PKN takes on foreign competitors with 300 new gas stations
While foreign gas station operators step up their retail operations, they will be hard pushed to outdo Polski Koncern Naftowy (PKN), the state-owned giant undergoing privatization, which plans to roll out more than 300 new stations by 2005.
With the majority of those stations to hit western Poland, PKN is taking on the foreigners by attacking them where they have built up their core business, and by broadening its services, such as carwashes and restaurants, to improve margins.
"Their main goal is to be more competitive," said Michal Mierzwa, an analyst at Centrum Operacji Kapitalowych Banku Handlowego. "In western Poland, competition will be the highest."
Tomasz Zakrzewski, a press spokesman for PKN would not say precisely where the new stations will be located, simply stating that they will be in accordance with the development of the country's roadways. He referred any further information to the prospectus for the company's upcoming initial public offering (IPO).
But a source close to the company said that around 200 of the new stations would be located in western Poland. At the same, 200 existing stations in other parts of the country were likely to be shut or sold to other operators.
At present, PKN controls 30% of Poland's retail gas business and will have 2000 outlets by the end of the year. By comparison, foreign companies have less than 10% of the market with 535 outlets, Mierzwa said. The other state-owned gas station operator, Rafineria Gdanska, has 3% of the market. Independent operators, with no more than two to four stations each, control around 60%.
At the same time, PKN also controls 70% of the nation's fuel production and is considered by many to be a de facto monopoly. The new stations are part of a zl. 7 billion ($1.79 billion) investment program scheduled to be completed by 2005 to bolster the company's already dominant position.
But PKN is not the only company spreading out its retail outlets. BP-Amoco recently crossed the 100 mark, and two weeks ago, Swedish company Preem Petroleum announced that it intended to spend $40 million over the next three years to build an additional 19 stations, bringing its total to 80.
"Totally, we want over 200 stations, enough to have a national network," said Preem's Vice President Kinga Lozinska.
The firm started by setting up stations in western Poland, and it plans to enter a few major cities and later move south where fuel consumption is sizable, she said. Next year, Preem will build stations in Poznan, Gdansk, Gdynia and one centrally located in Warsaw or maybe Lodz, Lozinska said. It will then move into the medium-sized towns, Lozinska said.
Western Poland and big cities have so far been the mainstay of foreign operators, which have pumped $1.5 billion-$2 billion into the industry since they arrived. With high import tariffs, much of their fuel is bought from PKN's refinery wing. But with two refineries just on the other side of the German border, many of the foreigners have found it beneficial to use these facilities and set up shop in that part of Poland, where most business comes from a high density of Germany-bound traffic, Mierzwa said. Preem has an additional advantage, with two other refineries on the west coast of Sweden.
While PKN looks unbeatable in terms of numbers of stations and its lock on fuel sales, many of the foreigners' margins come from the provision of additional services, such as restaurants, carwashes and convenience stores, Mierzwa said. Furthermore, there is a tendency for German drivers to cross the border and take advantage of the lower fuel prices there, while many Polish drivers prefer the choice and range of services in foreign stations, analysts said.
"In Western Europe, for the revenue structure of average gas stations, 30-40% comes from selling other goods," said Aziz Unan, a Prague-based analyst at Erste Securities. "In Central Europe, it's about 10%, or less than 10%, of total revenue."
To this end, PKN is concentrating on improving the number of pumps at their service stations and the quality of the provisions there, Mierzwa said.
"They must be built," he said. "The stations look poor. They can only fill the car and don't do anything else."
Moreover, PKN is also considering larger stations where all types of vehicles can tank up, with on-site hotels to further compete on the western border, he said.
But the firm will also have to concentrate on bringing its stations up to European Union (EU) environmental standards, Unan said. According to new regulations, stations will have to install a reinforced double wall in their underground fuel tanks for security and maintenance reasons, he said. While it is not known how much PKN will spend on the station roll out, Unan said that because they were largely greenfield operations the cost could reach $300 million or more. That includes new pumps, a grocery store and a carwash.
Part of PKN's method of attack will be winning tenders for gas stations on projected stretches of motorways. Previously, foreign firms have complained that PKN outflanked them by sitting on the boards of the consortiums that are building the roadways. With the Katowice-Krakow motorway already taken by PKN, Poznan-Warsaw looks set to go the same way, while it will also try to take control of the southern end of the Katowice-Gdansk roadway, Mierzwa said.
Something else the company has to take into consideration is internal restructuring. Since 1994, refinery Petrochemia Plock, which merged with retailer Centrala Produktow Naftowych (CPN) in September to create PKN, moved 20 service companies and 2,200 employees to get them off its books and reduce its staff to 5,800, Ireneusz Wypych, PKN's press spokesman said previously. However, the CPN wing has not done so and will probably need to shed 10-15% of its 6,500 strong workforce, Mierzwa said.
