ORLEN Lietuva is a subsidiary of PKN ORLEN of strategic importance for the entire region. It needs to continue to grow, to leverage its full potential.

PKN ORLEN plans to upgrade the Lithuanian refinery. The investment will boost the plant’s capacity and ensure its efficient operation even in the volatile macroeconomic environment. The Group has already taken steps to further deepen crude processing (increase conversion) at the Mazeikiai Refinery. Following a period of analyses, a contract was concluded with the selected provider of the licence and front-end engineering design for a hydrocracking facility to process vacuum residue at the Lithuanian plant. Deeper conversion is a key factor needed to increase the fuel yield from processed crude.
The cooperation between PKN ORLEN and Lithuanian Railways plays a major role in the context of ORLEN Lietuva’s further development. On 14 August 2018, the heads of both companies, Daniel Obajtek and Mantas Bartuska, signed an agreement on extending the cooperation. It was followed by the symbolic opening of the reconstruction of tracks on the ORLEN Lietuva – Renge line.
In accordance with the cooperation agreement signed in Mazeikiai, ORLEN Lietuva, a Lithuanian company of the ORLEN Group, declared its continued use of the Lithuanian Railways. The parties committed to extend their cooperation to cover freight transport towards the Polish border. ORLEN Lietuva will be shipping several thousand tonnes of product a year on this route. This will enhance the operational flexibility of the ORLEN Group and improve the fuel security of both the Baltic countries and Poland.

Investment of the Century in Lithuania
ORLEN Lietuva received the “Investment of the Century” award during the Polish-Lithuanian Economic Forum organised under the auspices of the Polish President and the Prime Minister of Lithuania. The award was handed over by the Lithuanian Prime Minister Saulius Skvernelis, who said: “We greatly appreciate ORLEN’s contribution and role in the process of upgrading the refinery in Mažeikiai, where the Group purchased a controlling stake in 2006. It was a fundamental, strategic partnership confirming the Polish government’s support for Lithuania and the energy security of the entire region. The success of AB ORLEN Lietuva is of strategic importance for Lithuania. We are happy that ORLEN Lietuva plans to continue its investment projects in Lithuania”.
ORLEN Lietuva is the largest company, exporter and taxpayer in Lithuania. Since 2006, PKN ORLEN has spent nearly USD 4 billion on the purchase of the refinery in Mažeikiai and further investments in the facility.

At the beginning of October this year, PKN ORLEN closed the deal to purchase 100 percent of shares in Czech Republic’s Unipetrol.

This means a better use of the resulting synergies and more effective ways to implement optimisation processes within the ORLEN Group. It will also bring tangible benefits to the Czech company, by significantly strengthening its competitive position in the region.
The purpose of the integration process is to create an entity that will operate much more efficiently as a whole and will be better positioned in the competitive market. The Unipetrol acquisition will make the ORLEN Group stronger. Coupled with the planned takeover of LOTOS Group, it will allow it to compete more successfully on the demanding European market.
The closing of the Unipetrol acquisition is a major step on the path towards further growth of the ORLEN Group. One of its strategic goals is to intensify production in the company’s petrochemical arm, with the construction of the polyethylene (PE3) unit in Litvinov as the key project in this area. This production unit will significantly strengthen Unipetrol’s position in the dynamic petrochemical sector both in the Czech Republic and at group level.
The share acquisition process was conducted in accordance with applicable Czech regulations: the decision of the General Meeting of 28 August 2018 was preceded by submission of the required documents and approval by the Czech National Bank of the share purchase for the proposed price of CZK 380 per share.
Unipetrol a.s. is the largest refining and petrochemical group in the Czech Republic. It consists of refineries in Litvinov and Kralupy, the “Benzina” chain, the biggest network of filling stations on the local market (more than 400 stations) and Spolana, the only PVC and caprolactam manufacturer in the Czech Republic. The company’s petrochemical arm is a very important area of its business; it is located in Litvinov, where the construction of a polyethylene (PE3) unit is currently underway with the aim of strengthening the position of the ORLEN Group on the chemical and petrochemical market in Central Europe. Completion of the Litvinov unit, with capacity of around 270 thousand tonnes a year, will provide for better use of the Olefins’ installation and a deeper integration of petrochemical and refinery production. Efficient execution of the project will strengthen Unipetrol’s position in one of the world’s most promising industries.

Unipetrol a.s. is the largest refining and petrochemical group in the Czech Republic. It owns 406 Benzina filling stations. It includes the refineries in Litvinov and Kralupy.

