MOL Magyar Olaj- és Gázipari Nyilvánosan Muködo Részvénytársaság (MOL) Earnings Call Transcript & Summary

Good morning, all, and good morning, ladies and gentlemen. Welcome to MOL Group's Third Quarter 2021 Results Conference Call. My name is Zoltan Pandi, the Head of Investor Relations, and we have a strong lineup of management to discuss the recent developments today. Gyorgy Bacsa, Senior Vice President of Group Strategic Operations and Corporate Development. Mr. Bacsa joins the management call for the first time. I believe having him on the call will provide even greater management access to analysts and investors since he will be able to address matters concerning strategy directly. In addition, we also have the senior managers presenting today, including Mr. Jozsef Simola, Group Chief Financial Officer; Dr. Berislav Gaso, Executive Vice President of Upstream; Mr. Gabriel Szabo, Executive Vice President of Downstream; Mr. Peter Ratatics, Executive Vice President of Consumer Services. We continue [Audio Gap] Teams as a platform to hold our conference call. The presentation can be downloaded from our website, molgroup.info, and will be sharing the slides in Teams too. After the presentation, we will move to the Q&A session, where you will be able to -- you will have the chance to ask questions by the Raise Hand function of Teams. Please keep yourself muted throughout the call, except when asking a question. Before we start, I would like to draw your attention to cautionary statement on Slide #2. And now let me hand over to Gyorgy Bacsa, who will take us through the highlights of the Q3 2021 period. Gyorgy, the floor is yours.

Thank you, Zoltan, and thank you for the introduction. I'm very glad to be here with you for the first time, and I'm very happy to be able to share these figures and this data because let me [ go through ] the highlights of the quarter, and I'm very happy to report that our financial and operational KPIs are all exceed or in line with our previous guidance. On this page, you can see multi-thread all those guidances, which were updated based on the first 3 quarter results. First and foremost, with the Q3 2021 Clean CCS EBITDA delivery adjustable USD 1 billion. We stand on the first 3 quarter EBITDA generation of roughly USD 2.58 billion, which is the strongest ever result of MOL for this period. The main drivers of this solid performance, you will get to know in the detailed presentation of the business leaders. But let me now introduce the implication of these results to our annual performance. A very strong year-to-date 2021 delivery allows us to further upgrade our annual EBITDA guidance, which is now expected to reach or even exceed $3.2 billion. At the same time, soaring commodity prices and the implication of the coronavirus pandemic was a significant risk to economy and generate a very volatile operational environment. So that's why we also would like to include in the guidance that the future is, to certain extent, still unpredictable. So we shall remain focused to maintain financial and operational resilience and deliver on our longer-term sustainability-related commitments and a transformational strategy. As far as the investment is concerned, our CapEx guidance is now gather at the lower end of the range that we communicated recently. So our guidance is now closer to the $1.7 billion. So smaller projects, which may be postponed for the next year, we put us to the lower end of the range. As a result of these factors, of course, our simplified free cash flow is expected to reach or even exceed $1.5 billion. So that's why this guidance is at least [ this fair ]. The next one is, of course, our net debt to EBITDA, which should be a on the onetime. So along here, I would like to remind you that our long-term target is to stay below 2x. But this year, definitely, it will be around 1x. You can see that the first 3 quarter is 0.8x. So the HSE and the E&P tendencies are the same as before. Let me go to the next slide. On the macro side, you can see that after last year collapse of commodity prices and margins, now we have a totally different environment. Probably fair to say and we have to also admit that this is one of the most important set of excellent drivers which we could have seen recently. First on micro set, and we are in the [indiscernible] to deliver organic efficiency and growth ambitions over the last couple of years means that quarterly CCS EBITDA surplus to $1 billion for the first -- very first time. So I think that we have a very supportive macro environment for the time being, which is not precedented so many times and -- but we also delivered on the internal performance to give you the good results. Now let me go to the next slide, which is practically the publicly announced side. So that -- on the Page 7, you have part of our press release. That's when I think we can go back into details if you have questions. And let me also go to Page 8, which is the ESG financials of the company. Here, I would like to highlight 2 items. One is the safety. Since, of course, in 2020 due to the COVID, they have lockdowns and have a limitations on onsite presence. So that may not be taken as a benchmark for continuous operation and uninterrupted operation. But if you see the first 3 quarter of this year and compare it to historical average, we are very good on the safety measures as well. We introduced lot of measures due to the pandemic situation and due to the regulatory restrictions. But we also introduced lot of process safety improvements, this Process Safety Fundamentals which were implemented in the 2021, in Hungary, Slovakia, Croatia, and Pakistan. The company's strong performance of ESG is recognized by sustainalytics as well. We are one of the best rank in this ESG risk rating report. So 7th and 3rd lowest rating. We are definitely a top performer, and in terms of we are in the oil and gas industry. We have one of the lowest risk, and we have very good mitigation and risk management policies. On the other ratings, of course, we stay with the MSCI AA rating, and we are a long-term constituent member of the Dow Jones Sustainability Index. So this was the introduction from my side. Again, very pleased to be here. And next in line is Jozsef Simola, who will give you a deep dive on the quarter of the financials. Thank you.

