Ladies and gentlemen, welcome to the conference call of PKN Orlen. At our customer's request, this conference will be recorded. As a reminder, all participants will be in a listen-only mode. After the presentation, there will be an opportunity to ask questions. If any participant has difficulties hearing the conference, please press star key followed by the zero on your telephone for an operator assistant. I will now hand over to Konrad Włodarczyk, who will lead you through this conference. Please go ahead.
Thank you, operator. Good morning, ladies and gentlemen. Welcome to the conference call regarding Orlen Group consolidated financials for the third quarter 2021. The presentation will be delivered by me, Michal Perlik, Executive Director for Finance Management, and Marek Garniewski, IR Expert. After the presentation, we will open Q&A session, during which several directors from PKN Orlen will be ready to take your questions. With no further delay, let's move to slide number three. Executive summary of the first quarter. PLN 4.3 billion EBITDA LIFO for another record high quarter. We may say that we had a favorable macro environment and higher sales volumes that supported the results.
Downstream margin increased by more than 80% to the level of $9.8 /bbl . Higher fuel consumption due to economic recovery as well as the holiday season translated into an increase in sales volumes by 2% year-on-year and 15% quarter-on-quarter. In Q3, we processed 8.3 million tons of crude oil, 1% more than in the previous year, which is a 94% utilization ratio. Our financial situation remains still very good. In Q3, we generated PLN 4.3 billion cash flow from operations. We spent PLN 2.5 billion CapEx, and we paid a dividend of PLN 1.5 billion. As a result, our net debt decreased by PLN 0.1 billion comparing to the last quarter.
Covenant net debt EBITDA remains at the safe level, 0.69. In Q3, we realized a number of important things that you see on the slide. Soon in November, production of ecological propylene glycol will start. As a part of this investment, there will be a launch of first hydrogen hub in Poland, offering pure high-purity hydrogen to power fuel cells with a production capacity of over 350 tons pure hydrogen per year. We gave a green light to the construction of bottom-of-the-barrel installation in Możejki, and as a result, the yield of high-margin products will increase by 12 percentage points, which translate into EBITDA increase by, roughly speaking, PLN 300 million per year. We are planning to finish this investment till the end of 2024.
As part of ORLEN Paczka project, which covers over 6,000 locations across Poland, we launched first 200 automated parcel machines open 24/7. It's just the beginning, because by the end of the year, there will be 500 APMs, and by the end of the next year, there will be 2,000 APMs throughout the country. We observe a high interest in ORLEN Skylight accelerator, the first corporate acceleration program for technology startups in Poland with an international reach. In the first round, over 100 startups from Poland and abroad applied. On October 14th, 2021 EGM of LOTOS gave a conditional consent for partial sale of LOTOS Group assets within the framework of remedies.
This is a very important step in this process. Till November 14th, 2021 PKN Orlen will choose partner or partners to realize remedies and ask European Commission for approval. Additionally, in Q3, we made a decision to build an installation of hydro generating vegetable oil in Płock. It is an ecological and innovative solution that will strengthen our position on the biofuel market. We are completing the construction of ecological propylene glycol installation. This is the largest installation of this type in Europe with a production capacity 30,000 tons per year. We started the main stage of geotechnical research on the bottom of the Baltic Sea in the area of planned wind farm and the connection routes.
We analyzed the possibilities of using innovative technology, Hydro-PRTSM, as a part of chemical recycling of plastics. We finished co-branding, so Orlen brands is on all PKN Orlen stations abroad. We signed an agreement with GE Renewable Energy to strengthen our competitiveness in applying for new concessions for wind farms in the Baltic Sea. We signed a letter of intent with PKP and PESA on a cooperation for the implementation of hydrogen technologies in rail transport. We are of course very proud that we received nine times in a row the best annual report award. Now I will go to the details of Q3. Let's move to slide number five, macro environment.
In Q3 model downstream margin increased by $4.4/bbl compared to the last year, to the level of $9.8 /bbl , as a result of 5 x higher Refining margin, higher BU differential by $2.4 /bbl , and higher Petchem margin by almost 60% year-on-year. Cracks on the light and middle distillates as well as Olefins, polyOlefins, PTA and PVC increased. This is shown in the table on the right-hand side. Cracks on heavy fractions decreased. We recorded higher cost of internal fuels due to rising crude oil prices and unfavorable price relation between electricity and natural gas. Operating results were supported by weaker Polish zloty versus both euro and U.S. dollar. Slide number six, GDP and fuel consumption.
In Q3, we recorded increase in fuel consumption year-on-year as a result of higher economic activity on all markets except Germany, and this is proved by the dynamics on the left-hand side on this slide. Dynamics of GDP. We see that dynamics in Germany are on the lower end. Now I will present financial and operating results. Let's move to slide eight. In Q3, revenues increased by more than 50% due to higher quotations of Refining and Petchem products due to increase in crude oil prices and higher sales volumes. We achieved PLN 4.3 billion EBITDA LIFO, which is higher by PLN 2.3 billion compared to the previous year.
This is mainly due to positive macro impact, higher sales volumes, higher trade margins in wholesale and non-fuel margins in Retail, usage of historical inventory layers of crude oil and products, inventory revaluation, so net realizable value and limitation of liability for minority shareholders buyout of ORLEN Unipetrol . Those positive factors were partially limited by negative impact of lower fuel margins in Retail, higher cost of provision for CO2 emission, and higher overheads and labor costs. Positive effect of crude oil price change on inventory valuation. LIFO effect amounted to PLN 0.9 billion in Q3, and it caused an increase in reported EBITDA to the level of PLN 5.2 billion. Net financials amounted to -PLN 0.3 billion.
