|Author: Lubos Vesely|
ISSUES SURROUNDING THE PRIVATISATION OF THE PETROCHEMICAL INDUSTRY IN THE V4 COUNTRIES
The governments of Poland, Hungary, and the Czech Republic are facing important decisions in finalising the privatisation of key petrochemical companies. The process – which has been dragging on for many years and has led to numerous controversies, speculations, and doubts – is supposed to be concluded soon. Because of this field’s strategic importance to the security of these countries, one of the most serious issues here is the involvement of capital from Russia, which has showed considerable interest in acquiring pipeline operators and oil and gas processors.
Russian oil and gas supplies are essential for both all parties involved. The export of these commodities makes up almost half of Russia’s foreign-currency income; since 2000, the European Union and Russia have held their Energy Dialogue, and the EU’s dependence on Russian supplies has been increasing. Next year’s EU enlargement to encompass the Central European states will further increase this dependence. (Most of the gas currently imported by the EU comes from Russia; considering the growing consumption and the fact that about a third of the world’s deposits are located in Russia, Russian participation is likely to increase). The Visegrad group countries are the determining corridor for the transport of Russian raw materials to the West. Recently, they have also become the target for Russian companies interested in the privatisation of petrochemical and oil and gas transport companies. Although in a broader context gas and gas pipelines are of greater importance than oil (Russian gas made up 41% of the total imported amount in 2000, while oil was 16%, the second largest amount after Norway, and in particular Poland’s experience from negotiations on Russian gas supplies and the construction of the Yamal pipeline construction are more than cautionary), the purpose of this text is to deal with the less discussed, but equally important and more current issues of the petrochemical industry and oil pipelines.
The biggest prize is probably the privatisation of the Polish petrochemical industry, and this not only because of the size of the local market. As in other countries, the process has dragged on for many years and has been marked by non-transparency, the reluctance of almost all governments involved to give up control over these companies, appointing their own people to lucrative positions, and numerous steps that suspiciously seem to promote the interests of individual political or economic entities and not those of the state. In Poland, the governmental coalition of the Democratic Left Alliance and the Polish People’s Party began the privatisation process in 1995 by adopting the Programme for the Restructuring and Privatisation of the Polish Oil Industry and the subsequent establishment of the state-run Nafta Polska holding company, whose task was (and still is) to carry out the restructuring and privatisation of the Polish petrochemical industry.2 In March 1997, a tender was announced for the selection of a privatisation advisor for the largest Polish refineries – Petrochemia P?ock and the Gdansk Refinery.
The former merged in September 1999 with the state-owned CPN network of filling stations and today is the largest and wealthiest Polish company, bearing the proud name ‘Polski Koncern Naftowy Orlen’. Approximately 28% of PKN Orlen’s shares are held by the state, the rest is scattered among small, mostly anonymous investors, and the company lacks a strategic partner. The conservative government of Prime Minister Buzek made a hasty attempt at completing the privatisation before Parliamentary elections in 2001. Although the Hungarian concern MOL and Austria’s ?MV showed interest in merging with Orlen, neither possibility was realised. PKN has been trying to build itself into a large Central European petrochemical concern and in the past has shown interest in Slovakia’s Slovnaft and the Czech Republic’s Unipetrol; it recently bought several dozen filling stations in northeastern Germany. The attractiveness of this company, which owns the largest network of filling stations in the country and practically dictates fuel prices on the Polish market, is further enhanced by the fact that it holds almost half of the shares in the Gdansk oil terminal – the only alternative means for importing oil into Poland (otherwise the country is dependent on imports from Russia).
