State energy giant Orlen sold assets to Saudis for billions below value, finds Polish audit office

Poland’s Supreme Audit Office (NIK) has found that state energy giant Orlen sold assets to Saudi Aramco in 2022 at billions below their value. It also says that the sale, which gave the Saudis partial control over one of Poland’s two oil refineries, “resulted in significant security risks”.

NIK accused the former Law and Justice (PiS) government of failing to implement proper oversight of the sale. However, the state assets minister from that government has defended their actions and accused NIK of producing “unreliable and distorted” findings for political reasons.

Fuzja PKN Orlen i Grupy Lotos, kluczowa dla bezpieczeństwa paliwowego Polski, spowodowała powstanie istotnych ryzyk. Aramco uzyskało uprzywilejowaną pozycję w Rafinerii Gdańskiej, a państwo utraciło wpływ na kierunki sprzedaży ok. 20% produktów naftowych.https://t.co/K3rPSRwNgd pic.twitter.com/hbEHIF9NRn

— Najwyższa Izba Kontroli (NIK) (@NIKgovPL) February 5, 2024

NIK, a state agency tasked with monitoring public spending, today released a report on Poland’s oil sector in the years 2018-23. It focused in particular on the merger during that time of two state-owned oil firms, Orlen and Lotos, a process that began in 2018.

In 2020, the European Commission decided that the deal could only go ahead if Orlen agreed to sell off some of the merged firms’ assets in order to meet antitrust requirements.

As a result, in January 2022 Orlen announced the sale of a 30% stake in the Gdańsk oil refinery to Saudi Aramco and hundreds of Lotos’s petrol stations to Hungary’s MOL. The sales were completed in December the same year.

Saudi Aramco and Hungary’s MOL have completed the purchase of Polish assets that was required for Orlen to take over Lotos

Aramco now owns 30% of the Gdańsk oil refinery while MOL is acquiring 417 petrol stations, making it Poland’s third largest operator https://t.co/bKiaevPux9

— Notes from Poland 🇵🇱 (@notesfrompoland) December 1, 2022

NIK notes that Orlen received 4.6 billion zloty (€1.1 billion) for the assets it sold in order to meet EU requirements. The auditors say that this is 5 billion less than their estimated value.

They raise particular concern over the sale of the stake in the Gdańsk refinery, which brought in 1.1 billion zloty for assets that NIK estimates were worth 4.6 billion zloty.

Moreover, the deal gave Aramco – a state-owned Saudi energy firm – the right to veto strategic decisions relating to the refinery as well as to dispose of 50% of its production. It can also resell its shares in the refinery without the Polish state treasury having the authority to block such a transaction.

That resulted in “the state treasury losing influence over approximately 20% of the market for refinery products produced in Poland” and created the “risk of a shortage on the [Polish] fuel market”, concluded NIK.

Polish state energy giant Orlen has been ranked as 44th largest company in Europe by @FortuneMagazine.

It is the only firm in the region between Germany and Russia to reach the top 50, and also recorded the largest annual revenue growth among those firms https://t.co/GbeyGVFuP7

— Notes from Poland 🇵🇱 (@notesfrompoland) November 9, 2023

The audit office added that, while it had been able to inspect documents relating to the sale at government ministries and agencies, Orlen has refused to open itself for audit. That left NIK “unable to determine the reasons for the sale of some assets below their value”.

However, it noted that “the consulting company preparing analysis related to the merger for the state assets minister indicated the risk of not obtaining a market price due to Orlen’s weak negotiating position resulting from the obligation to meet the conditions set by the European Commission”.

But NIK found that the state assets ministry, which was then headed by PiS politician Jacek Sasin, “failed to properly supervise” the Orlen-Lotos merger and that Sasin himself “acted incorrectly”.

Raport NIK na temat fuzji Orlenu i Lotosu jest materiałem nierzetelnym i przekłamanym. Dane użyte w nim są wybiórcze, fragmentaryczne i zostały wybrane pod z góry upatrzoną polityczną tezę. Wiąże się to z zaangażowaniem politycznym prezesa Mariana Banasia, który obiecywał nowej…

— Jacek Sasin (@SasinJacek) February 5, 2024

In particular, the ministry “did not have full knowledge of the costs and benefits of the merger and its effects on fuel security and the security of critical infrastructure” and simply “repeated Orlen’s calculations without knowledge of the source data and methodology”.

Sasin “almost completely abdicated the exercise of prerogatives arising from his statutory role as the minister responsible for state assets” and “adopted a passive attitude in the merger processes”, concluded NIK’s report.

Finally, NIK today announced that it was filing a notification with prosecutors, asking them to investigate Orlen’s refusal to cooperate with the audit. The firm has argued in the past that it has no obligation to do so, but NIK says that it does.

Poland’s Supreme Audit Office is seeking charges against the country’s largest company, energy giant Orlen, after the firm refused attempts by NIK to audit it.

Orlen argues that the audits had no legal basis and it therefore could not cooperate with them https://t.co/nG55wR8b75

— Notes from Poland 🇵🇱 (@notesfrompoland) February 1, 2023

In response to today’s announcement by NIK, Sasin – whose PiS party is now in opposition, having been removed from power in December – dismissed the findings as unjustified and politically motivated.

He pointed to the fact that the head of NIK, Marian Banaś, was a regular critic of the PiS government and that, shortly before last year’s elections, a secret recording emerged suggesting that Banaś would use his office to provide some “gifts” for the then opposition.

“NIK’s report on the merger of Orlen and Lotos is unreliable and distorted,” wrote Sasin on social media. “The data used in it are selective, fragmentary and were selected for a predetermined political thesis.”

“This is related to the political involvement of Marian Banaś, who promised the new government ‘gifts’ intended to strike at its predecessors.”

A secret recording has been published by Polish state TV purporting to show the head of the state audit office discussing a plan to use his position to help the opposition ahead of this Sunday’s elections https://t.co/dPUdHgCXUF

— Notes from Poland 🇵🇱 (@notesfrompoland) October 13, 2023

Orlen’s former CEO, Daniel Obajtek, who oversaw the merger and is a close ally of PiS, has also regularly defended the deal and denied claims that any assets were sold below their value.

Last week – shortly before it was announced that Obajtek was being fired – he told TV Republika that the “entire process was carried out properly”, that “the refinery was sold for market price”, and that the merger helped Orlen achieve “20 billion zloty in synergies”.

Obajtek also defended Orlen’s decision not to admit auditors from NIK, saying that the agency is meant to audit public funds whereas Orlen “has shareholders funds” and “all shareholders have an equal right to access information about the company”. Orlen is 49.9% owned by the state treasury.

The CEO of Polish state energy giant Orlen has been dismissed.

Daniel Obajtek oversaw a rapid expansion of the firm, which is now ranked among Europe’s 50 largest.

But he was also accused of using its resources to support the former PiS government https://t.co/Ta277LGRfh

— Notes from Poland 🇵🇱 (@notesfrompoland) February 1, 2024

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Main image credit: Orlen (press materials)

Daniel Tilles is editor-in-chief of Notes from Poland. He has written on Polish affairs for a wide range of publications, including Foreign Policy, POLITICO Europe, EUobserver and Dziennik Gazeta Prawna.