Poland Pushes State Energy Giant Merger Forwards

Polish state-controlled oil and gas company PKN Orlen announced July 4 that it has applied for EU approval of a merger with peer Lotos.

PKN filed a formal application for the European Commission's approval of its proposed acquisition of Lotos Group July 3. A merger between the two state-controlled companies has been mooted by the government for some months.

The ruling nationalist conservative PiS has sought to deepen the state’s role in the economy since taking power in late 2015. To that end it has pushed to create “state champion” companies that it says are needed to compete internationally.

In addition, the government is working to raise Poland’s energy independence. Efforts to raise LNG imports and the planned construction of the Baltic Pipe from Norwegian gas fields have the ambitious target of halting gas imports from Russia by 2022, when state-controlled PGNiG’s long-term contract with Gazprom expires.

The merger of PKN and Lotos – Poland’s two biggest oil refiners – is a significant step in that energy strategy. The resulting enlarged entity should have a stronger position in price negotiations and diversification of supplies. Russia is the main supplier of Polish crude.

At the same time, it is expected that the merger will allow the further diversification of the pair, which have recently begun some exploration efforts to find gas and the development of alternative fuels to petroleum products.

PKN Orlen president Daniel Obajtek noted in a statement that the merger is a “requisite driver of … Poland’s energy security. In business, scale matters. This rule of thumb is understood by all major European and global players in the fuel and energy business. A single strong entity would be well-placed to successfully compete in a demanding market, lend greater stability to the national economy … and ramp up its own growth-oriented investments.”

PKN’s acquisition of Lotos was launched via a letter of intent in February 2018. In the first stage of the transation, PKN would acquire 32.99% of Lotos shares from the state treasury, which currently holds 53.19%. A tender offer would then follow, seeking to raise PKN’s holding in Lotos to 66%.