Orlen S.A. (PKN) Earnings Call Transcript & Summary

[Interpreter] Good morning, ladies and gentlemen. I would like to welcome you to the press conference concerning the development of Offshore Wind Power by ORLEN in the name of Daniel Obajtek, the CEO of ORLEN, I would like to welcome, Mr. Marek Gróbarczyk, Secretary of State, in the Ministry of Infrastructure. Anna Lukaszewska-Trzeciakowska, Secretary of State, Plenipotentiary at the Government for Strategic Energy Infrastructure. I would like to welcome Mike Crawley, Northern Power, the CEO of the Management Board. I would like to welcome, Senator [ Adam Czyzewski ]. Member of Parliament [indiscernible]. Other Members of Parliament and Senators. The management of board of Northern and ORLEN, [indiscernible]. President of the Management Board. Wojciech Zdanowicz, the Director of Maritime Office in Szczecin. Krzysztof Urbas, President of Management Board of Szczecin and Swinoujscie Seaports Authority. The local government authorities, Zbigniew Bogucki. The Governor of West Pomerania Province. Barbara Michalska, the Deputy Mayor of Swinoujscie. The authorities, all the [indiscernible] and employees of the ORLEN Group, representatives of the media and those of you, who observe what we are doing here through social media. I would like to ask Daniel Obajtek, the President of the Management Board of ORLEN to take the floor now.

[Interpreter] Mr. Minister, Governor, Ms. Mayor, ladies and gentlemen, members of the parliaments, dear Presidents of Management Board, dear guests, dear media representatives. The transformation is inevitable. Transformation is our future. Transformation builds jobs. Modernizes us economically, develops our country. Introduces new technologies. And first of all, also it does not only support the business side. But first of all, it supports new technologies, cheap electricity, cheap fuels, that's the chance, an opportunity for the competitiveness. If our economy -- this is inevitable. If we want to keep developing, we have to invest a lot. No country, no business will develop if we do not invest billions. And that's how at Poland, we perceive investment process. This is why we created a multi-energy company. That's why our strategy envisages PLN 320 billion. So we'll keep developing economic to keep developing ORLEN to secure the energy security of our beloved country. Our strategy, PLN 120 million of expense for the transformation process. Out of that, an amount of PLN 120 billion, PLN 70 billion is for modern energy generation. We are building pumps on lands. We are building photovoltaic bonds, and we are involved in very huge acquisition processes in 0 emission of sourcings. We have about 700 megawatts. But this year, we have already -- us [indiscernible] approximately 800 megawatts. By the end of the year, in 0 emission energy generation, we will have 1,500 megawatts. But of course, our plan is 9,000 megawatts. We will be developing this program, pursuing it very dynamically. It's not only 0 emission energy generation, it's also low emission energy generation. That's about gas power plants because we need to have power plants at our disposal -- at our disposal that support the system. That's why we are also here very intensively carrying out our investment processes today we are taking an important step in the direction of transformation. A very important day, for Swinoujscie stretching and the hope Pomerania. This is also a very important day for myself. Because for myself, this has been a strategic project as -- because for the Management Board of ORLEN. I would like to announce to you that we have been able to obtain all construction permits, we have the investment decision granted to us. And now we are starting the construction of the first offshore Baltic wind farm of the capacity of 1,200 megawatts. A very large economic undertaking. On the 19th of September, we signed the first contract for financing this investments over a period of 23 years. And the value is PLN 20 billion, try to imagine this amount PLN 20 billion. Collateral for this amount is not assets of ORLEN. The collateral is the investment itself. This is the biggest financeable project investment -- project in Poland. This is a project that will provide jobs. This is a project that will ensure a huge development. The offshore wind farm will produce energy to match the needs of around [ 1.5 million ] inhabitants of the country. Energy production will start in 2026. We have signed contracts with companies that will be carrying out this investment. We have completed the whole supply chain. This is not only investment vow. Of course, in stretching our sales will be produced for Vestas wind turbines. This is another very big investment. Because we are not running our investments for ourselves, such a large international concern has to develop other branches of economics too. It has to develop other companies. It has to ensure that there is a whole Polish value in supply chain throughout the process. This is a necessity. An investment in the Vestas factory. An investment related to the construction of the first wind farm on the Baltic Sea. But this is not the last announcement that I have to make today. Today, we are starting to build the first installation port. In Swinoujscie, one of the most modern installation ports in Europe. If we did not create the logistics behind to secure the business and servicing companies and many others, for which we will be building competencies. We would not have been able to obtain the finance -- the financing amounts to PLN 20 billion. That's 25 financial institutions from Poland and abroad. These financial institutions do believe in this project. They believe in the profitability of the project, in