Polish state energy giant Orlen halts petrochemical plant project launched under former government

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Notes from Poland is run by a small editorial team and is published by an independent, non-profit foundation that is funded through donations from our readers. We cannot do what we do without your support.

State energy giant Orlen, Poland’s largest firm, has announced that it is abandoning a multi-billion-euro project launched under the former Law and Justice (PiS) government to build a new petrochemicals plant. It claims that costs have soared to six times the original estimate.

Billions have already been spent on the planned Olefin III plant in the city of Płock. But Orlen claims that halting construction now will save the firm from potential losses on an unprofitable project. It has also notified prosecutors of alleged irregularities in how the investment was previously managed.

The decision to scrap the project was, however, criticised by Daniel Obajtek, Orlen’s former CEO and now a PiS politician

Błędy zarządcze i projektowe. Ignorowanie zasad ekonomii i megalomania. To właśnie Olefiny 3. Miały kosztować 8,3 mld zł, a kosztowałyby 51 mld zl. Dlatego zatrzymujemy tę inwestycję. Rozpoczynamy natomiast program Nowa Chemia. Znaleźliśmy najlepsze wyjście z najgorszej… pic.twitter.com/I9JI5Mqb2b

— Biuro Prasowe ORLEN (@b_prasoweORLEN) December 11, 2024

Olefin III was supposed to help Orlen increase the efficiency of crude processing, allowing the company to produce more of the materials needed to make plastics used in, among other things, car parts, household appliances and cleaning products.

Today, however, the company announced that a comprehensive review of the project uncovered significant irregularities, including flawed assumptions, disregard for market conditions, design failings, and issues with scheduling and implementation technologies.

Orlen said that prosecutors have been informed of those irregularities and that the company is considering a compensation claim against former management board members.

The firm notes that the initial cost of the project was estimated at 8.3 billion zloty (€1.9 billion) but last year that figure was increased to 25 billion zloty (€5.9 billion) while also excluding from the plans some of the advanced chemicals that were supposed to be produced by the plant.

Orlen now estimates that full implementation would have pushed the total cost to 51 billion zloty (€12 billion), making the investment unprofitable.

Around 13 billion zloty has already been spent on the project, with contracts worth an additional 8 billion zloty also having been signed. But Orlen’s CEO, Ireneusz Fąfara, says they now hope to renegotiate some of those deals, reports news website Stockwatch.pl.

Polish state energy giant Orlen says it has notified prosecutors of possible criminal offences by the firm’s management under the former PiS government that caused losses estimated at over €1.2 billion.

The firm’s ex-CEO says the claims lack credibility https://t.co/xVof2iXoQe

— Notes from Poland 🇵🇱 (@notesfrompoland) October 9, 2024

“It was a monumental, unnecessary, ill-prepared, ill-priced and completely misguided investment,” Fąfara said of Olefins III at a press conference.

Orlen wants to leverage existing infrastructure built under the Olefin III initiative to mitigate economic costs by launching a project called New Chemistry (Nowa Chemia) that is intended to extend the lifecycle of another of Orlen’s plants in Płock, Olefin II.

To make the project work, however, Orlen will have to spend around 12 billion zloty. But Fąfara said that is a “lesser evil” than moving forward with Olefin III.

Polish state energy giant Orlen’s quarterly profits are down 96% on last year.

That has prompted opposition claims that the firm’s new management, installed after the change in government, is „screwing up”.

But Orlen denies that and its shares rose today https://t.co/1Prm8kL7Zy

— Notes from Poland 🇵🇱 (@notesfrompoland) November 14, 2024

The decision to halt the investment was criticised by Obajtek, who led Orlen from 2018 until this year, after which he successfully stood as a PiS candidate for the European Parliament.

He said that Olefin III would have been “the foundation for further development” of the company, adding that its abandonment “stops an entire branch of petrochemicals in which many countries are investing, including the US, Saudi Arabia, Belgium, Germany.”

“To pull the wool over their eyes, they write that there will be some kind of continuation in the form of a new programme,” Obejtek wrote on X. “[But it is] a PR ploy to derail everything associated with the company’s former management.”

Zatrzymali największą inwestycję petrochemiczną w Europie i zarazem jedyną w Europie Środkowo-Wschodniej, która jest fundamentem dalszego rozwoju @GrupaORLEN ❗️❗️❗️

Jej zatrzymanie to zatrzymanie całej gałęzi petrochemii, w którą inwestuje wiele krajów, między innymi Stany…

— Daniel Obajtek (@DanielObajtek) December 11, 2024

Separately, an investigation published today by broadcaster TVN and news website Wirtualna Polska revealed that, under its previous management, Orlen ceded control of a critical part of the Olefin III project to Synthos, a company owned by billionaire Michał Sołowow, one of Poland’s richest men, purportedly to save costs.

However, this decision compromised Orlen’s control over the investment while the savings amounted to just 3.7% of the project cost, leaving the company exposed to potential financial penalties of up to 1 billion zloty, claim the media outlets.

Following today’s development Orlen’s shares had fallen 3.4% by around 12:30 p.m.

Notes from Poland is run by a small editorial team and published by an independent, non-profit foundation that is funded through donations from our readers. We cannot do what we do without your support.