Orlen SA
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Ladies and gentlemen, welcome to PKN ORLEN First Quarter 2018 Consolidated Financial Results Conference Call. I will now hand it over to your host, Ms. Iwona Waksmundzka, IR Director. Madam, please go ahead.
Thank you, operator. Good morning, everybody and thank you very much for joining us today. I would like to take this opportunity to introduce myself. As most of you probably know, at the beginning of February, I took over duties as the IR Director. Welcome to PKN ORLEN's conference call presenting our financial and operating results for the first quarter of 2018.
Today, the results will be discussed for you by Mr. Rafal Warpechowski, Planning and Reporting Executive Director; and Mr. Konrad Wlodarczyk, IR Manager. The presentation which was mailed to you and is available at our website will be discussed first, and immediately after the slot for Q&A session would be open. Mr. Piotr Kearney, Strategy Executive Director; and Mr. Robert Sleszynski, Capital Investment Director will be available at the Q&A session as well.
With no further delay, I turn it over to Mr. Rafal Warpechowski. Rafal, the floor is yours
Thank you, Iwona. Good morning, ladies and gentlemen. We are very pleased to present Q1 2018 achievements as the quarter was both very strong in terms of EBITDA that we generated and, at the same time, very important in terms of strategic decisions aiming at increase of our group value.
And first of all, let me start with the operational perspectives, mainly we nearly fully utilized our capacity. We processed over 8.5 million tonnes of crude oil, which is 8% higher year-on-year. Our sales volumes growth was 4% year-on-year, and we exceeded already 10 million tonnes of sales in the quarter. Next record high result of retail, which we commented in detail in the next part of the presentation. And based on all of that, we were able to offset half of negative macro impact that we faced during the quarter, and we delivered very solid PLN 1.9 billion of EBITDA LIFO for Q1 of this year.
Looking for the future, PKN ORLEN signed strategic declaration for cooperation with Lithuanian Government. We also signed a letter of intent with State Treasury related to takeover of controlling package of LOTOS Group. And finally, we finalized the purchase of 31% from minority shareholders of Unipetrol, strengthening our position on Czech market.
I'm also pleased to inform that ORLEN brand is The Most Valuable Brand in Poland. That is the case for 10 years already. So ranking Rzeczpospolita value total in brand is PLN 4.7 billion. We were also granted series of prestigious awards of which we are very proud, including The World's Most Ethical Company, Top Employer Poland and some others, which are confirming that our team, our people are really significant and the most important pillar of our strategy.
Focusing on people management we've successfully completed, the weight changes negotiations within the group so our cooperation goes very smoothly. And finally, let me confirm that our financial position is still very strong can say. We realized our CapEx program as presented in strategy PLN 0.8 billion. We paid PLN 3.5 billion for Unipetrol shares just mentioned. And thus, our debt increased to over PLN 5 billion, but still net gearing is 60%. So it is lower than assumed in our strategy and at the safe level.
And based on our dividend policy and analysis, management board recommended dividend of PLN 3 per share, so equal to last year high-level to be paid from 2017 profits, which is obviously subject to AGM acceptance.
And now let me go into details starting from the macro. In Q1, our model downstream margin presented on the upper graph of the Slide #5 amounted to $11.4 was lower by $0.07 per barrel year-on-year. And from the right table, you can see that it was mainly due to drop in heavy heating oil margins and as a result of increasing crude oil prices.
The latter one increased by $13 per barrel year-on-year and $6 quarter-on-quarter and reached $67 for this quarter.
And what is very important at the same time, we observed significant strengthening of Polish Zloty mainly versus U.S. dollar which additionally has impact on our model downstream margin when converted into Polish Zloty.
On the next slide, we continue with macro but more specifically in relation to markets we operate. As visible on the left-hand side, GDP trends are still confirmed very strong position and very good shape of economies we are operating. While on the right side of the slide, you can see fuel consumption, which is correlated with those trends. And what is very important for us is that on the biggest market, Poland, those growths are very, very strong. And it is obviously giving or creating potential for our sales, and we are happy to inform that we utilized the trends and increased our volumes in Poland.
