PKN had decided to temporarily withhold the production and sale of the bio-fuel and Lotos will reconsider its plans to launch production of bio-fuels in 2007. The decision was made due to the new regulation coming into force on January 1st, 2007, which changed the previous law referring to exemptions from excise. The production could be postponed until 2008 when all Polish fuel producers will be legally obliged to add bio-components to the fuels they sell.
Our view: We see the news as slightly negative for PKN Orlen, which has already invested into the biofuel business, which now proves to be unprofitable. For Lotos, however, we think that market has still not calculated with the potential profits from the biofuel production, thus the neutral reaction to the news is expected.