This is the result of the surplus of negative FX differences and net interest cost as positive net impact of settlement and valuation of derivative financial instruments. If we take all into account, in Q3, we achieved PLN 2.9 billion net profit and more than PLN 7 billion of net profit after nine months. Next slide. Slide number nine. Presents split of EBITDA LIFO by segments. Refining delivered PLN 1.2 billion, so higher by PLN 1.5 billion year-on-year due to positive macro impact, higher sales volumes, higher trading margins, usage of historical inventory layers and net realizable value, partially offset by negative impact of higher provision for CO2 emissions.
Petchem delivered over PLN 1 billion, so PLN 500 million more year-on-year, mainly due to positive macro impact, higher volumes effect despite the drop in sales volumes and higher trade margins, as negative impact of usage of historical layers and higher provisions for CO2 emissions. Energy segment also delivered over PLN 1 billion. Let's say comparable results year-on-year. On one hand, we had a positive macro impact and higher volumes effect despite the drop in sales volumes, that was partially limited by negative impact of higher provisions for CO2 emissions and higher overhead.
In Retail, PLN 948 million, which is a decrease by PLN 87 million due to negative impacts of lower sales volumes and lower fuel margins, as well as higher overhead and labor costs, partially offset by positive impact of higher non-fuel margins. Upstream delivered record high results, PLN 130 million, increased by PLN 86 million year- on- year. This is due to positive macro impact at lower sales volume. Corporate Functions lower costs by PLN 231 million year on year. This is due to limitation of liability for minority shareholders, buyout of ORLEN Unipetrol , as well as lower donations related to COVID-19. Now I hand over to Marek to let you go through the details on each of the segment.
Thank you, Konrad. Next slide number 10, Refining segment. In the third quarter, Refining recorded, as Konrad already mentioned, PLN 1.2 billion of EBITDA LIFO, which is higher by over PLN 1.5 billion compared to the previous year. The main factor of such a good result of the Refining segment is positive macro due to increasing cracks from light and middle distillates, weakening of Polish zloty against U.S. Dollar, and valuation and settlement of CO2 contracts as a part of separate transaction portfolio in the amount of almost PLN 160 million year-on-year. Those positive effects were partially limited by negative impact of a decrease in cracks on heavy fractions, higher cost of internal usage, and cash flow hedging transactions.
Also in the first quarter, we recorded an increase in gasoline sales by 11%, diesel by 4%, and JET by 41%, and HSFO by 6%, at lower sales of LPG by -6%. Overall, sales increased by 5% year-on-year. The others position include mainly over PLN 3 billion of usage of historical layers of inventories, higher trade margins, and higher cost of provision for CO2 emissions. On the next slide number 11, this slide shows operating data for Refining segment. So we processed all 8.3 million tons of crude oil, which is 1% more than in the previous year.
In PKN Orlen throughput decreased by 0.1 million tons year-on-year, mainly as a result of optimization of crude oil processing, the level of heavy refining fractions inventories from September 2021. Also the fuel yields was higher by 1 percentage point year-on-year due to higher HC utilization in the third quarter. In Unipetrol, crude oil throughput was at the comparable level year-on-year. Fuel yields increased by 3 percentage points year-on-year due to higher share of low sulfur types of crude oil and lower scope of maintenance shutdowns from the previous year. In ORLEN Lietuva, the throughput increased by 0.1 million tons due to macro situation improvement since August 2021.
Fuel yields increased by 6 percentage points due to higher share of low sulfur types of crude oil and usage of semi-products from inventories. In the first quarter, we sold 6.7 million tons of refining products, which is higher by 5% than in the last year. Higher sales in Poland by 4% as a result of higher market consumption. Higher sales in Lithuania by 10% due to the improvement of macro environment that led to higher capacity utilization, with lower sales in Czech Republic by -2% due to limited exports to German market. We had some logistic and market difficulties caused by floods. Slide number 12. We are moving to Petchem.
Petchem segment in the first quarter delivered over PLN 1.0 billion of EBITDA LIFO, which means a twofold increase compared to last year and a comparable result quarter-over-quarter. Also important to mention that Anwil share in Petchem result was almost 25%. It's quite a good result from Włocławek facility. Undoubtedly, a main factor supporting the results was the macro, of course, including high Petrochemical margins on Olefins, polyOlefins, PTA, and PVC, also weaker zloty against euro and evaluation of settlement of CO2 contracts as a part of separate transaction portfolio. Despite high margins, we were not able to take full advantage of the market situation due to the implementation of plant maintenance shutdowns and some issues in launching Olefins installations after the maintenance in the second quarter.
Sales decreased by -2% year on year, of which lower Olefins sales by -9%, fertilizers by -2%, and PVC by -3%, and PTA by -8%, at higher sales of polyOlefins by 23%. The next slide number 13, shows operational data in the Petrochemical segment. The utilization of petrochemical installations in the third quarter was lower year on year in Poland, mainly due to continuation of planned maintenance shutdowns of Olefin unit and BOP in Płock that started in the second quarter of 2021, as well with a planned maintenance shutdown of PTA installation in Włocławek.
