
"Petrochemia Plock and CPN will create a large monopoly supplier," Myers said. "All foreign oil companies will find it difficult."
The many problems the industry is facing is why Texaco decided to pull out. Its deal with Shell still must go through due diligence and receive government approval, said Marian Sewerski, vice president at Texaco Polska.
The agreement will make Shell, with 105 service stations to its name, the largest network among international investors here, said Ania Kruszko, Shell's press spokeswoman. At the same time, where Poland was the only country in the region where Texaco was based, Shell can build on its Central European network, Sewerski said. The company also has stations in Hungary and the Czech Republic. Texaco, having pulled out of gas retailing here, intends to concentrate on the lubricants market.
Although the largest among international investors, Shell's holding is miniscule compared to PKN. The firm's court registration last week gives PKN 1,400 retail outlets, or 30% of the stations nationwide, and 70% of the nation's refinery business. The other leading operator is state-owned Rafineria Gdanska, with 3% of retail outlets and 10% of fuel production, industry members said. Foreign investors account for 8% of the total retail business, with the remainder being made up by a fragmented bunch of small independent national retailers that own a few stations each.
While PKN maintains a 70% chokehold on fuel production, it also can offer its retail network better prices for fuel, industry members said. Moreover, foreign firms complain they can't make long-term contracts with domestic suppliers, a practice common in Western Europe.
"We have no guarantee of volume at a certain price," said Jaroslaw Krynski, supply manager at Shell Polska. "We have no guarantee of product."
Furthermore, foreigners are not offered the discounts on large volumes that in-house outlets enjoy. "In normal commercial conditions, if someone picks up a bigger volume, they have a volume discount," he said.
In addition, investors object to Petrochemia Plock's hold over state-owned distribution pipelines. "They won't let anyone else use them," Krynski said. "We would like to have clear rules (as to) how everyone can use them."
Foreign gas companies have also faced difficulties in buying land and fear being barred from hooking into prestigious sites on planned roadways, companies said.
CPN and Petrochemia Plock have outflanked private firms by obtaining seats on the boards of the consortiums set to build two major motorways, one from Gdansk to the Czech border, and the other from Warsaw to Germany.
"We are not in the best position," Krynski said about Shell's chances of placing its stations on the new highways. "We are worried the selection will not be fair enough," he said.
He added that on the existing Krakow-Katowice motorway, there are only CPN and Petrochemia Plock stations.
Attempts to buy land to build necessary storage facilities – the state owns existing facilities – have fallen on deaf ears, companies said. The government rejected Preem Polska's application to buy a storage facility in Gdansk, and the Swedish firm has waited more than a year for any word on its appeal to reverse the decision, said Kinga Lozinska, the firm's vice president.
The matter is now being resolved by the Polish and Swedish governments, Lozinska said. The company had tried to buy the land from the Gdansk harbor, which had given the sale its blessing, only to be turned down by the state treasury over concern about the impact on finding a strategic investor for Rafineria Gdanska, said Texaco's Sewerski.
Tight regulations on import permits and fuel-reserve requirements also narrow the field for players and drive up business costs, companies said. In addition, they said those practices are out of line with EU norms.
"Any investment is a risk," said Myers of Shell, adding that foreign investors have pumped $1.5 billion-$2 billion into the gas sector here. "But we are taking the view that it is going to improve."
