EU green revolution takes on Poland

Bloomberg

The European Union’s most coal-reliant country has a controversial new strategy for its 400 billion-euro ($456 billion) green push: bulk up the Polish state oil company and let it lead the transformation.
Poland announced plans to build an energy champion with the financial heft to drive the overhaul by combining refiner PKN Orlen SA and gas group PGNiG SA. It may soon find, however, that growing European reluctance to invest in companies selling fossil fuels means that adding oil and gas to the mix won’t necessarily make it easier to gain funding.
The PKN Orlen SA oil refinery stands in Plock, Poland.
“A combined entity could find it harder, not easier, to attract funds to finance green transition,” said Bloomberg Intelligence analyst Elchin Mammadov. “I’m very skeptical about this consolidation plan.”
Even as financing the oil and gas industry remains a big business for banks, the trend is changing. While most European banks have withdrawn from funding coal projects, the European Investment Bank last year decided to stop funding all fossil fuel projects, extending its ban to oil and natural gas.
State-controlled Orlen has argued that now may be the last moment to gain financing for green projects based on its oil and gas business.
“Who should be in charge of the energy transition in Poland? Show me a company that could carry such a task now,” Chief Executive Officer Daniel Obajtek said. “If the country is to invest in low-emission power generation, we need to create a European champion.”
It’s still unclear how Orlen will finance the purchase of PGNiG, a company worth nearly $8 billion and bigger than itself. The refiner this year bought state utility Energa SA and just won EU clearance to merge with oil peer Grupa Lotos SA.
With green projects typically 70% to 80% funded by debt, the size of the company isn’t as important as its existing leverage and credit rating, which in Orlen’s case is linked to the PGNiG deal, BI’s Mammadov said.
Moody’s rates Orlen at its second-lowest investment grade. It revised its outlook on the Baa2 rating to positive after the PGNiG announcement.