Evaluation of the standing of PKN ORLEN, as presented by the PKN ORLEN Supervisory Board

Polski Koncern Naftowy ORLEN S.A. (“PKN ORLEN”, “Company”), Central Europe’s largest downstream oil company, in accordance with the rule no 18 of the code of “Good Practices in Public Companies 2005”, adopted by the Warsaw Stock Exchange, announces an evaluation of the standing of PKN ORLEN, as presented by the PKN ORLEN Supervisory Board:

“In accordance with principle No. 18 of "Best practices in public companies 2005", the Supervisory Board of PKN ORLEN S.A. presents its evaluation of the Company’s standing.

The year 2006 was in many respects a crucial year for PKN ORLEN S.A. The most significant event was certainly the successful take-over of the Lithuanian refinery Mazeikiu Nafta, which proved to be a somewhat turbulent process. Today, five months after the transaction was concluded, PKN ORLEN S.A. is an unquestioned leader of the refinery and petrochemical industry in the region. Only a year ago hardly any, except for the Company, believed the deal would be closed. The Company’s Management Board deserves the credit, as they successfully brought the transaction to a conclusion.

At the same time the Company underwent various restructuring processes, the most important of which included the integration of the Czech holding company Unipetrol, which was taken over in 2005, the introduction of segment management at the beginning of 2006, and reorganization of the wholesale trade in Poland. Such processes are complex and long-term, and sometimes have severe social effects on the employees of companies within the Capital Group.

The macroeconomic environment was still favourable in 2006, although not by as much as in the previous year. The systematic fall in the US dollar rate, lower product margins and the fact that the positive effect of inventory revaluation, according to the weighted average of purchase price, almost entirely ceased to exist, are among the main factors that caused the consolidated gross profit to decrease by 1.6% compared to the previous year. Consolidated revenues increased by 28.4%, mainly due to the enlargement of the Capital Group. A particularly notable fact in this context is that the results for our retail activities were very good, though the Company for years has been systematically losing market share to foreign companies. It seems that this trend has finally been reversed.

Other items in the consolidated profit and loss account are not comparable because of one-off factors, mainly connected with the consolidation of Unipetrol Holding and then Mazeikiu Nafta. Consolidated net profit attributable to shareholders of the parent company in 2006 amounted to PLN 1.986 billion, which implies an 11.2% of return on equity (ROE). The Supervisory Board, taking into account the aforementioned factors, consider this result to be still very good.

Unfortunately, in 2006, the Company’s share price decreased by 23.9%. This undoubtedly was mainly due to a worsening macroeconomic environment, as proved by the decrease in the share prices of similar companies. It seems that investor expectations were exaggerated just after Hurricane Katrina, as this temporarily inflated product margins to extremely high levels. Moreover, our shareholders have, to some extent, suffered the costs of the risks connected with the take-over of Mazeikiu Nafta, the most significant of which included the closure of the oil pipeline and the fire, because of which the refinery is still operating below its processing capacity. The Supervisory Board trusts that the experience gained in the integration of Unipetrol holding will bring similar long-term benefits in the case of Mazeikiu Nafta.

Significant changes in the composition of the Capital Group – as well as in the environment generally – have created the need to update the Company’s strategy, which the Management Board is currently preparing. Although the debt level has increased, capital expenditure will remain high. The unique position of our Company in its local markets, with their high levels of economic growth, is creating huge potential for organic growth. The Company is continually improving the tools used to prepare and assess the cost-effectiveness of the planned investment projects, but invariably ensures strict application of the minimum required rate of return. At the same time the Supervisory Board notes that there are some factors that should also be taken into account when forecasting future financial gains, namely changes in excise tax regulation (especially as regards biofuels) the increasing requirements concerning obligatory reserves and environmental protection (including CO2 emissions) and escalation of the costs of investment realization and labour costs generally.

The Supervisory Board’s unchanging aspiration is that the Company should conduct its business activities with full respect for the law, accepted corporate governance principles, ethics in business, and social responsibility, and the Supervisory Board sees constant improvement in all of these fields.

To sum up, the Supervisory Board evaluates the Company’s standing as good.”