Planned shutdown of Olefin unit caused feedstock limitation on BOP and metathesis installations in Płock. In Czech Republic, we face production limitations related to preparation for maintenance shutdowns of PE3 installation. Petrochemical sales amounted to 1.3 million tons and were lower by -2% year-on-year, including lower sales in Poland by -7% and in Lithuania by -5%. At higher sales in Czech Republic by 9% due to improving the operational parameters of PE3 installation and higher availability of products compared to last year. The next slide number 14, shows our Energy segment. Energy as well as Petchem segment generated over 1.0 billion PLN of EBITDA for results.
In the third quarter, which is comparable to the last year result, Energa Group added over PLN 700 million to the result overall, and it's higher by PLN 230 million year-on-year. We recorded a positive macro impact year-on-year as a result of an increase in electricity quotations and evaluation of settlement of CO2 contracts as a part of separate transaction portfolio in the amounts of almost PLN 200 million, with a negative impact of the increase in gas and CO2 prices. In the third quarter, gas prices increased basically 5x compared to the previous year and remain on record high levels also in the fourth quarter.
The energy industry looking for cheaper substitutes uses not only coal but also petroleum fuels, which has significant impact on global crude oil prices. All of those has an impact on the prices of electricity and fuels in the region as well. We're looking forward for the fourth quarter and see how it will work out for us. The provisions that is also included on this slide includes higher cost of provisions for CO2 emissions and higher fixed costs. Now we can move to the next slide. The operational data for the Energy segment. In the first quarter, Orlen Group produced 3.0 TWh of electricity. 60% of the electricity produced comes from renewable energy sources and gas-fired units.
Electricity production increased by 6% year-on-year, including higher production of the Ostrołęka power plant due to increased demand from state-owned grid operator PSE. Higher production of the Włocławek hydropower plant and an increase in renewables capacity by over 0.1 GW electrical energy. Electricity sales amounted to 6.2 TWh, and it has decreased by -8% year-on-year as a result of lower sales in both areas of wholesale and retail. Electricity distribution increased by 3% year-on-year to the level of 5.6 TWh as a result of higher economic activity and higher number of energy connection points. The CO2 emissions of the Energy segment in third quarter amounted to 2.2 million tons. The next slide of the Retail.
The Retail generated over almost PLN 950 million of EBITDA result, which is lower by -8% year-on-year as a result of lower fuel margins, lower sales volume, and higher operating costs. We recorded a decrease in fuel margins on Polish market, increase of those margin on German and Czech markets, and a comparable level of margins were visible in Lithuania market. Sales volumes decreased by -1% year-on-year, of which diesel by -2% and LPG by -5% with higher gasoline sales by 1%. The non-fuel margin in the third quarter was higher year-on-year in all markets, especially sales of hot snacks and hot beverages. We also expand our capability of alternative fuels.
Currently, we have 421 points with alternative fuels, which is more by 239 compared to the last year. The next one, Retail. Slide number 17. Operating data of Retail segment. At the end of the third quarter, there were 2,852 fuel stations operating in our retail network. The number of fuel stations increased by 12 year-on-year. There is more stations in Poland, in Czech Republic, and in Slovakia, of which somewhere about 80% were equipped with non-fuel concepts, Stop Cafe, Star Connect, respectively, which translate to a total of 2,252 non-fuel points of sale, 71 more than last year.
Sales volumes decreased by -1% year-on-year, mainly as a result of lower sales in Poland due to the high base from the previous year, when all mobility restrictions were lifted. Market share increased year-on-year in Czech Republic and in Slovakia and decreased on all other markets. We systematically developed the network of alternative fuel points, and at the end of third quarter, we had, as I mentioned, 421 of those, which is an increase by 239 year-on-year, of which in Poland by 218, in Czech Republic by 21. Our clients can use 375 EV chargers, of which 321 in Poland, 14 Czech Republic, and seven in Germany. We also have two hydrogen stations in Germany and 44 CNG stations in the Czech Republic.
Of the next slide, the Upstream segment, slide number 18. As Konrad mentioned, this segment generated PLN 130 million of EBITDA result, which is the result nearly PLN 90 million higher year-on-year. This is the result of an increase in quotations of all hydrocarbons. Margin impact was higher by almost PLN 100 million compared to the previous year. Average production increased by 200 BOE per day year-on-year. Basically split half between Poland and Canada, 0.1 in each of those countries. Sales decreased by -6% year-on-year as a result of unplanned infrastructure shutdown at the external hydrocarbon customer in Canada. Slide number 19, operational data of Upstream segment.
We have somewhere around 174 million BOE of 2P reserves of crude oil and gas. Average production in the second quarter reached 17,000 BOE per day, and CapEx in the third quarter amounted to somewhere around PLN 74 million of which 60% in Poland and 40% in Canada. In Upstream segment, we focus on the most promising projects and if you are interested in those you can see the detailed information about operating activities in the first quarter on Miocen, Edge and Płotki project implemented in Poland and our activities in Kakwa, Ferrier and Kaybob regions in Canada. Now I'll hand over to Michal, which will get you through the cash flows.
Thank you, Mark. Good morning, everyone. Let's move to slide number 21. Another very strong quarter in terms of cash flows with PLN 5.2 billion EBITDA generated in third quarter and PLN 4.4 billion of cash settlements on deposits securing our hedging activity, offset by PLN 1.2 billion increase in working capital, mainly related to increase of crude oil prices to us, and as a consequence, our products prices. We end up the quarter with PLN 4.3 billion of net inflow from operations. PLN 2.5 billion was spent on CapEx, which contributes to -PLN 2.2 billion net outflow from investment. Over the first nine months of this year, we have generated PLN 12.8 billion of EBITDA. PLN 1.1 billion of cash was dedicated to increase of working capital.
