Daniel Obajtek’s investment in Olefina III was criticized by the current president Ireneusz Fąfara

– If at the beginning of the investment, the management announced that it would cost 8 billion PLN and would be completed by the end of 2023, and then postponed the deadline and increased the amount, first to 13.5 billion PLN, and then to 25 billion PLN, i.e., three times the original assumption, this means Investments are poorly prepared and managed, or not managed at allwhose implementation began on the basis of a popular movement. This is clear to every manager, said Ireneusz Fąfara, president of the company, adding that “a threefold increase in investment costs cannot be considered a miscalculation. This is poor management and irresponsible“.

In June 2023, the then Orlen Management Board announced that the construction cost of the Olefins III complex would be approximately PLN 25 billion. At that time, it justified the need to sign an agreement with the contractor for this investment by updating its assumptions, mainly due to The war in Ukraine and related sanctions, resulting in increased material costs, disrupted supply chains, and limited implementation resources.

In turn, at the end of March 2024, the new Orlen Management Board, after conducting an impairment test on the assets of the Group’s petrochemicals segment, decided to record an impairment loss of PLN 10.2 billion on fixed assets and Fixed assets Due to the high investment cost of Olefin III, it is under construction.

President Ireneusz Fąfara believes that the threefold increase in olefins investment costs cannot be explained by the war alone. Ukraine.

– During this period, the prices of raw materials, materials and labor did not increase by two times. For a while, gas prices increased several times, but then they fell below their prices since February 2022. Therefore, this underestimation of costs can definitely not be explained by the war alone, he said. – No investors in Europe increased their investment spending by 300% during this period, he added.

When asked what plans the new Orlen Management Board has for olefins investments, President Fąfara pointed out that in theory there are three solutions.

– In theory, in this case, the investment can continue, stop or be suspended for a period of time. The decisions we must make will be rational and safe – President Oren assured. – We are currently analyzing this investment very carefully. Third-party companies are also involved. The scale of the olefin-related topics that require detailed verification is very large. Therefore, we still need some time to make a responsible decision on the future of this investment. We don’t act hastily – He said.

President Ireneusz Fąfara believes that starting investments in olefins was not based on sound premises.

– I have no doubt about it, but we can’t turn back the clock. We find ourselves in a situation where a lot of money has already been spent on this investment, and we have to take this fact into account in our forecasts for the future of the petrochemical industry. This makes the analysis we carry out very complicated, he said. – The difficult situation on the European petrochemical market does not make things easier, he added.

The Orlen Management Board, headed by Daniel Obajtek, decided to start investing in the Olefiny III complex, although they were well aware that the project did not meet the basic business assumptions. According to preliminary results of an audit by PricewaterhouseCoopers PwC obtained by Business Insider Polska, the adopted variants were below or very close to the acceptable threshold level of profitability.

The first variant assumes an internal rate of return (IRR) of 3.3%. The weighted average cost of capital (WACC) is 4.55%. In turn, the second variant suggests that the IRR could reach 4.6%. This means that the investment accepted by Orlen under Daniel Obajtek is not even enough to pay the interest on the capital employed.

According to information from Business Insider Polska, auditors also managed to establish that design work on the supporting infrastructure was still underway when the investment decision (final investment decision, FID) was made in May 2021. At the time, a consultant said that less than 1% of the deadline for at least part of the investment was reached.

Also read: How Obajtek spent billions. ‘It’s horrible’