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.

the sting Milestone

Featured Stings

Can we feed everyone without unleashing disaster? Read on

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

European Parliament, Council Presidency and Commission make progress towards a political agreement on new EU rules for attracting highly qualified employees from third countries

‘We must fight terrorism together’ without sacrificing legal and human rights, declares UN chief

Assembly of European Regions @ European Business Summit 2014: Made in Europe – Made of Regions

Team Europe: The European Union disburses €25 million to mitigate the effects of the coronavirus crisis in The Gambia

How youth and technology can drive Africa’s COVID-19 response

From Israel’s ‘start-up nation’, 4 lessons in innovation

Community Manager – 1289

Thinking throughout HIV: changing a perspective

Summer pause gives time to rethink Eurozone’s problems

This is how Britain saved some of its most precious wildlife from the threat of extinction

Why leaders need to upgrade their operating systems

Sanctions on Russia to be the biggest unity test at this European Council

EU budget: Reinforcing Europe’s cultural and creative sectors

EU and Japan select first Erasmus Mundus Joint Master Programmes

Partnerships with civil society and youth ‘essential’ for a future that leaves no one behind: General Assembly President

Microplastics have been found in Rocky Mountain rainwater

Facility for Refugees in Turkey: €127 million to boost EU’s largest ever humanitarian programme

This tool shows you which cities will flood as ice sheets melt

UN chief lauds Fijians as ‘natural global leaders’ on climate, environment, hails ‘symbiotic relationship’ with land and sea

Amazon indigenous groups want to create a nature sanctuary the size of Mexico

In wake of ‘collapsed’ agreement, new wave of violence threatens millions in Syria’s Idlib

Bosses perform better when they are appreciated by their staff, according to a new study

Integrating migrants and refugees into the labour market: Commission and social and economic partners relaunch cooperation

Beyond self-regulation: dealing with Europe’s consumption problem

Better and more robust rights for rail passengers

How the United States is falling in love with secondhand clothes

1.4 million refugees set to need urgent resettlement in 2020: UNHCR

Lack of involvement, or lack of opportunities?

3 ways to fix the way we fund humanitarian relief

Youth platforms call on German Government to break down legal barriers for young volunteers and pupils

4 big trends for the sharing economy in 2019

Yemen: 11 more ‘terrible, senseless’ civilian deaths reported, following attack in Sana’a – top UN official

Consumer product quality: MEPs take aim at dual standards

Coronavirus global response: EU Humanitarian Air Bridge to Iraq and new funding

The European brain drain and the deteriorating medical workforce

Climate change is threatening Switzerland’s stunning scenery

The consequences of Brexit seen by a European young entrepreneur

New UN report shows record number of children killed and maimed in conflict

EU Commission retracts on the Chinese solar panel case

Italy’s M.Renzi and Germany’s S. Gabriel veto austerity, ask EU leaders to endorse growth measures

Can we create an empathic alternative to the capitalist system?

Mental health and suicide prevention – what can be done to increase access to mental health services in my local area?

Australia needs to intensify efforts to meet its 2030 emissions goal

Is it too soon to hope for a tobacco free Romania?

EU will not deliver on promises without democratic accountability

Mainland Europe adopts Germanic cartel business patterns

New volunteering programme for young people in Europe and beyond agreed

Lithuania vs Parliament over 2014 EU budget

Kors and Nyong’o: Food, fashion and film join forces at UN, for the world’s hungry

To recruit younger people, you have to understand them. Here’s a guide

How can emerging economies navigate the mobility transition?

New committees begin their work

After the George Floyd protests, what next for racial justice in the US?

Women’s rights face global pushback from conservativism, fundamentalism – UN experts warn

Will the coronavirus break the internet?

UN boosts humanitarian appeal to help tackle Zimbabwe’s ‘worst-ever’ hunger crisis

Why carbon capture could be the game-changer the world needs

Amidst high trade tensions and policy uncertainty, UN cuts economic growth forecast

Modern society has reached its limits. Society 5.0 will liberate us

Can the banking union help Eurozone counter its imminent threats?

More Stings?

Advertising

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