COMMENT: Why the Czech finance minister fears the Poles

By bne IntelliNews April 28, 2014

 

If Polish state-controlled oil and gas firm PKN Orlen is ever to gain more influence in CEPRO, the Czech state firm that controls a large chunk of the Czech motor fuels market and stores the country’s strategic fuel reserves, who can say what might happen to CEPRO’s excellent relationship with the finance minister’s private biofuels business? Or to Agrofert’s appetite for revenge on PKN after a debacle ten years ago over the country's leading refinery and petrochemicals group Unipetrol?

As Czech finance minister, Andrej Babis is in negotiations with PKN Orlen, owner of Unipetrol, over the future of state-owned CEPRO. At the same time, his own business, Agrofert Holding, is a major supplier of biofuels to CEPRO. And as if that were not enough, Agrofert is pursuing PKN for €725m in damages over Unipetrol. 

Less than a week before Babis was sworn in as Czech finance minister this January, the Polish state-owned PKN Orlen, which acquired Unipetrol from the Czech state in 2004, issued a statement which read as follows: “A court in Prague has dismissed a petition by Agrofert Holding for the reversal of the Arbitration Court's decision of October 21st 2010 on the payment of CZK 19.5 billion in damages for losses incurred as a result of unfair competition, unlawful injury of the Czech company's reputation, and default on contracts executed by the companies in 2003–2004. In 2010, the Arbitration Court dismissed Agrofert's claim in full and ruled that the company pay the court fees incurred by PKN Orlen. Agrofert then lodged a petition with a court of general jurisdiction in Prague, moving for the reversal of this decision. In today's ruling, the court in Prague concurred with PKN Orlen's position, upholding the judgement issued by the Arbitration Court on October 21st 2010 and dismissing the petition as groundless.” 

Agrofert revealed in April that it would appeal against this latest unfavourable court ruling in a legal battle that began ten years ago after PKN failed to honour its agreement to sell on to Agrofert the chemical assets of Unipetrol in the event that PKN acquired a majority stake in the Czech refining. In 2009, the Czech courts imposed a penalty of some CZK2bn (€73m) on the Poles for breach of contract, ten-times less than Agrofert is seeking. 

Agrofert’s decision to press on with its legal action against PKN places its single shareholder, the Czech finance minister, in an uncomfortable position. To begin with, the Czech government is now deciding upon on whether to accept PKN’s proposal to join up its Czech refining business, owned by Unipetrol, with CEPRO. 

For over five years, the government has been considering the creation of a single holding company that would bundle up CEPRO and MERO, the company that owns and operates the Czech section of Russia’s Druzhba pipeline and the IKL pipeline, and then integrate this all into a refining business, such as Unipetrol’s Ceska Rafinerska, or Slovnaft, part of the Hungarian state-owned MOL.

Andrej Babis threw the whole plan into the air last week when he told journalists that “CEPRO and MERO are strategic assets of the Czech state and certainly we will not want to privatise them or to put them into some joint company. That is my position." 

People, such as Patrik Tkac, founder of the controversial financial group J&T, which has built up a substantial minority stake in Unipetrol, must now be wondering whether the finance minister’s position is influenced by Agrofert’s strained legal relationship with PKN. Or even, perhaps, by Agrofert’s commercial relationship with CEPRO. Agrofert supplies CEPRO with biofuels. In 2013, the CEPRO business was worth €35m to Agrofert. 

If PKN was ever to gain more influence in CEPRO, who can say what might happen to CEPRO’s deep relationship with the finance minister’s biofuel business? Or to Agrofert’s appetite for revenge on PKN after the Unipetrol debacle? In short, it is clear how Agrofert's interests might be threatened by PKN and CEPRO moving closer together. But it is far from clear how this would harm the interests of the Czech Republic.

 

Related Articles

UK demands for EU reform provoke fury in Visegrad

bne IntelliNews - The Visegrad states raised a chorus of objection on November 10 as the UK prime minister demanded his country's welfare system be allowed to discriminate between EU citizens. The ... more

Czech food producer Hame seen next on the menu for Chinese giant

bne IntelliNews - Following a smorgasbord of acquisitions in late summer, China Energy Company Limited (CEFC) is eyeing yet another small Czech purchase, with food ... more

INTERVIEW: Babis slams coalition partners, but Czech govt seems safe for now

Benjamin Cunningham in Prague - Even as the Czech governing coalition remains in place and broadly popular, tensions between Prime Minister Bohuslav Sobotka and Finance Minister Andrej Babis remain ... more

Register here to continue reading this article and 2 more for free or purchase 12 months full website access including the bne Magazine for just $119/year.

Already a subscriber or registered - click here to recover access.

If you a IntelliNews Pro user - click here to login.

Thank you. Please complete your registration by confirming your email address.
A confirmation email has been sent to the email address you provided.

To continue viewing our content you need to complete the registration process.

Please look for an email that was sent to with the subject line "Confirmation bne IntelliNews access". This email will have instructions on how to complete registration process. Please check in your "Junk" folder in case this communication was misdirected in your email system.

Already a subscriber or registered - click here to recover access.

If you a IntelliNews Pro user - click here to login.

If you have any questions please contact us at sales@intellinews.com

Subscribe to bne IntelliNews website and magazine

Subscribe to bne IntelliNews website and monthly magazine, the leading source of business, economic and financial news and commentary in emerging markets.

Your subscription includes:
  • Full access to the bne content daily news and features on the website
  • Newsletters direct to your mailbox
  • Print and digital subscription to the monthly bne magazine
  • Digital subscription to the weekly bne newspaper

Already a subscriber or registered - click here to recover access.

If you a IntelliNews Pro user - click here to login.

bne IntelliNews
$119 per year

All prices are in US dollars net of applicable taxes.

If you have any questions please contact us at sales@intellinews.com

Register for free to read bne IntelliNews Magazine. You'll receive a free digital subscription.

Already a subscriber or registered - click here to recover access.

If you a IntelliNews Pro user - click here to login.

Thank you. Please complete your registration by confirming your email address.
A confirmation email has been sent to the email address you provided.

IntelliNews Pro offers daily news updates delivered to your inbox and in-depth data reports.
Get the emerging markets newswire that financial professionals trust.

"No day starts for my team without IntelliNews Pro" — UBS

Thank-you for requesting an IntelliNews Pro trial. Our team will be in contact with you shortly.

Dismiss