Hardly any bidders have shown interest in the Gdansk Refinery, Poland’s second largest. It was too small for Western companies, and when there was an investor, the Polish government considered the bid too low. For a long time, PKN Orlen was the only seriously interested party, but because of its ownership of the Gdansk harbour refinery, it would then achieve a monopoly position on the Polish market. This was in contradiction with the Programme for the Restructuring and Privatisation of the Polish Oil Industry, which calls for the existence of two competing fuel concerns. During the aforementioned 2001 attempt at rapid privatisation, two other potential investors made bids – Hungary’s MOL and Rotch Energy, which was eventually selected thanks to final discussions about buying 75% of Gdansk shares. However, it soon came to light that the company was registered in the Netherlands Antilles, its registered capital was worth two pounds, and its ownership structure was rather non-transparent. Although the consortium created by Rotch soon fell apart, there soon followed a new one, with 49% shares held by Russia’s Lukoil. The Russian oil giant was to deliver the promised 200 million USD and invest another 300 million in Gdansk. In Poland, a debate erupted about the possible consequences of Lukoil taking over the Gdansk Refinery, since it seemed likely that Rotch would hand the whole investment over to Lukoil immediately following the tender. 3 Even though the consortium replaced the Russian partner with PKN Orlen, the Minister of Treasury rejected the bid at the end of July and finally put an end to the whole Rotch affair. At the same time it was decided that the Gdansk Refinery would form the core of the Lotos Group, which was made up of three smaller refineries in the south of Poland and Petrobaltic, a company dealing with oil exploitation in the Baltic Sea.
According to Maciej Gierej, chairperson of state holding Nafta Polska, a decision on the procedures for privatising Lotos is to be made after the issue of establishing a Central European fuel concern is clarified. This procedure also involves Gdansk Refinery, which processes one fifth of oil in Poland, and whose strategic location near the Gdansk oil terminal (a quarter of its shares is held by Lotos) enables this company to be independent of imports from Russia. The Central European concern was to be created by linking Polish companies with Hungary’s MOL and Austria’s ?MV. Unlike ?MV, which allegedly has recently not been interested in this project4 , MOL has indicated its willingness to participate in the privatisation of the Gdansk refinery. Lukoil has not given up either, and is even negotiating with Gazprom about the possibility of using MOL for this particular purpose. 5 According to information from the Polish weekly Polityka, another Russian company, Yukos, which due to a formality was not allowed to participate in the previous tender6 , is planning to use MOL to take over the Gdansk refineries.
The fate of Polish oil transport and processing companies is still unclear. These include the strategically important Gdansk harbour terminal, and more importantly the state-owned Oil Pipeline Exploitation Enterprise (PERN), which as part of the restructuring process is to acquire 51% shares of the terminal (so far it has held 18%).7 PERN is the owner and operator of the Polish section of the Druzhba pipeline, which was launched in 1963. Druzhba transports oil to Poland’s largest refinery in P?ock (owned by PKN Orlen), with a second section continuing further to the former East German Schwedt. The capacity of the first section is 43 million tonnes/year; an increase to 60 million tonnes is planned to be completed in 2005. Some 27 million tonnes a year, about a third of Russian oil exports, are transported through this pipeline. PERN also owns the P?ock-Gdansk pipeline, which makes possible the annual transport of 30 million tonnes of oil from Gdansk and 20 million tonnes in the opposite direction. The company also owns three oil storage facilities. Other storage (for final products) is owned by PKN Orlen and Naftobazy, whose major shareholder is state-run Nafta Polska.
The Hungarian government will soon vote on the privatisation of the MOL concern, which unlike its Czech or Polish counterparts also controls pipelines in the country. What is more, the company owns 70% of shares in the Slovak Slovnaft refinery, owns several dozen filling stations in Romania, and in July 2003 acquired over a quarter of shares of the Croatian petrochemical company INA. The results of a tender for the sale of 79.5% of shares in the Serbian state-run company Beopetrol, where from the five original bidders only MOL and Lukoil remain, are to be announced at the end of August. Recently MOL concluded an agreement with Russia’s Yukos, which after a merger with Sibn?f? became one of the world’s largest companies in this field; the agreement will form the basis for a joint investment venture into oil drilling in western Siberia.
