Czech government hunts stake in oil refiner

By bne IntelliNews January 24, 2013

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Polish-owned oil and fuels group Unipetrol insisted on January 23 that it has no intention of selling control of the Czech Republic's major refiner Ceska Rafinerska. The statement came a day after Czech Industry Minister Martin Kuba said the government is preparing a plan to take over the company, confirming long-standing market speculation.

The move is prompted by the government's desire to bolster energy security, Kuba told Reuters in an interview. To that end, an expert group has been formed to study the plan, which aims to combine the refiner with state-held crude and oil products pipeline operators Mero and Cepro with the country's refiner. "If we want to bring the segment together, we have to go back and seek a stake in Ceska Rafinerska," he said.

The government should make a decision on how to proceed before the end of the first quarter, Kuba added. However, he refused to discuss details of how the plan might work and whether it could involve the purchase of shares in Rafinerska or some form of share swap between Rafinerska's owner and the pipeline companies. When asked whether there was willingness on the part of some shareholders to sell, he said: "Let's say we have indications."

Polish state-controlled refiner PKN Orlen, which bought Unipetrol in 2004, last refuted ongoing speculation that it could sell the company to the state in late November. That came following a mini-crisis for the Czechs in October when they were cut off from crude supplies for a couple of weeks, and Ceska Rafinerska was forced to shut down one of the country's two refineries at Kralupy.

That crisis, driven by dropping volumes of crude from Russia as it adopts new export routes, saw Prague spring into action. The next month, Mero completed the purchase of a 5% stake in the TAL pipeline - the only alternative oil import route to the rapidly drying Druzhba from the east - in order to ensure capacity.

"It is a strategic interest of the Czech Republic to return to... playing an important role in the central European region and having decisive participation on what is happening in the Czech petrochemical industry," Kuba said. Prague was critical of Unipetrol management for allowing the cut off to develop. "It was shown clearly that PKN does not have all issues contractually covered," Kuba noted.

While PKN continues to insist it's not interested in selling its Czech assets, it appears to have several decent motivations to do so should the price be right. The Polish giant has been struggling under a hefty debt load in recent years, and on top of Ceska Rafinerska - which Unipetrol said on January 23 was largely behind the CZK3.1bn operating loss it announced for the last quarter of 2012 - is stuck with a refinery in Lithuania that also impacts its bottom line negatively due to Russian export policy and overcapacity in European refining.

"There is huge overcapacity in [regional] refining. This sector is in huge problems." Unipetrol vice-chairman Piotr Wielowieyski said, according to Dow Jones, as he also revealed that the results included a CZK4.39bn impairment, mostly due to a downward revaluation of Ceska Rafinerska. The thriving Czech black market and a recession in the country will keep its earnings under pressure, he added.

At the same time, like several of its state-controlled peers, PKN is being pushed by Warsaw to invest heavily in a drive for greater energy independence for Poland, and has been roped into prospecting for shale gas and building new generation capacity. The company said in December that it will invest PLN22.5bn (€5.4bn) on projects in the two segments up to 2017.

On top of that, the Polish treasury is applying pressure for large dividends from state companies to help with fiscal consolidation. That has seen PKN announce it will make its first payout in five years in 2013.

However, PKN is unlikely to be keen to do Prague many favours, given its complaints over the behavior of Mero. Unipetrol is forced to pay "uncompetitive pipeline tariffs" to the crude pipeline operator, Unipetrol CFO Mariusz Kedra said on January 23. "Our expectation is that tariffs will decrease" in the new contract negotiation round, he added. Wielowieyski reiterated at the same meeting that Ceska Rafinerska is a strategic company and that Unipetrol has no intention of selling.

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