Orlen loses 6 billion in market value on incoming government’s levy plans

Poland’s largest company, state energy giant Orlen, lost nearly 8% of its market value, almost 6 billion zloty (€1.38 billion), in trading on Wednesday amid plans by the likely incoming ruling coalition to fund energy price freezes with a special levy on the firm.

The fall has led to accusations by the outgoing ruling party that the future government has deliberately tanked Orlen’s share prices as part of plans to sell off the firm.

Source: stooq.pl

On Tuesday, MPs from the coalition of three opposition groups that is almost certain to take power next month submitted a bill to parliament that would freeze gas, electricity and heat prices for households, local authorities and public entities in the first half of 2024.

The costs would be financed by a levy on domestic gas production for the period from October 2021 to the end of 2022.

In comments to Bloomberg, Andrzej Domański, a leading economic policy figure from Civic Coalition (KO), the dominant group in the new coalition, said that Orlen would be the only firm targetted by the levy.

The plans would drastically decrease the compensation received by Orlen for price freezes, resulting in net costs for the company, according to two analysts that Notes from Poland spoke to.

“Orlen’s contribution could be much higher than…the need to finance the cost of freezing gas prices in the first half of 2024,” says Krzysztof Pado, deputy director of the analysis and information department at brokerage BDM.

In the first three quarters of 2023, Orlen paid 9.5 billion zloty in gas tax and received 12 billion zloty in compensation, meaning that it comes out of the first three quarters with a net gain of 2.5 billion zloty. Pado estimates that, by the end of the year, the compensation could exceed Orlen’s payments by 6.5 billion zloty.

However, he and Krzyszto Kozieł, an analyst at Pekao SA, estimate that the incoming government’s proposed tax would cost Orlen 13.5-14 billion while the compensation could be around 3.5-4 billion. This entails net cost for Orlen of 10 billion.

“And it may be that there will be no compensation at all – this will depend on the gas tariffs set by the Energy Regulatory Office,” notes Kozieł.

The opposition’s plans and the sharp fall in Orlen’s shares that followed prompted accusations from the outgoing ruling Law and Justice (PiS) party of an attempt to deliberately destroy the value of the company, whose CEO, Daniel Obajtek, is a PiS ally.

“I wonder who wants to reduce the value of Orlen and hit its financial stability, and what the purpose of this is,” Obajtek asked on social media.

“The bill reported in the media, which imposes a 15 billion zloty contribution from Orlen, means 15 billion zloty less for investments in Poland’s energy transition and other investments by the company in Poland and abroad,” he said, adding that Orlen “is already contributing billions to freeze gas prices in Poland”.

PiS politicians, meanwhile, suggest that the actions of the incoming coalition are aimed at preparing the company for sale. During the campaign for last month’s elections, PiS had warned that the opposition and its leader, Donald Tusk, wants to sell off state-owned assets.

“If this is how Polish property is to be managed then hold on to your wallets,” commented Jacek Sasin, who served as minister for state assets in the PiS government until this week. “It looks like a deliberate lowering of the value of the corporation’s assets and the first step towards selling off Polish treasures.”

“Here the Tusk team has experience like no other,” he said referring to PiS’s claims that when Tusk was previously prime minister he oversaw the sale of state assets.

In October, Orlen’s shares rose strongly on news of the opposition winning a majority. Despite yesterday’s slump, Orlen’s shares still remain above levels recorded at the end of September.

Commentators, meanwhile, point out that the outgoing party also used the company for political purposes. They stress, however, that the sharp fall in Orlen’s shares shows that the ideas of a potential future government were communicated incompetently.

“Orlen has served PiS as an instrument of political influence, for example to finance lower fuel prices,” wrote Łukasz Warzecha, a conservative commentator. Orlen was accused of artificially lowering fuel prices ahead of the elections to help PiS’s campaign.

“I am not surprised by the market reaction to the announcements of the new (soon to be) government – it is natural,” added Warzecha. “But it is quite hypocritical of those who throw mud at KO for this, while they themselves have been blind to the company’s political involvement until now.”

Patryk Słowik, a journalist from the news website Wirtualna Polska, warned that “the new coalition should not try to outdo Sasin” in his “absurdities on the stock exchange”.

“What has been done today with Orlen’s share price is dramatic ineptitude,” wrote Słowik. “This is no way to communicate important decisions for the market.”

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Main image credit: Orlen press materials

Alicja Ptak

Alicja Ptak is senior editor at Notes from Poland and a multimedia journalist. She previously worked for Reuters.