Thank you, Gyorgy, and good morning, ladies and gentlemen. Let me start on Page 10 with the EBITDA overview. So as you already saw and heard very strong financial results, very strong contribution from all of the 3 major business lines. The analysis of this, you will hear directly from the 3 business leaders. Just a few words on the 2 kind of small numbers on this page, like compared to the 3 major business lines. Gas business with $30 million EBITDA contribution, significantly lower than last year because of the reasons we explained in the previous calls, but clearly stabilizing in the new environment despite actually the rising gas prices, which cause a higher energy build for this. With minus 41 C&O, including intersegment, a higher negative number than last year, essentially because of the higher negative intersegment contribution, which is normal in a rising price environment. In the previous quarter, that was more the crude prices, internal crude prices. And in the last quarter, the gas prices. But again, this is a interim and tactical item. Let's go to Page 11. CapEx spending, $360 million spending in the last quarter, which is almost 20% higher than the year-on-year number, and the year-to-date around 10% higher spending than last year. With this and with the expected seasonally significantly stronger Q4 spending, we expect to be at the lower end of the original $1.7 billion, $1.9 billion guidance. So at or around $1.7 billion is the expected spending for the whole year. Let's go to Page 12, simplified free cash flow. No surprises here on the back of the very strong EBITDA generation. In the quarter actually year-to-date, more than 2x higher. And year-to-date, almost 3x higher simplified free cash flow generation than last year. Very strong contribution from other 3 businesses, but the largest contribution in the quarter and year-to-date was coming from our Upstream business. Let's see Page 13, the below EBITDA line. Year-to-date, $123 million positive CCS modification as a result of the rising price environment. No special items year-to-date. And so in the last quarter, neither DD&A, $1.2 billion year-to-date, a bit the last quarter, $375 million addition at a normalized level with no one-offs in the last quarter. Total finance expense/gain, we had a gain here after the second quarter and with the third quarter, minus $111 million that turned into a year-to-date minus $58 million loss. What we saw in the last quarter is the usual FX fluctuation, forint weakened 5% to the dollar, 2.5% to the euro in the last quarter, and that's essentially the driver for the negative last quarter and also a negative year-to-date number. Income from the associate $16 million, relatively strong contribution from the last quarter coming from Pearl and BTC. Income tax expense, $3 million year-to-date expense coming from $176 million cash tax and minus $173 million deferred tax. What we saw in the last quarter, I think the continuation in the main trends from the previous part of the year. So essentially, a high and increasing local taxes and corporate income tax driven by the higher sales numbers and profitability of the businesses, and that was counterbalanced with a high deferred tax number. And the reason for this, as we discussed in the previous quarter, a positive change in the Hungarian tax called Robin Hood tax losses can be carried forward from now on. And the non-controlling interest, the negative number here actually shows the overall positive business results of INA. Let's go to Page 14. Operating cash flow. I think probably the only interesting item is that we had a continued working capital build-up in the third quarter, which is actually a bit unusual. And the reason for this that in the third quarter, we had actually higher Downstream sales volume than in the second quarter. We usually see a reversal here in terms of the sales volume and also in the working capital. That reversal is expected to come in the next quarter. But even with this addition in the net working capital, the operating cash flow is more than 2x covering year-to-date the organic CapEx. So let me go to Page 15, net debt and balance sheet, the last slide from the financial part. Again, kind of no surprises. As a result of the strong EBITDA and free cash flow generation, further and continued increase in the net debt to EBITDA in the gearing and also in the net debt, even that the net debt included the dividend payment, which happened in the third quarter. And with this, I'd like to hand over to Gabriel to cover the Downstream results.