the greater return. They believe in what we are doing here. Otherwise, we would not have got the capital for this investments. All these investments amount to over 1,000 jobs in this area. But this has not always been like that, and we should not cut ourselves away from history. As recently as 2015, the unemployment rate in West Pomerania Province was totally around 13%. Now it's 6%. The region knows the word privatization and liquidation very well. In 2009, 10,000 jobs were made redundant. The shipyard was liquidated. It's not just about the assets, it's the question of the skills of those people that were lost. This question of investing in the state and into that business that elapsed. Those people left the country to build the economies of other countries. They are not building our economy. And this is a loss that will always be difficult to recover. I've said this before, assets can be recovered using our own external sources, but to recreate the whole construction and engineering staff is a very high job. It's a long-term process. So we have to keep the jobs we have, and we have to create the new jobs and create the new technologies. Also a similar plan in 2015, February. I have a document here, was drawn up by the Management Board of ORLEN. That so called optimization of ORLEN Group structure without investments. This plan indicates that privatization was planned for this companies that are enumerating now. And Trzebinia refinery, the last one. This is 7 companies, but there was actually a plan to make sure that 30 companies was supposed to disappear, that we're securing the stability of ORLEN. And that document comes from January 2015. And if this was to happen, ORLEN would not have survived. ORLEN would not have the strength to invest to keep developing the economy. ORLEN would not have survived. In 2015, at that time, one of the strategic companies was sold, ORLEN Transport. That company was sold to have fund, a company that was actually a monopole holder for liquid fuel delivery to our gas stations. Of course, the fund did manage that company, but did not run investment processes. We were losing our fleet. Imagine, please if we did have not repurchased that company 2 years ago. What would have happens during the COVID? What would have happened during the Ukraine war crisis? What would have happened to the whole logistics chain? We would not have been able to deliver fuels to our gas stations. It would have been a huge problem with the increase of around 30% in volumes, while sometimes volumes sometimes run up to 100%. I need to make a reference here also to the data that is, of course, true, but it's also published. Profit for 7.5 years of ORLEN have been PLN 84 billion. These are those that have been taken partially away from fuel mafias. The profits of ORLEN between 2008 and 2015 were [ PLN 2.09 ] billion. This would not have been enough to recover or restore the assets of ORLEN, meaning this would not have been enough to secure the interest of the state because after all, this is all a critical infrastructure. This means for or funds for infrastructure that we have spent over the last 7.5 years is over PLN 90 billion. The funds spent -- the amount spent between 2008 and 2015, were PLN 24 billion, which would not have been enough for this -- for the assets. However, ORLEN has other jobs too, not only business jobs and jobs related to ensuring the security of our country. But also, we have social tasks because a company, that big needs to fulfill social task. In previous years, ORLEN spent PLN 69 million. Now we have spent PLN 802 million. Look at the difference in scale. And this was where I was supposed to stop my speech. But I have to say a few words, true words. I've been obligated to do that by ablaze of ORLEN. Those people, who have been building the strength of ORLEN for the last years, the managers in ORLEN asked me to take the floor on their behalf. And I would like to once again state this to the leaders of the opposition, who very often lie or misguide us. With regards to the privatization of LOTOS. That is a lie. I would like to stress that the assets of LOTOS have become an integral house of the ORLEN concern, both the assets of LOTOS and PGNiG have become an integral part of ORLEN. This is the process of merger through acquisition or taking over. In this way, this State Treasury has increased its share in its national concern. In those years, the State Treasury had 20-something percent here in ORLEN. And ORLEN was open to be taken over by someone else. Now the State Treasury has over 40% share in ORLEN. Now as it comes to Gdansk refinery. Gdansk refinery was singled out of LOTOS asset has it's separate company and today, Gdansk refinery is an integral part of the ORLEN Group. It has -- ORLEN also has 70% share in it. 30% of shares are hold by Saudi Aramco. So the refinery is fully controlled by the ORLEN Group. Why did this happen? It happened because while wishing to carry out the fusion process, which those gentlemen should have done 30 or 20 years ago, just like other European companies so that we could compete in European markets. We had to fulfill the EU commission conditions because this was a concentration of 2 competing companies. The EU Commission told us to sell 30% of LOTOS refinery assets. Not of the refinery, not of the whole LOTOS company. Ladies and gentlemen, of Brussels, this was necessary for us to be able to carry out this process. Now talking about evaluations, and this is being said by politicians, who have no idea how many international companies worked on the evaluation. They have no idea that evaluations are also made of synergies obtained through the merger. That's billions of zloty. This year, we have already