Orlen SA
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Ladies and gentlemen, welcome to Consolidated Financial Results of PKN ORLEN Second Quarter 2019 Conference Call.
I now hand over to your host, Iwona Waksmundzka, Executive Director of Strategic & Investor Relations. Madame, please go ahead.
Thank you, operator. Good morning, ladies and gentlemen, and thank you for joining us today. Welcome to conference call presenting PKN ORLEN's consolidated financial results for the second quarter 2019. Today's presentation that will be made, when ended, available on our website will be delivered to you by Mr. Konrad Wlodarczyk, IR Director. After the presentation, the floor for Q&A session will be open. During the Q&A session, there will be several Directors from Strategy, Treasury and Controlling department and they will be answering your questions.
With no further delay, I hand over to Mr. Konrad Wlodarczyk. Konrad, the floor is yours.
Thank you, Iwona. Good morning, ladies and gentlemen. Let's kick off from Slide #3, so key facts and figures. And in the second quarter, we achieved PLN 2.7 billion EBITDA LIFO. These very good results were achieved in a challenging market environment, I may say so, because we faced not only lower downstream margin by minus USD 1.3 per barrel year-on-year but also difficulties caused by suspension of crude oil deliveries via the Druzba pipeline due to contamination by organic fluoride. And thanks to the accumulated stock of crude oil and the consistent diversification of crude oil supply, we were able to maintain a high utilization of our refining facilities. It means that in the second quarter, we processed 8.3 million tons of crude oil. High production and some demand was, of course, reflected in record-high sales in the second quarter. And in Q2, we sold 10.8 million tons of product which is 2% increase year-on-year. I would like to underline the big things that we did in the second quarter. Mainly speaking, we have strengthened business relations in Angola in the context of oil supplies. Another source, crude oil cargoes of 130,000 tons each will be delivered to now supporting that in August and September. At the beginning of July, we submitted to the European Commission a formal application for the approval to takeover Grupa LOTOS. And from that moment, the formal procedure for concentration started. We assume that the decision of the European Commission will be announced later this year. We also have launched a Metathesis Unit in Plock, thanks to which propylene production increases by 100,000 tons up to 550,000 tons per year. And just to remind you, PKN ORLEN is the only producer of propylene in Poland and the key player in Europe running more than 50% of the production capacity in the region. In the second quarter we maintained a strong financial position. We generated PLN 3.5 billion cash flow from operations. We realized investments at the level of PLN 1 billion. And as a result, we reduced net debt at the end of the second quarter by PLN 2.7 billion to the level of PLN 2.4 billion, which gives financial gearing below 7%. On 14th of June, the Ordinary General Meeting of PKN ORLEN approved dividend payment for 2018 recommended by the Management Board at the level of PLN 3.5 per share. The dividend payment date is 5th of August, 2019.
Next slide, Slide #5, macro environment. In the second quarter we recorded a drop in downstream margin by USD 1.3 per barrel that I've previously mentioned. So this is mainly as a result of lower -- by USD 1.7 per barrel B/U differential and worsening of margin from middle distillates and PVC. And on the other hand, weaker zloty against foreign currencies helped as well as higher margins on the light and heavy refining fractions on olefins, polyolefins, PTA and fertilizers. We recorded a strong support from sharply declining gas prices in the second quarter due to the high inventory levels in Europe after a warm winter and the record-high supply of LNG. And lower gas prices by circa 30% and higher energy prices by circa 10% up quarter-on-quarter enables our energy assets to generate decent results.
Next slide, Slide #6. As of market-oriented data, in the second quarter we recorded positive GDP growth in all domestic markets. Poland, of course, the growth leader was -- is reflected in higher by 4% year-on-year consumption of diesel and gasoline. Dynamics for fuel consumption in the Czech Republic was slightly weaker but still satisfying. In Germany, we have been experiencing a decline in fuel consumption for several quarters, but German market has slightly different specifics. Additionally, in the second quarter, due to the suspension of crude oil deliveries by Druzba pipeline, German refineries cut significant utilization which caused lower supply of product on the German market.