Yes. Thank you very much, Jozsef. So good morning, ladies and gentlemen. As usually, we prepared 3 slides for the Downstream performance. Let me start with the big picture. So on the slide, we can really see the boosted Downstream performance, mainly thanks to the extremely good macro environment, which is doubling the year-on-year CCS EBITDA to $436 million. And from the whole year perspective, we delivered more than $1.1 billion in EBITDA terms. In both segments, refining and petchem, we report a strong demand in our region. So in the fossil fuel, it's mainly driven by agriculture business, while in petchem, it's still strong demand in packaging segments. Strong [ set ], strong demand, what Mr. -- even Mr. Simola mentioned that we sold more year-on-year. It's driven by the strong demand, and we try to satisfy the strong demand by the increased third-party supply because part of our assets was in turnaround. The -- our key transformation project, the polyol project is progressing with the revisited implementation schedule. Now let's move to the macro development and the market dynamics. On the refining and marketing side, the margin continued to recover as the market adjust to the normal. Motor fuel cracks improved significantly in particular the gasoline, while the expansion of the Brent-Ural spread also has its fair value in the refining margin uplift. As a result, as you can see on the chart, the refining margin approached $6 per barrel in Q3 2021, and this continuously improving from the bottom a year ago, which is also very nicely seen on the chart. In terms of the petchem, the petchem margin also continues its strong run, although with a bit different dynamics. When we talked last time, so I mentioned that we historically reached the highest petchem margin, which was a bit about above EUR 1,000 per tonne. Currently, the average integrating margin is around EUR 660 per tonne. Therefore, I believe that this normalization, which we are reporting currently is no surprise and is caused on one hand, the -- by the increased naphtha quotations due to the higher crude oil price, but also the polymer prices are shrinking. Now let's move to my final slide. Thank you very much. So as I presented, as I mentioned, we delivered $436 million in CCS EBITDA, which is more than twofold increase year-on-year. This is a really significant outperformance compared to consensus expectations. So I would like to take a few minutes of your time and to discuss the drivers behind. I will start with petchem. So where we can see that mainly polymer and butadiene spread improvement drove the substantial positive price impact, which we fully captured, thanks to the high availability of our petchem -- petrochemical assets. In terms of refining marketing, so compared to Q3 2021, margin impact was clearly very positive. But I have to mention that it was not just the refining margin improvement, but we also have some market -- local market characteristics playing out in our favor. So on the supply side, we recorded several shortages in the region with operational disturbances in refining. So at the same sign, market demand was very healthy in the region. And we see in the CCS markets, strong rebound in Q3 with demand approaching or even exceeding Q3 2019 levels. Of course, that we have to mention the energy, the increasing energy prices and CO2 prices, the latter is listed among the others, provided, which, of course, is having their negative impact on the CCS EBITDA and partial offset of this macro -- positive macro environment. Regarding volumes, the positive impact comes from petrochemical, what I mentioned that strong utilization, our assets coupled with higher butadiene production. Year-on-year, the EBITDA evolution have on one hand, exposed to similar positive macro and price drivers, as I described. Regarding volumes. However, the negative impact mainly relates to the stronger planned turnaround activities in refining marketing compared to the base level. All in all, I would say, a good performance, but we have to say that it's driven mainly by the external macro environment. And now let me pass the word to my colleague, Peter Ratatics.

