News in July 2008

ТNК-BP Commerce: How can profit be maximized?

Changes on the Ukrainian fuel market push company to the search of new marketing decisions. Felix Lunev Vice-president Sales and Logistics told about politics «ТNК-BP Commerce» in this sphere in the exclusive interview to Argus. 

— Your company is part of TNK-BP. How is work with parent company organized?

— We can be characterized as joint venture, where people work for the benefit of all company, irrelevant of the region of presence. We have common purpose — ensure maximum effective work. There is agreement on both import and export with Moscow office, regulations with clearly stated authorities matrix. We constantly discuss with colleagues possibilities to improve existing sale models. Life does not stand still, while changes mean the natural course of events.

When ZAO LINIK plan is formed (Lisichansk refinery operator), we are based on the fact that it is a channel, which enables ТNК-BP increase profitability by products sale in Ukraine. What sense does it make to supply crude to LINIK, if there is no additional profit? If it is possible to export oil, let us say, to Poland? We have to earn bonus at the internal market from export also. LINIK work principles – sale in Ukraine of all range of products and on those positions where it is not possible or not feasible — to sell oil products at the external markets.

— Does mostly fuel oil go to export?

— Yes, fuel oil is exported via Odessa, but this is central office competence.

— What is Kiev office looking after?

— We are looking after internal sales, products purchase for own needs, swap operations etc. LINIK not always can cover our clients’ demand. For example, our Kiev network needs premium fuel for Euro-4 standard engine. Lisichansk Refinery can not currently produce such product and we buy such fuel from importers depending on who offers better price.

— Thus you have no priority for this production to be TNK-BP refineries production?

— No. Ukraine works as stand alone business. On one hand we maximize revenues from received oil. On the other hand, if we see that it is more effective for business to purchase product, than crude refining, we purchase ready production. There is price logic for each kind of oil product. Motor fuel price in Ukraine is determined not by the level of crude price, but by the cost of import product, which can be brought to country. We can not trade “above” our foreign competitors’ price, otherwise nobody will buy our oil products. We can not trade below either, as LINIK works with marginally low profitability.

— Is it possible to give pricing example?

— Take for example, gasoline. Here our major competitor outside of the country is Mozyr refinery. The enterprise has the choice – either to export oil products via Baltic ports to Europe, or supply to Ukraine. Judging by the gasoline quotations  in North-Western Europe, we calculate price for Mozyr gasoline on daf terms to Ukrainian border. At the same time let us look at Lisichansk refining economics. Month after month we track situation on the market, look at Mozyr Refinery loading, Rumanian refineries etc. Taking into account all factors, we correct monthly plan. Bonus indicator as compared toour netback (calculated profitability level) gives understanding what kind of manager I am — good or bad.

— What is the correlation of locally produced fuel and import?

— Now not less than 50% of market is import. And this process has ascending tendency, because importers are in more favorable position, than local manufacturers.

— Do you sell product mainly to own distribution companies?

— No, unfortunately, our distribution network possibilities is not enough to sell own production by ourselves. Own retail network share in Kiev and Lisichansk makes around 15% of total volume of oil products sale

 The remaining volume is realized in cooperation with partners. These are jobbers, working under our brand and “nonbranded” jobber, as we call them, — that is companies which sell LINIK’s fuel, without concluding sublicensed agreements for TNK trade mark usage. Big distributors, such as ANP, Sentoza, Avias and big companies, having national networks, for example, Alyans, TES etc. are important distribution channels. Jobbers share comprise around 50% of our distribution, while for national network — around 20%. Big distributors share, purchasing spot batches of oil products from us, went down from 30% in 2004 to 7% from total last year sales, remaining sale volume is В2В.

— Has Company also reduced sales via jobbers?

— Three years ago around 70% of our product sales was done via jobbers channel. Around 1200 fuel stations worked under TNK brand all around the country. Unfortunately, some partners misused our trust, without sharing trade mark value. As a result we corrected strategy and focused on jobbers’ network quality. In 2006 ТNК-ВР initiated process of visual decoration of gas station in Ukraine. New design of TNK stations was used to bring network to order and exclude dishonest operators, who allowed violation of standards and oil products quality. In order to work under new brand stations owners have to assume much more responsibility. Today around 200 gas stations operate under sublicensed contracts. We aspire to have around 300 jobbers stations in TNK which could sell 20—25% of company oil products. Meanwhile we work and will continue cooperation with “nonbranded” jobbers.

— Who is it easier to work with?

— All participants have their own interests. Some of them want to buy as cheap as possible for the certain period with clear supply dates and are ready to execute prepayment, other do not need rhythmic mode, but consider credit availability as priority criteria, etc. We are flexible with our clients. If jobber under TNK brand sells 20% more than market average, than, most likely premium needs to be paid for this. And vice versa, if “nonbranded” consumer is interested in stable source of supplies, than he has to pay premium for this.

— You opened first BP gas station in Kiev not long ago. What kind of fuel do you plan to supply to this network?

— At the moment gasoline and diesel fuel for Euro-4 standard engine is sold there. Part of oil products is supplied from Lisichansk, part is imported. Decision about branded fuel BP Ultimate will be made later. It is not economically feasible to arrange production and logistics of ВР Ultimate for one gas station.

— Do you plan to develop own network?

— Our strategy is aimed at development of network quality and not only at building up qualitative parameters. The number of stations can be not big, but we will have volume advantage. Company has two unique brands — ТNК and ВР, rated at requirements of different clients. This is our competitive advantage. We know how and in what regions we will form our own retail network. In the nearest five years holding is going to increase the number of own gas stations in Ukraine by 100. Priority development regions are Kiev, Dnepropetrovsk, Donetsk.

Source: Public Communications Department

CJSC “LINIK” will increase crude refining and oil products production

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