No. 1, 2004
Alexander Anatolyev
CONSTRUCTIVE EFFORTS
The Republic of Moldova is one of the most remarkable places in Europe. Its unbelievably beautiful natural surroundings and benign climate and soil, the many centuries of old culture of the Moldavian people and, finally, the country's excellent wines are some of the features that make that Republic distinct among the Black Sea coastal countries. Lately, the leader of the Russian oil industry, JSC LUKOIL, has become quite active in that "country of vineyards."
A bit of history
Few people are aware of the fact that the Republic of Moldova is a country with a history of its own oil industry. As early as the beginning of the 18th century, in his study entitled Descriptio Moldaviae, Prince Demetrius Kantemir (1673-1723), the "hospodar (ruler) of Moldavia" (since 1710), gave a description of some abundant sources of oil on the territory of the principality.
However, two and a half centuries had gone by before systematic oil and gas prospecting began in Moldavian territory. That page in the country's history is closely associated with the activity of Yuri (Raoul) Ervye (1909-1991), a prominent Soviet geologist. In January 1945, he headed the geological service of the Moldavia, and prospecting works for oil and gas was started in the south of the Republic. In 1951, the Moldavian office of exploration drilling under the USSR Ministry of Oil Industry was set up, which launched exploration for oil and gas in the Kagul and Vulcanesti districts of the Republic.
In 1953, Yuri Ervye was sent to Western Siberia where he was one of the pioneer geologists who discovered a number of oil fields in the Tyumen Region. It was there that he became the first head of the Main Tyumen Production Geological Department, the country's largest, was awarded the title of Hero of Socialist Labor (1963), won a Lenin Prize (1964), and was named an honorary citizen of Tyumen (1964) and an honorary mineral deposits prospector (1979). Discovered during the period when he headed the regional geological service were over 250 oil and gas condensate fields, including such unique oil fields as Mamontovskoye, Pravdinskoye, Samotlorskoye, Fyodorovskoye and Kholmogorskoye, and such gas fields as Zapolyarnoye, Medvezhye, Urengoiskoye and Yamburgskoye.
It should be noted that some other Moldavian geologists worked side by side with Yuri Ervye in Western Siberia. Alexander Bystritsky, head of the Beryozovskaya team drilling orientation wells was one of them. It was owing to him that an extremely
advantageous site for the drilling rig was chosen – contrary to the approved plan. On September 21, 1953, a powerful gas gusher announced to the world that there were huge reserves of hydrocarbons in the Siberian subsoil. Another specialist from Moldavia who worked actively in Western Siberia was Alexander Baranov, chief geologist of the Tyumenneftegeologiya trust, and who made an important contribution to developing the West Siberian reserves of "black gold."
As for the oil and gas fields discovered by Soviet geologists in the south of Moldova in the mid-1950s, they are being worked by the American company Redeco which in 1995 obtained a 25-year concession for them.
Off to a good start
For the majority of the newly-formed nations which united in the Commonwealth of Independent States (CIS) after the disintegration of the USSR, the initial period of transition to a market economy in late 1991 was marked by a number of negative tendencies in their national economies as well as by negative social consequences. The hasty and ill-considered reforming of the Soviet state-dominated economic system, the severing of ties within the previously stable framework of economic cooperation between companies and organizations, and the worsening of fuel and raw-material dependence have engendered serious problems in a number of CIS states, including the Republic of Moldova.
Characteristically, in that difficult period LUKOIL was one of the first Russian companies that came to the Republic of Moldova. Making no grand-sounding declarations, the Company got down to business – forming in the Republic a national market of petroleum products on a competitive basis. On December 19, 1995, in accordance with the memorandum of association, a LUKOIL subsidiany, LUKOIL-Moldova, was established.
The LUKOIL management set its affiliate the following tasks: win a strong position on the Moldavian petroleum products market by creating a vertically-arranged structure of local plant, ensuring a high standard of services and a continual broadening of their range.
At first, LUKOIL-Moldova had no production or sale facilities for its petroleum products supply system, so the first priority task was to get a foothold on the wholesale market of petroleum products and gas with a view to subsequent expansion. The Republic's food industry and agricultural companies were the first customers of LUKOIL-Moldova.
January 14, 1997 saw a landmark event in the Company's history: a grand opening of its first gasoline filling station on Pushkin Street in Chisinau, Moldova's capital. The event was important in that it actually gave an impetus to the implementation of the company's program of developing a network of retail outlets for selling petroleum products and gas. That year two more gasoline filling stations were put into operation in Chisinau and then in other places. For instance, a gasoline filling station was built in the city of Budesti, then a number of such stations were refurbished in the LUKOIL style, in the towns of Hincesti, Taraklia and Balti, as well as in townships of Leuseni, Vorniceni, Petruceni and Gura Camencii.
The effort to establish the company's presence in an ever greater number of districts was actually a drive to make its services as customer-friendly and comprehensive as possible by expanding the network of sale outlets in such a way that the company's gasoline filling stations could serve motorists all the way on the Republic's major roads.