So summarizing this section, margins -- model margins are lower year-on-year. Still it is quite satisfactory level. And on the other hand, demand side is very strong as we continue to increase our volumes, thanks for that.
The next section from Slide #8 covers financial group, financial consolidated results. Revenue is higher mainly due to 4% increase of volumes sold. EBITDA LIFO, as I said, it is lower by PLN 0.4 billion, but it has to be underlined that we faced EUR 0.8 billion year-on-year decrease due to macro, while we managed to offset half of that, so PLN 0.4 billion, mainly due to higher sales volumes.
LIFO effect, as I said, $6 per barrel increased quarter -- of crude oil price quarter-on-quarter. It led to over PLN 0.1 billion LIFO adjustment thus EBITDA reported exceeded PLN 2 billion. And after financial costs and taxes, we delivered over PLN 1 billion of net profit for the quarter.
Now the next slide, we present, split of EBITDA LIFO by segment with -- at the same time with changes year-on-year. Biggest contribution is in the past comes from downstream. It was PLN 0.5 billion lower result year-on-year. But as I said, it was mainly due to macro, which was partially offset by higher volumes. Retail, this is a record high result of retail, almost PLN 0.5 billion, PLN 100 million better than in the prior year, and we are proud to say that all parameters were better in this segment.
Upstream, slightly below last year results, but again almost PLN 70 million EBITDA delivered. Macro was not favorable mainly in terms of gas, but volumes were higher. So we are quite happy with the achieved results.
And corporate functions costs are at the same level. The company is -- the group is growing, but still we keep strong financial control. So we managed to keep corporate functions at the same level.
So now let me turn the presentation over to Konrad for comments on operational part.
Thank you, Rafal. Moving on Slide #10, downstream. So our biggest segment delivered in Q1 more than PLN 1.5 billion EBITDA LIFO, mainly due to higher sales volumes, which increased by 2% year-on-year reaching record high level as for the first quarter.
We also recorded pickup in diesel volumes by 3% year-on-year. While in Poland, to underline, due to the very high demand, diesel volumes increased by 14%. We also recorded higher sales of olefins and polyolefins, respectively 21% and 10%. On the other hand, we saw drop in volumes of gasoline, LPG, fertilizers, PVC and PTA.
Positive macro of -- positive impact of sales volumes increase was, unfortunately, offset by macro worsening due to higher cost of internal usage, lower margins on polyolefins, light and heavy fractions as well as strengthening of Polish Zloty against foreign currencies. Comparing results year-on-year, it's worth to underline that in Q1 results, we included PLN 0.1 billion of received insurance related to CCGTs. And in Q1 '17, results were boosted by one-off payments in amount of PLN 0.2 billion of received insurance related to FCC unit failure in Unipetrol.
Slide #11 shows operating data of Downstream segment. In Q1, we processed over 8.5 million tonnes of crude oil, which is 8% increase year-on-year due to almost full capacity utilization in Plock and Lithuania. Higher utilization in Plock by 13 percentage points and ORLEN Lietuva by 12 percentage points year-on-year were achieved mainly due to lack of maintenance shutdowns from Q1 '17.
In Unipetrol, utilization was lower by 2 percentage points year-on-year reflecting mainly cyclical shutdown of refinery in Kralupy started in mid-March 2018. Such maintenance is conducted every 4 years. And also a failure of a POX unit in Litvinov. Higher crude oil processing was, of course, reflected in record higher sales achieved in the first quarter. And sales volumes exceeded 7.7 million tonnes, which is 2% increase year-on-year. Going into detail to treat market by market, we may say that in Poland, we recorded fewer sales increase due to favorable macro conditions and the higher availability of conversion units.
In the Czech Republic, we recorded lower sales, mainly refining products due to cyclical shutdown of Kralupy refinery that I've already mentioned and failure of POX unit in Litvinov. And in ORLEN Lietuva, sale volumes remained at comparable level year-on-year.
Moving on to Slide #12, Retail. Our flagship delivered record high results as for the first quarter, PLN 464 million EBITDA LIFO, which is 25% higher year-on-year.