Now I will present financial and operating results for second quarter 2019, so we move to Slide #8. And in the second quarter, we recorded revenues increase by 9% year-on-year mainly due to higher sales volume. We generated PLN 2.7 billion EBITDA LIFO, of which PLN 0.6 billion higher year-on-year. On one hand, we noticed PLN 0.5 billion positive effect of sales volumes increase, PLN 0.3 billion positive macro impact and PLN 0.4 billion higher trading margins in wholesale and retail. On the other hand, we had minus PLN 0.2 billion negative impact of a lack of compensation that we received in the second quarter last year, minus PLN 0.1 billion negative impact of inventory revaluation, and minus PLN 0.1 billion higher overhead and labor cost. And just to remind you, from the beginning of 2019 we apply IFRS 16 regarding building. This is a pure accounting standard. However, it boost EBITDA LIFO by roughly speaking PLN 115 million on the quarterly basis due to the higher depreciation.
As a result of crude oil prices increase in the second quarter, we recognized a positive LIFO effect in the amount of PLN 0.2 billion which resulted in an increase of reported EBITDA to PLN 2.9 billion. The result on financial activity in second quarter was marginal. So a positive effect in the settlement of measurement of derivative financial instruments was offset by interest costs. As a result, in the second quarter we achieved a net profit of PLN 1.6 billion. And for the first half of the year, almost PLN 2.5 billion.
Let's move to Slide #9. On this slide, you can see EBITDA LIFO split by segment. Downstream, PLN 2 billion, which has increased by PLN 0.4 billion year-on-year as a result of the positive macro impact, sales volume increase and higher trading margins in wholesale year-on-year, limited by negative effect of lack of compensation received in second quarter 2018, inventory revaluation and higher overheads and labor costs year-on-year. Retail, PLN 0.9 billion. So this has increased by PLN 0.2 billion year-on-year as a result of positive impact of higher sales volume and higher fuel and nonfuel margins year-on-year. Upstream, PLN 83 million comparable result year-on-year mainly due to negative impact of macro and lower sales volumes limited by positive balance on other operating activities, including settlements and valuation of derivative financial instruments. Corporate functions, comparable cost year-on-year.
So now we may go deeper into the details, so let's move to Slide #10. Downstream, our biggest segment, delivered PLN 2 billion in the second quarter, higher macro effect by almost PLN 300 million was due to the refining margins improvement on light and heavy fractions, higher petrochemical margins on olefins, polyolefins, PTA and fertilizers and natural gas prices decrease what positively impacted our CCGT profitability as well as weakening of Polish zloty versus foreign currencies. Abovementioned positive effect was partially limited by lower B/U differential by USD 1.7 per barrel and worsening of margins on middle distillates and PVC. As a result, our sales volumes increased in the downstream segment by 2% year-on-year, we recognized more than PLN 500 million of positive volume effect. Sales of gasoline, diesel, olefins and PTA increased year-on-year with a drop in sales of LPG, polyolefins, fertilizers and PVC. Others includes mainly minus PLN 0.2 billion due to lack of compensation from the second quarter for steam cracker in Unipetrol and for the delay in CCGT Plock completion as well as minus PLN 0.1 billion due to inventory revaluation. As I've mentioned, net realizable value in the second quarter was negligible.
Next slide, Slide #11, shows operating data of downstream segment. And in the second quarter, despite the suspension of crude oil supply by Druzba pipeline, PKN ORLEN processed 8.3 million tons of crude oil which is 94% utilization ratio. And until resume of supplies by Druzba pipeline to Plock, all deliveries were made via sea, executing a long-term contract with Saudi Aramco and of course, purchases on spot. If we look at fuel yields, we clearly see increases in Poland and the Czech Republic. In Plock, fuel yield increased by 8 percentage points year-on-year as a result of higher share of low-sulfur crude oil and smaller scope of maintenance shutdown. In Unipetrol, fuel yield increased by 6 percentage points year-on-year due to lack of cyclical shutdown in Kralupy from second quarter 2018 and higher share of low-sulfur crude oil in the feedstock. And in ORLEN Lietuva fuel yields decreased by 4 percentage points year-on-year as a result of utilization of semi-product in the second quarter accumulated before cyclical shutdown of refinery. And going into detailed split market by market, in Poland we recorded minus 3% sales decrease due to lower volumes of heavy refining fractions and fertilizers at higher fuel sales. In the Czech Republic, we recorded 6% sales volumes increase due to higher refining volumes limited by lower petchem sales as a result of shutdowns of unit and market limitations. And in ORLEN Lietuva we recorded 10% sales increase due to favorable market situation and the launch of PPF Splitter unit of propylene production.