received PLN 30 million in synergy value. That's a very important element too. A common purchase of crude oil, and they forget to tell the truth that this -- till now for the first 6 months of the year, we paid over PLN 36 billion into the budget. By the end of the year, we will have paid [ PLN 50 billion ]. This is the amount for which around 1,000 companies were sold in those years back then, since 2008 to 2015. Now as a Pol, not as President of ORLEN Management Board. This company is taking care of the business in the country. We are one of the 5 fastest developing companies in the world, not just in Poland. We are a champion of business. We are a company that post can't be proud of. Is this normal that a company like ours is being attacked a company that is ensuring security and stability? I did not see those. I did not see those politicians protesting against international fuel companies. So why are we doing this against their own company that is taking care of the security of energy and power? A company that is supporting us, a company that through mergers and we can stabilize prices? For the last 2 years, we've had one of the cheapest fuels in Europe, and that's because of all the processes we have carried out. It's because of that, that today, our fuel is one of the cheapest in Europe. It's we who are protecting the Polish market. It's we who are protecting the economy. It's us, who are carrying out these investments. Irrespective of the elections, it is really bad to attack the company that secures the interest of economy. This is my word as this is this country, not as the President of the company. And just at the end, I would like to thank the people, who contributed to the investments to be carried out in this particular place. So I would like to mention Mr. Obajtek, you helped a lot regarding the hardest harvest strategic is very important. This is opening the window to -- the door to the new farm -- the offshore farms in the Baltic Sea. I know you would like to transfer everything from Warszawa or to the State of Swinoujscie. But of course, this is very important thing to all of us and to the construction of other farms. Not only ours, this is the harbor, which will be used by international companies. As you know, Baltic, I would like to say my support to [indiscernible] to thank the Governor and Members of the Parliament. These are all their decisions in favor of the company. Probably, I would like to thank the city as well. In respect of the time, we have to work together to use all these mechanisms for the growth of the company. Otherwise, we would be very weak in terms of economy. And I think we are not going for that. I would like to thank once again for your presence. Thank you for today. To be hear on that particular day that we -- whether we can start this project, and we had started next project. There's a chance, there's opportunity for the Pomerania, for the Western Pomerania, for the whole country. Mr. Gróbarczyk will take the floor, the Secretary of State and the Ministry of Infrastructure.

Thank you very much, Mr. President. You are already a host for this particular day, to the Members of Parliament, [indiscernible]. He is Mayor, Directors, all ladies and gentlemen here at [indiscernible]. Furthermore, I would like to say that here in Western Pomerania is absolutely a large scale of investment projects and the expansion of different kind of investment projects that are aimed at creating a [indiscernible] significant and safe region. It's worth remembering that we had the most competed project into the fairway, which touching to Swinoujscie 12.5 meters deep to allow the bigger vessels to enter the [ proposition ]. In month -- 2 days ago, we're recently [indiscernible] that was opened much larger, which we'll have for the servicing and operation of larger vessels. There is [indiscernible]. The export peers also competed some of the gas. [indiscernible] to export. And ladies and gentlemen, today's decision of the environment possibility that -- this is a kind of [indiscernible] environmental permit to start the construction with this and continue terminal and now in other projects quite important, extremely important. So there's -- procedures was completed regarding the navigation and none of this, which wasn't allowed to start the year and [indiscernible]. And also to the LNG termial. [ Generally ] just across the project goes to the water. This project would soon start. But today is extremely important day for this particular place, this particular site that have been probably also planned to be privatized of the harbor that purchased at [indiscernible] and Swinoujscie. And today, the offer was based to submitted by ORLEN. So today, we start this investment that is the new offshore terminal. 1,000 jobs, we hope this would be multiplicated. There would be more jobs created soon. And then we will create a very important site for the expansion towards -- onto the verdicts of this. That's where the transport of the pieces for the turbines and how infrastructure for the ultra farm. This will start a very important and immediately required a necessary thick. This is extremely important that, well as so far, it won't be that certain that the turbines might not be moved from [indiscernible]. They will be moved from here, that will be transported from Swinoujscie. And Mr. Chairman, I think, you would not just [indiscernible] by the power of [indiscernible] Polish, but entire Baltic Sea will soon be serviced from this particular terminal. And the licenses for the entire Baltic will then be in hands of ORLEN.

Thank you, Mr. [indiscernible]. And it's time for Mrs. [ Magdalena Rzeczkowska], the Representative of the Board for Strategic Infrastructure.

