PKN ORLEN entered into the agreement with VEBA Supply & Trading

Polski Koncern Naftowy ORLEN S.A., Central Europe's largest downstream oil company, announces today that on December 21, 2000 Polski Koncern Naftowy ORLEN S.A. entered into for than agreement with VEBA Supply & Trading GmbH for the supply of 1.2 m tonnes of Russian crude oil REBCO. Supplies will be made via the Friendship pipeline throughout 2001. The transaction is worth around USD 263 m. The above supply accounts for 8.3 per cent of all planned supplies in 2001.

A clarification on recent announcements concerning the forward purchase of crude oil by PKN ORLEN S.A.
These announcements were made in compliance with the law on public trading of 21 Aug 1997, which requires that, in the event of a stock-listed company signing an contract of significant value, it is required to disclose the estimated value of the agreement.
It is well known that the market price of crude oil can fluctuate substantially - in recent years crude oil prices have ranged between USD 10 and USD 40 per barrel. It is therefore impossible to specify an exact value in any such forward supply contract. The value that is announced for these long- term supply contracts is based on prices that were current on the day of signing the contract and therefore can only be treated as an estimate. It cannot be used as a basis to calculate the crude oil price in economic models as it may differ considerably from the actual price paid on the day.
The crude oil most often purchased by PKN ORLEN is from Russia, and is bought at a discount compared to [Brent], the most quoted western blend. This discount mainly reflects the difference in quality between these two standards of crude oil, but, at the same time, allows for a volume discount negotiated by PKN ORLEN. It also takes account of logistical costs.
PKN ORLEN have found that the most advantageous way of securing crude supplies from Russia is by signing contracts with companies who work directly with the crude oil producers. This is a generally accepted practice in refining (especially when dealing with Russian partners). It means that these companies accept [an element of] the financial risk connected to a transaction and results in PKN ORLEN having extended periods for payment of deliveries received without having to give guaranties of payment.
PKN ORLEN does not sign agreements with so called intermediaries charging specific fees for matching both parties of the contract.
Delivery guarantees are described in contract conditions and their most common form is in direct producer's guarantees and so called "good performance bonds". For the historical record it should be noted that, in 2000, PKN ORLEN purchased 13.5 million tonnes of crude oil. Of this, 87% was Russian crude oil REB, 8% was Kaliningrad/Lithuania and 3% was Brent Blend and the rest was others. Similarly around 87% of all crude oil was delivered by pipeline (the most economic way of supplying crude oil), 10% by sea (to Gdansk and onward transport by the "Pomorski" pipeline to Plock) and 3% by rail.