Slide #12, retail. Again, delivered awesome results, PLN 859 million EBITDA LIFO which is 27% higher year-on-year. It's worth to add that implementation of IFRS 16 boosted this result by more than PLN 17 million in the second quarter. And 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 bottom graph. We recorded sales increase by 4% year-on-year on all markets. And similarly, market share. In terms of margins, higher fuel margins were achieved mainly on Polish, German market and nonfuel margins in Poland.
Slide #13 shows operating data of retail segment. At the end of the second quarter, we were running more than 2,800 fuel stations of which majority, over 2,000, were equipped with nonfuel concept Stop Cafe. Of course, increasing number of fuel stations by 20 year-on-year and very healthy demand for fuel were reflected in higher sales volumes by 4% year-on-year achieved on all markets. And it's worth to mention that in April, we opened the first fuel station in Slovakia under the Benzina brand. Market share as well as -- increased in all markets year-on-year. Please also have a look that there was a very dynamic growth on nonfuel offer, another 22 locations were opened in second quarter. And at the end of the quarter, we were running the -- 2,069 food and beverage corners including convenience stores under our own brand O!SHOP.
Slide #14, upstream. In the second quarter, it generated PLN 83 million EBITDA LIFO which is a comparable result year-on-year. Negative macro impact and lower sales volumes were limited by positive effect of settlement and valuation of derivative financial instruments. In the second quarter, we recorded a decrease in average production by 1% year-on-year mainly due to lower production in Canada by 200 BOE per day year-on-year due to unplanned shutdown.
Slide #15 shows more operational details regarding upstream. We have 211 million BOE 2P reserves based on the calculations around the end of last year. Average production in the second quarter was 17,800 BOE per day, and we spent circa PLN 120 million on upstream activities. Please let me mention some key operational facts. In Poland, we continued drilling well in Bieszczady project. And we started drilling a well in the Miocen project and carried out preparatory work for the next drilling as well as continued processing and acquisition of seismic data for Bystrowice, the Miocen project and Chelmno in the Edge project. In Canada, we started drilling of 1 well, 4 wells were fracked and 4 wells were added into production.
Slide #17. So we are coming back to financials and cash flow data. In the second quarter, cash flow from operations amounted PLN 3.5 billion, mainly due to lower working capital by PLN 1.2 billion as a result of a reduction of crude oil stock due to temporary suspension of crude oil supplied by Druzba pipeline. Others, minus PLN 0.6 billion includes mainly taxes paid in the amount of minus PLN 0.4 billion and elimination from the results, effects of valuation of derivative instruments related to hedge accounting. We allocated PLN 0.7 billion to investment activity. The change in liabilities in the amount of PLN 0.3 billion results mainly from received dividends from the entity measures using the equity method, our bad ORLEN polyolefins and from the sales of energy certificate. The bottom graph summarizes cash flow management for the first half of the year. You can see that we generated PLN 4.7 billion EBITDA LIFO and working capital decreased by PLN 0.7 billion. In addition, CapEx amounted to PLN 1.7 billion and we paid PLN 0.5 billion taxes and interest. And as a result, our debt fell by PLN 3.2 billion comparing to the end of last year.
Next slide, Slide #18, financial strength, one of our pillars. I confirm that all indicators remain at a safe level. Covenant below 0.3, at maximum level 3.5, and financial gearing below 7%. So well below 30% the maximum level included in the strategy. Net debt at the end of the second quarter amounted to PLN 2.4 billion. Net debt decreased by PLN 2.7 billion quarter-on-quarter as a result of positive cash flow from operations in the amount of PLN 3.5 billion limited by investment expenditures in the level of PLN 0.7 billion as I have mentioned on the previous slide. Our sources of financing are still diversified with an average maturity in 2021 which can be seen in the bottom graph. The currency structure of gross debt has not changed, most of the debt is in euro which reflects our operating exposure and creates a kind of natural hedge.