Thank you very much, Gabriel, and good morning to everyone. Congratulation to the Downstream and that you captured the opportunity in such a good excellent environment. But I'm also happy to report that the Consumer Services continued its contribution, the increased contribution to the group results. In this third quarter, we did $211 million EBITDA, and that was particular 15% increase year-on-year. That increase was supported mainly by 3 factors. The one and the strongest contribution is the sales volume increase. As it was mentioned in the introduction, the sales consumption -- I mean, the fuel consumption and the sales of the fuel practically reached and overperformed the pre-pandemic last third quarter, so the third quarter before the pandemic. And with that, we see that more and more cars and more and more consumers were on the road during this third quarter, which is the main season for the fuel retailing. The second factor is the non-fuel margin uplift, well, partially on the back of the increasing turnovers and the transaction numbers from the fuel side. We increased the number of the transaction and the percentage of the transaction, but also we increased the basket size. And that was -- that's the result of the very strong offshore margin uplift as well. And the third factor is the previous CapEx spending, what we did nonstop during this pandemic. I think from today's perspective, I can confirm that this was a good decision that although at that time, the growth was very unpredictable, but we did not really stuck any kind of investment into the modernization of the network. As far as the result of that, 13% higher number of Fresh Corners are now operating. Altogether, that means that an addition of 120 pieces of Fresh Corners came into operation, and that also contributed the strong market presence and the increase on both fuel and on fuel side. As a result of this very high EBITDA, the -- roughly the same CapEx spending year-to-date as it was in the previous period. I can report that year-to-date, we generated $404 million free cash flow from this business. Thus, Consumer Services remained a growing noncyclical cash flow generating pillar of the group. As usual, I would add a few words to the next slide, where we have a bit deeper dive into the fuel sales. As I mentioned, the consumption -- the fuel sales numbers grew significantly 9% compared to the previous year same period. And more important, we surpass -- we reached and surpass the 2019 level by roughly 2%. The network efficiency, also you can see on the right part, that practically [ new ] and the fuel throughput per site reached and overperformed the 2019 level, and we are ready close to deliver 1 million liter per quarter per site, which is a very strong if you compare to the competitors. And the last slide of mine, as usual, the non-fuel one. Well, the total growth on the margin side was 23% year-on-year in the third quarter, supported mainly by the gastro grocery, also the coffee sales and the hot dog sales. Those performance were extremely high and strong. The non-fuel margin now represents almost 20% of the total margin generation, and we will continue the strategic transformation by increasing the number of the Fresh Corners even from the current level. So the plan is that we will try to speed up the investment into this in the upcoming period with the benefiting and harvesting, holding all [ legend ] experience what we gained so far with the first 1,000 Fresh Corner operation and also we integrate into the new Fresh Corners sending to the operation. All the capabilities and knowledge what we gained and what we hired and -- or what we acquired, [ it runs through ], for example, the Marche acquisition, what we did beginning of this year. So all in all, that was my part. Thank you very much for your attention, and I'm also very happy to hand over the word to Beri and congratulate to him that in this quarter actually, he won the competition among us.

Thank you, Peter, and good morning, and welcome to the third quarter call on behalf of the Upstream division. I'm pleased to share with you strong results for the third quarter. EBITDA is up 18% from $336 million in the second quarter now to $396 million in the third quarter. That's an 18% increase, 87% year-over-year if we will compare to Q3 2020. The underlying drivers are twofold. On one hand, strong internal performance that with continuous focus on the right things and on efficiency, coupled actually with a very strong macro environment. And if you look here on the right-hand side of that page, the average oil price for the third quarter stood at $73.5. The average gas price, if you would recalculate in USD per barrel stood at $94 or that's an equivalent of EUR 47 of megawatt-hour. So that, of course, gave strong support to the financial results and then ultimately also translated into very strong free cash flow generation of $304 million in the third quarter. That's 32% up compared to on a quarter-by-quarter basis or even up almost 130% up if you compare to the third quarter last year. Now if you move to Page 26. This is the slide that we usually show to you where we discuss the unit free cash flow generation and how much we are able to extract in a certain environment. So in the third quarter, at an average Brent price of $73, we managed to extract a remarkable $32 per barrel unit free cash flow. The same basically over or year-to-date results would put us at $26 a barrel in an average $68 Brent environment. So very, very strong cash generation also if you compare to the periods before. And then next page. I think that the EBITDA bridge this time is fairly simple and fairly straightforward. No matter whether you look on the quarter-to-quarter or year-to-year, year-to-date comparison. It's a significant price impact in both of them, which is the largest driver. It's partly offset by volumes in the quarter-to-quarter comparison, that's somewhat driven by lower CEE volumes. And in the year-to-year, it's more driven by somewhat lower U.K. volumes. Now next page, few words around production. Production in the third quarter stood at 107,400 barrels per day. That's the Q3 figure. The year-to-date figure is 111.7, which is still basically, of course, above the guidance that we gave beginning of the year, and we're on track to deliver that. The Q3 decrease, if you take a look at the 107.4 and you compare it versus the 111.2, basically has 3 elements. One is a technical adjustment again on ACG entitlement barrels. Every time oil price grows, entitlement volumes are coming down. We discussed that on several occasions in past calls as well. In this quarter, that adjustment is roughly 2,600 barrels per day. That's how much of the 3.8 comes just from the technical adjustment. And then the rest is more a net effect of 1,300 barrels less in CEE, but somewhat better U.K. due to better uptime of the FPSO vessel. And few words maybe around the October figure. It's somewhat weaker than the average of the third quarter, but that's again largely driven that by [ non ] turnaround season on ACG, on the [ star ] assets in the U.K., and partly in Kyrgyzstan and Peru. Last page, unit OpEx and CapEx. I would say, business as usual, very, very competitive and very strong performance again in the third quarter. We plan to keep it like that. And with this, I'd like to hand back to Zoli for the Q&A session.

