Poland Lost Money, Control in Orlen-Lotos Merger, Premier Says

Maciej Martewicz
·3 min read
4

(Bloomberg) -- Poland will probe the merger of its two biggest refiners as the country’s new government accuses outgoing managers of losing cash on the transaction that also saw Saudi Aramco taking its first stake in a refinery on the Baltic Sea.

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The government in Warsaw expects the incoming executives at the state-controlled companies to help disclose all the potential wrongdoing of the previous cabinet, Premier Donald Tusk told reporters on Tuesday as prosecutors initiated a probe into Orlen SA’s acquisition of smaller rival Grupa Lotos SA.

The investigators’ statement cited by the ruling party lawmaker Agnieszka Pomaska earlier today said a possible loss on the deal could exceed 4 billion zloty, while managers and government officials failed to properly oversee the transaction. Orlen’s press office said the accusations are groundless and misleading.

“We will soon know everything, but one thing is certain: we lost billions of zloty, we lost a significant part of ownership and we gave money and a lot of power to Saudi Arabia,” Tusk said.

Political Tension

Poland has endured a tumultuous few weeks as Tusk’s government struggles to dismantle eight years of nationalist rule and return the nation to the European mainstream. Tusk, a former European Council president, also pledged to audit spending at state entities.

Orlen has made controversial purchases in the past few years of some state-controlled firms, while it was criticized for helping the previous cabinet keep gasoline prices low ahead of a Oct. 15 election.

Chief Executive Officer Daniel Obajtek, who is a member of former ruling Law & Justice party, promised to step down if his bloc lost the vote. Warsaw-listed Orlen is set to vote on changes to the supervisory board on Feb. 6.

The probe “could jeopardize Orlen’s partnership with Aramco (a major supplier of crude) and carry significant legal and organizational risk,” Bloomberg Intelligence analyst Darja Lema wrote in a research note.

Price Tag

Under Obajtek, Orlen went on an acquisition spree from 2018, buying into power and gas industries with takeovers of Energa SA and PGNiG SA.

The purchase of Lotos was complicated by the European regulator, which required Orlen to find a buyer for a 30% stake in the Lotos refinery and almost all of the takeover target’s gas stations in the country as a remedy not to disrupt competition.

The transaction to sell the refinery and a wholesale business brought about 2.15 billion zloty ($534 million), while the price in the petrol station deal was set at about $610 million.

The sale of assets sparked protests from opposition parties, then led by Tusk, that said the price didn’t correspond with Lotos’ market valuation. Orlen argued that the deal safeguards Lotos’ future as it’s too exposed to changes in the fuel market, while it also allowed the company to secure oil deliveries from Aramco with Russian sources drying up due to sanctions.

Asked whether his cabinet will try to reverse the transaction, Tusk said that it’s a job for lawyers now.

“It’s too early to say whether there are legal grounds to reverse the merger decision,” he said.

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