Next, Slide #19 is dedicated to CapEx. Planned CapEx for this year, just to remind you, is at the level of PLN 5 billion, out of which in the first half of the year we spent PLN 1.7 billion. The largest investment project realized in the second quarter concerned building production units in downstream namely polyethylene unit in Czech Republic, metathesis in Plock, propylene splitter in Lithuania and the expansion of underground storage depots. In retail, we spent almost PLN 200 million for new locations, modernizations and development of the nonfuel concept. We also spent circa PLN 120 million in the upstream segment of which 75% in Canada.
The last section shows market outlook for 2019. Truly saying nothing has changed. So as for market assumptions, we are expecting comparable crude oil level to 2018, so roughly speaking, USD 70 per barrel. On the one hand, we expect pressure on crude oil price related to global economy slowdown and increase of production in the U.S. And on the other hand, we expect positive impact of crude oil that has resulted from OPEC agreement which was extended till the end of March 2020. The trade war between U.S. and China, sanction imposed by U.S. on Iran and Venezuela, and geopolitical situation in the Middle East. And model downstream margin, we also estimate comparable level to the average from 2018, USD 12 per barrel, on the one hand increase in refining margin with B/U differential due to the rising demand for middle distillates and drop in demand for Ural, reflecting -- approaching IMO 2020 regulation. And on the other hand, we expect a drop in petchem margins as a result of launching new petchem capacity. In 2019, we expect solid growth in consumption of fuel assets and petchem products on the markets that we operate in due to, of course, the GDP increase was -- will have a positive impact on downstream margins as well. From regulations, it's worth to pay attention from PKN ORLEN perspective, Sunday bond trading in Poland which does not apply to the fuel stations emission fee and National Index Target that rose from 7.5% to 8%, but we are able to take advantage of the possibility to reduce the ratio below 5.6%.
So that's all from my side. Thank you very much, and we are ready to take questions.
[Operator Instructions] Our first question comes from Tamas Pletser from Erste Bank.
I have several questions, but probably I would just say -- or ask questions about one topic that's basically the Russian crude and the contamination in the second quarter. So can you tell us a little bit more about this situation? Did you process any of this crude? Do you own any of this crude? What kind of compensation can you expect for receiving this kind of a crude? And I'm also wondering what is the proportion now for Russian crude in your input? And what are your expectations for the future? And maybe just one more remark here, it seems like that this situation somehow even was more positive to you because the inland premium in Poland was quite high. Can you tell us a little bit about this, what was your view generally of this issue?
Look, I'll start with the last question, the positive outcome. Look at the differential range within end of April, beginning of June, then difference between brent data, excluding this period, that is the answer. The other question, the proportion of our inputs is roughly 50/50, and we would like to remain on this level, and specifically on term contracts just to be flexible on the spot deliveries to take market opportunities which is obvious. Regarding tank crudes, well, we processed 27% out of 4 refineries portfolio. We received or we got from Russian direction within Polish system and remaining chloride will be processed step by step within the range of gross norm. So no negative impact on our installation and further on, of course, within 19 and 24 April, we received [quite] tank crude, so we need to cover that. So we've burned substantial amount of cost to cover that, as I said. So that will be a matter of claims which were opened now. And we are waiting from our tech guys to prepare a whole range of cost calculations for coping with the problem within a given period.
Okay. But can you -- I have a follow-up? Who do you ask the compensation from? Is it Transneft or your supplier in Russia?
This is obvious we have direct relations, contractual relations with suppliers. Not any contractual relations with Transneft. So answering your question, we will put all our claims to our suppliers.
Okay. I didn't understand what you were referring at the beginning of your answer regarding my question, whether this situation overall were more positive to you. I understood that you mentioned about the RED differential. Do you say that this widening of this differential was mainly due to the contamination issue? Or do I understand this answer correctly?
I don't think so. I meant 2 main factors which had impact on our outcome. First, the volatility of the Brent. Look, beginning of April, it was 73, 75. End of April, May, beginning of June, we had 61, 60. So roughly average $10. And then you have a euro differential, which were, whole April, within the range, plus 0 5. And then June, it was, in fact, peak minus 2.5. So again, another range impacting on our outcome. So I wouldn't match 2 issues, the tank crudes, and positive outcome, rather market situation.
