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PERN is close to finishing the expansion of oil storage capacity in Gdańsk. “When it comes to the oil storage capacity, we have one more tank to build. It will hold 45 tcm. It should be ready in the summer of 2021. So, the oil hub in Pomerania will continue to develop despite the coronavirus pandemic,” Igor Wasilewski, CEO of PERN – the operator of oil pipelines in Poland, says in an interview with BiznesAlert.pl.
BiznesAlert.pl: According to PERN’s plans for 2017-2020, this year investments worth over PLN 500 m are supposed to be completed. Those projects include the expansion of storage capacity and the Oil Terminal in Gdańsk. Have these investments been completed?
Igor Wasilewski, PERN CEO:We are now finalizing the projects. The company has put a lot of effort into this in the last three years. As PERN, we first started building fuel tanks, which was related to the situation on the market after the fuel package had been introduced. In result, increasing numbers of petroleum products started to go through our fuel bases. Despite the fact that experts estimated the growth rate to reach 8 percent, the fuel trade market actually grew by over 20 percent. So we decided to expand our fuel base in three stages. The first one had been already put into operation, and we are now finishing the projects that are part of the second phase. We are working on the design and starting to choose contractors for some of the tasks in the third one. At the same time, we started to expand our oil bases. From the point of view of clients, the bigger the raw materials base, the more oil of various kinds are they able to import. When in 2016 we completed and opened the first stage of the Oil Terminal in Gdańsk, it had six tanks, each capable of storing 62.5 thousand cm. Therefore, the total capacity was 375 tcm. On average a tanker can hold 100 thousand tons. So, the existing facilities made it possible to unload three full tankers and a fraction of a one. This is why we decided to build three tanks, each 100 tcm in capacity, and two tanks able to hold 45 tcm each. This completed our storage capabilities and made it possible to be able unload the maximum number of ships. At the end of October we finished the construction of the three 100 tcm tanks, and one 45 tcm tank. In the middle of this year we also put into operation two tanks, each with a 100 tcm storage capacity, at the Gdańsk Base. It will make it easier for our clients to import various kinds of oil without blending them together. Such a solution improves supply diversification and contributes to economic development, ensuring a stable supply.
PERN was to build additional tanks as part of its 2018-2022 investment plan. The company revealed that the raw materials base was expanded by almost 550 tcm of new capacity for crude oil located by the Baltic Sea. However, the coronavirus hit while these investments were being implemented. Did it cause a delay in completing the construction of the tanks?
When it comes to crude oil storage, we have one more tank, with a 45 tcm capacity, left to build at the Oil Terminal in Gdańsk. It should be ready in the summer of 2021. So, we will continue to develop the oil hub in Pomerania. This is necessary, considering the demand reported to us by our clients. When it comes to fuel tanks, this year we opened another one – at the Fuel Base no. 1 in Koluszki. This year we also want to finish the construction of the tank in Boronów, and in January next year we are planning to finish the investments in Małaszewicze and Emilianów, whereas in April – in Dębogórze and Rejowiec. In other words, that’s when we’ll finish the second stage of expanding our capacity to store fuel. Whereas in the third stage we will design tanks in various locations, and we will build them in places where they are of most convenience to our clients. We have already made initial decisions about construction, and we are selecting contractors. In the first stage we built 128 tcm, in the second we want to add to that 222 tcm, which in total is about 350 tcm. In the third phase that figure needs to be similar. This will allow our clients to store fuels in various parts of the country, because our infrastructure is available across all of Poland. This is a big competitive advantage when it comes to direct availability to outlets. At the same time, we are doing everything to prevent the coronavirus from impeding our investment plans.
Did the contractors or sub-contractors voice any issues related to delays? Did the investor have to increase the spending?
Regarding the coronavirus, we have two challenges: an internal one that pertains to our regulations, and an external one that stems from cooperation with the contractors responsible for the investments. From the point of view of the inner workings of the company, which is part of the state’s critical infrastructure, it is a difficult test. Despite that, we need to ensure the work is continued at all times. After all, an intermission when it comes to providing fuel has never happened. Despite the pandemic, the process never stops. Apart from the standard measures, such as masks, gloves and disinfectants, we introduced remote work whenever it was possible. The fuel base does work 24/7, as it needs to collect and issue commodities. To decrease the number of touch points between employees in all facilities, we introduced a 12-hour work system. One team works, and is then replaced by another one after 12 hours, while a third crew serves as backup. This leaves flexibility if anybody falls ill. We have a special COVID-19 team that monitors the situation constantly and meets twice a week.