Thank you, Beri. I believe this concludes the former part of our presentation. So as a reminder, if you wish to ask a question, please use the Raise Hand function. I believe we have a question from Henri Patricot, UBS. Henri, please unmute yourself. Go ahead.

We have 3 questions, please. So the first one, I wanted to ask about on the Upstream around gas prices and what we should expect in terms of realized gas prices for the fourth quarter, and there was a sharp increase in the third quarter. But if I look at the sensitivity that you disclosed $100 million per EUR 5 megawatt or change in TTF, this financial impact seems to be a bit lower than that. Should we use that sensitivity as a guide for the fourth quarter? Is there any lag effect to [indiscernible], if you can comment on the pricing dynamics here? And secondly, a question on refining profitability in the fourth quarter because there are many moving part there. If I look at your benchmark margin, it looks like the higher cracks in October are fully offset by higher energy cost. I wanted to check that. And secondly, whether you're still getting that high local premium that you mentioned for the -- to explain the strong third quarter performance. And finally, just a question on the financial framework and what to expect given that you are on track to deliver record-high EBITDA. You have a much higher XX free cash flow than expected a few months ago. So should we expect to see a special dividend of about 50% of the base dividend like we had a few years ago? And more probably, what do you do with the excess free cash flow? Do you accelerate some CapEx? Any comment there would be appreciated.

Thanks, Henri. I'll take the first question on gas. I think what we discussed, I think also in past calls is there's probably 2 things you need to factor into account when you model gas, and that is that roughly 60% of the Hungarian output is subject to spot prices. 40% is clearly regulated. We've had that discussion and these discussions early. So 40% of the Hungarian gas spot fees regulated, 60% not regulated. If you think in total gas that we produce, that's close to, say, at around the level of 30,000 barrel oil equivalent per day for Hungary and for Croatia. 60% of that in Hungary is subject to spot pricing. And roughly the same ratio applies to Croatia. In Croatia, we do not have regulated market pricing, okay. But part of our contract sits in term contracts or longer-term setups. And that's again a good 40% that sits in the quantity or quantities that sit in that, and 60% again is fully exposed to spot. So 60% Hungary, 60% Croatia exposed to spot. Total production, roughly 30,000 barrels a day, fluctuating around that number with plus/minus a few percent. And that, I think, would or should help you to perfectly come to an answer for what to expect on Q4 realized gas price. Thank you.

Yes. So Henri, if you allow, I would continue with the second answer to your second question. So you are very, very precise with your observation that really the energy price is currently causing a lot of headache for the refining and marketing segment. So just to share with you some sensitivity as very short. So in terms of the natural gas, the increase of EUR 10 in megawatt hour is having an impact around EUR 120 million, EUR 130 million to our balance sheet. In terms of the electricity, this EUR 10 change in megawatt hour is closing EUR 25 million, EUR 30 million increased cost. Of course, that we are trying to deal with that. So for example, in Slovnaft, we switched from a natural gas burn linked to the heavy fuel burning. So we try to optimize the energy consumption and the also the source of the energy in general. Have I answered, Henri, your question?

Yes. Perhaps just on the dealer point around the local premium that you are enjoying in the third quarter. Is that something that you continue to enjoy in the fourth quarter?

Yes, yes. Sorry, yes, you had the second part. Yes, sorry. So in terms of the premium, yes, I believe that we are going to be successful in the last quarter this year. And we will have -- or we will outperform in terms of the inland premiums as we usually do. So yes, I'm rather positive about it.

