Poland studies energy sector mergers, copper concerns

WARSAW (Reuters) - Poland surprised the markets on Monday with plans to merge its biggest oil and gas firms to forge central Europe’s No.1 energy company and prevent any hostile takeover threat.

A thunderstorm approaches a shale gas fracking facility run by Poland's PKN Orlen company on the outskirts of the village of Uscimow, southeastern Poland, June 5, 2013. REUTERS/Peter Andrews

Treasury minister Dawid Jackiewicz is considering tie-ups between the state-run oil refiners PKN Orlen PKN.WA and Lotos LTSP.WA, and gas firm PGNiG PGN.WA, with the analysis to be ready by the end of this quarter.

Put together their joint market value would stand at 60 billion zlotys ($15 billion), almost twice as much as Austria's OMV OMVV.VI and three times the market cap of Hungary's MOL MOLB.BU.

“I have started works on this concept to find out what positive effects one could expect,” Jackiewicz said. “This is about strengthening our position in these companies in order to prevent attempts of hostile takeovers.”

Poland controls PKN via a 27.5-percent stake, holds 53.2 percent in PKN’s smaller rival Lotos and 72 percent of PGNiG. Jackiewicz said that the treasury would consider more than one merger option between the three.

The government, formed by last-year’s election winner - the conservative Law and Justice (PiS) party, considered merging PKN and Lotos already in 2007, fearing the groups, which mostly refine Russian oil, could be targeted by a Russian rival.

PKN’s newly appointed chief executive, Wojciech Jasinski, was the treasury minister in PiS’ previous government in 2006-2007, working on the merger that did not happen.

The market worries that such a move now would add to a campaign to seize more control over the economy by Poland’s ruling conservatives after the government already ousted several top executives of state-owned companies, including PKN.

“This is another signal for the investors that the government is entering the strategic sector. Investors want to make money and the state has different, not necessarily market-related aims,” Radoslaw Lipinski, analyst at Pekao Investment Banking said.


Jackiewicz added that the treasury has doubts about the multi-billion investment by the also state-run KGHM KGH.WA - Europe's No.2 copper producer - in Chilean mines.

KGHM's key foreign asset is the Chilean Sierra Gorda mine, co-owned with Japan's Sumitomo 5713.T. It holds 5.5 million tonnes of copper deposits, coupled with molybdenum, and launched commercially last year.

KGHM gained control of Sierra Gorda in 2011 when it bought Canadian rival Quadra FNX for C$2.87 billion ($2.04 billion), the largest ever foreign acquisition by a Polish company.

Since then Chinese demand worries weighed on copper, used by power and construction industries, while swelling oil stocks have hit molybdenum, used in refining and steel production.

KGHM is now worth around half of its market cap at the end of 2011. According to Jackiewicz, the miner should diversify its operations, possibly into the energy sector to be less exposed to copper price CMCU3 falls.

Poland's biggest bank PKO BP PKO.WA and insurer PZU PZU.WA, both state-controlled, should in turn invest in Poland's troubled coal mining firm Kompania Weglowa, which is now looking for investors, the minister said.

Reporting by Marcin Goclowski; additional reporting by Bartosz Lada; Writing by Agnieszka Barteczko; Editing by Adrian Krajewski and William Hardy