NIK crushes merger of giants

Banaś on the merger of Orlen and Lotos and the control of NIK TVN24

The divestment of assets during the Orlen and Lotos merger at PLN 5 billion less than their estimated value was deemed unprofitable – as per the conclusions of an audit carried out by the Supreme Audit Office within the Orlen corporation. – The merger lacked economic justification – stated the head of NIK, Marian Banaś, at a recent press briefing.

The Supreme Audit Office disclosed the findings of the audit regarding the merger of Orlen with the Lotos Group on Tuesday. Earlier, in February 2024, NIK released a report indicating that the auditors, using documents from the Ministry of State Assets and the Ministry of Climate and Environment, found that Lotos was undervalued by around PLN 5 billion. At that time, NIK auditors were restricted from accessing Orlen to verify this with the company’s records.

The PLN 5 billion figure was corroborated by an ad hoc audit carried out by the Supreme Audit Office concerning the Orlen-Lotos merger.

– A critical aspect of our findings is that this deal was executed for an amount that was PLN 5 billion lower than its market value. Such mismanagement by the leadership is harmful to the interests of the Polish economy. Furthermore, to portray this transaction as profitable, Orlen factored in future uncertain synergies totaling over PLN 10 billion when reporting the merger outcomes. These projections were inaccurate – commented the head of NIK, Marian Banaś.

– Consequently, following this merger, the State Treasury lost influence over approximately 20 percent of the refinery product market, diminishing its control over the nation’s vital energy resources. This posed a clear risk to our fuel security – he remarked.

– Additionally, ownership and operational structural changes, such as Aramco’s dominance in the Gdańsk Refinery, heighten Poland’s vulnerability to fuel shortages. The transfer of essential terminals to entities beyond the control of the State Treasury exacerbates these concerns. Through the release of this audit’s findings, we urge action to ensure improved management and safeguarding of public interests moving forward, thereby bolstering Poland’s security and standing in energy markets – added Banaś.

NIK Oversight

The most significant irregularity identified during the review is the sale of specific assets of Grupa Lotos and Orlen below their estimated values. Consequently, the assets involved in the remedial measures were sold for at least PLN 5 billion less than their valuations, according to NIK estimates (while Orlen claims it was around PLN 4 billion below the valuation).

NIK concluded that the transaction had no economic basis from the outset, and the advantages that would validate the merger’s objectives were not delineated. Due to the magnitude of the venture, the transaction was subjected to scrutiny by the European Commission. The EC proceedings culminated in the establishment of so-called remedial measures, comprising, among others:

– divestment of 30% of shares in the Gdańsk Refinery with processing rights, disposal of wholesale operations, an additional right to purchase fuels under an off-take agreement, access to crude oil storage capacities, provision of logistics services for fuel transportation to terminals, and sale of Lotos Biopaliwa sp. z o. o.;

– sale of 9 fuel terminals (5 owned by Grupa Lotos and 4 by Orlen) to an independent logistics operator, freeing up storage capacities in selected terminals, and executing investments in the Szczecin terminal along with its sale;

– sale of at least 389 petrol stations from the Lotos Group network;

– divestment of Grupa Lotos’s interest in JV Lotos Air BP, agreement for the supply of aviation fuel, and release of Grupa Lotos’s capacity for aviation fuel;

– divestiture or long-term lease of Grupa Lotos’s asphalt assets.

NIK pointed out that the scope of remedial measures negotiated by Orlen with the European Commission consistently adversely affected the economic viability of the project. 

„The final package of remedies was exceptionally stringent, particularly due to the extent of divestitures, and in the long run diminished the synergistic potential of the merger. During discussions with investors, Orlen did not secure favorable pricing offers, except for MOL’s proposal, yet it still aimed to complete the merger process,” the statement from the Chamber reads.

Esteemed Advisors

NIK reported that Orlen and Grupa Lotos engaged external legal and economic advisors for the transaction. A total of PLN 252.8 million was allocated for opinions, valuations, and analyses connected to the merger process – Orlen compensated the advisors to

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