LOTOS: European Commission clears Lotos’ acquisition by PKN Orlen subject to conditions

The Management Board of Grupa LOTOS S.A. (“Grupa LOTOS”) announces that on July 14th 2020 the European Commission (the “Commission”) conditionally approved the proposed acquisition of control over Grupa LOTOS by Polski Koncern Naftowy ORLEN S.A. (“PKN Orlen”).

The Commission’s decision was issued pursuant to the second paragraph of Article 8(2) of Council Regulation (EC) No 139/2004 of 20 January 2004 on the control of concentrations between undertakings (the EC Merger Regulation) (OJ L No 24, p. 1). In view of that decision, PKN ORLEN is required to implement the remedies specified therein in order to prevent any adverse effects of the proposed concentration on competition in the relevant markets (the “Remedies”). The Remedies include commitments of a structural or behavioural nature, relating to the structure and policies of the undertakings involved in the concentration – PKN Orlen and Grupa LOTOS:

1) with respect to fuel production and wholesale operations:

a) execution of a joint venture agreement with an independent third party and, as a result, divestment to that third party of a 30% equity interest in the vehicle to which the Grupa LOTOS refinery based in Gdańsk (the “Gdańsk refinery”) will be contributed, and providing that third party with governance rights;

b) entering into contracts with the party referred to in item a) concerning production and collection of the Gdańsk refinery’s products, including sales of fuels;

c) granting the party referred to in item a) access, for a specified period, to crude oil storage capacities to the extent necessary to ensure that the party meets the compulsory stock obligation (CSO);

d) granting the party referred to in item a) an option to outsource its fuel logistics services to PKN Orlen (for diesel oil and gasoline);

e)  granting the party referred to in item a) an option to access the transhipment terminal owned by NAFTOPORT Sp. z o.o. in order to enable that party to export aviation fuel;

f)  granting the party referred to in item a) an option to access, for a specified period, storage capacities at the terminals in Olszanica and Warsaw (Chopin Airport), owned and operated by PKN Orlen;

g) divestment to the party referred to in item a) of an organised part of the fuel wholesale business currently run by Lotos Paliwa Sp. z o.o.;

h) granting the party referred to in item a) an option to purchase 100% of shares in Lotos Biopaliwa Sp. z o.o.; if the party referred to in item a) elects not to exercise that option, PKN Orlen will be obliged to sell the shares in Lotos Biopaliwa Sp. z o.o. to another independent third party;

i)  granting the party referred to in item (a) an option to acquire a part of Orlen KolTrans S.A.’s business, i.e. the railway fuel transport business;

2) with respect to fuel logistics:

a) divestment to an independent logistics operator of equity stakes comprising:

• 100% of shares in Lotos Terminale S.A. and Lotos Infrastruktura S.A. The divestment of the above-mentioned shares would result in the purchaser taking control over the entire fuel storage infrastructure used by Grupa LOTOS and its subsidiaries, for operational purposes and to maintain compulsory stocks, at the fuel depots in Jasło, Czechowice-Dziedzice, Poznań, Rypin and Piotrków Trybunalski, with the exception of the fuel storage infrastructure located at the Grupa LOTOS refinery in Gdańsk, and also in its taking control over RCEkoenergia Sp. z o.o.; the above commitment also includes PKN Orlen’s, Grupa LOTOS’ and their respective subsidiaries’ commitments not to book capacities at the depots for a specified period;
• four fuel terminals making up PKN Orlen’s logistics infrastructure, located in Gdańsk, Szczecin, Gutkowo and Bolesławiec; the above commitment also includes PKN Orlen’s commitment not to increase its use of the terminals for a specified period, provided that PKN Orlen will be entitled to use those terminals taking into account the current sales volume adjusted for a future expected increase in consumption.

b) implementation of an investment project to construct a new aviation fuel import terminal on the premises of the depot being divested in Szczecin, which is to be owned and operated by an independent logistics operator; the form and scope of such investment project would be as agreed upon with the independent logistics operator; the above commitment also includes the commitment not to book the terminal’s capacity for a specified period;

c) release of the storage capacities contracted by PKN Orlen and Grupa LOTOS at selected fuel terminals owned by third parties (including the off-shore import terminal in Dębogórze), also including the commitments: (i) not to exceed, for a specified period, the maximum storage capacity defined by PKN Orlen and approved by the Commission for selected fuel terminals owned by third parties, and (ii) not to contract, for a specified period, any new storage capacities for diesel, gasoline and light heating oil at the existing or new fuel depots located in Poland and owned by third parties, subject to exceptions agreed with the Commission.

