No. 1, 2004
Alexey Somov
THE AGE OF RENAISSANCE
The Russian mass media has been showing quite an interest in the leaders of the Russian refining business, the Perm and Volgograd refineries, which belong to the LUKOIL Group. But recently there has been an increasing number of reports on LUKOIL-Nizhegorodnefteorgsintez, a Company that is fairly new to LUKOIL's close-knit family.
New principles, new requirements
Today, JSC LUKOIL-Nizhegorodnefteorgsintez is one of Russia's biggest producers of engine fuel, lubricants, and hydrocarbon feedstock for petrochemical synthesis. It is capable of refining more than 15 million tons of oil a year. Incidentally, the company, which was created on the basis of the Novogorky Refinery founded as early as 1958, has been through some hard times in its long history. The years of market reforms were quite arduous for the Soviet industrial giant. In the mid-1990s, when it was known as the NORSI refinery, it was part of JSC NORSI-Oil, the distinguishing feature of which, compared with most of the Russian oil majors, was that it had no production base of its own. Most of the economic problems faced by the Nizhni Novgorod refinery were largely caused by the fact that its vertical integration was incomplete at a time it had to compete with other companies which combined upstream and downstream operations. This resulted in the NORSI refinery meeting the new century with an enormous debt on its back. This situation was totally out of keeping with the refinery's huge production potential. This was clear to both the refinery management and the LUKOIL executives who had established close partnership relations with their Nizhni Novgorod colleagues by that time. This cooperation reached its logical conclusion on January 17, 2000 when the shareholders of JSC NORSI-Oil approved changes to the company's charter in accordance with which it was renamed LUKOIL-Nizhegorodnefteorgsintez and became part of LUKOIL.
When they joined LUKOIL, the Nizhni Novgorod refinery workers expected major changes to occur in the way they operated and mentally prepared themselves for this. But they were in for a pleasant surprise. It turned out that their company and LUKOIL were essentially guided by the same main principles in their activity.
After the debt that accumulated during the “pre-LUKOIL era” was restructured, JSC LUKOIL-Nizhegorodnefteorgsintez (as the company is now called) became a promising entity of the Russian economy. What is more, its achievements make it currently superior to other LUKOIL's refineries. Based on the efficient operation of its newly acquired affiliate, the Company raised its 2003 production plan target figure to 12.5 million tons.
For the second year in a row, the refinery has had no arrears to any budget, confirming its status of a prompt taxpayer that the tax authorities granted it in 2001. What is more, it is now the largest provider of revenue to the local budget among all the businesses in the Nizhni Novgorod Region. According to the results of its economic performance, investment policy, and management quality, LUKOIL-Nizhegorodnefteorgsintez was also recognized as the best refinery in Russia and the CIS at a prestigious contest.
In short, the changes in the way the refinery operates have not gone unnoticed either in the Region, or on a nationwide scale. But its employees themselves felt them most of all after the refinery became part of the holding company. The thing is that while LUKOIL was still preparing for the merger, it assigned the refinery an extremely important role in its strategic development plans. LUKOIL President Vagit Alekperov stated that he saw Nizhegorodnefteorgsintez as an export-oriented company. And in order to keep abreast of today's international requirements, the refinery had no time to lose in bringing its quality control system in keeping with international ISO 9001 standards. An audit carried out by Bureau Veritas Quality, a prestigious foreign certification center, at the beginning of 2003 confirmed that it had coped with the problem successfully.
The company is already exporting more than 50% of its output. This is the result of a whole series of steps it has taken to raise the quality of gasoline to the level of Western European EN 228 and EN 590 standards, and to bring lubeoils, primarily base ones, in keeping with the requirements of the SN specification. As a result, the company was able to reach a qualitatively new level of production, and its products became entirely competitive on the world market. This primarily applies to unleaded gasoline A-80, A-92, A-95, A-98, aviation fuel TS-1, RT, Jet A-1, and ecologically safe diesel fuel with a sulfur content of up to 0.05%. All in all the company is currently turning out about 70 different products: fuel and heating oils; engine, industrial, transmission, turbine, transformer oils, and special lubricants; hard paraffins; petroleum bitumen; additives; sulfuric acid; as well as domestic products. Moreover, the range of products is perceptibly expanding with each passing year.
