Stopping the Olefins III project
Orlen announced on Wednesday in a stock exchange announcement that its supervisory board, in connection with a previous resolution of the company’s management board, “has consented to stopping the project to build the Olefins III complex within its current scope.” “From now on, work will be carried out as part of the New Chemistry project in a way that will enable rationalization of the necessary expenditure,” the company announced.
Orlen noted that the current capital expenditure incurred for the implementation of the Olefins III complex construction project at its main production plant in Płock at the end of the third quarter of this year. amounted to PLN 12.6 billion.
Reason? Costs
He emphasized that his management board “decided to stop the Olefin III project, whose actual implementation costs would exceed the original assumptions six times”. “Striving to limit the negative economic effects of the investment in Olefins III, Orlen will use the created infrastructure as a basis for the implementation of the New Chemistry project,” he announced.
Orlen explained that the decision to stop the Olefin III project would protect the company from a loss of approximately PLN 15 billion. “These funds will be allocated to projects that permanently increase the competitiveness of the company and the Polish economy,” the information noted.
According to the company, “a reliable verification of the costs and conditions of construction of the Olefiny III complex, carried out for the first time since the project was launched, showed that the investment had no chance of return.” “The analysis of the investment preparation and implementation process by the management board of Daniel Obajtek revealed numerous irregularities, both in the area of the assumptions adopted, ignoring market conditions, as well as the schedules and implementation technologies,” Orlen emphasized.
In this context, the company pointed out that, among others: “significant design and technical problems in the field of ISBL installation, the solution of which affects the implementation of the project” were identified and recognized.
“The original cost of the investment was estimated at PLN 8.3 billion. In 2023, the then management board increased the expenditure more than three times to PLN 25 billion, while limiting the scope of investments to include the most promising advanced chemicals. The actual cost of the investment, including the construction of the infrastructure necessary for operation installations would amount to as much as PLN 51 billion,” Orlen calculated.
“The best possible solutions”
He assessed that the decision of stopping the Olefins III project “is the most advantageous possible solution” that allows “to limit the company’s potential losses caused by incorrect decisions of the previous management board.”
What is the “New Chemistry” project?
Orlen explained that the announced project New Chemistry is a venture based on new technological, operational and business assumptions. As stated, a modern installation for the production of monomers will be built and the company’s sales capabilities will be increased in the area of ethylene oxide and glycols, styrene and the C4 butadeine fraction in a volume optimized to market needs.
“From approximately 2030, Nowa Chemia will take over the functions of the installation currently operating within Olefin II and will be used throughout the entire operation cycle of the Płock plant,” the information states.
Orlen pointed out that the prosecutor’s office was notified about irregularities related to the investment process during the construction of the Olefiny III complex. At the same time, the company has not ruled out that it will file a claim for compensation against former management board members, which – as it noted – is allowed by the resolution of the Extraordinary General Meeting of the company’s shareholders adopted at the beginning of December.
The contract for the construction of the Olefiny III complex was signed in June 2021 by Orlen with a consortium of Hyundai Engineering based in Seoul and Tecnicas Reunidas based in Madrid. The investment cost was then estimated at PLN 13.5 billion. In May 2022, the company received a construction permit, and in February 2023, the first assembly works were already underway. Initially, it was assumed that the construction phase of the project would last until the beginning of 2024, while the production launch of the installation was planned for the beginning of 2025. Later, the expected date was the first half of 2027.
When starting the construction of the Olefins III complex, Orlen emphasized that “this is the largest petrochemical investment in our region of Europe for 20 years” and also “a key project for the company’s development.” It was noted that the investment would generate taxes for the state budget in the amount of PLN 160 million per year, and its effect on the domestic economy would be to increase the availability of petrochemicals necessary in many areas of industry, thus limiting the need to import them.
The company pointed to forecasts regarding the increase in demand for base petrochemicals by 2050.
In November, Orlen announced that “the conclusions from the audits and verification of the business assumptions of the Olefina III investment, combined with the results of analyzes of the petrochemical market, the macroeconomic situation and the profitability of the project, do not justify continuing this investment to the current extent.” The company then announced that, with the support of external advisors, it was analyzing the optimization of the project in terms of production capacity and the use of current units or stopping the project in its current form or temporarily suspending it.
The company reported in November that estimates from external, renowned advisors indicated that “this scenario would require an increase in investment outlays and project-related costs to PLN 45-51 billion, taking into account the necessary infrastructure and contractual, macroeconomic conditions and market forecasts.” In this case, as reported, it would be necessary to postpone the completion date of the task by another three years, until 2030. (PAP)
