PKN Orlen charges shock market

The Treasury Ministry's battle for control of Polski Koncern Naftowy Orlen (PKN Orlen) stirred images of heavy-handed government Friday, as the firm's chief executive officer Andrzej Modrzejewski was dismissed hours after being charged in what analysts called a politically motivated criminal investigation. The affair dealt another blow to Poland's already battered image among investors and likely spells more delays for the privatization of the nation's flagship oil group, analysts said. "It seems the treasury would do anything to get control of PKN Orlen," said Michał Mierzwa, fuel sector analyst at Erste Securities Polska. "What can happen next? There's no equality among shareholders when one group has access to the police and courts." Six of PKN Orlen's nine shareholders voted for Modrzejewski's firing late Friday morning. The group then installed Zbigniew Wróbel, an executive with Pepsi Co., as head of PKN Orlen. Wróbel has clear ties to the ruling Democratic Left Alliance (SLD) government, analysts said. Beata Jarosz, spokeswoman for the Treasury Ministry, said Thursday that changes to company's management were under consideration, though offered no details. "It seems to be a strange coincidence that the date of this incident (an investigation of Modrzejewski) is so close to the supervisory board meeting," read a statement issued by PKN Orlen after Friday's whirlwind of events. Modrzejewski was detained Thursday evening in Warsaw by officers from the State Protection Office (UOP) and questioned for two to three hours on business activities dating back four years - before he joined PKN Orlen. The next morning, Warsaw's prosecutor's office formally accused him of insider trading. When contacted by the Business Journal, a spokeswoman with the prosecutor's office refused to discuss details of the case. Modrzewski rejected the charges as a "provocation," telling local media, "I thought I lived in a free country." The Treasury Ministry, meanwhile, rejected accusations it was bullying the oil company. Along with shares held by Nafta Polska, the state agency handling energy sector privatizations, the Treasury Ministry controls 28% of PKN Orlen. "It's purely coincidental," Jarosz said. "Not only does (Treasury Minister Wiesław Kaczmarek) not have control over the UOP, but he doesn't know what Modrzejewski is charged with." Kaczmarek, who survived a no-confidence vote in Parliament last month following accusations of installing political allies in management positions at several state-run companies, had openly called for Modrzejewski's removal. Kaczmarek has called the PKN Orlen boss incompetent, pointing to the firm's poor financial standing. The company's profits are expected to be half of the zł. 701 million ($170 million) posted for 2000, analysts said. PKN Orlen is set to release its core business financial data for 2001on Thursday. Politicians were keen to withhold judgment on Friday's events but opposition figures are generally opposed to Kaczmarek's approach. "Minister Kaczmarek is very consistent with the principals of ‘political capitalism,' others call it the owners' reign … we've seen examples in the past," said Zyta Gilowska, an MP with the oppostion Civic Platform (PO). Analysts simply labeled the row as bad for Poland's long-term business interests. "The message to investors is a lack of transparency in the market," said Andrzej Myślinski, capital investment specialist at Bank Pekao. "No matter what the government says about the timing, when you arrest someone like this for an event four years ago … it speaks for itself," said Bidzina Bejuashvili, sector analyst at RZB in London. Bejuashvili was among a number of industry watchers who had expected further delays in PKN Orlen's privatization. Kaczmarek had earlier said a decision on the sale of a 17.6% stake in the firm would hinge on the final sale of Rafineria Gdańska, the nation's second-largest refinery, to the U.K.'s Rotch Energy. The British group continues to look for partners to finance the project, analysts said. "I'd expect (PKN Orlen's privatization) to be postponed again," Bejuashvili said. Officials with Hungary's MOL and Austria's OMV, now both in talks with Nafta Polska to buy the PKN Orlen stake, declined to comment on Modrzejewski's dismissal, though reiterated their interest in the purchase. "We understand the government needs to work out its concept of the petrochemical industry … once they're ready, we are," said Denis Mochorovic, MOL's spokesman. Regardless, the Modrzejewski affair is certain to continue grabbing headlines. "This puzzle is much more complicated than what we've seen today," Gilowska said.