Another of the refinery's priorities after joining LUKOIL is the manufacture of lubeoils. Innovations in this area have also been introduced very quickly. The refinery employees gathered experience by holding a conference called “Lubeoil Production and the Market,” and in just four months were able to switch from their former package design to the one LUKOIL uses for all its products. First one production line was quickly reset, followed by all the rest, and after that a new one was put into operation.
While working to expand its range of products and raise its competitiveness, LUKOIL-Nizhegorodnefteorgsintez is not forgetting its product shipment department, which is also an important component of its business. Here a new system for export deliveries by railroad has been developed and implemented. Nevertheless, most of the exported products are sent from Nizhni Novgorod to consumers by water. The Volga is right nearby, and it would be extremely unreasonable not to make use of this natural transportation artery.
Great changes
The Nizhni Novgorod refinery management have and still are placing top priority on comprehensively modernizing their production capacities. The primary crude refining units and gasoline catalytic reforming units have been reconstructed, a new flare tower and automated installation for lubeoil and paraffin hydrotreatment have been put into operation, and three selective oil cleaning units have been refurbished. New administrative buildings and accommodation modules have opened their doors to employees, as well as workshops for producing lubeoils and engine fuels. The main building of the energy service operation control has been completed and is ready for use.
A strategic goal of this reconstruction was to create a facilities base for the optimal refining of 15 million tons of oil a year and this task, according to the refinery management, has essentially been completed.
Major modernization costs lots of money. LUKOIL-Nizhegorodnefteorgsintez has spent almost 1.5 billion rubles on capital construction and technical retooling a year. A total of 1.4 billion rubles worth of new capacities alone have been put into operation, making it possible to reduce wear and tear of the basic assets by 8%. The Region has also been enjoying the results of the refinery's construction boom. More than 100 construction and assembly organizations were involved in the modernization. And another 150 companies in the region participated in delivering all kinds of material and equipment worth a total of 0.5 billion rubles.
Operating under the trademark of the country's leading oil company involves not only benefits, but also obligations. Working as part of the Company means observing the highest standards in all lines of business. This particularly concerns questions of industrial and environmental safety to which LUKOIL traditionally pays a great deal of attention. Recently, the refinery has significantly reduced its health protection (buffer) zone, slashed atmospheric discharge by 2.5-fold and waste water runoff 10-fold; moreover, it has decreased its annual consumption of Volga water from 12.4 to 0.7 million m3.
Focus on efficiency and economy
The course LUKOIL has set toward reducing operating costs required that the Nizhni Novgorod refinery management implement rather strict measures. One of the most efficient ways to save money at LUKOIL-Nizhegorodnefteorgsintez was to reduce electricity bills. The cost of refining a ton of oil at the refinery is now the lowest, not only at LUKOIL, but throughout the entire Russian refining industry as a whole. And this also applies to electricity costs. How did they manage this? Nothing new: accounting and control came first. As soon as they heard that an efficient Automated Electricity Metering System (AEMS) had appeared on the market, the Nizhni Novgorod refinery management set about assimilating it and were among the first companies in the region to put it into practice. This unique system made it possible to keep account of the electricity and capacity consumed in real time, and to coordinate demand with the energy providers. As a result, after introducing a set of energy-saving measures and rigid economy, the company was able to cut spending on energy resources by 25%. What this means for such an energy-intensive industry as refining is crystal clear and does not require comment.
Economizing on electricity is far from the only area in which the refinery is actively reducing its outlays. Another area in this activity, as throughout LUKOIL as a whole, is related to the structural changes in the company aimed at getting rid of non-core production divisions. In particular, the refinery has eliminated its service structures, which begun to work independently. A construction complex of Volgoneftegazstroy, the company's general contractor and affiliate of LUKOIL-Neftegazstroy, has been created on the basis of the repair and mechanical plant, the transportation and mechanization division, the electric equipment repair unit, and the logistics department. The communication unit has also been made into an independent structure: it became a branch of LUKOIL-Inform. The railroad shop became a branch of LUKOIL-Trans. And the security service became independent of the refinery, after obtaining the status of a branch of LUKOIL's analogous service. Recently, the refinery's food combine and health and recreation division were also cut adrift, followed by the water supply and sewage system.