We spent altogether PLN 6.6 billion for CapEx. We paid PLN 1.5 billion of dividend in August. In March, we purchased CO2 emission rights worth PLN 1.5 billion. We also recorded positive settlement, cash settlement of deposit over the first three quarters of PLN 1.5 billion. Minus PLN 2 billion of others covers mainly 0.8 billion spendings, cash spendings on acquisitions, advanced payments of PLN 0.4 billion, PLN 1 billion of income tax, PLN 0.9 billion for lease payments and interest paid, all together offset by PLN 0.2 billion received from dividends.
The rest are non-cash positions with the biggest influence of adjustments for changes in the balance of reserve of PLN 3.9 billion. This is mainly related to establishment of increase of CO2 reserves. Another position is settlement of CO2 subsidies for -PLN 1.6 billion. The details for those two positions you can see on slide number 32 in the appendix section. Altogether, very strong cash flow brought us to decrease of debt by PLN 1.7 billion as compared to end of last year.
You can see on the next slide that, at the end of September, we had PLN 11.4 billion of net debt, out of which PLN 10 billion was debt which we recognized on our balance sheet. As a consequence, our net debt EBITDA covenant is at the level of 4.69, and this is the lowest level since acquisition of Energa. Actually, we returned to the levels pre-acquisition levels. No new debt issuance this quarter. Thank you very much. I hand over back to Konrad.
Thank you, Michal. Let's move to slide number 23. CapEx. We may say that CapEx spendings are according to the plan. During nine months, we spent PLN 6.6 billion CapEx at planned annual CapEx at the level of PLN 9.5 billion. So far, we spent the highest CapEx on PKN and Energy segments of our strategic goal directions, as well as Refining.
Main growth projects that we were realizing in Q3 in the Refining was the construction of visbreaking in Płock and propylene glycol installation in ORLEN Południe. In Petchem, project of capacity extension of Olefin unit in Płock as a part of this big petrochemical development program, and expansion of fertilizers production capacity in Anwil. In Energy, project of construction of offshore wind farm on the Baltic Sea, modernization of current assets and connection of new clients in Energa Group, as well as modernization of turbine sets at CHP in Płock. In Retail, we opened in Q3 eight stations, 10 were closed, we opened 12 non-fuel locations, and we launched 143 alternative fuel points. The last section describes current macro and market outlook. Slides number 25 and 26.
You see that in Q4, downstream margin decreased quarter-on-quarter by $1.2 /bbl to the level of $8.6 /bbl , and this is due to skyrocketing natural gas prices and lower Petchem margin, which is still on a very high level. It's two times higher Refining margin and Brent-Urals differential quarter-on-quarter. Crude oil price increased by $9/bbl quarter-on-quarter to the level of $83/bbl as an average. This is mainly due to high demand for crude oil as an alternative to expensive gas. As we call gas-to-oil switch.
Reactivation of U.S.-China trade talks concerned about insufficient supply of crude oil due to lack of willingness of OPEC+ to increase oil production by more than it was previously declared. Just 400,000 barrels per day from November. Diesel cracks increased by 90% quarter-on-quarter, average $91 /t on. Here we've got higher demand as a result of gas substitution for energy production, and we had also some logistic constraints due to low level of the water on the Rhine River. Cracks were partially offset by higher imports from Russia. In terms of gasoline, we see that cracks increased by 9% quarter-on-quarter, average more than $190 per ton.
This is mainly due to concerns about insufficient supply of fuels due to potential risk of energy crisis, higher gasoline exports from Europe to West Africa, and additional increase in cracks for both diesel and the gasoline resulted from lower supply in ARA region, let's say a very stable demand as well as lower stocks in both ARA and U.S. High sulfur fuel oil cracks decreased slightly by 4%, average - $168 / ton. We have weaker demand in the Mediterranean region. We have improvement of the supply situation in Asia, and we observed the drop in the demand from Saudi Arabia due to lower utilization of air conditioning after the summer. Decrease in HSFO cracks were partially offset by higher demand for...
From energy sector in Asia due to high gas prices. Brent-Urals differential, it's shown on slide number 26. It's increased by $0.2 /bbl quarter-on-quarter, average $2.5 /bbl . This is mainly due to lower demand for Urals resulting from competitive prices of alternative grades of crude oil from the Middle East. In terms of Petchem decreased by EUR 131 / ton quarter-on-quarter. Average currently is EUR 1,187, and this is mainly due to increase in feedstock prices as a result of higher crude oil prices and a decrease in polymer prices, so polyethylene and polypropylene.
We may say that of course despite the decrease Petchem margin should remain very strong due to high demand from construction and packaging industry, additionally supported by high gas prices, which is used as a feedstock in ethene crackers and keeps margins product pretty high. Last slide number 27. Market outlook. In Q4, we expect crude oil price to remain at the level of $85 /bbl till the end of this year as a result of high demand for oil from the energy sector due to high gas prices. We expect Refining margins to remain at the level of circa $3/bbl-$4 /bbl as a result of high demand for crude oil and fuels.