Jozsef Simola, CFO. Just a comment to the previous 2 questions. First, that I think in terms of gas price impact and that actually concerns our energy gas price impact. The divisional impacts are relatively high, and that's what Beri described in terms of realized gas prices and Gabriel in terms of the rising costs. But you should be aware that in terms of that we are selling and buying gas, but our kind of volumetric exposure is in terms of very low, in terms of non-regulated gas price, i.e., the non-aggregated volume of gas, but use is very close to the amount of gas we buy. So that's -- and the sensitivities are at corporate level. So that's why a relatively lower group level sensitivity. As for the special dividend, thank you for the question. As last time, and I can -- probably as you expect it pretty much repeat the answer from last time. Maybe one difference that I think last time in the -- after Q2, I said that we have a strong basis. Right now, I can say that we have an even stronger or very strong basis based on the actual 3 quarter and the expected kind of remaining 1 quarter in terms of EBITDA and free cash flow generation. However, as usual, the Board of Directors will consider this question in preparation of the annual meeting. So the earliest time is the Q4 number or the materials for the annual meeting where you should expect a kind of answer to this question. But again, in terms of the financial results year-to-date are clearly a very strong basis for this.

Thank you. I assume we have a question from Piotr Dzieciolowski, Citibank. Piotr, if you can please unmute yourself.

I have a couple of questions. The first one, I have a question about the ACG production level. I know you have this CapEx oil and profit oil. And at what point you will recover fully your CapEx on? And what's the -- then I remember from the past that your PSAs, they tend to kind of have a cliff. And I just wanted to understand when are you going to recover of your CapEx in the future? And that's so -- let's go one by one and then I think it will be easier than me shooting straight away 3 questions.

I mean, again, there is a very, very long PSA -- the PSE contract is published. But if you read in the details, it's usually within a year that you recover your cost oil. And if you reach a certain cap, then you require it the next year. But typically, in all production sharing contract setups, irrespective whether that's ACG or not, the whole point of cost oil is fast recovery. You invest and then if the asset produces and ACG produces a very, very high levels, you're immediately entitled for your cost oil leg, i.e., the return of your CapEx. So there is no major delays in that.

So in terms of production levels, how would you see it in kind of next year and 2 years from now? Because this is a very high-margin production, right? So I just wonder if there is a cliff of this going down to -- and what's the kind of like then profit oil normalized level?

No, I understand the question, but we don't give single asset-specific guidances like that. For ACG, we're confident that as we announced when we executed the acquisition, that it's a long-term asset with a very, very sustainable, basically long-term production profile. You won't see the kinds of depletions you see in CEE or other places on ACG. Second of all, together with BP, the operator and the rest of our partners, we're now actually investing into building a seventh platform which is going to give an increment 100% additional 100,000 barrels a day of production to that field. So this is a field that will stay out there for long with very, very decent production.

Okay. And just thinking about your production level on the 3 to 5-year view, you always had this kind of discussion about declining production overall. And we see now it's a little bit of the natural depletion and a little bit of this financial framework on the ACG. But clearly, the production for the last couple of quarters has been declining. So with M&A on Upstream back on the card, so you will exclude it. Just thinking about how your kind of numbers, you deliver crude oil price, whether there's any production profile. Is there anything big coming up? Or are you looking for something?

No, I think we're always looking, but we're looking in both directions. Equally, at any point in time, any part of the portfolio can be sold or can be acquired. I think our strategy with regards to being really opportunistic on that. And from that front, that did not change. And equally, we haven't attached actually reserve replacement targets to our strategy. So we're really being opportunistic. We understand that part of the CEE production is coming down. That's inevitable. That's natural decline. We've undertaken a major basically acquisition last year, as you know, with ACG and that has -- that has actually more pushed that question of additional reserves and additional M&A out in the future. It might come, it might not come. It will very much depend on whether it financially makes sense. So we're not -- but I do not see a sense of urgency now to act on that side.

Understand. And changing slightly subject, I wanted to ask you, is there anything new on the INA arbitration negotiations to maybe sell the asset to Croatia? And anything new happened over last quarter? We've seen some headlines on this from Bloomberg, but they were not kind of on some ruling against Mr. Hernadi, but can you give any comment on the subject? [Audio Gap]

Now I can't hear you. Are you there?

Yes, yes. I'm here.

I see, okay. Gyorgy, Zoli, Jozsef?

Gyorgy, you want to address this question?

No, I believe Gyorgy is currently disconnected, just ringing me. Just a second. I think we can come back to this question once Gyorgy rejoined.

No. He's actually with us. So and -- I believe he is with us.

Technical issues on his end.

Sorry, I was just -- sorry, I'm not in Hungary and not even in Europe. So I just got lost and try to call back. So as I understand, the question is about situation. So just a, Piotr, 1 question that, are you more focused on how we stand with the government or how we stand with the arbitration?

