Information about the merger PKN Orlen and Grupa LOTOS electrified the observers and experts of the energy market. In the meantime, this is just the beginning of the road to creating a fuel giant. Is antitrust law going to prevent it? – writes Piotr Stępiński, editor of BiznesAlert.pl.
Yesterday, Orlen’s press office announced the signing with the Ministry of Energy of a letter regarding the commencement of the process of taking over Orlen’s capital control over a Gdansk-based company. This is to be achieved by direct or indirect purchase of a minimum of 53 percent. Lotos shares. As the president of the Płock concern, Daniel Obajtek, argues, the whole operation will take about a year.
An ambitious Orlen policy
As you can see, the president Obajtek took over the company’s steers with impetus. After a major staff exchange in the company management and transfers of co-workers from the Agency for Restructuring and Modernization of Agriculture and Energa, last Friday the Orlen press office informed about a series of meetings between Obajtek and managers managing companies, both Polish and foreign, forming part of the group. During the talks, the new president of Orlen presented the priorities of the management board, at the same time outlining the actions he intends to take to achieve the objectives and assumptions of the group’s strategy. However, no details have been disclosed. However, it was informed that Orlen wants to implement a “brave vision of development”. Does the “brave” slogan cover the takeover of Lotos? Thanks to the acquisition of the Gdańsk company, Orlen wants to create a strong, integrated group, strengthen the energy security of the country, while taking advantage of cost and investment synergies. It is worth emphasizing, however, that the signed document is not binding, and the implementation of such an ambitious project depends on a number of factors.
What will the councils say?
The Office of Competition and Consumer Protection (UOKiK) will have to comment on the merger. Pursuant to the antimonopoly law in Poland, the intention of concentration is subject to notification to the President of UOKiK, if the total turnover realized by all entrepreneurs participating in the concentration exceeded the equivalent of EUR 1 billion in the world, or the equivalent of EUR 50 million in Poland. Unless the concentration is particularly complex, it does not give rise to a justified likelihood of significant restriction of competition on the market, or it does not require a market investigation, antitrust proceeding should be completed within one month from submitting the application at UOKiK. This is the first stage of the procedure. On the other hand, if we are dealing with a particularly complex concentration, which causes the likelihood of a significant restriction of competition, or if the UOKiK finds that there is a need to conduct market research, the president of UOKiK issues a decision to extend the proceedings for a further 4 months, with justification.
It is also worth noting that in case of any concentration, the President of UOKiK checks whether the dominant position will not be taken over on a given market, and the entity with a market share of at least 40% is legally recognized as such. Currently Orlen has 1759 petrol stations, while Lotos – 490 (according to the strategy of the Lotos Group until 2022, the number of petrol stations is to increase to 550). Considering that there are over 6600 objects of this type in Poland, the total market share would amount to approx. 34%. Each time, the relevant market is analyzed for a specific concentration. Of course, the requirement of 40 percent it is a kind of indicator, but it has a more conventional character. One must remember that each time the President of UOKiK examines whether in a given case it is not exceeded. It is possible that this aspect will also be taken into account, although, as the Energy Minister Krzysztof Tchórzewski argued, he is not afraid of a threat to competition on the market, caused by the announced takeover of Lotos by Orlen.
It is possible that the European Commission will also have a say in this process. In the opinion of the President of UOKiK, Marek Niechciał, in the matter, Brussels should take a look at the turnover of these companies. In accordance with the law, transactions are submitted to the Commission for those entrepreneurs whose global total turnover is over EUR 5 billion and for the European Union at least EUR 250 million. As it is clear from the provisions, it is possible to directly report such a transaction to the Commission, which frees the Polish regulator from the obligation to submit documents, but he may apply for taking over the case. Nevertheless, at the desk of the President of UOKiK, no application for consent to the concentration officially received, therefore it is not possible to judge what will be the outcome of this case.
– It does not seem that UOKIK or KE found real grounds to block this type of transaction. Remember that in the retail market it is difficult to talk about the dominant position of both companies – says David Piekarz from the Staszic Institute. – They are subjected to very strong competitive pressure from foreign networks such as BP, Schell or Statoil, and at the same time small, local or even nationwide independent networks, eg Moya.
– You can probably expect that UOKiK will demand sales of a part of the stations from a combined group, which will be de facto necessary from an economic point of view, so as not to duplicate its own network – the expert believes.
In his opinion, “one can not talk about a monopoly that will increase fuel prices. The expert claims that Polish refineries operate on the open European market and compete not so much with each other as with networks from other countries or smaller national stations. – Wholesale prices of fuels are shaped on the basis of their European quotations, while on local markets, in retail, the price also results from the specifics of the domestic market on which not only Orlen and Lotos compete, but different national and foreign networks. The creation of one national concern should not translate into higher prices. On the contrary, there may be a reduction in operating costs, as well as a better negotiating position with raw material suppliers can reduce the costs of fuel production – assesses BiznesAlert.pl.
It is also unclear whether the shareholders of the Płock and the Gdansk group want to conclude such a transaction and, if so, how they would be persuaded to ignite the green light for the merger. The possible corporate model is also unknown. The amount and source of financing of this undertaking is not clearly defined.
Orlen’s strategy for 2017-2021 is based on three pillars: value creation, people and financial strength. The latter, from the point of view of the decision-makers, seems to be missing, taking into account the recent reports of the company with very good results. Recently, Orlen has finalized the purchase of Unipetrol and is mentioned as a candidate for investment in the Polish atom. Will this force drive a 53 percent acquisition?