Orlen-Lotos Merger Draws Scrutiny

The European Commission opened an in-depth investigation into the planned merger of Polands two main oil companies, PKN Orlen and Lotos, to assess whether the deal would violate anti-monopoly rules in the lubricants industry and other markets.

The commission is concerned that the newly created entity could become the sole supplier of lubricants in Poland and would represent a monopoly in the supply of fuels in Poland and Estonia, with a dominant market presence in the Czech Republic.

In February 2018, oil major PKN Orlen oil first expressed its intention to acquire competitor Lotos Group. The merger would include Lotos only refinery and its petrochemicals business, including its network of fuel stations and lubricants marketing operations. Orlen and Lotos are the only suppliers of fuels, lubricants and other petrochemicals in Poland and Estonia, and each have significant market positions in the Czech Republic.

According to the letter of intent to purchase, Orlen is ready to acquire 99 percent of Lotos stock, whereas 52.19 percent of the shares are now owned by the Polish state. On July 3, Orlen submitted a formal application to the commission for approval of the acquisition.

In response, the commission issued a press release dated Aug. 7 where it concluded that the proposed acquisition would affect Polands and the regions strategically important energy markets.

The commission will investigate whether the proposed acquisition would reduce competition and lead to higher prices for or less choice of fuels and related products for business customers and end consumers in Poland and in the other [Eurpoean Union] member states, saidMargretheVestager, a commissioner in charge of the EUs competition policy.

Orlen claimed in its July 3 news release that the deal could consolidate the Polish oil market and that it is in line with similar consolidations in Europe such as the sectoral consolidations undertaken by such refiners as Hungarys Mol, Norways Statoil, Spains Repsol, Portugals GalpEnergia, Italys Eni, Austrias OMV and Frances Total. It will not in any way limit the competition on the respective markets in terms of fuels or logistics …. The Polish market is very competitive in this area, and this is not going to change in the future.

The commission said it is particularly worried about creation of a monopoly in the wholesale and retail supply of fuels in Poland and in some countries of Central and Eastern Europe and in the Baltics, and in the supply of lubricants in Poland. The commission is concerned that the merged entity would have the ability and incentive tostop supplying its downstream rivals, thus shutting them out of the markets.

The commission stated it is now carrying out an in-depth investigation and will announce its final decisions not later than Dec. 13.

Poland is among the 10 largest lubricant markets in Europe. According to the Polish Oil Industry and Trade Organization's latest data, the country consumed 227,000 metric tons of finished lubricants in 2017.