MOL itself is still owned by the state; less than 10% is held by Austria’s ?MV and over a third of the shares are owned by foreign banks and funds. As with Poland’s Orlen, there are questions surrounding recent purchases of MOL shares on the stock market. One reason for purchases of small amounts of both companies’ shares may be attempts at increasing the shares’ value; others speculate that Russian companies might be trying to gain influence in both companies. This possibility seems to be substantiated by the recent purchase of almost three percent of MOL by Austria’s VCP Capital Partners, which is known for its links to Hungary’s BorsodChem and TVK, which are connected to Russia’s Gazprom. 8 In October 2002 Prime Minister Peter Medgyessy’s government decided to sell the state’s 25% share in MOL. In addition to ?MV, Russia’s Gazprom has the greatest chances for acquisition – the company is, some analysts say, a slight favourite among the socialist government, which is to decide on the new owner by the end of this year.
The privatisation of the Czech petrochemical holding Unipetrol – 63% of whose shares are held by the National Property Fund (FNM) – is to begin in October this year. This is in fact the second attempt at privatisation – the FNM had already in February 2002 signed a contract for selling its shares to Agrofert Holding, owned by Andrej Babi?. However, Babi? failed to pay the originally promised 361 million euros for Unipetrol and in autumn 2002 the Czech government decided to put Unipetrol up for sale again. The highest bid (444 million euro) had been made by the abovementioned Rotch Energy, but Milo? Zeman’s government rejected the offer because the Prime Minister felt that Rotch Energy, which around that time had also won the tender for the Polish refinery in Gdansk, had failed to respect the agreements. 9 Rotch has already indicated that it would participate in the second tender as well. According to Euro magazine, quoting an advisor to former Finance Minister Rusnok, ”it is not likely that [Rotch Energy] will be turned down again, provided it offers the highest price“.10 Other parties interested in the first privatisation of Unipetrol included Austria’s ?MV, Russia’s Lukoil and Sibur, which is owned by Gazprom, and the Canadian-German consortium Norex Petroleum/BAGS. According to some analysts, Norex is controlled by Russian companies. Besides the aforementioned companies, Poland’s PKN Orlen and Hungary’s MOL (which may create a consortium for this purpose) want to participate in the second attempt at privatising Unipetrol and its lucrative subsidiaries, including Benzina and ?esk? rafin?rsk?11 – the Czech Republic’s largest oil processor and producer of petroleum products.
According to available information, the future of the current administrator of pipelines in the Czech Republic – MERO a.s., 100% of whose shares are held by the National Property Fund – is not being considered. MERO administers part of the ‘socialist’ Druzhba pipeline within the Czech Republic, and the Ingolstadt-Kralupy pipeline (IKL), built in the 1990s in order to ensure independence from Russian oil. The annual transport capacity of both pipelines is 10 million tonnes. Druzhba exploits about a half of the capacity, IKL about one tenth.
The strong interest of Russian capital in petrochemical companies in Central and Eastern Europe is evident; considering the fact that Russian refineries are able to process only about a third of the oil extracted within the country, it is also understandable. Russia’s clear goal is to be able to sell the final products, and Central European refineries pose a tempting opportunity for accomplishing this goal. Russian companies with substantial support from the Russian state have been making efforts at taking over numerous petrochemical companies in Central and Eastern Europe. According to an article by Igor Ivanov, Russian Minister of Foreign Affairs, in the Russian newspaper Komersant on 2 July, supporting Russian investments in these companies is one of the priorities in Russia’s relationships with Central Europe (besides holding political dialogue and using good relations with new members in Russian policy concerning the EU and NATO). In the opinion of Poland’s Centre for Eastern Studies, it is possible to deduce from recent statements by Russian representatives, that “the Kremlin will do anything to prevent Eastern European countries’ independence from Russian supplies of raw energy materials” 12 .