3) with respect to the retail business:

a)  divestment of 100% of shares in Lotos Paliwa Sp. z o.o. to an entity operating on the Polish fuel retail market, including the following portfolio of service stations of the Lotos retail chain located in Poland:

• 389 existing service stations (256 CODO and 133 DOFO locations), including 20 service stations operating within Motorway Service Areas, and 14 lease contracts for new service stations operating within Motorway Service Areas;

b) not soliciting the control (by gaining ownership or entry into franchise agreements) over any of the DOFO stations referred to above, for a specified period from the day of divestment of the shares in Lotos Paliwa Sp. z o.o.;

c) transferring to the purchaser of the service stations the rights and obligations under agreements concluded with the holders of fuel cards issued by Lotos Paliwa Sp. z o.o.;

d) granting to the purchaser of the service stations a licence to use certain Grupa LOTOS trademarks (including Lotos, Navigator and Dynamic), for a specified period necessary to rebrand the service stations;

e) guaranteeing the purchaser of the service stations sales of fuel in specified quantities and for a specified period;

4)  with respect to aviation fuel:

a) divestment of all shares held by Grupa LOTOS in Lotos-Air BP Polska Sp. z o.o. and, consequently, terminating the joint venture agreement between Grupa LOTOS and its joint venture partners under the agreement;

b) guaranteeing Lotos-Air BP Polska Sp. z o.o. sales of aviation fuel in specified quantities and for a specified period;

c) granting Lotos-Air BP Polska Sp. z o.o. access to storage capacities at the terminals located in Olszanica and Warsaw (Chopin Airport), owned and operated by PKN Orlen, by renting such capacities or providing storage services in a specified volume and for a specified period;

d) granting third parties access to storage capacities at the terminal located in Warsaw (Chopin Airport), owned and operated by PKN Orlen, by renting such capacities or providing storage services under an agreement or agreements on terms equivalent to those applied in the case of Lotos-Air BP Polska Sp. z o.o.;

e) ensuring the supply of aviation fuel in the territory of the Czech Republic in specified quantities and for a specified period, under an agreement or agreements concluded with independent third parties operating in the Czech Republic, awarded on the basis of open, non-discriminatory annual tenders;

5) with respect to bitumen:

a) divestment of the part of Lotos Asfalt Sp. z o.o.’s business comprised of two production plants located in Czechowice-Dziedzice and Jasło or – alternatively – entering, for a specified period, into a lease contract for that part of the company’s business with an independent third party;

b) divestment of the part of Lotos Asfalt Sp. z o.o.’s business comprised of Lotos Asfalt’s employees (including the bitumen sales team) and all components of its enterprise necessary to run business operations at the production plants specified in item a) above;

c) granting the purchaser of the part of Lotos Asfalt Sp. z o.o.’s business an option to be granted, for a specified period, a licence to use certain Grupa LOTOS trademarks pertaining to its bitumen business;

d) guaranteeing the purchaser of the part of Lotos Asfalt Sp. z o.o.’s business sales in specified quantities and for a specified period of:

• bitumen (different types) from the Grupa LOTOS refinery in Gdańsk, or – alternatively –
• guaranteeing the purchaser of the part of Lotos Asfalt Sp. z o.o.’s business sales of heavy residues for the production of bitumen at the Jasło plant.

The detailed terms and conditions of the agreements referred to above, including asset divestment agreements, will be agreed in the course of negotiations with the Remedies purchasers. Both the Remedies purchasers and the terms and conditions of relevant agreements concluded with them will be subject to the Commission’s approval.

Grupa LOTOS has entered into the following commitments towards the Commission, which would remain in force until the completion of relevant asset divestment transactions involving assets divested as part of the Remedies (the “Lotos Divestment Assets”):

1) Undertaking to preserve the value and competitiveness of the Lotos Divestment Assets in accordance with good market practice and to minimise as far as possible any risk of loss of competitive potential by the Lotos Divestment Assets;

2) Undertaking to keep the Lotos Divestment Assets separate from the business(es) PKN Orlen and Grupa LOTOS are retaining (hold separate obligations), which consists especially in ensuring that the management and staff involved in any business retained by Grupa LOTOS have no involvement in the business of the Lotos Divestment Assets, and that the staff (including key personnel) of the Lotos Divestment Assets identified in the undertakings have no involvement in any business retained by Grupa LOTOS and do not report to any individuals outside the Lotos Divestment Assets. Immediately after the adoption of the Commission’s decision, Grupa LOTOS will appoint an individual or individuals as an independent hold separate manager (the “Hold Separate Manager”). The Hold Separate Manager will be a member of key personnel of the Lotos Divestment Assets. The Hold Separate Manager will manage the Lotos Divestment Assets independently and will report to an individual appointed by PKN ORLEN to monitor the implementation of the Remedies (the Monitoring Trustee). The above undertaking will not apply to the Gdańsk refinery;

3) Undertaking not to employ any key personnel of the Lotos Divestment Assets within 12 months after the closing of divestment transactions giving effect to the Remedies;

4) Undertaking to cooperate with and assist the Monitoring Trustee to a reasonable extent, as required by the Monitoring Trustee.

Legal basis: Article 17(1) of MAR – Inside information