Wholesale

In 2008, ORLEN Group offered wholesale trade in fuel and non-fuel products on the territory of Poland, the Czech Republic, Germany, Slovakia and Lithuania. The Group wholesale segment consisted of PKN ORLEN wholesale trade units, 5 Regional Market Operators, Petrolot Sp. z o.o., ORLEN Gaz Sp. z o.o. (Poland), Uniraf Slovakia (Slovakia), Unipetrol BUI (Czech Republic), AB Mažeikiu Nafta (Lithuania, Ukraine, Poland, maritime sales) and UAB Mažeikiu Nafta Trading House (Latvia, Estonia).

ORLEN Group – fuel

The total volume of fuel sold by ORLEN Group in 2008 exceeded the 2007 result by nearly 23% (i.e. 3.1 mn tonnes). More than half of our fuel offer constituted diesel oil, whose sales went up by approximately 24% compared to 2007. The highest demand dynamics was reported in the aviation fuel sector, whose sales in 2008 exceeded the volume of the previous year by approximately 54% percent.

ORLEN Group fuel sales on home markets in 2007–2008 (thousand tonnes)

					2007					2008
	Poland	Czech	Lithuania	other*	Total	Poland	Czech	Lithuania	other*	Total	Change
Petrol	1 550	646	1 768	209	4 173	1 624	545	2 801	195	5 165	24%
Diesel fuel	3 441	1 175	1 977	320	6 914	3 943	1 088	3 160	370	8 561	24%
Light heating oil	943	19	9	207	1 177	921	25	8	286	1 240	5%
JET A-1	408	80	195	-	683	482	88	480	-	1 050	54%
LPG	240	86	141	-	467	263	98	187	-	547	17%
Total	6 582	2 006	4 090	736	13 414	7 233	1 844	6 636	851	16 564	23%

* Wholesale volume in Slovakia and Germany.

The increase in fuel sale volumes was mainly due to restored full production capacities at AB Mažeikiu Nafta. Upon completion of the overhaul of the Vacuum Distillation Unit, fuel sale volume from the Lithuanian refinery went up by approximately 2.5 mn tonnes compared to 2007.

The upward dynamics in refinery product sales in Poland was possible due to increased sales to network and basic customers as well as to key customers, namely to domestic and foreign corporations. Sales dynamics in 2008 much exceeded consumption dynamics. Temporary promotions at storage facilities (reduced SPOT prices for selected products) had a positive impact on sales.

The 16% drop in fuel sales reported on the Czech market was due to reduced diesel consumption in 2008. We managed to increase diesel export to Poland via PKN ORLEN by 150 thousand tonnes in the reported period.

ORLEN Group fuel, apart from home markets (Poland, the Czech Republic, Slovakia, Germany, Baltic States), was also sold to: the US, Canada, France, Spain and Ukraine.

ORLEN Group share in domestic fuel sales in 2007–2008

		2007	2008	Dynamics
Polska – PKN ORLEN*	Poland	58,30%	61,60%	3,3 p.p.
Unipetrol**	The Czech Republic	29,60%	30,90%	1,3 p.p.
AB Maźeikią Nafta**	Lithuania	85,00%	89,10%	4,1 p.p.

* Share in wholesale and retail sales of petrol, diesel and light heating oil.

** Share in wholesale and retail sales of petrol, diesel and JET A-1.

ORLEN Group – Non-fuel Products

Total wholesale trade in non-fuel products by ORLEN Group in 2008 amounted to 6,186 thousand tonnes, i.e. 11% more than in 2007.

ORLEN Group non-fuel sales in 2007-2008 (thousand tonnes)

				2007				2008
	Poland	Czech	Lithuania	Total	Poland	Czech	Lithuania	Total	Change
Heating oil III	969	165	1 126	2 260	961	146	1 798	2 905	29%
P fractions	300	-	-	300	338	-	-	338	13%
Sulphur	120	31	40	191	130	34	76	240	26%
Refinery	240	226	142	608	60	232	178	470	-23%
Ethylene	135	154	-	289	105	153	-	258	-11%
Propylene	14	33	-	47	6	27	-	33	-32%
Benzene	113	163	-	276	95	179	-	274	-1%
Glycols	102	-	-	102	88	-	-	88	-14%
Toluene	120	-	-	120	103	-	-	103	-14%
Paraxylene	32	-	-	32	25	-	-	25	-22%
Orthoxylene	26	-	-	26	21	-	-	21	-19%
Butadiene	60	-	-	60	55	-	-	55	-7%
C fractions	-	170	-	170	-	211	-	211	24%
Polyolefins	-	397	-	397	-	482	-	482	21%
Ammonia	-	176	-	176	-	195	-	195	11%
OXO alcohols	-	54	-	54	-	56	-	56	4%
Industrial oil	-	29	-	29	-	21	-	21	-27%
Petrochemical	222	216	-	438	186	225	-	411	-6%
Total nonfuel	2 453	1 814	1 308	5 575	2 173	1 961	2 052	6 186	11%

In case of non-fuel products, the first three quarters of 2008 saw relatively high and stable demand for petrochemical products and very high price quotations of those products on European markets. Petrochemical product sales in 2008 were influenced by the scheduled standstill of Olefins II Plant and other related production units. Late into the 3rd quarter and in the 4th quarter of 2008, we reported visible crisis symptoms. The situation in the automotive and construction industries dramatically deteriorated, which devastated plastic product markets (polyethylene, polypropylene, PVC, polystyrene, polyamides, polyurethanes). In a very short period of time, petrochemical product quotations showed record price drops – even by 60%, and limitations in petrochemicals processing (due to reduced loads or temporary shut-down of installations) inevitably affected sales volumes in the 4th quarter, both in terms of quantity and value.

The key foreign customers for our non-fuel products were partners from Denmark, Germany and the Czech Republic.

Investments

After consolidating RORs (regional market operators) company management via the ORLEN PetroCentrum, we obtained better operating control over and more effective functioning of RORs. The measures taken enabled us to optimise sales channels and finish the restructuring of RORs, thus reducing their operating expenses.

In 2008, in order to improve wholesale customer service, we extended the contact-centre system supporting cooperation with existing and new customers.

Strategy

In 2008, we implemented strategic goals aiming at:

• sales maximisation in Poland, the Czech Republic and Baltic States;
• wholesale margin optimisation at the Capital Group level;
• increased aviation fuel sales in the region.

In the non-fuel product sector, we focused on PTA pre-marketing and divestments in PVC and artificial fertiliser sectors.

According to the updated 2008-2013 strategy, we will be looking for possibilities to strengthen our commercial position in Ukraine and Belarus, and to increase our activity in the maritime sales sector.

Unipetrol is planning to improve ethylene and benzene efficiency, establish a new butadiene section and invest in products, like C9 and DCPD. An important event in 2009 will be the closure of the OXO alcohol plant.