Such a great result was achieved due to positive impact of both higher sales volumes and higher retail margins year-on-year, what you can see on the left bottom graph. Significant sales increased by 11% year-on-year in total was recorded on all markets, similarly to market share. In terms of margins, higher fuel and non-fuel margins were achieved on Polish and Czech markets at comparable margins in Germany and Lithuania year-on-year.
Slide #13 shows operating data of retail segment. At the end of Q1, we had almost 2,800 fuel stations, which means that PKN ORLEN has the largest retail network in Central Europe. Of course, increasing number of fuel stations by 50 year-over-year and very healthy demand must be reflected in higher sales volumes, and it is.
I have already mentioned 11% increase in total sales volumes year-on-year on all markets. However, now I would like to focus, especially on remarkable growth in the Czech Republic, where we recorded 17% year-on-year increase as well as the highest market share pickup by almost 3 percentage points year-on-year, exceeding at the end of Q1, 21%.
Such awesome dynamics were achieved mainly due to, including into Benzina network, fuel stations acquired from OMV. In total, all 60 fuel stations were added to the Benzina, including 58 already rebranded. Please have a look also on dynamic growth on the non-fuel offer. Another 55 locations were opened in Q1. And at the end of the quarter, we were running 1,864 food and beverage corners, including convenience stores under the brand O!Shop.
In retail, we are also implementing new products and services. For example, we expanded traffic car offers, so car rentals per minute on new locations. We will soon start cooperation with Nextbike bike rentals, which will be available also on our fuel stations.
We also launched pilot project of installing fast chargers for EV in Poland, on a -- 50 and 100 kilowatts. Initially, faster chargers will appear on around 50 fuel stations with possible extension till the end of 2020. We also implemented new technologically advanced fuels in Poland named [indiscernible]. So we may say that we do a lot to improve our retail and, of course, it brings the result.
Slide #14, upstream. Upstream delivered almost PLN 70 million EBITDA LIFO, which is slightly lower year-on-year. On one hand, production significantly increased by 19% year-on-year in Q1 due to Canadian asset performance. The growth comes from higher gas production.
On the other hand, gas prices dropped sharply by more than 22% year-on-year due to higher gas supply in Canada as a result of higher domestic and U.S. production, what was reflected in the negative macro impact.
On Slide #15, you may see more operational details regarding upstream. We have more than PLN 150 million BOE 2P reserves calculated at the end of 2017. Average production in Q1 was about 17,000 BOE per day, CapEx, almost PLN 250 million. Just to remind, for the whole year, we are planning to spend circa PLN 800 million. And looking on both markets, Poland and Canada. In Poland, we completed 3 exploration wells, analyzed obtained seismic data and did some preparation works for next drilling. In Canada, we started 8 wells. 6 wells were fracked and several wells were included into production. Moreover, we continued works on expansion of infrastructure for the transportation of storage of hydrocarbon.
That's all from my side. Thank you very much, and I hand over to Rafal.
Thank you, Konrad. Coming back to the financial position presented on the Slide #17. As we present on the upper graph, we generated PLN 1.9 billion EBITDA LIFO. Of which, PLN 1.4 billion was allocated to working capital increase during the quarter. So ultimately, we ended with PLN 0.5 billion operating cash flow in Q1. And if I may comment, this working capital, in majority, it relates to inventory increase. And this again in majority relates to the fact that we had to increase mandatory reserves due to the sales growth observed in 2017. So in the end of March, we realized what we are obliged for according to the law.
And this is again worth to mention that due to higher crude and higher volumes, our mandatory reserves already exceeded PLN 5 billion, which is again more or less equal to our net debt at the end of the quarter.
And on the right-hand side, we present CapEx spending. The CapEx presented at the beginning of the year, comparable is PLN 0.8 billion in this quarter. We also paid up to PLN 0.4 billion of investment liabilities. So you may say that the startup CapEx is PLN 1.2 billion while remaining biggest part of investment spending this quarter was PLN 3.5 billion of investment in Unipetrol, namely repurchase of shares from minority shareholders. And in total, investment activity outflow amounted to PLN 4.8 billion.
