Orlen should think before ferts sale - analyst

23 September 2008 12:34  [Source: ICIS news]

PRAGUE (ICIS news)--Poland’s PKN Orlen should consider disposing of its fertilizer business only while retaining its polyvinyl chloride (PVC) and other chemical production units, an ING analyst said on Tuesday.

 

New Orlen chief executive Jacek Krawiec had advised analysts that the board generally favoured unloading PVC and nitrogen fertilizer subsidiary Anwil, a move ING analyst Tamas Pletser said might be unwise.

 

Pletser was reacting to Orlen previews of its likely fully revised mid-term strategy, set to be released in October.

 

“I would perhaps only sell the fertilizer part because it uses natural gas, which is completely externally sourced, and so is not linked to Orlen's core assets,” he said.

 

“Added to that, Orlen could obtain a good price because fertilizer firms are rising on the world food price boom [that is encouraging farmers to grow more crops]. But the PVC production is based on ethylene feedstock coming from Orlen itself and PVC margins are at a low now, so it will anyway be more difficult to sell,” added the analyst.

 

Orlen had further advised analysts that once it had shed its chemical and fertilizer businesses it would be minded to pursue an equal split in between earnings from refining and petrochemicals.

 

Pletser said the ratio was quite variable because they were both volatile businesses, but that under normal circumstances refining usually secured Orlen between 50% to 100% more income than petrochemicals.

 

Orlen could be looking to build up its petrochemical business in line with plans to expand diesel capacity to address Europe's ongoing diesel shortage, he said.

 

This might involve going ahead with plans for a propylene splitter at its refining subsidiary Mazeikiu Nafta in Lithuania and adding capacity to Basell Orlen Polyolefins (BOP), the Polish joint venture in high-density polyethylene (HDPE) and polypropylene and polypropylene (PP) co-owned by Orlen and Basell, he added.

 

Orlen also confirmed plans to follow the wishes of its main shareholder, the Ministry of the Treasury, by attempting to reduce its predominant reliance on Russian oil and gas supplies by seeking oil and gas fields in Poland, the Baltic Sea, Ukraine, the Middle East and North Africa.

 

“The high emphasis on this is strange, Orlen has no money and no expertise upstream,” said Pletser. “It's disappointing. I had hoped the new Polish government would be less nationalistic and let [state] companies work by themselves.”

 

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By: Will Conroy
+44 20 8652 3214

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