Okay. But does this situation help somehow to have a higher in-land premium in Poland? But I get somehow a feeling when I read your report in the morning that your profitability or wholesale and the retail margins significantly improved in Poland. Was it any relation to the contaminated issue? I'm thinking maybe that you know your competitors in Belorussia, for example, were not able to tell. Will be able to sell any products to Poland on this issue or any other relationship? Did you see something like that?
Well, I can say that our colleagues from Belarus couldn't sell as much products as they plan because they have a breakdown in their refinery. We kept our production stable and on a good level. That would be my one answer on your question.
Our next question is from Michal Kozak from Trigon.
I have only one question. Do you think that the second quarter was extraordinary regarding clean-up premiums and due to contamination? Or is it, let's call it, new reality? Can we explain this by a change of PKN pricing strategy in the wholesale or something else? And what is the outlook on land premiums in the following quarters?
Konrad Wlodarczyk speaking. So yes, we maintain that partially, high land premiums definitely was caused by this problems with crude oil deliveries, because, as my colleague previously said, Belarus refineries as well as German refineries cut the utilization so there was a shortage of products, so then the supply of products was pretty low. But additionally, please bear in mind that also in-land premium depends on the market, yes? So in Poland, the Poland is -- there is a deficit here. That the market is short. There is a very high demand. However, if we compare the beginning of the first quarter with the second quarter, we see some deterioration. So I would not say that it's a new reality. It was rather, let's say, one-off situation.
Our next question is from Tomasz Krukowski from Santander.
Tomasz Krukowski, Santander. A couple of questions, if I may. The first one refers to the contamination crisis. You were talking about the benefits. But could you be more specific about additional costs that you incurred due to this situation? I'm talking about the logistic costs, also something -- maybe something about the processing can. And there were any other costs related to the supplier? So the first question.
I will not give you particular data. The only answer will be, we have 3 main group of costs versus additional crude, both seaboard to dilute tank crudes in there within the system. The second group of costs is all linear costs beared by our tech guys, meaning chemicals, meaning extra energy, et cetera, et cetera. And the third group are logistics, meaning our cooperation within dilution of the tank crudes will [indiscernible]. So summing up all 3 groups, we will put, as I said in the certain previous question and answering on that question, we put in 1 claim to our suppliers. I cannot comment more on that.
But is it about dozens of million Polish zloty or hundreds of million Polish zloty?
I cannot comment on that anymore.
Okay. The next question refers to your Slide #10 in the presentation and to the EBITDA bridge. You are saying on this slide that the macro environment improved EBITDA by PLN 277 million year-on-year. And this is something which I find [ surprising ] given the fact that your downstream margin was down year-on-year. So maybe could you please elaborate a little bit on that?
[indiscernible] Excuse me. There is some noise in the background. The line is still open or?
Yes. The line is still open, I believe.
The line is still open. So indeed, the macro effect is positive. And you may say that this is due to the fact that we had a better craft on light and the heavy fraction, the higher petrochemical margins on olefins, the polyolefins, PTA, fertilizers. And what's very important, the gas prices dropped significantly, yes? so this enable us to, let's say, to switch a little bit the feedstock for our energy assets, yes, from heavy fractions towards gas consumption. So we reduced significantly costs and also the profitability of our CCGT was very good. So both facilities were operating and running 100%. They generated PLN 200 million comparing to the last year PLN 30 million. So on the EBITDA front, let's say, the delta from this is PLN 170 million. So all these factors, let's say, caused that macro improved in the downstream segments, mainly petrochemical and energy.
So it's not only about the macro but also about feedstock optimization and also products slate, correct?
Yes, that's right.
We have another question from Monika Rajoria from Société Générale.
My first question would be on the retail segment. I would like to understand that how much of the PLN 860 million EBITDA that we see in the second quarter is attributed to the special German situation. And the second, I would like to understand the working capital situation. So as I understand that you have used some of the crude oil stocks that you have. Have you started to build them again in this quarter? Can we expect the working capital to improve in this quarter?
So maybe start from the retail. I assume that you refer to the graph, yes, on which we can see that fuel margin increased by, roughly speaking, PLN 120 million year-on-year, yes? And in this, you may assume that both on Polish and the German markets, you may see that this increase was half-half.
Our next question comes from Henri Patricot from UBS.