We expect Petrochemical margins to remain at current high levels of circa EUR 1,100-EUR 1,200 per ton as a result of strong demand for petrochemicals, are correlated, of course, with GDP growth and limited imports due to increase of freight cost. Of course, rising crude oil and gas prices create some cost pressure on the feedstock side. In terms of gas prices, gas prices reached record high levels in Europe. Volatility is really huge. It is an effect of limited gas supply, higher demand stimulated by the economic recovery after the pandemic period, of course, beginning of heating season and low level of stocks in Europe.
Stocks has not been recovered before the winter to the level observed in the previous years, so this may cause some worries about assuring deliveries, especially during cold winter period. In terms of electricity prices, also hitting record levels from the beginning of the year. Electricity prices increased by more than 80%, mainly due to increase in CO2 emission prices and increase in natural gas prices. Worries about the cold winter, high demand for electricity, as well as increasing demand from China for coal can be additional factors supporting price increase. Global economy is still recovering after the pandemic period. GDP forecast for our main markets are optimistic. Therefore, we expect a further increase in the demand for both fuels and petrochemical products.
In terms of regulations, nothing has changed since last quarter. This is all from my side. Thank you very much. We are ready to take your questions.
Dear ladies and gentlemen, we will now begin our question and answer session. If you have a question for our speakers, please press zero and one on your telephone keypad now to enter the queue. Once your name has been announced, you can ask a question. If you find your question has been answered before it's your turn to speak, you can dial zero and two to cancel your question. If you're using speaker equipment today, please lift the handset before making your selection. One moment, please, for the first question. We have a first question. It's from Henri Patricot at UBS. The line is now open for you.
Yes, hello, everyone. Thank you for the presentation. I have a couple of questions on energy cost and then one on the Retail side. On the energy cost, I wanted to ask you about the impact of these higher natural gas and electricity prices in the fourth quarter. Are they kind of fully offsetting the increase in Refining margins that we're seeing? And secondly, do you have any hedging in place to kind of reduce the negative impact of higher natural gas prices? And is there something you can do around mitigating that higher gas price when switching to other fuels that would kind of reduce your sensitivity?
On the Retail side, can you comment on the latest trends around both transport fuel demand in your core regions, and also around the fuel margin in this higher oil price environment, whether there's any pressure at this type of price? Thank you.
Okay. Your question on natural gas is whether we have a hedging policy in place. The answer is yes, we do have a hedging policy, and we have already secured gas for the coming quarter and for the coming two years. Of course, not in full, but in some part, especially for those segments of our activities that are highly gas intense in general.
In terms of-
Okay, now I may add some few words about the electricity segment and our gas-fired power plant. As my colleague already said, majority of gas for the fourth quarter is actually helping us as prices that give us a positive margin for the fourth quarter for our gas-fired power plant. We expect that the result of gas-fired power plant will be. It won't be the highest in the previous quarters, but it will be positive. Still, we will run our gas-fired power plant at minimum levels. Because of lower volumes of electricity produced, then the results will be lower than in the previous quarters.
As I said, as my colleague said, actually the gas has been bought in the past at good prices. The fourth quarter is secured from that point of view. For the Refining segment, we also do like demand optimization. We have some capacity to replace natural gas with heavy oil, and we do it if possible. This is also a part of protecting ourselves against the high spot prices.
Just for your information, Henry, our CCGT units, both in Płock and Wrocław, have generated more than PLN 150 million in Q3. Roughly speaking, they delivered more than 15% to the overall EBITDA of Energy segment. In terms of Retail in Q4, I think that in Q4, we should expect higher fuel sales in Poland year-on-year due to the fact that consumption for fuels is increasing due to economic recovery. Additionally, we have a lower base. Last year in Q4, we had again implemented limitations towards, let's say, movement around Poland due to let's say second wave of COVID.
What we observe right now in Retail in October, the sales is higher by 6% year-on-year. Here we observe both higher sales of gasoline more than 10% and diesel, roughly speaking, 5% higher. In terms of fuel margins in October, we observe a significant decrease in fuel margins comparing to October 2020, so roughly speaking, 30% Polish market, 15% Czech market, and let's say comparable level in Germany. Comparing month-on-month to September 2021, 25% increase in the Polish market, 20% in Czech Republic, and let's say 5% in Germany. This is the reason of quite high crude oil price and quite weak Polish zloty versus US. Dollar.
Of course, this creates a pressure on margin. Please bear in mind also that, let's say fuel price on our fuel stations in Poland is very close to PLN 6/L . I'm talking about this regular fuels. This was treated always as a psychological barrier when you are, let's say, breaching around figures. If you would like to increase fuel prices and of course, gain some more money on margins, you have to bear in mind that on the other hand, probably you should expect some pressure on sales volumes. In my opinion, Retail margins should slightly improve in the next month of Q4.
Okay, thank you. Also a quick follow-up just quickly on the natural gas. I understood that you've recovered for the fourth quarter. For the first quarter of next year, I know much of your natural gas consumption is effectively exposed to the spot price.
Yes, we do have a hedging policy that extends beyond the coming quarter, of course.
Okay.
It's as long as the forward curve allows, so to say, taking into account the liquidity on the market, of course. We do have some exposure on the spot market as well.
Okay. Thank you.
Our next question is by Michal Kozak, Trigon. The line is now open for you.
Thank you. I have a couple of questions. When should we expect information on the selection of the company that will purchase LOTOS shares with you? When are you going to present the parties for the transaction with LOTOS?
