BMI's Executive Summary

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Poland's petrochemicals producer PKN Orlen bid to become one of Eastern Europe's largest fully integrated petrochemicals companies has suffered a major setback after the new Polish government said it would oppose plans to merge with the country's second-largest refiner Grupo Lotos, according to BMI's latest Poland Petrochemicals Report.

PKN Orlen's strategy for 2007-2012, Striving for Regional Leadership, aims to generate EBITDA of PLN11bn, a 132% increase over 2006. In an effort to fulfil its goals, the company aims to be the first Central and Eastern European (CEE) producer of purified terephthalic acid (PTA), with the object of producing 600,000 tonnes per annum (tpa). In December 2007, the company signed a EUR300mn 12-year loan deal with the European Investment Bank (EIB) to fund the construction of paraxylene and PTA units, which are set to come on-line in 2011. PKN Orlen hopes to tap the growing Polish market for PTA, with demand rising 8-10% per annum. The company has said its planned investments, part of a plan to upgrade petrochemicals facilities, will add some PLN500mn (EUR130mn) annually to its operating profit. The PTA plant will have a maximum capacity of 600,000tpa of PTA, which far exceeds projected demand of 300-400,000tpa by 2011 and will lead to net exports of at least 200,000tpa. The paraxylene (PX) plant will have a capacity of 400,000tpa. The PTA plant will cost an estimated EUR600mn to complete while the PX plant will cost EUR400mn.

At present there are no confirmed plans to expand olefins and polyolefins capacity in the Polish petrochemicals sector, which means that Poland will become increasingly dependent on imports, despite PKN Orlen's ambitions to bolster its share of the regional market. In 2007, imports comprised around 34% of the 950,000 tonnes of ethylene consumed by Poland. By 2011, ethylene consumption should reach 1.7mn tpa, of which around 60% will be provided by imports, with domestic production at maximum capacity. The same trend will be seen in the polyolefins sector. Without further expansion in capacity, annual polypropylene (PP) imports will rise 115% in 2007-2012 to 560,000 tonnes, while polyethylene (PE) imports will rise by over 50% to 870,000 tonnes, assuming that the domestic industry will manufacture at maximum capacity. PKN Orlen is focusing its investment activity on PTA production, with plans for a total of 600,000tpa to come onstream by 2011.

Poland has retained second place in our Petrochemicals Business Environment matrix, tying with Czech Republic with 57.2 points. It is just 0.3 points ahead of Hungary and 11.7 points behind Russia, which has a commanding lead due to the scale of its petrochemicals industrial base. Poland's main petrochemicals producer, PKN Orlen, is set for further expansion in coming years, which will lead to an improvement in its petrochemicals composite score. Diversification of market suppliers and increased feedstock availability would further improve Poland's score, although it will not exceed Russia which will retain its dominant position in Eastern Europe.

In November 2007, PKN Orlen indicated that it is looking at options of buying stakes in three oil producers in Kazakhstan, with its board set to receive a recommendation on buying into one of the three. PKN has struggled to find access to its own supplies of crude oil, leaving it largely dependent on supplies from Russian oil majors. The acquisition of a Kazakh producer would diversify its source of feedstock. A decision is expected in Q108.

Contents

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Chapter 1 - Executive Summary

Industry Overview

Industry Developments

Foreign Direct Investment

Petrochemical Forecast

SWOT Analysis

Poland Petrochemical Industry SWOT

Poland Economic SWOT

Poland Business Environment SWOT

Chapter 2 - Industry Overview

Table: Poland Cracker Capacity (’000tpa)

Chapter 3 - Industry Developments

Chapter 4 - Industry Forecast Scenario

Petrochemical Outlook

Petrochemical Forecasts

Table: Polish Petrochemical Industry – Historical Data & Forecasts

Chapter 5 - Business Environment

Economic Performance In Q206

Foreign Direct Investment

Chapter 6 - Economic Outlook

Table: Poland – Economic Activity

Chapter 7 - Company Monitor

Profiles

Polski Koncern Naftowy Orlen

Anwil

J&S Energy

Chapter 8 - BMI Forecast Modelling

How we generate our Industry Forecasts

Chemicals & Petrochemicals Industry

Cross Checks

Competitive Landscape for Emerging Europe Petrochemicals Reports: Sample of Companies Ranked

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Comparative company analyses and rankings by US$ sales, % market share, employee size, registration date and ownership structure. Company SWOTs (Strengths, Weaknesses, Opportunities, Threats) on all leading international and national operators in each market, including competitive intelligence in the following: Overall geographic presence, competitive positioning against local companies; production capacity, sales and market share; joint ventures, foreign direct investment, projects and acquisitions strategy.