No, on both actually. The arbitration was meant to come up 2 years ago. And with just every quarter, we kind of say it's coming up in the next quarter, and there's a couple of hundred millions compensations at the amount to receive. And then -- and I understand it's kind of a little bit connected with whether you will sell it to Croatia and the price negotiation is lighter because you want to bundle in the compensations.

I think the international arbitration, but it mainly concern is the exit one. The exit arbitration is now at the point when practically, both parties are awaiting the first instance final ruling. I mean in the exit one, you have to be aware that there is a appellate body in the process as well. And unfortunately, we don't have any, how to say, feedback or guidance that how long it takes that -- the first decision or the first award is coming out, but we expect that it's a matter of months already. So we are overall the preliminary questions. We are overall on the evidence and the testimony. So practically, we are waiting for the award and the ruling. But I have to remind you that this is not defined -- not an unavailable award. It's available within the exit procedure. And the exit itself then becomes final and binding on all parties and executable globally. So this is what the exit other international procedures are not in place. I would like to remind that the [ Oncentra ] procedure was ruled in our favor. Previously, that's a final and binding. But that was more about the validity of the core contracts, which we said that all the contracts are valid and enforceable. Other ordinary cost procedures or arbitration procedures are not in place. In respect of the government discussions, of course, there is continuous discussion on operational and shareholder matters. And on the shareholder matters, of course, when the government expressed a couple of years ago of their intention to buy it back, then a process started, which took, how to say, very long and longer than expected, not because of us, but we provided all the information and all access to data to -- that the government requested. But here, as you can hear and this publicly see, there is no conclusive end of that procedure. So practically, the -- we provided all information, but there is no negotiation that I would now report or no final conclusive decision on that one.

Are you good complete, Piotr?

Yes, yes, yes. Let's give the other opportunities.

Thank you. Then I will probably hand it over to Tamas Pletser from Erste to ask the next question.

Yes. Two questions from my side. First of all, can you tell us a little bit an update about the polyol project? When do you expect this project to be online and to be operating? When do you expect the first contribution to your EBITDA? And also, can you tell us a little bit about the current market environment of polyol? Is it now profitable? Are the margins good? And also, do you expect somehow your petrochemical margin to include polyol in the future? That would be my first question. A second topic I'm very excited about is the CO2 costs. How does it look like? What is the current framework for more? I mean, what kind of free allowances do you receive? And how much do you have to buy on the market?

Yes. Thank you, Tamas. Thank you very much for the questions. So in terms of the first one, in terms of the polyol, the polyol, as I mentioned, is in line with the revisited implementation schedule. So probably you are aware that we reported some delay there caused by the COVID, first and second wave of the COVID. The current mobilization of onsite is rather high. They are around 2,500 people there. So I believe that the progress is really good. On the other side, I have to add me that it's not anymore as spectacular as it was before costs, all the heavy assets, all the constructions are already ready. Now the works are progressing in the field of insulation, piping and also some auxiliary assets are placed. And the further what we foresee, once we are ready with all of these works, we will continue with the instrumentation works. In terms of the plant startup, as you are probably informed, the whole polyol is consisting of 4 production assets. So of course, that is going to be a challenging task. On the other side, I believe we are going to be well prepared. We have a startup team in place. So we are dealing with the issues. And I believe that the second half of next year, we will successfully start up the plant. In terms of the market environment, so it's really the, I would say, the similar as the petchem margin. So I believe that the margins are still really very, very attractive. Whether we will incorporate the polyol to the petchem margin? Well, good point. I believe that we will take it beginning of next year, and we will get together with our financial team and probably also get some inputs from the external market and stakeholders. Definitely, and this is partly connected to your CO2 question, that definitely what we see, we have to somehow more, I would say, incorporate the CO2 price to the refining margin. In terms of the -- what -- how we are dealing with or what is the CO2 impact to our P&L statement, there is also a sensitivity there. So in general, we are emitting around 6 million, 7 million tonnes of CO2 quotation and EUR 10 change in CO2 emission is causing roughly EUR 30 million, EUR 40 million. So based on that, you can really compute at what is the free allocation. So the free allocation is around about 4 million tonnes a year. So this would been my answer. Any additional question connected to this?

No, this is very clear, yes. So basically, 3 million is the free allowance, and this means that [indiscernible] have to buy?

No. 4 million. But Jozsef, would you please support me with this as you have the complete overview of the total number?

