OREANDA-NEWS. With a symbolic cornerstone laying ceremony at its refinery in Gda?sk, Grupa LOTOS S.A. marked the start of construction works on a deep oil conversion complex under the EFRA Project. The total cost of the project is estimated at ca. PLN 2.3bn. When completed, the complex will increase the distillate yields at Grupa LOTOS and, as a consequence, will boost its refining margin by approximately USD 2/bbl. The EFRA units are expected to add up to 900,000 tonnes to the LOTOS refinery’s annual fuel output. The project works are scheduled to end in 2018.

The first stage of the project involves earthworks to prepare the area and sites for the foundations (piling works) of the planned buildings, structures and production units. The first key units of the EFRA Project are expected to be built already in Q2 2016. The main facilities comprising the new complex will be the Delayed Coking Unit (DCU), Hydrogen Generation Unit (HGU), Coking Naphtha Hydrotreating Unit (CNHT), LPG Treatment Unit (LPGTU), Coke Logistics and Storage Facility (CS-LF), and Hydrowax Vacuum Distillation Unit (HVDU). These state-of-the-art interconnected units will allow the refinery to process crude oil exclusively into products which sell at attractive margins. Thus, LOTOS will be able to fully utilise heavy residue ? the oil fraction currently converted into heavy fuel oil or bitumens. When the project works are completed and the new units come onstream, the LOTOS refinery will be able to process each tonne of heavy residue into some 700 kg of fuels and 300 kg of coke, without having to produce heavy fuel oil.

“The main role of the State Treasury Ministry is to support value-building projects at companies we supervise. That is why last year we earmarked PLN 530m to finance the EFRA Project. LOTOS, one of the crucial companies for Poland’s security and development, convinced us to do this by demonstrating what measurable economic benefits can be gained from investing PLN 2.3bn into the project. Today, I am honoured to witness the next stage of the process, the results of which will be seen in three years, when it reaches completion,” said State Treasury Minister Andrzej Czerwi?ski. 

“EFRA is a natural continuation of the wider effort to technologically modernise our refinery, supplementing the crude oil processing configuration created under the 10+ Programme. With EFRA, we will take our refinery in Gda?sk to the highest level of efficient refining,” emphasises Pawe? Olechnowicz, President of the Management Board of Grupa LOTOS S.A. “When the new units are integrated with the existing process lines, we will be able to market higher volumes of products which are in strong demand.”

As planned, the units are currently at the design stage. Meetings with the Italian designers (of the coking units) are attended by staff of the investment project divisions of Grupa LOTOS S.A. and LOTOS Asfalt (a company of the LOTOS Group), as well as by employees of the technology division of Grupa LOTOS S.A. The aim of the meetings is to provide the Italian specialists with the design concepts and to precisely define the technical requirements of LOTOS. An important thing is to make sure that works planned and later executed under the project, which will continue for over two years, cause no disruptions to the refinery’s day-to-day operations.

Project financing secured

Financing for the project was successfully secured by Grupa LOTOS at the end of June 2015. Its total cost is estimated at ca. PLN 2.3bn. In order to raise funds for a part of the project, towards the end of 2014 Grupa LOTOS S.A. carried out a successful share issue on the Warsaw Stock Exchange, raising almost PLN 1bn. The State Treasury acquired 53% of the new shares, while also concluding an assistance agreement with Grupa LOTOS and committing PLN 530m to finance the EFRA Project. Other sources of capital for the project will include loans, credit facilities and internally generated funds of the LOTOS Group. Partial financing for the EFRA Project has also been provided by eight financial institutions, including six banks and two insurance companies ? PZU SA and PZU ?ycie SA. They have granted LOTOS Asfalt a term loan facility of USD 432m and a working capital facility of up to PLN 300m. The balance of capital expenditure on the project will be financed with the LOTOS Group’s internally generated funds. The facility has been advanced under the ‘project finance’ model until December 2024. When negotiating the financing of the EFRA Project with banks, Grupa LOTOS proved that the project promised high profitability, guaranteeing the security of timely repayment of future liabilities.

Contract for the main units

Selecting appropriate and renowned contractors was seen by Grupa LOTOS as a prerequisite for the project success. Having reviewed a group of prospective business partners, LOTOS Asfalt decided to sign a contract for engineering, procurement of equipment and materials, construction and commissioning of the key three project units with Italy’s KT - Kinetics Technology S.p.A. Pursuant to the contract, worth PLN 1.26bn, KT will construct the deliverables and hand them over for commissioning within 32 months. LOTOS Asfalt chose this reputable contractor for EFRA to be absolutely sure that the project is completed on schedule and in accordance with the relevant specifications. Furthermore, Grupa LOTOS and Germany’s Linde AG, Engineering Division, have signed an agreement to build an Oxygen Generation Unit. The output oxygen will be used to increase the efficiency of desulfurisation of the EFRA Project’s intermediate fuel products.

Sales of products from EFRA guaranteed

For the project to be a commercial success, the company must also find markets for the output of the refinery’s new units, in particular for coke, a new product. Therefore, in the summer of 2015 LOTOS Asfalt signed a coke sale agreement with Oxbow Energy Solutions B.V of the Netherlands. Oxbow agreed to buy coke from the Delayed Coking Unit, the main component of the process line to be built in the EFRA Project. In this way LOTOS Asfalt has ensured that the entire volume of output coke will be sold.

Crude conversion efficiency

The main objective of EFRA is to ensure a more efficient use of heavy residue, which is the heavy end of crude oil now used to make heavy fuel oil or bitumens. The new units constructed under the EFRA Project perfectly supplement the existing oil processing line at the refinery in Gda?sk and will eventually enable a shift in its product mix from low-margin products towards more engine fuels. With EFRA completed, the LOTOS refinery will have more flexibility in optimising production, which will strengthen its competitive position, also in the event of adverse movements in the market prices of crude oil and oil products.