Energy 9 August, 2017 9:00 am   
Editorial staff

Morawiecki: PKN Orlen is restoring Mažeikiai’s profitability

Lithuanians made the Mažeikiai oil refinery bought by Orlen unprofitable for many years, assessed on Monday Vice-Prime Minister Mateusz Morawiecki. He added that it was still “in a very bad shape”, but Orlen’s managers were “restoring its profitability.”

“It was a very difficult business because Lithuanians are not making it easier because in reality they dismantled the tracks, which would allow us to deliver the raw material to the refinery in Mažeikiai. Lithuanians made the Mažeikiai oil refinery bought by Orlen unprofitable for many years,” the Vice-Prime Minister said on Monday in an interview for TV Trwam.  

Morawiecki also said the facility “is still in a very bad shape.”

“Our managers from Orlen led by CEO Wojciech Jasiński are restoring Mažeikiai’s profitability, thanks to which we are becoming an even more important player on Central Europe’s fuel market. This also allowed us to diversify oil sources, which let us become more independent of Russia,” he said.

PKN Orlen bought Mažeikiai’s control stock on 26 May 2006 from Russia’s Jukos which was forced into bankruptcy by Russian authorities. In November 2006 the European Commission approved the takeover and the Lithuanian government, as well as representatives of the Polish company expressed the wish to close transactions within a few weeks. Ultimately Orlen took the refinery over on 14 December 2006.

In June 2006 Russia’s Transnieft suspended oil delivery to the refinery and said this was caused by a failure, which occurred on a section of the Friendship oil pipeline. Later on the Russians fixed the pipe to restore the deliveries to a refinery in Belarus, but not to Mažeikiai. According to observers the ‘failure’ was Russia’s revenge, because it was unhappy that a Polish company bought the facility, not a Russian one.

Another blow dealt at the refinery was a fire, which occurred in the autumn of 2006 and burned key installations and limited the facility’s potential for a year and a half.

PKN Orlen bought from Jukos 53.7% of the Lithuanian refinery’s stocks worth USD 1.49 b. Later on thanks to an agreement with the Lithuanian government it purchased another 30.66% for over USD 852 m.

After Orlen finalized with the Lithuanian government the contract on the purchase of the remaining 10% of the shares and bought them from small investors, it acquired full ownership and in 2009 changed the refinery’s name to Orlen Lietuva. According to the Polish company, to cover the purchase of Orlen Lietuva and the necessary investments pursued since 2006, Orlen had to spend about USD 4 b.

At the end of June, the Lithuanian railway company Lietuvos Geležinkeliai (LG) and Orlen Lietuva signed a partnership agreement, which ended a dispute, which lasted several years, on tariffs for transport. It also solved the refinery’s logistical problems and will increase its profitability.

For years Orlen Lietuva has been paying more for railway transport than competitors from other countries. Since 2008 when 19 km of tracks were removed in the direction of the Latvian town of Renge, Orlen Lietuva has been forced to transport its products via a longer railway route, which was 150 km long. The talks between PKN Orlen, Orlen Lietuva and LG on the issues have been ongoing for years. In December 2014 Orlen Lietuva submitted to the arbitrary tribunal in Vilnius an application to start arbitration proceedings against Lietuvos Geležinkeliai, where it demanded that the tariffs for railway transportations be recalculated in line with the agreement signed with the Lithuanian railways. Recently the damages the Polish company demanded from LG amounted to PLN 422 m. LG also started court proceedings demanding from Orlen Lietuva a payment for railway transport worth PLN 158 m.

The partnership agreement offers a compromise where “the financial dispute will be split into equal parts.” The companies also gave up on the court claims. However, the consensus does not encompass the issue of tracks to Renge because the European Commission is currently looking into this and the parties are waiting for its decision.

Orlen Lietuva’s net profit in 2016 was USD 238 and in the first quarter of this year the company earned USD 43 m. Orlen Lietuva is the biggest taxpayer in Lithuania.