Mr. Chairman, Members of Board, Members of Parliaments, Lady Mayor, Governor, this is a huge and an important day for our companies. Because it's also a [indiscernible] satisfaction, when the time of the background work stucks the paper work still [indiscernible]. And then you start the field work. This is the simplest that it comes in the end, but it is very satisfactory. Something that is visible and it's difficult, and of course, we're happy that it will be completely -- complete satisfactory. But as always, we keep our promises and we keep the words and we keep the time schedules. It is an important day for the entire region. This is what the Mr. Manager and Mr. Chairman, Andrzej Szumanski is the center of the offshore business in West Pomerania. This is where the offshore heart beats. And not only the Swinoujscie, but also the Baltics and this is over the heart of the parageneration, which is moved from a country to this is the Baltic point, the colony of lives. When there was start -- when they enter to start -- to start this project, [ to ensure ] the energy safety. Thanks to repurchases by our [indiscernible]. We satisfactorily completed the Baltic by 3 months, ahead of the schedule. And that was state-owned company called Gas System and we as a PA -- PGNiG purchase the gas paying very good prices. And this also here, where we have another gate to the know it is LNG terminal, missed in the memory of [indiscernible], Late President. This terminal is being expanded, and it will soon be completed to exactly provide the security and the safety of [indiscernible]. And the pier, the export pier will also be operated by the -- by all the ships and vessel that are leased are charged by all and this is also the harbor, Swinoujscie harbor which also worked for the safety of energy. Here, we had the vessels carrying the coal, which we then send to households from here, all over -- through different destinations in our country. So energy heart was moved to the north of the country. The investments of the project that we mentioned mainly from the speakers, that's also the tunnel, which is now in fact impossible doesn't exist. If you manage in a proper way and you're motivated, this is actually, they deepened our way investors factory and here, we would have this installation terminal, this is a very extraordinary harbor for generic terminal. Just to the [ investor ] December, the scale is just imagine the blade of the terminal, that's 38 meters long and in a cell that weighs like 17 big trucks, just a view from this particular piece to installation, installation ships will then be supported by the important [indiscernible]. Loaded the mass, loaded equipment to install the offshore turbines. So, in a short version we are -- in the short terms, we are secure in terms of energy, but to be secure in a longer perspective way to fund -- to change the category -- [indiscernible] change of our energy mix. It's not just for the change itself, it's for all Polish people, for the investors and for the economy, who would work together to provide them with the large volume of price double. Volume of energy, this is the challenge for year, [indiscernible] but we are always in this process now, and the security of safety -- energy security of itself and big or small companies, schools, hospitals, different kind of entities. So we want the state-owned companies to provide energy lease of the companies that diversify to the directions of the supply diversified types of fuel and this are they all play a key role in impulsive transformation. The key role in our big energy groups of energy companies that take part to discuss this future mix is a large scale. We need, of course to save the energy. But we also -- the flexible case sources we need small reactors and we also, of course, offshore which is very stable. The Orlen has got all the volume of this project with their hands. They are also all the groups that are operated by the State Treasury. These are Polish Nuclear Power, the gas system works on that and the company called PSE that operates the transfer grids, which also needs to develop PLN 61 billion to be spent on the development of the transfer -- electricity transfer power transfer grids. This is the way we create a energy security of our country. And the capital [indiscernible] as you noted, this is the added value. Well, the project and the mega project that we need to implement and to carry out, the -- these projects can be completed in time and we need to complete and to carry out some associated project. Offshore project. Roads, railroads, peers, foreign nuclear power plants, which would received in large part and large components. This is big amounts in billions, this is also especially beneficial for the local economy. This is really deploying thousands of new jobs, well-paid jobs. Which will then be created during the process of this investment and after that. This is also [indiscernible] supply chains, thousands of entrepreneurs. Modern [indiscernible]. They would earn doing the different kind of job. They would earn for long time. And this is what makes the economy accelerates. All these small or big projects was we accelerate the local and local entrepreneurs. Then and other thing, this is a new industrial culture, nucleoid culture needs to be developed. And the optional culture, do we as these are learning. We know a lot we can rescale enough are the process is ongoing. This has already added value in this students, this our universities, this is also science going hand-in-hand, but... I would like to speak in English for a while to talk to Mr. Mike Crawley, because the joint venture between ORLEN and Northland is quite important also in this matter. Building the offshore culture, working together hand-by-hand, the teams from ORLEN and the teams from Northland is the added value, which is quite, quite important for us because the knowledge which we achieved, we can then share and continue our projects with different partners. It's quite important, it's essential. And this partnership is so good that I would like to have it as a model in a different future projects. Not only in the offshore, but also in the nuclear. [Interpreted] Just switching over to polly, I would like to thank Mr. President for you -- that you simply decided to place this project here and continue respective of what's [indiscernible] and our difficulty or difficult timing, we are facing or going through. We got the energy conflict. The [indiscernible] and they consequently change this energy mix. Thank you for your support. These are the infrastructure project, and the peers, the expansion of the infrastructure development of the researchers is also a big effort. I respect your words, so thank you. I would like to thank all the people involved and the security as the basis for other types of security. We have to remember that working on the security and we simply building independence of this country, that we keep going. And we will not stop. Thank you very much. Mike Crawley, the CEO of Northland Power.