Yes. Just there was another one question on working capital [indiscernible] . I also have a couple of questions from my side. The first one, only to check on the CapEx because the run rate in the first half of the year is quite somewhere below your guidance for the full year. Is that always been the plan to spend much more in the second half than the first half? Or have you been more efficient around CapEx spending? Or are some projects being postponed, some spending being postponed? And then secondly, if you can give us an update on your plans regarding IMO 2020 as that you're importing more crude from Angola. Is that part of the preparation to IMO 2020? And what sort of change do you expect around the quality of the fuel that's produced and its sulfur content of your fuel oil over the next few months?
Okay. So regarding CapEx, we have, frankly speaking, [indiscernible] small delay in first half of 2019. However, we are going to ramp all projects which we have in plan for 2019. So there is natural seasonality. We do like to spend much more in the second half of 2019. So what was your question regarding the outlook for 2020 for CapEx?
Yes. Even for 2019, so you still expect to spend the PLN 5 billion over the course of the full year.
Yes, yes. We keep our plans at the level of planned CapEx nearly PLN 5 billion. Yes. And the other question regarding Angola. So there's -- while there is subject, I would say, in recent years, minerals fuels are deteriorating substantially regarding density and the sulfur, that's the first reason. The algorithm, while we're searching for alternative sourcing for grades, is, of course, IMO, as you perfectly asked.
And then the other risk is purely security and what we call the classification, because look, recent crises we faced showed that, that was set a good way to have 50% covered on term deliveries, but not only terms, but 50% alternative grade than Russian sourcing. We do not say that Russian crude is bad. It is deteriorating, but still worth to be processed, also taking advantage on the logistics side that we take the majority of that grade out of pie.
But the Angolan grades we are interested in. Some grades are this pure substitution of the Russian grade. Others are improving our outcome towards middle distillates, towards diesel when it requires gasoline. So that's why Angola is within the range of our interest. So that's why we want to anchor there. That's why we started building calculation, and we are convinced this is not our last work. Thank you.
And you were asking us about the cash flow from operations, yes, which amounted a significant PLN 3.5 billion, yes?
Right. And right now, the previous question. And -- but I think I just have a follow-up on this IMO. And also then, if you should expect any change in terms of the quality of your fuel oil? Are you planning in particular to produce any very low sulfured fuel oil that would comply with the regulation over the next few months?
Let us wait and we'll see what's going to happen. We'll be ready for both scenarios.
We have a follow-up question from Monika Rajoria from Société Générale.
So I would like to ask my question again. I would like to know if you are again building your crude oil stocks in this quarter after the strong working capital decrease that we saw in the last one.
Do you mind if I ask you for repeating the question? You are asking us about crude oil stocks and?
I'm asking about the strong working capital decrease, that was because of the usage of the mandatory crude stocks. So are you again going to build them up? And can you expect the working capital to increase in the third quarter?
I will not answer working capital. But what I can say regarding our regulations, we are obliged to build up -- rebuild stocks of crude within less than 11 months. So next month, we'll be building up our stocks step by step. And regarding [indiscernible], my colleague will...
So perhaps I take on this question and give some more flavor to it. So you are right, with the problems with the sourcing of crude by pipe effectively increase our working capital in Q2. However, this has to be returned back, if you could put it, as [indiscernible] said, over the next 11 months, so we can expect this positive results to be gradually returned back over the course of the second half of this year and potentially also Q1 next year. And perhaps as an additional information, we -- at the end of -- for Q2, we have a positive impact from using the part of compulsory stocks of crude for the working capital. On the other hand, we also have some increase in the receivables and accrued and the positive cash settlement to be realized in the first day of July from the commodity hedges.
And the total negative impact of those 2 elements for the working capital at the end of Q2 was -- is estimated at PLN 1.1 billion. So roughly speaking, if we combine the 2 elements, they sort of net out for the Q2 working capital.
Okay. Okay. And I just have another question on the Russian crude. So you mentioned that you see a deterioration in the quality overall. So I want to know if there is any minimum technical level that you need to have or you need to refine the Russian crude in your Plock refinery.
It is regulated by a GOST norm. If you want, we will send you later on the particular numbers of digits related to this norm. And within this norm, there's a range of distillation cap. Those were density, proof point and others. So our current contracts are set within this range and we keep the level of processed crudes within given range in the contract. So the GOST norm regulates crude delivered by pipe, right? Because the GOST refers only to pipe deliveries.
