Czech State Interested in Buying Kralupy Refinery

The Czech government is interested in buying one of the country's two oil refineries from Unipetrol, majority-owned by Poland's PKN Orlen , and combining it with state-owned oil and oil product pipeline firms, Finance Minister Andrej Babis said.

PKN and the government have been in talks for months on the future shape of a refining sector hit by depressed margins. The purchase would help the government's strategic aim of keeping domestic fuel supplies and infrastructure operational and under government control.

Unipetrol's refining subsidiary Ceska Rafinerska has been hurt by a squeeze on margins in the sector and its minority foreign investors have sold their stakes in the past months.

Babis's ministry controls state-owned firms including oil pipelines, but he said talks on the possible purchase of Kralupy refinery were being led by the Industry and Trade Ministry.

"The Czech side is primarily interested in the Kralupy refinery," Babis told Reuters.

"We are interested in a certain asset, the Polish side has an interest in selling some maybe larger assets, which include this asset, so it is under negotiation."

He gave no further details and said there has been no breakthrough in the talks. The Industry and Trade Ministry and PKN had no immediate comment.

Babis, a billionaire businessman in the agro-chemicals sector who once considered buying Unipetrol long before going into politics, said Kralupy could be combined with state-owned Mero, which operates crude oil pipelines including one that leads from Germany to the refinery.

It could also be combined with Cepro, a state-owned pipeline and storage firm distributing refined fuels.

"We have the (crude oil) pipe, we have the output side, the refinery is not (fully) utilised so I think it would fit into the assets that we have," Babis said.

Babis said in April one way to resolve the situation in the refining sector was to buy the Kralupy refinery.

The government has meanwhile rejected a plan allowing PKN to take stakes in the national pipeline firms.

Two foreign investors, Royal Dutch Shell (RYDAF) and ENI left Rafinerska in recent months. Shell sold its stake to Unipetrol while ENI had signed a deal to sell its holding to Hungary's MOL. That prompted Unipetrol last week to use its right of first refusal, and thus raise its stake in the firm to 100 percent.

Unipetrol's two refineries have combined conversion capacity of 8.7 million tonnes of crude per year, coming through a pipeline from Russia and another bringing oil from the Adriatic port of Trieste.

The Kralupy refinery is the smaller of the two operations, with an annual capacity of 3.3 million tonnes.

(By Robert Muller and Jan Lopatka, Additional reporting by Jakub Iglewski, editing by David Evans)