The value of Friendship
Half a year after completing its $2.3 (zł.6.6) billion acquisition of the Lithuanian Mazeikiu Nafta refinery, PKN Orlen has announced a new Value Creation Program (VCP) for the 2007-2012 period, which aims to fortify both Mazeikiu, and Orlen's general position in the CEE region. The oil giant will invest roughly $1.6 (zł.4.5) billion in the refinery over the next six years.
The program is designed to increase Mazeikiu's EBITDA from its 2006 level of $77 (zł.217.7) million to $727 (zł.2,055) million by 2012. "[The refinery] is the apple of our eye," declared Orlen's president, Piotr Kownacki. "Its purchase was a milestone in building the credibility of our brand," he adds.
The first stage of the program will look to restore Mazeikiu's production capacity to the level it had achieved before last year's fire at the refinery, which ravaged the facility just before Orlen completed its takover. So far, the refinery has regained 70 percent of its pre-fire capacity. The restoration process will cost $200 (zł.565.4) million over the next two years and a further $100 (zł.282.7) million by 2012.
However, the primary focus of the program is the modernization of the refinery, which aims to meet EU criteria on sulphur emissions, to boost production efficiency and to eliminate production bottlenecks. Orlen also wants to develop its retail network in the Baltic States, including raising its share in the fuel market in Lithuania from the present four to 10-15 percent.
The plan will be implemented despite statements made by Russian Energy and Industry Minister Viktor Khristenko, who has said that Russia will not repair the section of the Druzhba (Friendship) pipeline which had provided oil to the refinery. The pipeline ruptured in July 2006 - just after Orlen beat out Russian interests in the competition to buy the refinery - and Russia has since dragged its feet over repairing it. Without the pipeline, Mazeikiu Nafta remains reliant on oil deliveries by the sea, which increases costs for the refinery by several dollars per barrel.
