Poland’s Orlen sees no positive cashflow from Olefins project

By Marek Strzelecki

WARSAW (Reuters) – Polish oil and gas company Orlen said on Tuesday its Olefins petrochemicals project will not generate positive cashflow in future as it again wrote down the value of the flagship investment started by the group’s former management.

According to its preliminary third quarter earnings published on Tuesday, Orlen wrote down 912 million zlotys ($228 million) of the value of its petrochemical business.

The project has already seen other investment writedowns and Orlen has pledged to decide on its future before the end of this year.

It also announced a writedown of the value of its Lithuanian refinery amid delays and cost overruns of the project to boost the refining products yield.

The petrochemicals business writedown resulted from adverse economic conditions and third-quarter spending on the Olefins project, due to which, according to current estimates, “the assets that are to be created will not generate positive cash flows in the future”, Orlen said.

The statement highlights the dilemma Orlen’s management faces as it nears a decision on the investment which besides the writedowns, has been hit by soaring costs and downgraded efficiency estimates, analysts said.

Orlen new CEO Ireneusz Fafara called the project a “trap” in August and said the refiner faced the choices of closing it and paying the penalties, optimizing the investment or continuing it amid adverse economic conditions. “The main dilemma of this management board, is what to do next, should we stop this project and assume that all the expenditure incurred is wasted and each additional zloty spent only increases its negative net project value? Or is it worth finishing?,” said Kamil Kliszcz, an analyst at mBank brokerage. “This write-off alone does not determine this.”

The impairment does not necessarily mean the project has no future, Erste Group analyst Tamas Pletser said.

“Definitely it’s not easy to decide on this because they have to choose between a bad and a worse decision,” Pletser said.

($1 = 3.9965 zlotys)

(Reporting by Marek Strzelecki; Editing by Emelia Sithole-Matarise)