PKN Orlen expansion plan scuppered for now
By : Bogda Zukowska
Poland's two largest oil companies, Polski Koncern Naftowy Orlen (PKN Orlen) and Rafineria Gdanska, could be about to merge operations as part of a complicated framework of alliances among regional oil players.
The move, forbidden by the government's competition regulations, could see PKN Orlen team up with Hungary's MOL oil group, while MOL plans to make its own bid for Rafineria Gdanska.
PKN Orlen's attempts for regional expansion recently received a setback when its confidential talks with France's TotalFinaElf were leaked to the public. The Polish oil giant was looking to buy a 50% stake in Leuna, Total's German refinery, for $1 billion. But PKN Orlen and the French oil company broke off talks after the leak.
"Talks have been suspended to curb speculation by analysts and capital markets players as both companies are publicly traded," said Marcin Sojka, an analyst with BGZ Securities.
An open question
PKN Orlen's spokesman Ireneusz Wypych refused to say if both companies would go back to the negotiating table, leaving the question open. "'Never say never' is particularly true in business," Wypych said.
Total has invested heavily in Leuna, which is considered one of the most modern refineries in Europe and has an annual capacity of 10.4 million tonnes. Leuna is one of TotalFinaElf's 12 Europe-based refineries, which together pulled in operating income of O3.2 billion in 2000, a 205% surge from 1999's O1.05 billion.
Tomas Fell, Total's spokesman, confirmed that last week's talks with PKN Orlen had been broken off, but refused to comment on prospects for a future deal or why Total put the Leuna plant up for sale.
The acquisition of a regional refinery is part of PKN Orlen's strategy to position itself as a leader in a regional oil sector alliance with MOL and Austria's OMV. "The takeover of the Leuna plant would have been an asset for PKN Orlen," Sojka said. "It would strengthen the company's position, while negotiating the regional alliance." He said that buying Leuna would have supported PKN Orlen's attempts to gain more business in western Poland and expand into the Czech Republic where the German refinery has about 30 gas stations.
PKN Orlen started to look seriously at takeover targets abroad last year after a government decision banned the company from bidding for competitor Rafineria Gdanska when it comes up for privatization. By forbidding PKN Orlen to bid, the government's strategy was to create two major players in the industry and to prevent PKN Orlen from monopolizing the domestic market.
But despite this strategy, Rafineria Gdanska is likely to fall into PKN Orlen's hands, albeit indirectly, according to Sojka. A successful bid for the Gdansk refinery by MOL could be part of a strategic regional alliance with PKN Orlen. "It's likely that talks between would-be partners PKN Orlen, MOL and OMV have already included Rafineria Gdanska as a part of the alliance's expansion strategy," Sojka said.
If the alliance goes ahead, analysts said MOL is a candidate to buy 10-85% in Rafineria Gdanska, although Nafta Polska, in charge of privatizing Poland's oil industry, has refused to unveil a shortlist of companies bidding for the refinery.
Baltic-Adriatic axis
"The takeover of Gdanska by MOL as a single player does not make much sense as it would be very expensive," Sojka said. "But if we look at the deal as a part of a regional alliance, it makes sense as it would create a kind of Baltic-Adriatic axis, and the Gdanska and Leuna refineries fit into this scenario," Sojka said.
The group would include Rafineria Gdanska and PKN Orlen, MOL with its Slovak Slovnaft refinery and Croatia's INA refinery, which is scheduled for privatization this year and potentially a target of OMV. According to Sojka, the group of Central European refineries could be competitive, becoming a difficult target for hostile takeovers. This would act as a buffer against widely rumored Russian interest in the Central European oil-processing industry.