On the bottom, we just summarized what I just described. So operating cash flow plus investment led to PLN 4.4 billion increase of net debt during the quarter. But on the next slide, we're confirming details that this is still very strong and safe position in terms of financial standing. Our gearing is below 16%. Again, it is below what we assumed in the strategy safe level. And on the bottom graph, you can see that our debt structure changed slightly, mainly utilization of credits increased. And more or less, we may say that this PLN 4 billion -- slightly over PLN 4 billion of increase in the net debt is half due to increase of credit and half is just lower cash in our balance sheet comparing to the end of the year.
And the next section relates to CapEx. On the left-hand side, we indicated what we planned for the whole year, PLN 4.8 billion. While on the right-hand side, we present what we actually spent. And as you can see, the projects that were declared at the end of prior year are realized. We spent PLN 400 million in downstream concentrating on this metathesis in Plosk and polyethylene unit in Czech Republic. At the same time, we continued or are almost closing CCGT project in Plock and obviously continue -- continuing projects optimization enhancement projects in the refinery.
Over PLN 100 million in retail and according to plan, almost PLN 250 million spend in upstream with allocation to Canada for working or production assets. While in Poland, it is approximately PLN 50 million. This is exploration at that phase.
And finality words on the market outlook we presented a quarter ago, it looks like we may continue with the expectation presented a few months ago because still the trends confirm that crude oil will be probably more expensive year-on-year. Last year, it was $54. Now we are more than $10 higher, and it looks like we are in a certain equilibrium or in balance because, on one hand, we have OPEC and non-OPEC cooperation to limit the production. On the other hand, we have U.S. that may increase shale gas production. So it looks like the market stabilized.
In terms of downstream margin, we still believe that we will be closer to our strategic assumptions, so around $11. Again, it will be probably less than last year. But still it is very solid and supporting for our operational level. Q1 is at even slightly above that level. And in terms of economy, as you can see, both in Q1 and in terms of forecast for the year, GDP growth on the markets we are operating is quite solid. So it should be followed by fuel consumptions increases and should support -- that should support our operations.
In terms of regulatory environment, next steps again enhancing our permitting to come again in terms of grey zone. There will be monitoring tightened from midyear in relation to transport. There is a change from March in terms of availability of trading. Some days only 2 of them are now allowed to -- I mean, traders are allowed to be open.
And in terms of obligatory reserves, we already achieved what was planned for the -- till 2018. We have equivalent of 33 days on our stock, but please have in mind that it is adjusted every year based on prior year sales. So depending on the level of sales, this may vary in the future.
And National Target Index, the significant changes that realization of it has to -- will be monitored every quarter, and there's an obligation of blending, not only selling, but still like it was in the past. So we believe it will enhance competition in the market, and it is supportive for our operation.
So thank you, and we are ready to take the questions.
[Operator Instructions] Our first question from Henri Patricot, UBS.
Two questions for me. The first one, I'd like to go back to the decision or the proposal on the dividend flat year-on-year at PLN 3 per share. I'm assuming at the previous conference call was that there would be an increase in 2017 not as high as the one that we saw in previous year but still dividend would go up. So what else changed to drive this flat dividend for 2017? It doesn't seem like you have pretty similar financial position as a year ago and I think stronger results in '17 than in '16. So I was a bit surprised by this decision. And secondly, on the transaction announced with LOTOS. Can you share your about your latest thinking around the timing of the transaction, the structure? And if you can give us any more indications on the synergies?
So starting from the first question, the dividend. Yes, indeed. Please have in mind that in 2017, we declared, and we paid actually, dividend higher by 50% year-on-year. So considering and still the policy of growing dividend per share is in place, but obviously, we also analyze the current and the future situation of the company. Knowing that we entered or started 3 big streams, namely Unipetrol purchase, LOTOS transaction, some discussion with Lithuanian Government, we thought that proposing PLN 3, which is again very, very high level and proposing to shareholders there's new strategic directions or development would be per proposition. So it guarantees our safety and at the same time, it guarantees our development and growth in the future. So that was the reason that we kept the level at the same high level as last year.
