Mergers: Commission opens in-depth investigation into PKN Orlen’s proposed acquisition of Lotos

suit

(Credit: Unsplash)

This article is brought to you in association with the European Commission.


The European Commission has opened an in-depth investigation to assess the proposed acquisition of Lotos by PKN Orlen, under the EU Merger Regulation. The Commission is concerned that the merger may reduce competition in the supply of fuels and related markets in Poland and neighbouring countries.

Commissioner Margrethe Vestager, in charge of competition policy, said: “The proposed acquisition of Lotos by PKN Orlen would affect several strategically important energy markets. The Commission will investigate whether the proposed acquisition would reduce competition and lead to higher prices for or less choice of fuels and related products for business customers and end consumers in Poland and other Member States”.

PKN Orlen and Grupa Lotos (“Lotos”) are two large Polish integrated oil and gas companies. They are both mostly active in Poland, where they own the only two existing refineries, but they also have activities in several other Central and Eastern European (CEE) countries as well as in the Baltic countries.

Both companies have a wide portfolio of products and are both active across the whole value chain of the supply of fuels, including:

  • the wholesale supply of fuels, such as diesel, gasoline or jet fuel. The wholesale supply of fuels comprises two levels: “ex-refinery” supply, where only companies having direct access to fuel are active (namely producers and importers) and “non-retail” supply, where other wholesalers also sell fuels to smaller retailers and other end-customers;
  • the retail supply of fuels, such as motor fuels and jet fuel (fuels into planes);
  • the related markets of by-products of the refining process (such as bitumen, and lubricants) and the provision of associated services, such as mandatory storage.

The Commission’s competition concerns

At this stage, the Commission is concerned that the proposed transaction would reduce competition in several markets where the merged entity would be active. In particular, the Commission is concerned that the proposed transaction could lead to higher prices and less choice for business customers and end-consumers of several products, especially at fuel stations and airports.

More specifically, the Commission’s initial investigation found that:

  • For the wholesale supply of fuels, the transaction would lead to the creation of a quasi-monopoly at ex-refinery level in Poland, since it would combine the only two companies owning a refinery in the country. The merged entity would also become the market leader at non-retail level in the supply of diesel, gasoline and other fuels. As PKN Orlen and Lotos are the only two domestic suppliers in Poland, imports are the only potential alternative. However, imports are limited due to significant barriers such as a lack of infrastructure and storage and regulatory requirements. Specifically in the wholesale supply of jet fuel, PKN Orlen and Lotos are the only suppliers in Poland and Estonia and the merged entity would also become the market leader in Czechia.
  •  For the retail supply of fuels, the proposed transaction would remove a very strong competitor of PKN Orlen (which is currently the largest player in Poland) in the retail supply of motor fuels. After the transaction, the merged entity would be approximately four times larger than the next competitor and would be unlikely to face significant competitive pressure. With respect to the retail supply (into planes) of jet fuel, the proposed transaction would eliminate PKN Orlen’s only competitor at a number of airports.
  •  For by-products, the transaction would remove a very strong integrated competitor and/or reinforce PKN Orlen’s position in the supply of bitumen in Poland, Czechia, Lithuania, Slovakia, Latvia and Estonia, as well as in the supply of lubricants in Poland.
  •  The Commission at this stage also has concerns regarding the provision of mandatory storage services, since PKN Orlen and Lotos account for a large share of the storage available in Poland.

In addition, considering the volumes of fuels held by PKN Orlen and Lotos in both the upstream and downstream markets for fuels, the Commission is concerned that the merged entity would have the ability and incentive to stop supplying its downstream rivals, thus shutting them out of the markets.

The Commission will now carry out an in-depth investigation into the effects of the transaction to determine whether its initial competition concerns are confirmed.

The transaction was notified to the Commission on 3 July 2019. The Commission now has 90 working days, until 13 December 2019 to take a decision. The opening of an in-depth investigation does not prejudge the outcome of the investigation.

Companies and products

PKN Orlen is a Polish integrated oil and gas company. It owns one of the two refineries existing in Poland as well as refineries in Lithuania and in Czechia. PKN Orlen is active on the wholesale and retail markets for refined oil products in Poland, Austria, Czechia, Estonia, Latvia, Lithuania, Germany and Slovakia. It also has activities in the upstream exploration, development and production of crude oil and natural gas. In addition, PKN Orlen is active in the petrochemicals market.

Lotos is a Polish integrated oil and gas company. It owns the other Polish refinery. Lotos is active on the wholesale and retail markets for refined oil products, mostly in Poland but also in Czechia, Lithuania, Slovakia, Latvia and Estonia. As PKN Orlen, it is also active in the upstream exploration, development and production of crude oil and natural gas. In addition, Lotos is active in the petrochemicals market.

