Orlen, the Polish oil refiner represented by the ticker PKN.WA, has made the decision to terminate contracts for the purchase of Venezuelan oil and refined products due to substantial financial losses exceeding $400 million from prepayments for undelivered shipments, as confirmed by a company manager on Tuesday.
The contracts, arranged by the Swiss-based unit Orlen Trading Switzerland (OTS), were scrapped as a result of tankers failing to load and the looming closure of a U.S. sanctions window, according to the source.
In October, the U.S. Treasury Department issued a license lifting sanctions on Venezuela’s oil production and exports until mid-April, leading trading houses to engage with little-known intermediaries registered as customers of the state company PDVSA.
Six tankers, including three Very Large Crude Carriers (VLCC), initially scheduled for loading in December and January, remained uncompleted by March, resulting in daily demurrage costs amounting to $600,000 and the approaching closure of the sanctions window on April 18, prompting Orlen to cancel the contracts.
Following a change in management at OTC, the demurrage bill for the six tankers stood at $30 million by late February, prompting an ongoing audit of OTC and investigations by prosecutors into the activities of the former management associated with the oversight of the trading unit.
Additionally, prosecutors are conducting inquiries into whether the company, under the leadership of former CEO Daniel Obajtek, artificially lowered prices ahead of the 2023 election and sold assets below fair value in two separate probes.
Orlen recently wrote down 1.6 billion zloty ($394 million) from the value of OTS, citing prepayments for oil and refining products that were not fulfilled within the agreed deadline, and assessing the likelihood of reimbursement as low. Despite this, the refiner posted a 2023 profit of 27.55 billion zlotys.
Furthermore, a Dubai-based intermediary, managed by a Chinese citizen, received over $200 million in prepayments, according to the manager, highlighting deviations from standard practices where advance payments were made without collateral to entities with no prior cooperation with Orlen, as disclosed by the company on April 11.
OTS was established in Zug, Switzerland, in 2022 ahead of the European Union’s ban on imports of Russian oil products, which came into effect in early 2023.