Investments are the second perspective. We are shortening the production cycle. Until now the construction of a tank usually took 24 months. We shortened that process to 16 months by rearranging the building work. Due to the coronavirus, similar corrections were introduced to the work schedule at the Oil Terminal and the Gdańsk Base. The virus was detected among the employees who did the building work. In response we stopped the construction for a week, and sent the employees to a quarantine to make sure nobody else would get infected. Of course, this resulted in a slight change to the deadlines. In case of the Oil Terminal, the deadline was moved by 10 days, and the oil tanks were put into operation on 26 October. Our contractors gave us a lot of suggestions. We had already signed contracts with them, so we did not want to delay them, and consequently we cooperated with our contractors on their rules, to a degree. Instead of paying after the entire investment was done, we would pay them as soon as part of the work, a so-called milestone, was completed and examined by us. We shortened the payment deadline from 30 to 14 days.
The biggest investment, both when it comes to the money (PLN 1.2 bn), and when it comes to strategy, is the second line of the Pomeranian Pipeline. At what stage is that investment? Is the completion deadline in 2023 at risk?
We chose a company, which is now preparing the project documentation, it is working constantly. There is no risk that the works will be delayed. Just like with any other pipe investment, we need to conduct a geological examination of the land on which the works will take place. We have also launched the procedure to buy pipes. In the coming years there will be a huge demand for them, as oil and gas transmission systems are being expanded, so we need to secure our supply. The pipeline will be about 240 km long. We want to organize the process in a way that will make it possible to do everything on schedule. At this point, we are able to do this on time. We will do anything to meet the deadline. The question is what the pandemic will look like next year and in what state our potential contractors will be.
Expanding the oil storage capacity means improving the company’s potential to benefit PERN’s clients, both state-owned companies as well as private entities. Are your storage facilities taken into consideration when it comes to the remedial measures, that need to be implemented to merge PKN Orlen and Grupa LOTOS?
The merger is about PKN Orlen and Lotos, and we are building the new capacities for all our clients. We are doing everything to expand the capacity in various parts of Poland to make storage more available. We are not impacted by the remedial measures set by the European Commission. We build tanks for the market. For instance, if half of the production capacity at the refinery in Gdańsk is handed over to a different, third party, the refinery will continue to work and produce anyway. The volume will not change, only the trading clients will. The owner of the new tanks will not change – it will still be PERN. Who will rent them is a matter that will be decided by the market.
The works on the reverse flow on the Druzhba oil pipeline in the direction of Belarus are supposed to conclude by the end of this year. At what stage is this investment? Is Belarus interested? What will be the capacity?
As PERN we are conducting works on the physical reverse flow between the base in Adamowo and Miszewko Strzałkowskie. We can already use a reverse flow to transport oil between Płock and Gdańsk. We are building a reverse flow between Adamowo and Miszewko Strzałkowskie. The deadline is the end of December and it will be met. We are talking with Belarus about technical issues, such as capacity. We are not discussing the trade aspect that pertains to Belarussians buying the oil. It is their decision who to talk to.
Does PERN still have the oil contaminated with organic chloride delivered in 2019?
Just to remind, “clean” oil had organic chloride at a level under 10 ppm (in practice 1 to 2 ppm). In April 2019, the level increased to 300 ppm. It was a completely unexpected situation. That was when we immediately stopped the oil flow and stored whatever had already entered the refinery. We mixed the tainted oil with clean oil. Now one tank in Adamowo is still unavailable, because it holds about 90 thousand tons of the contaminated oil. During the pandemic, our clients asked us to temporarily stop shipping them the oil high in organic chloride for processing.
Are you going to apply for compensation?
We are in talks with Russians, but we have different views on the matter. Dialogue shows that the difference of opinion is so big that it is impossible to solve the issue amicably. After a year of talks, we only learned that Russians transported contaminated oil to Central and Easter Europe and then made a deal with some states, but not with others. We are in the latter group. How long can such talks take? The dispute over the gas price between PGNiG and Gazprom is a good example.
Is arbitration possible?
If the differences are so big that an agreement cannot be reached, we will consider other legal paths to solve this problem.
Interview by Bartłomiej Sawicki