Okay. So that means there is a minimum level that you need to have from the pipe.
Yes. Minimum and maximum range is regulated by this norm.
Okay. Okay. Can you share that with us in the presentation?
[indiscernible] will send it to you.
Okay. And finally, a last question on the maintenance. Can you please remind us if there are any significant shutdowns that are planned in this quarter?
In the first quarter, we are assuming that throughput will be significantly higher comparing quarter-on-quarter, so it may even increase 9 million tons of crude oil. And despite the fact that, in Plock, we will have a maintenance shutdown of H-Oil, which we are usually conducting at the end of Q3. There will be also Petrogen units and [indiscernible]. So Metathesis will be out of order when we will start PVC unit shutdown at the end of Q3. In ORLEN Lietuva, we do not have any planned maintenance shutdowns similarly in Unipetrol. So all in all, from, let's say, processing point of view, Q3 should be very strong.
[Operator Instructions] We have a question from Robert Maj from IPOPEMA.
Yes. Hello. It's Robert Maj from IPOPEMA Securities. And I would like to follow-up on contamination of the Russian crude. Do you expect any additional costs in the 3Q? You said that you filed the claims to Russian counterparty already. But should we expect anything more happening in the 3Q?
I don't think we shall expect substantial amount of costs -- level of costs because now the processed crude keeps the level of GOST norm which is less than 10 PPM. So -- but -- well, we are not sure now because the end of the third quarter is still coming. But we do not expect substantial [indiscernible], right?
So I understand that you took the contaminated crude on the installation imports and this may cause a corrosion in the installation. So I just wonder, what is the kind of estimated time when you will know whether there are any additional damages at the installation that you can actually go after Transneft or Rosneft and then make a claim? How many quarters should we expect that this situation can drag on?
I mean as I go come to a -- come out just within September, there will be a maintenance on our installations. Within that, we shall evaluate the total impact of the tank crudes, specifically in the periods where the higher level of PPMs were processed in the first phase of the so-called crisis. So then afterwards, we should be ready to put all our claims -- evaluated claims on the table to our suppliers. So we believe, end of September, we should be ready with it.
So it is fair to say that by that time, we should expect really high in-land premiums at PKN in the third and the fourth quarter?
I don't think it has a direct impact for in-land premium. So the factor that I've mentioned in the second quarter was partially related to, let's say, a lower supply of products available on the market. But please bear in mind that we are entering Q3 which is seasonally the strongest quarter in terms of the demand, so you may expect that. Last year, it was a similar situation when in Q3, we recorded a very high in-land premium, so this quarter, maybe similarly.
Okay. And the very 2 last questions, if I may. What is the situation with the RUCH retailer right now? What should we expect happening in the months ahead? And the same with the LOTOS merger. You were saying that we should expect the merger to be finalized by the end of the year. But then we had some statements of the CEO who was kind of a little bit skeptical about this whole transaction, may happen or may not happen. So what should we expect on this front?
Okay. So I will start with LOTOS situation that, yes, you perfectly -- you are aware of the project. We submitted the application form. The first decision is due on 7th of August. And then we expect the [ follow-up ] decision, the formal decision to be coming from the European Commission. And it is in the public domain because the European Commission announced that. Within the phase 1, the commission may take 3 scenarios. First is that they will clear the transaction without remedies. Secondly, that they will ask for remedies. And the third one is that they will needs to run the market investigation in the phase 2. So from my perspective, based on the pre-notification phase, and the dialogue with the European Commission and the actual dialogue, we would expect that still within the same cadency, the final clearance, which probably will be conditional, is still feasible. So this is still the goal. So following the clearance of the decision, we are able to settle the transaction by the end of the year. So yes, the plans are not changed. And from -- based on the, as I said, on the quality of the dialogue we have with the European Commission, our plans are not changed. In terms of RUCH, well, we submitted the offer, the final the RUCH, and are thereby fundraising or by providing the loan, which at the end with fundraising. Nevertheless, we are waiting for the court decision actually. So it's a formal process and it's difficult to say what to expect. From my perspective, this is a pure business case and it is connected with our expansion in retail. And let's see what the court will decide because everything depends on that now. It's difficult to comment on deadlines because this is now not in our hands actually.
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