PKN Orlen presses on oil terminal

PKN Orlen, Poland’s state-dominated oil company, is ratcheting up the pressure on the Lithuanian government to sell the Klajpedos Nafta oil terminal, which is the main supplier for its loss-making Mazeiku refinery.

PKN is so frustrated with Lithuania’s refusal to sell the terminal in the port of Klaipeda that it is not ruling out exiting its investment in the refinery, the largest industrial complex in the Baltic states.

“Selling Mazeikiu would be a last resort but it is a possibility,” Dariusz Krawiec, PKN’s CEO, said in an interview with the Financial Times.

“We have to control the port to control our costs,” said Mr Krawiec. “We are a little disenchanted with how our business arguments are received in Lithuania.”

That argument finds little favour in Lithuania. The terminal has a long-term agreement with PKN, which the government feels is enough to ensure security of supply.

“Why should the government sell?” said Mykolas Majauskas, an advisor to the Lithuanian prime minister.

PKN bought the Mazeikiu refinery in Lithuania in 2006 from the bankrupt Russian oil giant Yukos, in an investment that was heavily coloured by politics. Poland, then ruled by the right-wing Law and Justice party, saw the investment as a way of limiting Russian influence in the region, while PKN wanted to protect its territory in northern Poland from a possible incursion by Russian refiners.

PKN, 27.5 per cent owned by the Polish treasury, has spent about $3.5bn on its acquisition and further investments, making it the largest foreign investment by a Polish company, and the largest investment in Lithuania.

The refinery purchase has been plagued from the beginning. After Russian companies lost the tender for Mazeikiu, the Russian pipeline supplying the refinery was shut down because of an accident and has never reopened, forcing PKN to supply Mazeikiu more expensively by sea.

Mr Krawiec said that PKN was considering starting talks with the Russians to get them to again supply the refinery by land, but it was unclear what the Russian price for such a deal would be.

A fire at the refinery reduced production for many months, and the economic crisis had dropped demand for Maziekiu’s production in the Baltic states, said Mr Krawiec.

The purchase of Mazeikiu has left PKN heavily in debt – it owes about 13bn zlotys ($4.7bn, €3.1bn, £2.8bn), and the failure to sell its shares in Polkomtel, a Polish mobile telephone operator, and other unrelated holdings has brought scrutiny from ratings agencies. Adding to its troubles was a drop in refining margins, and the company was wrong footed when the zloty fell steeply in value last year as a result of the crisis.

That has increased the pressure to turn around the Lithuanian refinery.

“We are a public company, so we have to improve the returns at Mazeikiu,” said Mr Krawiec.

PKN’s dissatisfaction with its Lithuanian investment is part of a wider frustration in relations between the two EU and Nato allies.

South-eastern Lithuania, including the capital, Vilnius, were part of Poland before the war, and many Lithuanians remain wary of Poland. Ethnic Poles in Lithuania, backed by the government in Warsaw, have been pushing for years to be allowed to write their names in Polish, not Lithuanian, script. Efforts by Lithuanian nationalists to restrict Polish signs and the administrative use of the language are also resented.

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