In terms of the partner chosen, of course, we are approaching the deadline, and we are approaching the corporate approvals in this regard. You know the deadline, and actually the deadline is still valid. Before any corporate approvals are taken, we cannot comment on the partner chosen. It's too early. On the parity, I think that the first quarter 2022, where we will agree on the merger plan, and we will announce the merger. We should rather expect something in the middle of first quarter next year.
Thank you. The second question. Assuming stable prices and expiry of price hedging, should we expect a negative effect on gas costs in the first quarter next year? Or is there a chance that the higher cost will be fully translated into fuel prices?
Um,
The first part of the question, Michal?
The first, yeah.
Yeah, the first part.
Should we expect a negative effect on results due to higher gas costs and expiry of gas hedging until the end of this year?
In what products? In general or, in retail products?
In Refining and Petrochemical segments.
In Refining still, even though the gas prices are skyrocketing, in general, in OpEx, natural gas cost is not as much as it is in other our activities, like petrochemicals. In petrochemicals, I understand that the natural gas price cannot be fully translated and passed through on the market in general. There are some limitations. We can also see that like petrochemicals installations in Europe in general, like, fertilizers are being closed or shut down, and it will decrease the supply and will give the potential to increase prices in general. For the coming year, the gas prices are not as high as they are for the coming quarter.
We see a huge drop, prices cut in half, basically from Q1 2022 to Q2 2022. The average price for the coming calendar 2022 is not as high as it is for the coming quarter.
Okay. Do you agree that you have quite attractive hedging, quite attractive price of gas that is hedged until the end of this year?
No comment.
Okay, thank you. The third question, assuming that the current CO2 prices remain stable, when should we expect negative effects on net debt and EBITDA due to buying more expensive allowances?
Well, we can already see the effect of the increase of CO2 emission rights on or costs. You can see it in other tax position in cost structure. You can see it, for example, on slide number 10, 33, when we present the evolution of the CO2 provision. Last quarter we have created a CO2 provision of almost PLN 1.4 billion in loss. Of course, it was partially offset by release of provision related to free allowance which the company was granted.
You can see that this increase of provision was significantly higher as compared, for example, to first quarter when the price was much lower and the provision was half of what we have at the moment. If the prices will stay at a similar level as we observe right now, then in the forthcoming quarter we will have very similar level of new provision, very similar level of offset related to free allowances, but we will not observe the profit realized on the settlement of the future transactions. Partially it's already reflected in the prices. If there will be no increase in CO2 prices then you can eliminate this PLN 4.5 billion effect from the future results.
Yeah, understood. Thank you. The final question, what are the EBITDA effects comparing to the previous quarter on gasoline and lamp premium and replacing gas with light fuel oil in downstream?
We do not provide exact impact of those two. I'm assuming that you are asking about the trading margins, yes?
Yeah.
Generally, what you can say, if you look on the Refining segment, the positive impact of trading margins overall, comparing year-over-year, was at the level of almost PLN 0.2 billion.
Okay, thank you.
Welcome.
The next question is by Piotr Dzięciołowski, Citibank. The line is now open for you.
Hi, good morning, everybody. It's congratulations on the good results. I have a couple of questions to you. I wanted to come back to this gas and CO2 costs because you say you have you know, you had some of the cost element before and you have some hedging policies in place. Let's say on the two-year view, what is the wall you have to climb? How much costs will go if you were to take the current forward curves versus what is more or less in the books for 2021? In other words, you know, what is the realized price going to increase as a delta? And the same for CO2, so we can do the math and understand the impact of it.
Second, can you please tell us anything about this Petrom story from the morning that you are interested in acquiring upstream assets in Romania? I think you can add or just pure speculation. Finally, as a third question, I wanted to ask you on the inland premiums, because that seems to become quite the gasoline price seems to become quite a political subject in Poland, even with your CEO commenting why it is at the level that it is. When you look at the inland premiums, how do they compare currently versus the historical run rates? You know, are they higher, lower? If they are higher, by how much are they higher versus an average over the last couple of years? Thank you.
I take the question about the inland premium. We may say that in Q4, IP on the wholesale level is on the comparable level in terms of gasoline. If we are talking about the diesel is 30% lower year-on-year. In terms of quarter-on-quarter, we observe drops by 30% in terms of gasoline, and in terms of diesel, roughly speaking, by 5%. You may say that generally, we had the record high inland premium last year, and now we have observed that inland premium is normalizing in Q4 compared to last year.
Okay, that's fair enough.
Second question on the Romanian market. I was as surprised as you when reading the article, so there is nothing on the table.
Okay, that's fair enough as well. But you know, I think people, you know, there was a visit of PKN officials into Romania at some point in the past. I just wonder directionally, why would you buy upstream assets in Romania? If that, if you know, would that be the price? Do you think it would fit your portfolio? You want to hedge and integrate vertically or is there any logic why you would want to buy these assets?
Well, from the geographical perspective and in terms of the market potential, the Romanian market was always interesting for us so that we were looking at the market and the potential opportunities. In terms of Upstream business, there is nothing which can be of our interest, frankly speaking. We are not talking to OMV about this business case at all, and that's it. You know, we are visiting many different countries to understand opportunities in our geography. And that's it at that stage. As I said, we are not talking to OMV about the assets at all.
Okay.
