Lotos Group looks at Petrobaltic purchase
By Karol Chlipalski
The Lotos Group (LG), previously known as Rafineria Gdańska (the Gdańsk Refinery), has expressed interest in taking over Gdańsk-based Petrobaltic, the only company that has a license to drill oil from the Baltic sea shelf between now and 2014. The Gdańsk-based company has already expressed its will to execute due diligence on Petrobaltic to the Treasury Ministry.
LG purchases all of Petrobaltic's production, which amounts to about 300,000 tons of oil per year, or less than 7 percent of the quantity processed by the plant. According to experts, Petrobaltic's is a high quality oil with little sulfur content. It is drilled from 1,450 meters below the sea floor.
"Consolidation of the two companies would be a sensible move, as the merger could result in reduced operational risk and increased investment capacity," said Paweł Olechnowicz, president of LG.
"Petrobaltic isn't a sector giant, but there are people (in Petrobaltic) who have experience and knowledge of oil excavation and drilling. Those people could be useful for (the Lotos Group) in the future," says Jacek Wróblewski, general director of the Polish Organization of Oil Industry and Trade (POPiHN).
In the opinion of many experts, the Petrobaltic takeover is an element of LG's strategy to develop its market position in order to compete with domestic oil giant PKN Orlen. LG also plans to merge with three small refineries based in the south of the country: Czechowice, Jasło and Glimar. The results of due diligence on the three refineries are to be presented to Nafta Polska at the end of June. Nafta Polska is a fuel holding that manages and advises the Treasury Ministry on the privatization of the Polish oil industry.
LG's strategy, as set up by Paweł Olechnowicz, also foresees specializing in the production of lubricants and other niche products in order to avoid direct competition with PKN Orlen, which has ambitious plans to become the largest fuel firm in central Europe and an important player in the European market.
Orlen's plans foresee a takeover of LG in an early stage of its expansion. Nafta Polska, which retains a 51-percent stake in LG and 18 percent of shares in Orlen, is supposed to decide on LG's privatization before the end of June.
Meanwhile, LG is using all means available to it to stay independent. In proving to its owners - the treasury and Nafta Polska - that it is financially self-sufficient and does not need any help from the treasury, the company has negotiated with U.S.-based Kellog, Brown and Root to finance the installation of the Integrated Gas Combustion Cycle (IGCC), which will increase the company's production efficiency.
POPiHN is strongly opposed to a takeover of LG by PKN Orlen.
"You need only compare the prices of gas in markets where there are monopolists, for example Austria and Italy, with other countries to realize what is going to happen if there is only one fuel firm in Poland," says Wróblewski.
According to unofficial sources, the creation of a strong Lotos Group is backed by Jerzy Hausner, the deputy prime minister responsible for economic issues in the Miller government.
In 2002 LG's revenues amounted to zł. 6.3 billion (€1.4 billion), while PKN Orlen's revenues were zł. 16.9 billion (€3.8 billion).