In September 2002 Yukos took over Lithuania’s Ma?eiku refinery after Ma?eiku found itself in a critical situation due to limited oil supplies from Lukoil. Besides the refinery, Yukos also acquired an oil terminal in Butinge harbour. The same scenario is likely to happen in the case of Latvia’s Ventspils oil terminal. 13 Russia has been trying to take over transport channels and refineries in Belarus and in Ukraine. One of its decisive arguments has been to limit supplies of strategic raw materials. Russia is also opposed to the Odessa-Brody-Gdansk pipeline, which would ensure the transport of oil from the Caspian Sea to refineries in Central Europe (and further, from Gdansk harbour) while avoiding the overburdened and risky Bosporus and Dardanelles (the pipeline is planned to run from Brody to the largest Polish refinery in P?ock). Last but not least, the purpose of the project is to free Ukraine from dependence on Russian oil. In 2001 the first part of the pipeline – from Pivdenny terminal (southern) near Odessa to Brody in western Ukraine, where it connects to the Druzhba pipeline – was completed. Caspian oil was to have flowed to Germany and the former Yugoslavian states via Slovakia and the Czech Republic as early as 2002, creating serious competition for Russian oil. For these reasons, Russia is trying various means to get Ukraine to change the route of the pipeline14 . The last negotiations on transporting Caspian oil to Central Europe failed due to resistance of a Russian company that had acquired shares in Slovakia’s Transpetrol, which administers the Slovak section of the Druzhba pipeline.
Yukos has owned 49% of Transpetrol shares since the beginning of 2002. The Russian investor acquired the company from the Slovak state for 74 million USD, when it beat domestic Slovnaft in a tender. Yukos is supposed to ensure better exploitation of existing capacity, of which only one half is used. This might be done by connecting the Adria and Druzhba pipelines and seeking new transport channels to Western markets. 15 (In mid-August 2003 Yukos and Austria’s ?MV agreed to build a branch of Druzhba from Bratislava to an Austrian refinery in Schwechat near Vienna.) Connecting Druzhba with Adria was supposed to be financed by a consortium of companies from Russia, Ukraine, Belarus, Slovakia, Hungary, and Croatia. Its purpose is to put into operation a pipeline parallel with the current Adria, thus making possible the transport of Russian oil towards the Adriatic sea, where it can be loaded onto large tankers at the Croatian terminal of Omi?aj? and transported overseas.
Russian companies will certainly try (whether directly or indirectly) to acquire Central European refineries and pipelines. Because of their financial might, they will not have any problem making lucrative bids. If they do not succeed, they will probably try to obtain shares from the new owners or, if possible, by buying them on the stock market. Governments deciding on the privatisation of strategically important petrochemical companies should be particularly aware of the following risk factors, whose importance will grow with the number and type of companies in the region controlled by Russian firms:
If Russian companies gain control of oil or gas pipelines (something they will attempt in their efforts to secure the easiest and cheapest possible transit to Western Europe), they will be able to promote one-sided orientation towards Russian raw materials – as shown by the example of Slovakia’s Transpetrol – or consider transporting Russian oil by reversing the flow in the Ingolstadt-Kralupy pipeline.
Russian companies, though wealthy and large even by global standards, are vulnerable to blackmail by the state, as shown by the Kremlin’s recent intervention against Yukos.
Russian companies, which are gaining influence in refineries, will always promote sales of Russian raw materials; diversification of sources will not be among their interests, which creates a risk of developing dependence on Russian raw materials.
A situation in which both pipelines and processing companies are Russian-controlled poses the risk of a monopoly with all the possible consequences of such a situation for the countries in Central Europe and the entire EU. (This seems to be what Russian companies, supported by the Russian government, are intensively trying to achieve at the moment – and will continue to do in the future.)
Considering the importance of the petrochemical industry, the owners of these companies always have a major influence on the economy and politics of a country.
Russian companies are often linked to the underworld and, rather non-transparently, to political circles.
Russian foreign policy uses, and will continue to use, these companies for promoting its goals.
The region may become dependent on developments in Russia, which are still difficult to predict, especially in the medium- and long-term perspective.