Poland's top oil refining group PKN Orlen said yesterday it was ready to buy a 25 per cent stake in its main rival Rafineria Gdanska along with UK firm Rotch Energy, which is already bidding for Gdanska.

Rotch has submitted a bid in a consortium with Russia's Lukoil, but could now set up a second consortium with PKN. Polish media have reported that the Rotch-Lukoil group bid $274 million for 75 per cent of Gdanska, plus investment pledges.

"Yesterday we received an initial invitation from Rotch stipulating that we could acquire (an indirect) 25 per cent in Gdanska plus management rights," PKN Chief Executive Zbigniew Wrobel told reporters at an energy conference in Warsaw.

Setting up a consortium with Rotch would be the simplest way for PKN to buy into its smaller rival - a move analysts said was expected by the market - as Rotch was one of the companies shortlisted by the State Treasury in the protracted tender.

"As far as I know there are still two valid offers - one from Rotch and the other from MOL (placed two years ago), and PKN Orlen can join either of them in a consortium," said Polish Treasury Minister Wieslaw Kaczmarek.

In early trading on Wednesday PKN shares were up three percent at 16.75 zlotys, slightly better than the blue-chip WIG 20 index's gain of 1.7 per cent.

"Rotch has agreed to function as a passive financial investor, while passing management and operating functions to PKN Orlen," Wrobel said.

Poland's anti-trust regulators would have to sign off on the deal if a bid is submitted and accepted by Kaczmarek's ministry. Together PKN and Gdanska have more than 90 per cent of Polish refining capacity and over 50 per cent of retail sales.

Poland's market is seen as relatively open, with no tariffs on fuel imports.

"If PKN takes part in Gdanska's privatisation, it would most likely end up with a merger of the two," said Sebastian Slomka, an analyst with the brokerage of local bank PKO BP.

"That would allow for significant cost savings and leave PKN in a much better negotiating position for consolidation at the Central European level," he added.

Gdanska has refining capacity of about 85,000 barrels per day, or about one quarter of PKN's 360,000 bpd.