Piotr Kearney speaking. Indeed, our LOTOS ORLEN combination project is in progress. We can confirm that we started financial and legal due diligence of LOTOS. So it goes according to schedule. If you ask about timetable, and we can only say that, as you perfectly know, the key issue is antitrust clearance, and it's very difficult to predict how long it will take. But anyway, we are thinking about the year perspective regarding the project.
Our next question from Tamas Pletser, Erste Group.
I got 3 questions. First of all, you mentioned in the presentation that the Polish diesel demand was rubbed off in the period, it was up 14% year-over-year. Can you give us some more color what happened on the Polish market? Was this growth a result of a one-off event? Or do you see this is like a continuous basis? I'm also pretty much interested in what are your expectations and your plans regarding Unipetrol? Do you plan to delist that stock? Or would you like to keep Unipetrol on the market? And do we expect to squeeze out the minorities in Unipetrol? That would be my second question. And finally my third question would be about the obligatory crude oil reserves, do you know is there any further plan to reduce this obligatory crude results in Poland or the 53 days is now the level which you think will be sustainable in the future?
So maybe starting from the last question, obligatory reserves, there was a program for few years decreasing this obligation from 76 to 53 days. And as of now, it is the final status of that regulation already implemented. So as I said, depending on the volumes, this level may fluctuate. And as of now, there are no new regulations planned. The first question in terms of diesel. Yes, indeed, we said that the consumption of diesel is growing very strongly in correlation to GDP in Poland. Our sales is even higher than that. So it is kind of fulfillment of our strategic goal to gain, to grasp the market share because we said that our target is to sell whatever we can produce. We became active importer on our market, and really we want to build our position as a high market share leader of the wholesale of diesel. So this is due to our attempt to get the market share, I would say.
Do you see this 14% as a normal market increase? So there was no one-offs because as I see the impact of the withdrawal of the grey economy was already visible in the first quarter '17? Or was there any other particular reason as well? Because this looks to me like extremely strong even compared to the close to 5% GDP growth in Poland?
Yes, indeed. We would rather -- first of all, this consumption that we present is 6% drop. Please bear in mind that this is assessment. This is based on 2 months. So 1 month is really interpolated. Number two, obviously, depends on how we manage our selling policy, but this quarter was very good, and really we were able to place more on our market. But we would rather in a longer-term, we rather think as a normal level is something that is consumption growth. This is a normal correlation. When GDPs for the consumption sinks, it makes a really stable link, I would say. So it was probably slightly higher-than-normal situation. So it was due to our sales forces attempt, I would say.
Tamas, Piotr again. Coming back to answer your second question, we confirm that our strategic goal is to take full control over Unipetrol. So we are analyzing a squeeze out option. As we have this decision, we will inform all of you in regulatory announcements for it.
Our next question is from [indiscernible] Citi.
Actually, it's Piotr Dzieciolowski from Citi. But I wanted to ask you about -- there was this news about LOTOS taking over PKN as a structure. Do you know something about it? What is the advantage of this type of a structure? Because I understand it's only technical, but can you share your thoughts of how this could be potentially done? And then, is there anything new on the nuclear front? Whether you discuss potential involvement and what size it would take and so on.
Okay. Regarding speculations about ORLEN, LOTOS combination, I can only say that we are working based on letter of intent we signed with Ministry of Energy. So we work based on this. So and our provisions are based on this. So buying State Treasury stake package from them. So I -- we don't want to speculate and to discuss the option we don't contemplate. So as I said we work based on the letter of intent content. Regarding powerplant, your second question, of course, we are reading the threads but there is nothing to say from our side today. We simply listen to all comments. And as we said, we -- there are no decisions on PKN ORLEN side. So there is nothing to comment, actually.
Okay. And there was also news on you potentially selling Anwil. Can you explain what's the logic of keeping this asset?
Anwil is -- first of all, it's strategic assets in terms of petchem. So very naturally linked with our petrochemical olefin installations. So they utilize ethylene. So it is crucial, at least, that part converting that finally into PVC. And there is a second part more chemical like fertilizers. But as you know from our declaration at the beginning of the year, we want to enhance the fertilizers production. The market is growing rapidly over last years in Poland. So we also see a great potential in that market. So Anwil is one of the -- but at the same time, Anwil is very profitable company. So it is important for us both from operational perspective. And financially, it's simply very good assets, very good subsidiary. So no intention as of now to sell it.
