February 1, 2018 / 6:21 PM / 4 months ago

Polish refiner PKN examining power production options

WARSAW (Reuters) - Poland’s biggest oil refiner, PKN Orlen (PKN.WA), is looking at various electricity production projects, including nuclear, to benefit from an expected rise in power demand, the firm’s vice-president Miroslaw Kochalski said.

Poland generates most of its electricity from coal, but is considering ways to replace it partially with cleaner sources in the long term. The energy ministry is working on a project to build Poland’s first nuclear power plant by 2030, but has not yet presented a financing model.

The country’s biggest power producer, PGE (PGE.WA), is directly responsible for the nuclear plant plan, but its financial capabilities have weakened after it took over the local heating and power assets of France’s EDF (EDF.PA).

PKN, with its cash-generating capacities, could help make the plan more feasible.

“We are analysing all potential opportunities or projects not from a one- or two-year perspective, but at least 15-20 years,” Kochalski said in an interview.

“We are examining all possible projects which could fall under our strategy, naturally also including the nuclear power plant project,” Kochalski said.

PKN Orlen has two combined heating and power plants and also will offer electric car chargers at its petrol stations, but power production remains a relatively small part of its business, which is oil refining.

DIVERSIFICATION

Most of the oil PKN refines in Poland, Lithuania and the Czech Republic comes from Russia, but the company has taken steps to reduce that reliance.

In October the refiner received its first crude oil shipment from the United States, and it is also buying supplies from Saudi Aramco.

“We are the first company in Poland to have received an oil delivery from the U.S. after it lifted its export embargo. We did not have a bigger problem with refining it,” Kochalski said.

“I do not rule out that there will be more supplies from the United States. We also remain open for other delivery sources. For us, diversification is not a goal in itself. We use it as a tool for building a safe portfolio of commodities,” he added.

    PKN Orlen’s major oil suppliers remain Russia’s Rosneft and Tatneft, and the Polish refiner is concerned with the deteriorating quality of Russian Urals crude.

    “We have observed the change in Urals quality, mainly because of the increased sulphur content. This is a significant issue in the context of our future cooperation with Russian partners,” Kochalski said.

    “If part of the parameters differs, then it opens room for negotiations with partners, also regarding price conditions.”

    TAKEOVERS

    PKN will likely retain a cautious approach to potential takeovers of upstream assets abroad due to high oil prices. However, the company will be looking for targets among petrol stations, especially in the Czech Republic and Germany, where it already owns 401 and 581 stations respectively.

    “If the possibility of buying petrol stations in the Czech Republic or Germany comes up, then we absolutely have to analyse it,” Kochalski said.

    Commenting on the possibility of a merger - speculated upon occasionally in the local media - between PKN and its smaller state-run rival Lotos (LTSP.WA), Kochalski said it is rare that two state-run refiners compete on one market.

    “The owner’s decision would have to be the basis for our actions regarding a potential merger with Lotos,” Kochalski said.

    PKN also wants to take full control over Czech downstream group Unipetrol (UNPE.PR). PKN Orlen announced a tender in December offering 380 crowns per Unipetrol share. The deal, running Dec. 28 to Jan. 30, was conditional on acquiring at least 90 percent, the legal threshold allowing a forced buyout of remaining shares.

    “Considering that we offered a price that was good for us and fair for the sellers, we hope that the shareholders who had declared they would sell their shares have upheld their decision,” Kochalski said.

    He said the tender results would be known in a few days.

    Reporting by Agnieszka Barteczko and Anna Koper; Editing by Dale Hudson

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