On May 25, 1999, a large petroleum bulk plant was put into operation in the city of Balti, ensuring a continuous supply of petroleum products to the corporate refueling complexes. The plant's reservoirs have an aggregate capacity of 17,400 m3, and its equipment is as modern as that at similar facilities in the neighboring European countries. Furthermore, the bulk plant in Sokoleni, Chisinau District, was rebuilt which now has reservoirs with a combined capacity of 10,700 m3.
In view of the increasingly important role which liquefied gas plays in industry and in everyday life, the company has built a liquefied gas terminal with a capacity of 1,500 m3 at the railroad station of Sokoleni, Chisinau District.
In addition to supplying and selling light petroleum products, LUKOIL-Moldova has introduced the sale of a large assortment of motor and fractional oils under the brand name of LUKOIL. The quality of these products was highly appreciated by the Moldavian consumer, and their sales are constantly growing.
During the first five years of its activity the company created over 1,000 jobs and invested about $45 million in Moldova's economy. The contribution of LUKOIL-Moldova to the Republic's budget was quite substantial: $10 million in 2001, and $16.9 million in 2002.
The activity of the company, which has fast won the reputation of a successful, steadily developing enterprise, has been appraised highly by the leadership of the Republic. Thus, in the year 2000, LUKOIL-Moldova was awarded a State Prize for "quality, productivity and competitiveness." The following year Nikolay Cherny, the company's head, was named "The Businessman of the Year."
New prospects
In December 2002, at the twelfth annual session of the International Union of Economists in Capetown (South Africa), Nikolay Cherny, Dr. Sc. (Economics), General Director of LUKOIL-Moldova, presented a paper entitled The Economic Policy of the Republic of Moldova during the Transition Period to a Market Economy. In it Nikolay Cherny laid particular stress on the fact that by the end of the formative six-year period the company's activities acquired a qualitatively new character.
At present, the highlights of LUKOIL-Moldova program of setting up a sales network are: the building of modern gasoline filling stations that meet the international standards, along with fundamental remodeling of old-type gasoline filling stations; provision of a wide range of additional services; the use of the most advanced technologies ensuring environmental safety and high-quality services; the use of fuel-filling stations manufactured by the leading companies for all types of fuel; the use of double filtration of fuel at gasoline filling stations – during the emptying of tank trucks and the refueling of automobiles; setting up an environmental security checkpoint at each of the company's gasoline filling stations, with a supply of a special sorbing agent – a biosorbent capable of neutralizing, practically over the entire gasoline filling station area, any accidental spillage of petroleum products, etc.
Various forms of work with customers are practiced. One of these consists in issuing ordinary shares named LUKOIL-Bonus for regular customers. It is a clever incentive system for encouraging demand.
According to Feiruz Isayev, First Deputy General Director of LUKOIL-Moldova, the company's most important concern is maintaining quality. All of its production and marketing structures constantly and consistently implement the targeted program to ensure the import of only high quality petroleum products into the Republic. Consistent efforts are being made for improving the system of quality control at every stage using the latest technologies and automated systems integrated in a single management and control center.
The plans for the current year include equipping all the marketing and sales subdivisions with the NCR Octane 2000 automated system, which makes it possible to follow on line the dynamics of the sales of the entire range of petroleum products, and liquefied gas. Software of the latest type, SAP/R3, will be introduced to raise the efficiency of management and administrative decision-making.
At present, the annual motor fuel consumption in Moldova is about 100 liters per capita, while in the CEE countries the figure is 300 liters.
The current positive trend allow analysts to be optimistic, even in their short-term forecasts, about the prospects of Moldova's economic development, which will certainly result in an increased motor fuel consumption.
Today, LUKOIL-Moldova is operating on the Republic's market in the difficult conditions of stiff competition. The company at present accounts for over 30 percent of the petroleum products sales, and 90 percent of the retail sales of gas. Having, as of January 1, 2004, a marketing network of 64 refueling complexes (36 gasoline filling complexes, 23 mixed and six gas filling stations), the company experiences serious competitive pressure on the fuel market. The competitors include Petrom-Moldova SRL, Tirex Petrol, Valexchimp, and RomPetrol.
Petrom-Moldova SRL, an affiliate of the Romanian Petrom company, which came to the Republic of Moldova in 2001 and built three gasoline filling stations there, has become particularly active of late: at present, it operates as many as 31 such stations.
The German-controlled Tirex Petrol company (11 percent of the sales) also has stable positions on the Moldavian fuel market, and German businessmen are intent on expanding their share of the sales substantially.
Of course, the leaders of LUKOIL-Moldova view the situation of heightened competition on the petroleum products market quite realistically. Victor Jumbei, Deputy General Director, said: "Despite the seriousness and vast scope of our plans, we do not intend to monopolize the market of petroleum products in the Republic. We believe that, on competitive market, it is only the excellent quality of petroleum products and their broad range, as well as the high standards of service, that are the main factors determining both the assessment of the company's activity by customers and the effectiveness of its work."
The well-devised strategy of LUKOIL-Moldova is aimed at increasing its share of the Republic's petroleum products market. The overall investment planned for the next decade is about $60 million. By the end of 2004, the number of gasoline filling stations is to reach 100, and the sales will amount to 220,000 tons (including 95,000 tons through the retail trade network). It is also planned to raise the figure to 240,000 tons by the year of 2006.