Yes, I can only add that, I mean, your question is probably based on -- again, on some statement, but not coming from us because our statements were very clear. We don't contemplate sale -- I mean, Anwil sale at all.
But I'm just trying to -- I'm not asking whether you want to sell it or not because we know you don't want sell it, but what does it bring apart from a bit of cash to the company? Would you not take the cash and invest in something that is much more linked to you than the fertilizer business, which is kind of a play on the spread between like oil and gas and so on. It's a totally different thing. Why do you need the fertilizer business? Or do you have ambition maybe to expand in this area to large-scale and build really something that would mean in the total EBITDA of the group?
So both reasons you mentioned the half of Anwil, obviously depending on the year, but they deliver PLN 500 million, PLN 600 million yearly EBITDA, of which, roughly speaking on average, half is coming from PVC and half comes from fertilizers.
In terms of PVC, as I said, this is a very important company for us because it utilizes the stream of ethylene coming from our olefins. And second, so this is operational linked with -- directly with our refinery or our petrochemical part and imports. And in terms of fertilizers, exactly as you said, we plan to expand the fertilizers capacity. We just started projects. It will cost us PLN 700 million, PLN 800 million, and it will enhance fertilizers production capacity by 40%, additional 400,000 tonnes per year. So this is exactly what we are planning to do. And in terms of prospects, fertilizers business grew significantly over starting from '11 till 2021, it looks like it will double the volumes in Poland. And still in Poland, we consume up to 30% less comparing to Western countries. So we believe that there is a great potential on the market that we want to utilize.
Our next question from Ildar Khaziev, HSBC.
A question about Lithuania, I think you have mentioned plans to do some yield-improving investments [indiscernible]. I was thinking some others. Could you please clarify what exactly you plan to do and the approximate timeframe? And that's the first question. And the second question is about the basket of crudes you have been refining during the quarter, what was the approximate composition?
So in terms of Lithuania, as we all know, Lithuania is pure refinery. So that's why it is first exposed to market fluctuations. And on the other hand, it is quite simple refineries. So the IMO regulations that are -- that will be in place from 2020 may have an impact of its operations. That's why we said that we contemplate investment in Lithuania that will address the IMO issue and increase efficiency of Lithuanian refinery. But as of today, it is still at the stage of analogies because it is complex project and, obviously, it is supported by the fact that we managed to sign the kind of agreement or declaration between us and Lithuanian Government to make this project more safe from a financial perspective, I would say. But still we have to wait for the final decision if we invest there or not. Obviously, there are some smaller projects that will enhance the refinery. This is -- but CapEx is up to PLN 100 million. This is -- so this is not so significant. On the other hand, we discussed with Lithuanian institutions to make the logistic cost more efficient to rebuild the railway network, but these are things that we are doing. And this big project, still you have to wait for the conclusion and for more details. And in terms of crude that we were processing, yes, we constantly increase the diversified sources. And at the same time, we diversify the types of crude. And in Q1, we may say that we bought this Iranian light crude. So few percentage points of different type of crude were used in Poland. You know that we already have like 10% Arabian light from Saudi Aramco on the contract basis. So we may say, 80, 80 plus percent Tesco and almost 20% of other types of crude process import this quarter. Again 85% of REBCO in Lithuania and more usual proportion in Czech Republic like REBCO is 55% and 45% is Azeri and CPC.
And is quality of euros becoming an issue for you? I mean, has it really changed from this year?
Excuse me, could you please repeat that?
Yes, the quality of euros quoted, it's really getting worse. There have been reports that after some of the flow is directed -- redirected from Siberia to China, the quality has declined and there have been statements that it's becoming an issue for refiners. Are you observing this? Is that an issue? And would you expect the pricing of euros to reflect this?