Well, actually, it's -- yes, just -- actually, it's 90% downstream. And I -- actually, there is 1 or 2 slides in the investor presentation, Tamas. You can check it out, and also in the kind of strategy presentation. But as Gabriel said, I mean, roughly the kind of scope on to, which is pretty much roughly the ETS relevant part is 6 million, 7 million tonne and around 2/3 for this -- it's covered with quotas, and we have to buy around 1/3 on the market. And I mean, going ahead, I mean, 2 questions. One is price. I mean, in the strategy and generating the financial framework, we are counting with EUR 100 per tonne by 2030. So essentially, in terms of the recent development, that's very much in line with our kind of thought process that we will see an increasing CO2 price, ETS price. And this is actually the financial motivation for kind of CO2 decreasing investment. And of course, there is one more uncertainty, the quota allocation and there are kind of I think that's a ongoing discussion as part of the [ FIT 455 ]. Probably for the next 2 years, it's pretty much fixed. Will that change after that? We don't know. But probably, again, on kind of medium term 2030, we should expect also kind of decreasing quotas. And however, having said that, I think one very important development is this carbon border just [indiscernible], essentially a CO2 tax. If that comes into play, and we expect that, that will happen again in the coming years. For our own industry, that will have actually over a positive impact because then essentially exporters also have to pay this CO2 price when they want to kind of exporters to EU. So importers to us have to pay this price and we will have a more competitive playing field.

Tamas, just sorry, one thing, just wanted to confirm the numbers here on the scope on emissions. So basically, 7 million tonnes, scope on emissions, total [ loan ] is a fair number, out of which basically 6 million would be related to Downstream. The [ vast ] majority of the rest is E&P and then the free allocation was just described by the [indiscernible].

All right. Then I believe Oleg Galbur has been waiting for a while from Raiffeisen. Oleg, please go ahead.

I have 2 follow-up questions actually. And the first one is related to your carbon footprint. Some of your peers in the region have reported material gains on the inventories of CO2, and I was wondering whether you have also gain material on your inventory and of CO2. And the second question, if you could provide more details on why the CapEx guidance for this year was revised downward. Is this efficiency gains or just postponement of some investments for the next year?

Yes. Thank you very much for the question. Well, I am not fully aware what the -- what other peers or what other competitors did in terms of the CO2 gains. Well, we are not -- I would say, we do not speculate with the businesses around CO2. What we tried, we try to offset the negative impact of the CO2 quotas to be bought by OER quotas. So this is the part we started last year. And for this year, we would like to go in line with this. But as far as I informed, there are no material gains coming from the CO2.

Sorry, Jozsef Simola. See, if -- there's 2 kind of technical comments that in terms of buying and selling ETS, we do some tactical trading but not really a major position taking. So we wouldn't expect that to show up in the kind of consolidated financial numbers in a visible way. And the other is that in terms of accounting policy, we are in the cost model. So you will not see quarterly revaluation gains or losses because of this. And maybe I -- just an overview on the CapEx. I mean I have to say that, looking back, not the previous year because that was COVID, I think that's very much in line. I think with our pattern, it is our practice that usually the businesses have a higher appetite at the beginning of the year. And we usually kind of somewhat a little bit kind of undershoot the guidance. So I see no kind of special reasons. Yes, I think this year, kind of the COVID after effect and supply chain, kind of a little bit of additional effect, but I would say it's very much in the business as usual range.

Thank you so much. For the time being, we don't really see any other potential questions coming in. If that's the case, then I would like to thank all these -- all the participants and external guests for attending the call. If you have any follow-ups, please...

Zoli, I still see Tamas Pletser raised his hand.

Is that -- is there still an open question there?

Yes. Thanks very much, just one more thing from my side. Croatia and freeze of the fuel prices over there. Do you have a negative impact on this? And do you expect the same pattern to happen in any other countries where you operate? I mean, the Hungarian Prime Minister also mentioned once that he may use this kind of a tool to stop the first soaring fuel prices. So do you see this kind of a risk in Hungary? Or -- and what is the impact in Croatia?

Tamas, I'm not sure I have Peter with us. He had to run to a different meeting. Let me take this offline and get back -- we get back to you on this one, all right?

Okay. All right.

All right. So then thanks again. I believe there are no further questions at this point in time. So happy to hear further questions from you in the upcoming weeks, months. Thanks again. Bye-bye.

Thank you. Take care. Bye-bye.

Bye-bye.