PKN ORLEN sees an enormous potential in products manufactured by Polish entities. In 2018, the company strengthened its relations with domestic suppliers. More than 70 percent of goods sold on PKN ORLEN service stations come from Polish producers, and 83 percent of the products were manufactured in Poland.

Polish food products are distinguished by excellent quality, which is highly appreciated by consumers, as confirmed by the success of PKN ORLEN’s pilot project entitled “Pantry of the Regions”. Today, customers can choose from a range of more than 70 regional products delivered by 23 Polish farmers and businesses to almost 400 service stations in 4 voivodships. The products have strong regional roots and were produced entirely in Poland by manufacturers representing the domestic capital.
The “Pantry of the Regions” is an excellent platform for promoting local products from Polish manufacturers that often find it hard to compete with foreign vendors. PKN ORLEN sees the potential in extending the offer to a new group of 150-200 selected stations.
“Drink Polish Juices” is yet another important initiative of the Group, under which fruit juices from Polish producers will be sold in the entire chain of service stations. This is part of the company’s programme for extending its non-fuel offer, in accordance with customer expectations. It also allows ORLEN to support Polish fruit-growers and local, usually family-owned, processing companies. As result of the initiative, ORLEN’s purchases of juices from Polish producers will increase by 150 percent.
The products covered by the programme include juices of domestic companies such as Bracia Sadownicy, Maspex, Owocowe Smaki (Agrestada), Sad Sandomierski and Sok z gór.
The Group also focuses on the dynamic development of own brands manufactured by local producers, which could largely replace foreign products. The first own brand category introduced by PKN ORLEN service stations was the spring water O!, which has enjoyed growing popularity with customers. The offer also includes chocolate and crisps. The company plans to intensify the development of own brands based on domestic manufacturers.
Procurement activities are carried out by PKN ORLEN on an on-going basis to execute and further its business plans. Participation in the tenders is open to all manufacturers through the CONNECT purchase platform.

“Drink Polish Juices” is an initiative expanding the sale of fruit juices from Polish producers to the entire service station chain in the country.

PKN ORLEN received – as the only Polish enterprise and for the fifth consecutive time – the title of “The Most Ethical Company” (WMEC).

The title of the World’s Most Ethical Company emphasises ORLEN’s commitment to integrity and its relentless focus on ethical business practices. It is awarded for one year only, after which companies can undergo re-evaluation.
The title is awarded by an international team of experts from the American Ethisphere Institute – a global leader in defining and advancing the standards of ethical business practice. The key criterion is the ability to incorporate ethics into the company’s daily operations and set ethical leadership standards. Experts evaluating the candidates take into account aspects such as corporate governance, social responsibility, human capital creation or innovation-related solutions.
The World’s Most Ethical Company is a very important award for our Group, which recognises the company’s achievements, but also motivates it to continue its efforts in this area. Strategic companies such as PKN ORLEN are responsible for establishing new business standards and setting the directions in business operations. Building appropriate value-based relationships with all stakeholders strengthens confidence in the company, contributing to its success.
“The companies that have been awarded the WMEC title in 2018 reveal a record-high level of engagement and collaboration with stakeholders and communities. Their priorities include measuring and improving culture, authentic leadership, promoting diversity and a transparency commitment. Year after year, we can witness how the broad notion of corporate responsibility is increasing in the world’s most ethical companies. Once again, we can see that companies operating on the basis of clearly defined rules succeed and grow in value”, said Ethisphere’s CEO Timothy Erblich.
The Ethisphere Institute is an independent centre of research that promotes good practices, corporate ethics and governance based on high-quality relationships with employees, business partners, investors and market regulators. The mission of the Ethisphere Institute is to promote best practices in corporate ethics and enable organizations to mitigate risk and improve relationships with employees, business partners, investors and the broad regulatory community by ensuring an independent review of their corporate ethics.

PKN ORLEN’s key goal for the coming years is to reinforce its position as the regional leader of the fuel and energy sector.

