Power plays threaten Orlen plans
March 15, 2021
2021 is a big year for Poland's PKN Orlen (Orlen). The state-owned oil firm plans to buy its main domestic rival, Lotos, and also its equivalent in the domestic gas sector, PGNiG. Proponents of the mergers argue a thus enlarged Orlen would be able to compete as a genuinely European-scale player in the energy market and steer Poland's transition towards renewable energy.
Opponents of the mergers in Poland say, however, the tie-ups would effectively destroy domestic competition and, in addition, open up the domestic energy market to unwanted foreign interference.
By 2030, Orlen intends to spend 140 billion zlotys (€33 billion, $38 billion) on investment aimed at transforming the company into a multi-energy concern.
The merger of all entities — Orlen, Energa, which Orlen already took over, Lotos and PGNiG — would create a company with an annual turnover of 200 billion zlotys. Last year, the net profit of the four entities was 6 billion zlotys.
For comparison, revenues of the largest European oil company, British-Dutch Royal Dutch Shell, were £345 billion (€390 billion, $410 billion) last year, with net profits of £16 billion.
But the struggle over the Polish energy transition — and Orlen's role in it — has stepped up, with an increasingly fractious coalition continuing to feud over energy policy.
Enter Daniel Obajtek
On February 26, the daily newspaper Gazeta Wyborcza published the so-called Obajtek tapes, which reveal that in 2009 the current Orlen CEO, Daniel Obajtek — while mayor of Pcim, a small town in southern Poland — simultaneously managed a company named TT Plast.
Obajtek is a close ally of Law and Justice (PiS) leader Jaroslaw Kacyznski and, at the time, was widely seen as a rising star and potential future Polish prime minister.
According to the newspaper, when testifying before a court in December 2014, Obajtek lied about not having had any business dealings with TT Plast. Perjury is punishable in Poland with up to eight years in prison.
An investigation into the case was held, but in 2016 the Prosecutor's Office, then controlled by the current Justice Minister Zbigniew Ziobro, didn't initiate proceedings. The statute of limitations for this offence is 15 years, so the minister could theoretically order a resumption.
Wyborcza also discovered a large network of Obajtek's former employees and family members in high-level managerial positions in government and state-owned companies.
A particularly egregious example is that of Zofia Paryla, who first worked with Obajtek at Elektroplast. Until 2017, she was the head accountant at the local social welfare center in Pcim, a town of 10,000. Now she is CEO of Lotos, the oil distribution giant.
"The energy sector is the site of a power struggle within the coalition. They treat it as an extension of the state, placing friends and allies in key posts," says Robert Tomaszewski, an energy analyst at Warsaw-based think tank Polityka Insight.
He believes Obajtek will "most likely" stay CEO of Orlen. "But he has given his opponents in the coalition, in particular Energy Minister Piotr Naimski and PM Mateusz Morawiecki something to use against him in the future," Tomaszewski told DW.
Power plays
"Clearly, Obajtek has had a lot of clout and has been a powerful player when it comes to executing the government strategy with respect to the merger of the country’s largest energy companies," Anna Mikulska, an energy specialist from Rice University in the United States, told DW.
"However, both the merger as well as Poland’s energy strategy are bigger than Obajtek himself and I don't see them changing principally even if he loses his position in the process, though adjustments are certainly possible," she added.
An Orlen spokesperson told Polish media that the article's allegations were not supported by facts and their purpose was to discredit the CEO.
At the moment, Obajtek still has the backing of PiS leader Kaczynski, senior government members, including from the smaller Solidarna Polska (SP) party, as well as President Andrzej Duda, whose entourage has also defended Obajtek.
But Obajtek's problems benefit his opponent, PM Mateusz Morawiecki. There have been media reports recently saying SP members of the government and also several PiS politicians believe that a group around the prime minister was in fact behind the publication.
Obstacles and objections to the merger
Critically, allegations that Obajtek had lied about his ties to TT Plast may hinder Orlen's mergers with Lotos and PGNiG. Both transactions are opposed by Energy Minister Naimski.
Robert Tomaszewski from Polityka Insight thinks a deal is "especially important" for Obajtek.
"It will come to fruition only if Orlen fulfils the European Commission's conditions, i.e. sells one-third of its shares in the Gdansk refinery and 379 Lotos stations by November 2021," he said, adding that there is interest in buying those entities from Britain's BP, Canada's Couche Tard (Circle K), Hungary's MOL, and Saudi Aramco — the world's largest oil company and main global rival of Russia's Rosneft.
Choosing the offer of Saudi Aramco could be presented as a genuine effort to reduce Poland's dependence on oil from Russia, which would strengthen Obajtek, Tomaszewski argued.
"Obajtek has only one shot, and that will be in 2021," he noted. "If he manages to win the argument in public and persuade Aramco to buy Lotos's assets, it will mean his vision of energy transformation will win and Naimski’s more cautious energy security model will lose. Aramco is thus the key here," Tomaszewski argued.
But Naimski and opponents of the deal in the main opposition Civic Platform (PO) party argue that creating a huge regional energy company would open up Poland’s energy market to incursions from Russian capital, perhaps via MOL.
Meanwhile, Orlen is to submit a preliminary application to the European Commission seeking permission from the EU executive for its acquisitions in the first quarter of 2021.
"When it comes to the merger, the substantial issues currently brought up by the opposition could become more problematic. Questions such as the possibility of losing control over some companies like Lotos, for example, or bringing in foreign companies that would compete with the newly merged company," Rice University's Anna Mikulska said.