Yes, there were comments like that. We can see that but we may confirm that the quality of crude delivered is still according to contract. So that's the comment. Obviously, we are looking for diversification and the usage of different type of crude, but every time it is economical analysis and it has to be economically proven to use different type of crude. Perfectly as you said the quality or the different content is reflected in brand [indiscernible] and that's the mechanism that makes this crude still the most favorable for us, and that's why we are using over 80% of REBCO type crude because we are -- our installations are designed to utilize it in the most efficient way.
Our next question from Alexander Burgansky, Renaissance Capital.
I wanted to follow up on the previous question, just on the Lithuania refinery. Can you clarify what type of project you are considering in terms of the bigger projects? And also when can we expect the final investment decision on that project?
If I may, because it is very difficult to comment details while it is at analysis stage. Maybe the answer I may share with you is that we started update of our strategy. We are working on the next time horizon to be presented before the end of the year. So in few months time, we will be ready with that. And I think that that's probably maybe documented that we represent the decision if it is finally made. So let me answer like that. But generally speaking, it is obviously addressing the sulfur content. And obviously, enhancement of fuel yes so more light products. So simply making refinery more economically efficient.
Our next question from Anton Fedotov.
My questions have been answered already.
Our next question from Igor Kuzmin, Morgan Stanley.
A couple of questions from me, please. First, I would like to go back to the questions you've been asked in the very beginning in regards to the potential LOTOS transaction. Can I maybe clarify what is the next event potentially that's might evolve around this topic? For example, whether it's the completion of the due diligence process or do you need to sort of submit some sort of application to the antitrust authorities at the EU level or the local level? Just trying to understand what is the next event around this that potentially I would need to be watching out for? That's the first question. Second question is in regards to the utilization rates. So just trying to understand if there is any sort of specific updates from you guys in terms of the planned or unplanned maintenance shutdowns in Q2, Q3 versus what you have seen in Q1, just maybe a rough guidance here.
Okay, so I will answer the first question. So coming back to lot of transactions, next steps are -- next steps we will announce is signing agreement with State Treasury regarding conditional probably agreements with State Treasury to buy their package. Based on that, we will file in Brussels our application, and it will start the procedure. So what you may expect some weeks or few months of signing this agreement with State Treasury as a first step.
Konrad Wlodarczyk speaking. Answering your question about the utilization ratio in next quarter. So the second quarter definitely will be fully packed with maintenance -- plant maintenance shutdowns in all of the refineries. So you might expect that it will drop from this very high level 8.5 million tonnes of crude oil down to 7.5. In Plosk, we will have the maintenance of CDU, FCC unit, H oil as well as reforming HDS. In Lithuania, we will come back to the new unit in FCC. In Unipetrol, we will -- company already started making shutdowns in Kralupy and there will be also the maintenance shutdowns of disc braking units and hydrocracking. So you might assume that utilization in PKN will drop down to 90% and in ORLEN Lietuva and Unipetrol, we will be running below 80%. Q3 is clear. No plant maintenance shutdowns. And in Q4, we have more maintenance shutdowns in terms of petrochemical installations, mainly in Plock. So olefin units, PTA, BOP so polyethylene, polypropylene and PVC in [indiscernible].
Our next question from [indiscernible].
I have a question on projects schedule updates. When can we expect material effects of launching and Polyethylene 3 and metathesis?
Metathesis should be completed at the end of third and fourth quarter this year. So first impact in Q4, but probably it will be 2 million or tens of millions for this year. In terms of Polyethylene 3, again, we plan to complete it till the end of the year, but obviously depending on the kind of schedule of start because it will be -- it will not have the full capacity immediately, and we start with some grade then we will grow then the scope of -- the scale of the products available so material impact probably in 2019. Maybe not the full impact that we declared like PLN 300 million on EBITDA, probably slightly less, but I would say, '19.
Our next question from Robert Maj, IPOPEMA.