Well, thank you very much. My name is Mike Crawley. I'm the CEO of Northland Power. Very pleased to be here and very honored to be here with Minister Robert Czekaj and Mr. Zgagowska. We've met before. That's not bad. And of course, Daniel, you have -- that's easy for me. You've been a great partner and look what our teams have been able to accomplish together. Northland as some of you may know, has been around for about 35 years. And we got our start building gas-fired, biomass-fired and renewable power projects all across Canada. But most of our growth really came in the last decade, building and developing financing offshore wind projects in Europe, in the Netherlands and Germany. And so about 5 years ago, as we were finishing up another project over in, I think, Germany at that time, we started thinking about, where the next big wave of growth is going to come for offshore wind, where the next opportunities were going to come. And that drew us to Warszawa. And about 5 years ago, a few of us started coming to Warszawa. And we came to Warszawa, and we came to Poland for a few reasons. One, there was a very clear policy framework to incentivize offshore wind, a clear road map about how offshore wind was going to happen in Poland. There are ambitious targets, 5.9 gigawatts by 2030, 8 to 11 gigawatts by 2040. And there was a thriving and growing economy in Poland, which is clear and evident. You didn't even have that all the numbers to see what a robust economy there was in Poland that would need the energy, that would need every electron that was going to be produced from offshore wind and from all other sources of new electricity generation. So I'm so proud of what this team has accomplished with the financial close for offshore wind, 25 financial institutions, as Daniel mentioned. And I got to tell you, in a year which has been really challenging for offshore wind, Baltic Power is truly one of the few and one of the great bright spots for the sector, which is really a testament to the strength of the Polish offshore wind market. And what a bright spot it is. So it's one of the largest offshore wind projects now in the world. It's using the largest offshore wind turbine, 15-megawatt Vestas turbine stands over 250 meters tall. Huge turbine, huge feat of engineering, developing that turbine. And it's an extraordinary collaboration between ORLEN and Northland Power. I mean, it is 2 companies, arguably 2 very different companies from 2 different parts of the world. When you go into that bulk power office, you walk down the halls, you talk to the people there. It is one team. There's not Northland people, there's not ORLEN people. It is one team with one mission, one focus, which is why it's been so successful. And top-tier suppliers. If you look at the supply chain that is behind this project, it is, from our experience, some of the best suppliers in the sector, certainly, Vestas. [ Bernard ] we've worked together with before Dama, we've worked together with before Bladt, Semco, some excellent, excellent suppliers. In a supply chain that right now, globally is really constrained, this project was able to get the best of the supply chain to build this project. And in terms of kind of the regulators and the policymakers, very thoughtful and pressing in terms of how the regulations were established, agile when they needed to be agile to make sure that projects moved ahead. And all together, this is what has made this project happen and got this project to this stage of development. So who are the winners in all of this? Well, the winners are the 1 million homes that are now going to get powered with new green electrons and another way of looking at -- think of all the industry that's going to be powered with renewable power moving forward to drive the Polish economy even further ahead. Huge emissions reduction. Jobs all around Poland. And one thing that's not really widely known is that in our projects, we built in the Netherlands and in Germany, there were Polish suppliers down the supply chain as we work back through and we looked at it after those projects were built. But now there's going to be so much more, including the Vestas facility that's being constructed. So a huge amount of economic development is going to come from this. And Poland will be on the map and is on the map now, as one of the leading markets for offshore wind globally. So financial close is a huge milestone, but the next chapter is really about building this project, right? Number one, safely, but also on time, within budget and I think this will be truly one of the great projects of the next 3 or 4 years that moves ahead in the sector. So in terms of Northland, I feel, first of all, incredible gratitude and respect for all those that made this happen, all those that were involved in this project and got us to this point. And Northland itself is so honored to be part of this iconic project for Poland. The first offshore wind project in Poland, but the first of many to come. And I tell you, we would love to do more in Poland, and it's a great partnership between Canada, as the Minister alluded to, and Poland on energy, whether it's on SMRs or whether it's on offshore wind with different companies involved, and we just cannot wait to get together again with all of you in a short period of time, a couple of years, 3 years, to celebrate first power from Baltic Power. Thank you very much.