Integration of assets and expansion of the company’s modern petrochemical segment play a particularly important role in this process. However, the Group does not exist in a vacuum and is influenced by global megatrends. One of them is the development of alternative fuels, another one, of equal importance, is the tightening of environmental regulations. All of these factors will affect business. And while any talk of the looming oil sector collapse is definitely premature, the Group must brace itself for a transformation of the industry in the coming decades. In the face of the changing demand for petroleum-based fuels, demand for petroleum-based plastics, especially recyclable plastics, will be growing. Electric mobility ca serve as an example here; in order to reduce the weight of electric vehicles, manufacturers will have to use lighter, technically-advanced materials delivered by the petrochemical and chemical sectors. According to long-term forecasts, global sales of chemicals should nearly double by 2030. Implementation of the programme for development of the petrochemical business with capital expenditure at the level of PLN 8.3 billion will allow the company’s annual EBITDA to increase by up to PLN 1.5 billion after project completion. This means a return on the investment in a 5- to 6-year horizon. From the perspective of the Polish economy, investments in petrochemicals will significantly improve Poland’s balance of trade in petrochemical products. Poland will go from being an importer to being an exporter of those products. Hence, the programme will bring considerable, measurable benefits both for the company and for the domestic chemical industry.

Strategic merger

Merger with the Lotos Group is yet another key project of the company. Most European countries have already consolidated their oil industries, which gave rise to such giants as BP or Shell, whose shares in the Community market are much higher than those of PKN ORLEN and LOTOS Group combined. It is obvious that an integrated entity will be able to optimise its efforts in many areas, enhancing its competitive advantage for the benefit for the customers and for the Polish economy as a whole. Examples include the procurement function; negotiating a contract for 40 million tonnes of crude is very different from negotiating a contract for just 10 million. Please note that PKN ORLEN is the biggest company in the CEE region, responsible for the economic and energy security not only in Poland, but also in the Czech Republic or the Baltic states. In this context, strengthening of its leading position is advantagous for the entire region.
The commenced acquisition process of LOTOS Group by PKN ORLEN, in line with the interests of the companies and their environments as well as of the Polish economy, has a genuine chance at reinforcing their leading position on the European market while ensuring Poland’s energy stability.
On completion, the acquisition will naturally determine the strategic decisions of the ORLEN Group in the coming years. The fact that the ORLEN Group has already carried out a vast number of M&A transactions of various size, each strengthening its market position, will considerably contribute to the success of the process.
In the coming period, the Group will be taking major steps to evaluate, model, and schedule the planned transaction, as well as to lay down the details of its execution. It is very much in the interest of the national economy that a strong and integrated corporate group, well-positioned to compete in international markets and resilient to market fluctuations, is created, also by exploiting the operational and cost synergies between PKN ORLEN and LOTOS Group.
Not only will it give an edge to the business itself in its extremely demanding environment, but it will also considerably enhance Poland’s energy security.

Energy for business

The European downstream sector struggled with overcapacity last year. With demand expected to decline in the coming periods, only the most competitive producers will manage to survive on the market. The investment projects continued within the ORLEN Group last year aimed at maintaining the company’s competitive advantage by further enhancing the efficiency of its production assets and extending its value chain.
The Group was also actively engaged in developing its power generation capacity, which reached 1.9 GWe with the completion of the CCGT unit in Płock.

Diversification of supplies and contracts

The ORLEN Group’s crude oil supply policy for the refineries remains unchanged. Currently, as in the previous year, crude is supplied under forward contracts with producers from the CIS region and the Persian Gulf.
The other stocks are topped up on the basis of spot transactions, such as the first-ever delivery of Nigerian crude to the Płock refinery in October 2018. All decisions on crude oil supplies to the Group are considered from an economic perspective, so as to combine secure deliveries with commercial flexibility.
The Group is seeking and exploring new opportunities in this regard offered by the significant bargaining power it can gain through potential consolidation of the Polish oil sector.
Foreign markets underwent significant changes that will determine the business activities of ORLEN Group companies in the coming years. In Lithuania, with the support of both governments, the long-standing dispute between ORLEN Lietuva and the Lithuanian Railways was finally settled. As a result, the Group has decided to go forward with major investments in Lithuania.
On the Czech market, a bid was launched in December 2017 to buy up shares in Unipetrol, which was finally closed in October 2018, giving PKN ORLEN full ownership of the Czech company.

E-mobility on the rise

The ORLEN Group is also actively engaged in the development of e-mobility, including the sale of alternative fuels. As part of its investments in electric vehicle charging points, the company has selected 150 service stations located both in towns, cities and along transport routes to deploy EV chargers. The first stage of the pilot programme provides for the roll-out of around 50 fast charging points by the end of 2019. As result of the project, EV drivers should be able to cross the entire territory of Poland using the main traffic routes, both transport and urban roads, by 2019. Similar solutions are also planned for the Czech market. As regards alternative fuel sales, the company is currently testing hydrogen filling stations in Germany and CNG filling stands in the Czech Republic.