I'll take the question on natural gas again. First, it's important to understand what the gas crisis means and how it extends on the timeline. Basically, the gas prices are very high in the short term. They're very high when delivered tomorrow, when delivered next quarter, when delivered in Q1 2022. But then from Q2 2022, they drop sharply. The drop continues later in the third quarter and also in 2023. The impact of current spot prices is short term, and we assume it will be short term in general. We see the market is very volatile, so even today after the yesterday news on gas storage being fulfilled in Germany, the gas prices dropped very rapidly.
The market is volatile, but it's volatile in the short term, not that much in the long term. In the long term, the gas prices are supposed to get back to whatever normal is, to lower levels in general.
Mm. So-
I would like to add to what my colleague already said that in the Energy business, we are already monetizing the good outlook for 2023. We are selling electricity, buying gas and CO2, and we're securing a good margin for this year. Not only the outlook is looking good, but also we are acting on this outlook, and we are selling electricity, securing margin for our CCGTs for 2023.
Unfortunately the line is really bad. I couldn't get the second answer. If I may maybe give a little bit more details. I was asking. You know, I can see, and I observe daily forward gas prices, but I still would say, you know, the end of the curve moved up by a good 8-10 EUR. Therefore I ask you know, do you see on the two-year forward basis a 10 EUR a MWh pressure, and what does it translate into the numbers? The same for CO2, you know.
How much are you going to book on CO2 cost in kind of 2021, and how that cost on the mark-to-market basis, so beyond your hedges, is going to look like in two years from now?
As a reminder, if you want to ask a question, please press zero and one.
Two things. I think I have already mentioned it. For the gas-intensive activities, we have a very conservative hedging policy in place. We secure margins and we do most hedging more in the short term than in the long term. The coming quarter four or quarter one of 2022, it's not such a big deal as you would think when you observe gas prices. For-
The activities that we do less hedging, like for refinery business, gas cost it does not weigh as much in general outcome, in a general cost. It's still very low compared to crude oil, for instance. Even the curve would move up 8-10 EUR, it wouldn't, you wouldn't see it that much in the general cost of refinery products in general.
Our model downstream margin has only 2.4% of the gas costs included. Of course, if it's doubled, it may go to 4%, maybe 5% of the total cost. Still it's insignificant in terms of what these segments can, you know, achieve. In terms of CO2, well, generally, our approach is to secure our position at least over the next 24 months. As you might remember, we have around 16 million tons of total emissions in the group yearly, out of which around 45% is covered with free allowances. Our exposure is between 8-9 million tons yearly, which means that EUR 1 movement on the price is translating to EUR 8-9 million influence on the EBITDA.
However, we have, at the moment, over 19 million tons of contracts open, which means that we are secured for more or less two years, right now, as I mentioned at the beginning. We are gradually, you know, increasing our exposure, to keep this period, 24 months period, fixed. But of course, our average price on the secured position is slowly growing. Previously, it was closer to 25, now it's around 30 EUR per ton, but it's still significantly lower as compared to the current market price. If you have a look over the last 12 months, due to this activity, we have gained PLN 2.5 billion. We saved PLN 2.5 billion on the CO2 cost.
Our next question is by
Yes, you can go on with the next question, I guess.
Okay. The next question is by [Arash Dessari]. The line is now open to you.
Hi. Thank you very much. Forgive me, I'm maybe not as informed or as much as some of the other people on the call. I had two questions. Again, apologies if I missed it. If going to Retail, if I dig a bit deeper into what you said, is it really just wages that is a problem? If you could talk moving forward on the non-fuel retail side in your petrol stations business, you know, how does that look in terms of inflation? You know, is that a business that might be more hampered, or is that a business where you can have quite strong pricing powers 'cause it's a captive audience and you can help grow that business, as I say, on non-fuel retail sales within retail?
That could be something that will be improving that trend in that business? Or is that something where it could have headwinds, both on wages and just costs of buying products, et cetera? My second question is, if I look at working capital and cash flow, you know, again, I appreciate the group has changed a lot in recent years. It looks like, you know, you have built inventories a little bit. Typically, often you've, I think, released inventories in this quarter historically. Could you dig a little bit deeper into where, if you were to break down the businesses where that's happened? I appreciate, you know, it's market prices impact the value of the inventories.
If there's any segment where you built inventories, perhaps more significantly, that doesn't come out in the consolidated numbers, but we could make our own assumptions and read across for where you, at the end of September, were seeing perhaps very elevated, strong demand going into Q4, if we wanted to make those assumptions. I'm not saying that is guidance or anything you would be saying. Thank you.
Thank you for the question, Konrad speaking. Yes, indeed. Non-fuel definitely is a very important part of the retail business because it's, roughly speaking, 30% of the gross retail margin. If you look only on the results of the retail segment in Q3, so this is presented on the slide number 16. You see that only non-fuel margin increased comparing year-on-year. We are investing a lot, so we are opening new locations. Currently, of course, the pace is not as dynamic as it was a few years ago. Roughly speaking, 80% of our fuel stations is equipped in some kind of concept Star Connect or Stop Cafe. Of course, majority is located in Poland.
We have almost 1,700 fuel stations equipped with Stop Cafe, 320 in the Czech Republic, 116 in Germany, 29 in Lithuania, and 14 in Slovakia. We are developing very dynamically non-fuel sales. Please also bear in mind that what I've mentioned at the beginning, we had a lot of ideas how to, let's say, increase the EBITDA in the coming quarters and years. One of such an element, as I've mentioned at the beginning, is opening first 200 APMs, so automatic parcel lockers, yes, on the Polish market. This number will increase significantly, so we observe a huge opportunity in, let's say, purchasing online by our customers.