I would like to follow up on the agreement with the government on LOTOS in few months which you just said. Would it consider the full stake of the government which is 53.2%? Or are you going to make it in stages? Firstly, I get 32% just below the threshold, 33% which is like the obligatory for announcing a tender offer and then the rest, how should we expect the process will go? This is the first question. Second question, on the -- I'd like to follow up on the quality of the crude as we saw the reports that the sulfur content falling from -- of the crude introduced by pipeline is close to the 1.9%, which is the standard -- the Russian standard. So should we assume that the share of the REBCO in ports could stay rather the 80%? Or should we expect it would rather increase or decrease? And regarding the price dynamics, would you say that the quality of the euros is now reflected in the differential? Or rather you need to pay more to import something on the spot just to replace the lower quality euros? This would be the second question. And my third question would be on the NIT. If you could provide us with some color on the national indicative target. What is your interpretation of the new law? And because it's quite ambiguous. And are you incurring any additional cost in respect of the NIT for compulsory reserves as of now?
Okay, let me answer your first question, although, you answered it yourself because we need to combine our goal to buy full stake, 53% stake of State Treasury with the legal framework. So in this agreement, we will sign -- we hope to sign with the government is for 32.99% of stake. And then it will be conditional upon antitrust clearance. And if we got it, we will call a tender offer for the rest remaining part up to 66%. And of course, State Treasury will hope to take part in this tender.
In terms of...
Yes.
Coming back to the question on crude oil, it is, as I said, first of all, diversification is not the target for itself, but every time we diversify, we also look for economics, the higher sulfur and the price, and we compare it with, for example, sweet crudes and their price. We may say that, obviously, differential, as we mentioned, should reflect the difference in quality. And to be honest, differential in Q1 was $1.6 per barrel while till now in Q2 is $2.7. So really it is really a serious difference because $1 on a yearly basis means PLN 1 billion for us impact on EBITDA. So this economic calculations have to be made every time. But on the other hand, we want to be diversified from safety perspectives to be more elastic and to be able to choose different types of crude. Also different types of crude are bought by us to mitigate or to minimize the cost of shutdowns that we are making. So this is very, very complex. And in general, we may say we are interested in diversification. We are observing the current quality, and we are observing the market prices, and we are utilizing every occasion we can.
In terms of national target, the law has changed, so it is more strict. First of all, this realizations will be managed -- measured every quarter. And number two, there are limits of obligatory blending. So you cannot realize the target by selling clean biofuel. So obviously, this is exactly what we realized in the past. So for us, this is rather positive change. It will make the market for every player more comparable. And in terms of cost, obviously, it depends on the quotations. Bio components are slightly higher quoted than gasoline or diesel. So it is kind of additional cost for every player. But we think market is more -- will be more comparable for everyone. So we take it positively. And the new -- also new regulation is that you may pay for portion of this target realization. You may pay kind of a fee instead of realizing the target in volume terms. This is up to 15% of the -- may be realized by payment.
Okay, so just one more clarification for the third question. So we should not expect any share swaps, just a plain tender up to 66% after conditional agreement from the competition [indiscernible] and the intention is to keep the lot of listed on the stock exchange, is that correct?
Yes, all observations are correct.
Our next question, we have a follow-up question from Ildar Khaziev, HSBC.
My question is about German fuel market. I noticed that the consumption of diesel has been quite weak over the past couple of quarters and gasoline has come up in the first quarter. Is this impact of like of potential underutilization of the auto market do you think? Or it's just a noise so far?
Yes, indeed. We also observed that. It is on the slide. You can see that gasoline is growing and diesel is decreasing in Germany, which would support your statement and your thesis exactly. And it's mainly the case. But on the other hand, please have a look at on the GDP. So we can see that GDP is still positive, but it looks like it's slowed down. So it's maybe the effect of both. Slightly lower dynamics of GDP movement from diesel to gasoline to be more -- I mean, to reflect the current market's trends. And the first element may be -- it is based on a 1-month real data while 2 months of the quarter are interpolated. So we would simply need more time to see whether it's a one-off quarterly change or it becomes a trend in Germany. So we are observing it, and we'll inform you during the next presentations.
We have no other question at this moment. Dear speakers, back to you for the conclusion.
Thank you, operator. If there are no more question, I would like to thank you very much for participating in our call. We are happy that we have answered all the questions. If you have any follow-up questions, please feel free to contact our IR Department. We will be happy to be at your service. Thank you very much, and this is the end of our conference. Goodbye.
Ladies and gentlemen, this concludes today's conference call. Thank you for your participating. You may now disconnect.