Babis reportedly plans to tighten grip on Czech pipeline operator

By bne IntelliNews December 16, 2014

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Czech Finance Minister Andrej Babis is planning to reshuffle the management board at state-owned oil pipeline operator Mero to tighten his control, local media reported on December 16.

The planned changes involve not only removing the current CEO and board chairman Jaroslav Pantucka, but also dismissing three other board members, unnamed sources from the company told Hospodarske Noviny.

Mero owns and operates both routes for importing crude oil into the Czech Republic: the Czech section of Russia's Druzhba pipeline and the IKL pipeline that links into a network running to the Adriatic.

The move comes a matter of months after the increasingly powerful Babis took control of the supervisory board at Mero, as well as oil products and fuel company Cepro. In the summer he also effectively took control of the crown jewel in the Czech state portfolio, utility CEZ.

In June, Babis made fundamental changes to the supervisory board of Mero, reducing the number of members by three to leave five seats. He then appointed four new members to oversee the company.

Similar changes occurred on the board of Cepro. Babis said that the main task for the new boards would be to search for synergies between the companies and build a new strategy.

Responding to a question from Hospodarske Noviny, the finance ministry said that the changes made to Mero’s supervisory board in June were aimed at strengthening control over the company. It will allow the ministry to resolve any "faults" in management identified by the board, it said. Reshuffles at Mero and Cepro are in line with the government’s aim for a more active role of the state in the management of its assets, the ministry added.

Circling the wagons

In April, Babis rebuffed a proposal by Polish oil concern PKN Orlen to merge the two companies with oil refiner Ceska Rafinerska, in which the Polish state-controlled company holds a majority. PKN Orlen sought a controlling stake in the merged entity and reportedly made it a condition for further investment in Ceska Rafinerska.

Over the past couple of years Prague has suggested reopening talks on regaining control of the country's two refineries. However, PKN Orlen's Czech unit Unipetrol increased its holding in Ceska Rafinerska to 100% this year, via the purchase of a combined stake of 49% from Shell and Eni. 

The two refineries operated by Ceska Rafinerska have struggled because of the soft European refining market. "One of the key issues for the weak profitability of Ceska Rafinerska is the high fees charged by Cepro and Mero," analysts at Erste noted in April. "As the refining marketplace in Europe is showing low profitability, there is a compelling pressure also to decrease Ceska Rafinerska capacity." 

Babis insists Mero and Cepro are strategic assets and the state should keep control, and has spoken of reviving efforts to take over at least one of the country's refineries.

At the same time, there is little love lost between the Czech billionaire-turned-minister and PKN Orlen. Babis has lost several legal cases brought against the Polish company over its refusal over a decade ago to sell Unipetrol's chemical assets to his Agrofert conglomerate. Babis claims he had a prior agreement with PKN to buy the assets after the privatisation of Unipetrol.

Agrofert’s commercial relationship with Cepro is another outstanding issue. Agrofert supplies the fuels company with biofuel.

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