All in all, after ridding itself of these redundant units, the refinery now has 3,500 employees instead of 5,500. But they are achieving much more impressive results compared with 1997, for instance, when the refinery's staff swelled to 10,500. To a significant extent, this was achieved by introducing new approaches into personnel management, as well as by the attention the refinery management pay to personnel development and to the social sphere.
The reality of the new plans
Those who work at a company that is operating efficiently should always feel comprehensive social support. Nizhegorodnefteorgsintez has never neglected this aspect of its work, and now, that it became part of LUKOIL, it is building its social policy in keeping with the latter's general corporate model. The Company's trade union organization has become part of the IATUO – LUKOIL's large international trade union association, and is now guided in its activity by LUKOIL's Social Code, which has been drawn up by the Company and is still a unique document by Russian standards. The Code meets all the requirements of the international SA 8000 Social Accountability standard and in the very near future, LUKOIL-Nizhegorodnefteorgsintez is to be certified according to this standard.
The Code stipulates a decent salary, health care and housing support, and of course opportunities to engage in fitness and sports activities and recreation. In short, all a person needs to lead a normal life. At LUKOIL, employees have voluntary medical insurance policies and non-government pension schemes and enjoy various benefits. So after Nizhegorodnefteorgsintez joined the Corporation, its management had to rapidly catch up in this area
But the plant is not only concerned with the health and comfort of its employees. Training personnel is an important aspect of the Company's social policy. The plant's own training center opened recently, which is equipped with the state of the art technology. This kind of personnel policy is yielding tangible results. According to the management, not one penny had to be spent on outside consultants, designers, and operation specialists or adjusters during the plant's extensive modernization. This was all done by local specialists. Only outside auditors were called in, and this only because it was required by the law “On joint-stock companies”.
On the whole, judging from the Company's own strategic plans and those tasks LUKOIL sets for it, the Nizhni Novgorod refiners are going to have to work nonstop. In 2003, the Company appropriated more that 1.6 billion rubles in investments. The new catalyst reforming unit with continuous catalyst regeneration was the largest facility in this investment program. A unique paraffin production complex has gone into operation. This will be the only production line in Russia to manufacture hard paraffin, to meet the requirements of the 21st century, including for the needs of the food industry. The Company is also reconstructing a wet catalysis unit, which will increase in its capacity by one-third. The facilities of the Kstov crude oil and petroleum products shipping complex is being modernized, not to mention the major design and experimental work aimed at the longer term.
By the way, about the future. The above-said Program of Technical Development for 2002-2005, drawn up in compliance with the decisions of the LUKOIL Board of Directors on accelerated development of LUKOIL-Nizhegorodnefteorgsintez and approved by the Company's scientific and technical council, has all but been implemented even today. But this is far from the end of the changes that have begun at the refinery since it joined LUKOIL. Recently work was completed on another longer-term document. This is the “Master Plan of the Refinery's Development until 2010”, which should result in the building of a deep refining complex with a capacity of 3 million tons a year, designed by a prestigious international engineering company, Flour Daniel, on LUKOIL's order.
According to these plans, by 2005, the refinery will have significantly strengthened its primary refining base, balanced out secondary process production capacities, and created a sufficient export potential. In terms of the depth of refining, the Company plans to reach a level of 74-75%, and by 2010 intends to increase it to 84-85%. Increasing the depth of refining will also help to raise the cost of a basket of petroleum products manufactured from one ton of oil by about 10% by 2006, and by 20% by 2010. In three years, the refinery plans to produce engine fuels in compliance with the increasingly tough European standards and produce no less than 33% of its total volume in first grade high-quality base oils in compliance with the SN standard.
And there is still more. There are rumors that LUKOIL-Nizhegorodnefteorgsintez has already begun drawing up its technical development plans until 2020.