We've got a lot of ideas how to develop the retail generally, and we put a lot of focus on the development of non-fuel part of the Retail business. Currently, as I said, only this non-fuel margin, so mainly sales of hot beverages, hot snacks, brings a lot of money and, let's say, improves the results year on year.
Just to give you some more details about the parcel machines that Konrad spoke about, because those 200 parcel machines does not give the full scope of the operations that we have here. The project is called ORLEN Paczka, and it's quite popular here in Poland. We currently have over 6,000 locations, of which over 1,100 on our own stations, over 1,000 kiosks that we acquired from Ruch company. Also 4,000 partnership points and those automated parcel stations that Konrad talked about, 200 of them already, 500 till the end of this year, and till the end of the next year, 2,000 of those across Poland.
We still work on increasing the non-fuel margin on our Retail segment by implementing new business models that our clients require and ask for.
And if you-
Could I just ask a follow-up on that one before going on to the cash flow question? I mean, based on what you just said, if you look at the older vintage of stores that you would call a mature, you know, the ones opened quite a long time ago, I know going back before the crisis, 2019 and so on, you were investing heavily in adding the cafes and the shops into these petrol stations. I mean, obviously, you know, they have a ramp-up period in terms of non-fuel to mature and stuff or just, you know, just in general, including fuel.
Is it safe to say there is a vintage of stores that were opened, say, in 2019, maybe even 2018, where then because of the lockdowns in 2020 and also partially this year, they have still not ramped up to maturity in retail sales and obviously the higher margin non-fuel retail. So there is some a kind of a lift up that we should see there as they transition towards what mature stores within the retail network look like. Is that a fair read across from what you've said or not?
I guess it's quite fair because, you know, you will have to wait for the implementation of some of services in many of those points. We also work on, you know, changing some of our kiosks, for example, into automated convenience stores, for example. We see a big trend of, you know, shortening the last mile delivery that is visible across the Europe and the globe actually. You can imagine that if you have, like all those, you know, well-placed kiosks across the high streets and high mobility streets that also have a possibility to add some, for example, EV chargers next to them.
Those might be quite an interesting point of interest from the perspective of our clients that they could come up with the EV, charge it up, get their parcel and so on. Also this, you know, this shortening of the time of delivery. Now it's like two or three days, working days to deliver a package, here in Poland in most cases. We are still thinking about it, but if you, for example, approach it as to a small and diversified and well-placed, you know, the storage, so small storages, small warehouses you could call it, you could even shorten that period to like minutes, for example. We could say an instant delivery.
It's how we will see how it goes in the future. We see a potential in all those retail activities also. This is why we acquired a company that you know has large portfolio of online clients to introduce e-commerce to our Retail segment and towards the you know the last mile delivery as short as possible. We'll see what the you know the future will bring. Yeah, the Retail segment isn't you know just like it was 10 years ago.
Also when you look at Europe and the approach of other players to the Retail segment, their perspective is that, you know, somewhere between 50, even up to 70, maybe 80% of fuel stations will have to be closed. Because if you look at most of the stations on the west part of Europe, you'll see those small stations with just, you know, a roof with a distributor. If you look at our customers' approach and what they, you know, do on our stations, they basically stay for up to 20 minutes, not because they are filling their cars, but they would like to, you know, use our beverage offer and non-fuel stores and so on.
If you add some other services, then you know, charging your EV in the future on the fuel station will be as good as you know, charging it at work or at home as well, because you will have something to do there. Our fuel stations are more complex, and we have a lot of you know, other services that fit our clients' needs. I guess that our Retail should be stronger and stronger within each next year.
Thank you.
The non-fuel as well. Yeah.
In terms of working capital, we are observing right now it's mainly driven by the price of the products. We do not observe very significant change in the rotation numbers. As regards to inventory rotation, we are usually around 50 days, and it's plus/minus a couple of days, not more than five. We saw some slight decrease at the end of this quarter, but that's nothing extraordinary, I would say. The major change that we are observing is, as I said at the beginning, driven by the price change on the crude oils and, as a consequence, on the products.
Thank you very much.
The next question is by Tamás Pletser , Erste Bank. The line is now open for you.
Yes, good morning. It's Tamás from Erste Bank. Just two very short, follow-up questions. First of all, you mentioned the refinery gas take. How much is it per year in normal year? So how much gas do your refineries need to operate? That would be my first question. Second question, you mentioned the CO2 allowance and the free allowance you still have. Did I understand correctly that that was some 19 million tons which you have as a free allowance for the next years? Was it the right number? Thank you.
Gas consumption for refinery, it depends. It's approximately between 1.0-1.2 BCM annually.
Okay.
In terms of free allowance, it's not exactly like you said. We are granted with the free allowance every year. It's more or less 7.5 million till the end of 2025, so under the current ETS scheme. The 19 million is actually our hedging, so it's the volume of our contract position opened on the ICE.
PLN 7.5 million until 2025 and PLN 19 million, which is hedged. That's what you said?
Yeah. Correct.
Okay, thanks so much.
Okay.
For the moment, there are no further questions, so I hand back to you.
Thank you very much. If there are no more questions, I think that this concludes our conference call. Thank you for the participation, and have a nice day. Bye.
Ladies and gentlemen, thank you for your attendance. This call has been concluded. You may disconnect.