(JK and TF) Grupa Lotos and Polskie Górnictwo Naftowe i Gazownictwo are planning to team up for oil and gas exploration. How are the talks on that progressing?
(PO) The negotiations concern joint operations on onshore licences owned by PGNiG. The licences we are talking about are for both conventional and unconventional resources, including those trapped in shale rock. All licences held by Grupa Lotos in Poland are offshore licences, while those secured by PGNiG are all onshore licences. As the number of licences held by PGNiG exceeds the company's exploration capacity, we had the idea to join forces on selected projects.

What stage are the negotiations at?
A preliminary analysis of selected upstream projects is currently under way. Depending on the results, we will choose a licence and decide on the scale of the venture. At this point, it is far too early to give more details.

Norway is among the key exploration areas for Grupa Lotos. Due to severe problems plaguing the Yme field, in which you hold a 20% interest, substantial impairment losses had to be recognised. Will it be possible, and if so when, to recover the invested money?
We believe that we can recover our investment. We have plans to acquire a producing field in Norway this year as a platform enabling us to recover the capital invested in Yme and to embark on further upstream projects in Norway and Poland.

Do you intend to float Petrobaltic, the Lotos Group's exploration arm operating on the Baltic Sea, on the Warsaw Stock Exchange?
We have no plans for Petrobaltic to go public.

What financial performance do you expect Grupa Lotos to deliver this year?
This year's results will not be any better if the grey market is not dealt with. It is also important to note that last year, demand for fuels dropped by as much as 8%, and I expect it to shrink by another 2-3% this year. We managed to increase our market share despite the unfavourable conditions last year, but this feat may not always be repeatable. When a market is contracting and the number of competitors remains more or less the same, the situation becomes more difficult for everyone. In other words, it will be a major challenge for us to top last year's performance.

Is the sale of another block of shares in Grupa Lotos by the State Treasury being considered? The State Treasury now holds 53.2% of total shares and voting rights at the General Meeting.
As far as I'm aware, the Ministry of the State Treasury is not considering any such divestment. Besides, in order to go below the 50% threshold, the national energy policy would have to be changed by a government resolution. It should be noted that, following amendments to the Articles of Association, the interests of the State Treasury are secured even if its holding falls to, say, 40%. This option is worth considering, particularly in the context of the company's further growth. A rights issue or a trade partner are both conceivable scenarios for the future. The choice depends on the answer to the question of how we want to achieve further growth and raise capital for further investment.

Mikołaj Budzanowski, Minister of the State Treasury, has exerted pressure on the management boards of companies with state shareholdings to shed redundant assets. Has Grupa Lotos yielded to the pressure yet?
It is not about pressure from the Ministry of the State Treasury. The management of any enterprise that wants to successfully compete on the market has to examine the rationale behind preserving assets that fit or do not fit with the group's overall business concept. Some companies own non-core assets which need to be disposed of. We have reviewed our asset base, but no redundant assets have been identified. That being said, as we grow, the need to dispose of such assets may arise, and doing so would certainly improve our efficiency.

Is Lotos Kolej, Grupa Lotos' subsidiary, for sale?

No such option is being considered. We are asking ourselves a different question. Would Lotos Kolej be able to continue to achieve robust growth if the current ownership structure were changed? Today the company has an 8.2% share in the market of rail freight transport services in Poland. Around 60% of the transported freight is hauled as part of orders from the group, with the balance representing orders from external customers. Moreover, the company provides its services not only in Poland, but around Europe too. It employs 800 people and operates approximately 100 locomotives. This begs the question of the scale of its future growth. Assuming a market share target of 20% in the next three to five years, a strategy needs to be developed to help attain that goal.

Will Grupa Lotos continue to invest in Lotos Kolej in the future?

We want to create conditions conducive to the company's further growth. Therefore, we will search for solutions that may lead to changes in its ownership structure. Currently we are in the process of measuring the value of its assets, and we will analyse different growth scenarios for the company.

Paweł Olechnowicz has been CEO of Grupa Lotos since March 12th 2002. Prior to that, he was the director of his own company, Paweł Olechnowicz – Consulting. From 1999-2000, he was Vice-President and Deputy CEO at ZML Kęty. He has held executive positions at ABB Zamech and ABB's headquarters.