Merger control rules and procedures

The Commission has the duty to assess mergers and acquisitions involving companies with a turnover above certain thresholds (see Article 1 of the Merger Regulation) and to prevent concentrations that would significantly impede effective competition in the EEA or any substantial part of it.

The vast majority of notified mergers do not pose competition problems and are cleared after a routine review. From the moment a transaction is notified, the Commission generally has a total of 25 working days (Phase I) to decide whether to grant approval or to start an in-depth investigation (Phase II).

In addition to the current transaction, there are currently three ongoing Phase II merger investigations: the proposed acquisition of Bonnier Broadcasting by Telia Company, the proposed acquisition of Aleris by Novelis and the proposed acquisition of Innogy by E.ON.

More information will be available on the Commission’s competition website, in the public case register under the case number M.9014.

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

the European Sting Milestones

Featured Stings

These campaigners want to give a quarter of the UK back to nature

How to build a more resilient and inclusive global system

Stopping antimicrobial resistance would cost just USD 2 per person a year

Eliminating hepatitis calls for ‘bold political leadership, with investments to match,’ UN health chief says

UN chief calls for ‘enlightened self-interest’ from world leaders to save ‘the whole planet’ from climate change

UN rights chief ‘strongly’ condemns ‘shocking’ mass executions in Saudi Arabia

China’s lead in the global solar race – at a glance

Palestine refugees’ relief chief warns Security Council money to fund Gaza operations will run out in mid-June

Tax Inspectors Without Borders making significant progress toward strengthening developing countries’ ability to effectively tax multinational enterprises

Women’s voices must be heard in the battle to save the ocean

EU adopts new €100 million assistance package to benefit refugees and local communities in Lebanon, Jordan, and Iraq

IMF: European banks do not perform their duty to real economy

EU Trust Fund for Africa: new migration-related actions to protect vulnerable people and foster resilience of host communities in North of Africa

Food safety: more transparency, better risk prevention

Iran: UN rights chief ‘deeply disturbed’ by continuing executions of juvenile offenders

EU Commission indifferent on Court of Auditors’ recommendations

How each country’s share of global CO2 emissions changes over time

Which countries have the highest unemployment rates?

Health & Sustainable Development Goals: it’s about doing what we can

Here are 5 security challenges Nigeria’s leader must tackle

At COP24, countries agree concrete way forward to bring the Paris climate deal to life

Main results of Environment Council of 09 October 2018

Release of prize-winning Reuters journalists in Myanmar welcomed by UN

Is the EU competent enough to fight human smuggling in 2015?

Three ways Finland leads the world – and education isn’t one of them

A Monday to watch the final act of a Greek tragedy; will there be catharsis or more fear?

EU Council: The US airlines may freely pollute the European air

Slovakia and its failure to abide by the European law

From cheeseburgers to coral reefs, the science of decision-making can change the world

European Commission: the LED lights of your Audi A6 shall save our planet

Better training ‘a necessary and strategic investment’ in peacekeeping that saves lives: Guterres

COP24: World sports join team UN in race against climate change

‘We need to do more’ to transform the world, deputy UN chief tells African audiences

ECB guarantees the liquidity of the Atlantic financial volume

These countries are pioneering hydrogen power

Businesses, governments and consumers to implement a more climate-friendly approach to #BeatPlasticPollution on World Environment Day 2018

European Development Days 2013

The mother of all fights about inflation, growth and banks

Europe on the Move: Commission completes its agenda for safe, clean and connected mobility

Tunisia wants to change inheritance rules to boost gender equality

ECB indicates south Europeans can endure more austerity

The movement of anti-vaccers: taking humanity back 200 years

What if big-tech companies became non-profits?

Counting unemployment in the EU: The real rate comes to anything between 16.1% and 20.6%

Spotlight Initiative – EU and UN fight against domestic violence in the Pacific region

Global economy to see ‘steady’ growth of three per cent in 2019 despite risks, says UN

The Ecofin Council creates officially the clan of ‘undead’ banks

Collaboration: the key to success in the digital economy

Boosting adult learning essential to help people adapt to future of work

EU’s unsparing question to UK: now what kind of future relations do you want?

Outgoing UN official praises Iraq’s ‘exemplary peaceful transfer of power’ at the top

EU Commission draws the wrong conclusions

Robots will soon be a necessity but they won’t take all our jobs

Tackling ‘deeply worrying’ global rise in anti-Semitism is a job for all societies everywhere, says UN chief

Mankind’s first tool to fight malaria also kills

Euro celebrates its 20th birthday

How smarter machines can make us smarter humans

G20: Less growth, more austerity for developing countries

Our healthcare systems are ailing. Here’s how to make them better

From drones to health data, how Japan can power ahead

ECB offers plenty and cheap liquidity to support growth in all Eurozone countries

Accountability in Sudan ‘crucial’ to avoid ‘further bloodshed’, says UN rights office

Forget about growth without a level playing field for all SMEs

More Stings?

Speak your Mind Here

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s