Halliburton out of Petrom race, Soroka sees Mol-Orlen decision within ten days

By Kamil Tchorek

Tadeusz Soroka, Undersecretary of State at the Treasury Ministry, has told the Business Journal that a conclusion of talks on the creation of a Central European fuel union will be announced "...before the end of this month."

The message is understood by oil industry experts to be the most positive signal yet that the dominant fuel firms of Poland and Hungary, PKN Orlen (PKNA.WA) and MOL (MOL.BU) respectively, will indeed establish a consolidation strong enough to withstand attempts by multinational and Russian oil companies to expand in Central Europe. The start date for the practicalities of unison is tipped to be early next year.

"MOL expressed its will to consolidate and doesn't see as many threats as the Polish side does," Soroka had told the press earlier. The fact that Soroka indicated that more reservations are held by the Polish negotiators than by the Hungarians is, paradoxically, a positive report on the talks. As he continued, "...that gives this a chance for success." Apparently, the Poles had expected that the Hungarians would need more persuasion.

The regional background to the talks is the ongoing $1 billion privatization process of Petrom, the Romanian state oil company that is on course to sell 51percent of its shares to a foreign investor. Two weeks ago U.S. oil behemoth Halliburton was unceremoniously barred from further negotiations with regard to the Petrom purchase, while 11 other regional fuel companies remained to continue bidding. Among the remaining contestants are MOL and Orlen, who may now attempt to close the deal in a joint bid.

A Hungarian diplomat in Warsaw, wishing to remain nameless, told the Business Journal, "...the management boards of the Central European fuel companies tend to know each other personally, and the personal contact is dependent on a shared history. Although all decisions must be made with good business models in mind, the point is that a network of friends exists here in Central Europe. By that, I mean oil chiefs from Poland, Hungary and their neighbors, who don't want to be dominated by others outside the region, from Russia or North America."

"To create a regional oil and petrochemical player," says MOL expert Daria Kulińska, speaking from Budapest, "...we have to unify the resources and strengths of our potential partners. MOL's policy is to be involved in these potential transactions where we see a clear strategic fit, and the generation of significant added value for our shareholders."

MOL was the first state fuel company in the Central European region to privatize, and today has the lowest proportion of state ownership among its regional peers, with 23 percent of common shares being held by the government. According to MOL insiders, this share can and must be reduced this year.

MOL has successfully started to realize its vision of creating a Central European oil federation, its so-called "Baltic-Adriatic corridor" initiative, by combining with Croatia's INA and Slovakian Slovnaft. Similar deals, already tabled by Austria, Poland, the Czech Republic and Romania would fulfil MOL's stated ambition.

"The growth in question should be used by the national companies, rather than their competitors from the West or East," states MOL in an official document. "However, in order to enforce that plan to our mutual satisfaction, companies need to join forces. MOL is certain that its unique privatization experience and partnerships with the oil companies in the region will enable each of the partners to preserve its national identity."

PKN Orlen was unavailable for comment for this article. Tadeusz Soroka will lead a WBJ Business Breakfast open to the public on Thursday, October 23.