PKN Orlen: requests Polish PM support on Mazeikiu

PKN Orlen has asked PM Marcinkiewicz for political support in its efforts to acquire Mazeikiu refinery in neighboring Lithuania, in an official letter sent earlier this week. Please note that recently PKN Orlen has been notified by Lehman Brothers, acting on behalf of Yukos, that although PKN Orlen’s offer for Mazeiku Refinery has been “interesting” and “opens ground for further discussion”, the Lithuanian government opposes selling the refinery to the Polish company. The letter confirms the position of the parties involved, this has been apparent for some time. It looks like the tender for Mazeiku Refinery might be postponed, even indefinitely, unless political pressure from the side of Polish cabinet succeeds in removing the deadlock. However, according to local press reports, there seems to be no such an initiative underway.

Meanwhile, it is still not clear, whether any major changes to PKN Orlen’s BoD will take place during Supervisory Board scheduled for today. We view it as a potentially negative factor for PKN Orlen, taking into account the current management team’s high reputation and its involvement in negotiations on acquiring Mazeikiu refinery in neighbouring Lithuania.

PKN Orlen will hold an analyst conference in Warsaw, with the participation of CEO and CFO, later today at 15.00 CET. While the official subject of the meeting are 2005 results and 2006 plans, we expect to hear management comment on the current situation.

We reiterate our Buy rating for PKN Orlen. We continue to see upside potential, based on PKN Orlen’s restructuring potential and an expected increase in the profit contribution of the petrochemical segment, becoming more visible in 2006.