UOKiK warns about possible PKN Orlen/RG merger

Poland's competition watchdog warned last week that a potential tie-up between the country's two largest refining and fuel groups may create a near monopoly in Eastern Europe's largest market. The warning from the Office for Competition and Consumer Protection (UOKiK), which has power to block any domestic mergers on antitrust grounds, came just days ahead of an expected government revamp of its fuel sector strategy that is expected to give the green light to a merger between Polski Koncern Naftowy Orlen (PKN Orlen) and Rafineria Gdańska (RG). The new strategy would give the leftist administration more leeway in deciding on the future of its No. 2 refining group, Baltic coast-based RG, whose sale to an Anglo-Russian bidder appears to have stalled. Should the sale of RG to U.K.-based Rotch and Russian oil giant Lukoil falter, the government could then tender the stake to Poland's largest refiner PKN Orlen - an option that has been touted for months by the firm's management.

But the UOKiK's chief Cezary Banasiński said that such a merger, which would create region's largest refining group with more than half of Poland's retail market, would likely ring warning bells with the anti-monopoly watchdog. "When we have one dominant player on the market, there is undoubtedly a threat to competition," he said. "There should always be two centers, and that goes for both refining and distribution networks." The Treasury Ministry, which has previously favored a sale to Rotch-Lukoil as the best option for RG, which produces 85,000 barrels per day, said earlier that no decision on the refinery's future would be made until the government cabinet discussed alternatives. The cabinet appears increasingly worried that it could jeopardize the country's energy security by allowing a Russian oil major to buy one-fifth of Poland's refining capacity. The Treasury Ministry, whose 28% stake in PKN Orlen makes it the firm's largest shareholder, has said that a national champion created from the two refineries would hardly operate like a cartel given Poland's no-tariff fuel imports policy. A 75% stake in RG has been valued at about $300 million, or nearly 20% of the government's $1.6 billion privatization revenue target for this year, which the Treasury Ministry already said would not likely be met after a few projects were iced. - Reuters