No. 1, 2008

On the 10th anniversary of the specialized bunker company JSC LUKOIL-Neva

Within the vertically integrated power company LUKOIL, the downstream sector is the final and most important step in reaching the consumer directly. The company JSC LUKOIL-Neva occupies a worthy place here, having been in active operation for 10 years now under the difficult market conditions in the refueling business sphere, thus entering a new stage in its development.

Serious competitive challenges

LUKOIL-Neva was founded in 1998 in St. Petersburg as a subsidiary of LUKOIL supplying fuel for sea and river craft at Russian ports and is the biggest petroleum products trader in the North-West of Russia.

The Russian bunkering market is now developing steadily. Speaking of St. Petersburg alone, at the beginning of the 1990s, the volume of fuel was no more than 10,000-12,000 tons a month. In 2003, this indicator already stood at 900,000 tons a year or 70,000 tons a month. 2007 has seen substantial growth here – from January to June inclusively, by 20% over the same period in 2006.

There are currently about 35 companies registered at the St. Petersburg port, accounting for a bunker oil supply over the six-month period of over 900,000 tons. About 50% of the companies do not provide bunkerage services on a regular basis and offer their customers marine fuel only periodically, when available. The volume of bunkerage by each company does not exceed 3,000 tons a month and their sales account for about 25% of the total on the bunkering market. Approximately 70% of sales on the bunkering market are accounted for by about 7-10 bunkering companies that provide bunkerage services on a regular basis, have a full or partial infrastructure and long-term development goals.

It may be stressed that LUKOIL-Neva holds the leading position among the 10 main bunkering companies in the North-West of Russia. Over its 10 years of active presence on the regional bunkering market, the company has acquired valuable experience of providing bunkerage services at Russian ports. It has created a broad client base, a flexible logistic structure for delivering and storing marine fuels, gathered rich experience of working with its own and leased bunkering tankers and organized a system of quality control from the refinery to the customer’s vessel. This allows LUKOIL-Neva to react flexibly and efficiently to changes in the dynamically growing bunkering markets at Russian ports and to changes in the legislative base for provision of bunkerage services, which guarantees the company’s success. A clear example of the successful policy pursued by LUKOIL-Neva is provided by the company rendering quality bunkering services under the conditions of SECA (Sulphur Emission Control Areas): the Baltic Sea since 2006 and the area of the North Sea since 2007. The regulatory documents (MARPOL Annex VI) of the International Maritime Organization, supported by EU initiatives and legislation stipulate that marine fuel used by vessels in the given areas shall not have a more than 1.5% sulphur content. Right from the moment the regulatory acts came into effect, LUKOIL-Neva has been offering its customers an opportunity to purchase low-sulphur fuel oil within the scope of the marine fuel specifications. In the initial stages of introduction of this product on to the bunkering market, LUKOIL-Neva was the only supplier of such marine fuel and to this day occupies leading positions in this segment of the market.

LUKOIL-Neva is currently playing an important role in establishment of the St. Petersburg port as one of the leading bunkering ports on the Baltic. This is ensured primarily by the quality resource base of the parent company, as well as the high standard of the bunkerage services offered. The company is a member of the Russian and the International Bunker Industry Association and has initiated many projects designed to develop Russia’s bunkering markets.

Exploiting success

LUKOIL-Neva today provides for physical bunkerage of all types of marine fuel at the following Russian seaports: St. Petersburg, Lomonosov, Kronshtadt, Primorsk, Vysotsk, Kaliningrad and Murmansk. Our operations cover the following Russian river ports: Podporozhye and Yaroslavl, where diesel fuel and oil are supplied.

In implementing LUKOIL’s concept of consolidating of the bunkerage business within the framework of a single operating company LUKOIL-Neva, we plan, in 2008, to begin supplying bunkerage services under the brand name LUKOIL-Neva at the following ports of the Caspian basin: Astrakhan, Olya, and Buzan, as well as ports on the Azov Sea: Rostov, Azov, Yeisk and Taganrog. In addition, our plans include servicing of the river ports of Volgograd, Rostov-on-Don, Samara and Nizhny Novgorod. We are also seriously considering the possibility of operating at ports on the Black Sea, in both the Russian and European zones.

Thanks to our impeccable reputation and excellent relations with suppliers and traders throughout the world, our company is able to organize first-class supplies of fuel and oil at any port.

In January 2008, new regulatory acts of the European Union will come into effect providing for the use in the territorial waters of the EU of marine gas oil with a maximum 0.1% sulphur content. LUKOIL-Neva is ready to supply such fuel to ports where there is a demand for it.

As for the infrastructure, i.e., oil tank farms, wharves, bunkers, these are very expensive equipment, construction and modernization of which requires intensive investment. In building up its material and technical capacities for safe bunkering, LUKOIL-Neva is successfully fulfilling all the tasks it faces thanks to its own resources and those of the parent Company.

Focus on key problems

The management of LUKOIL-Neva attaches the most serious significance to staff recruitment. The company is staffed with specialists having substantial experience of dealing with petroleum products, as well as of bunkering and navigation. Particular attention is focused on improving professional skills and mastering the industry’s latest technologies.

LUKOIL-Neva’s key tasks consist in developing the bunkerage segment of the oil market, providing for the functioning of LUKOIL’s continuous chain of production and sale of marine fuels from plant to final consumer and high quality servicing of customers.

For LUKOIL-Neva, environmental safety and protection are key factors in its operations. The company’s activities fully comply with the current legislation and international requirements on prevention of environmental pollution.

The company is working successfully to improve its operating standards at all stages; is striving to prevent emergencies and extraordinary situations by focusing its efforts on ensuring safe transportation and storage of petroleum products.

Thanks to close cooperation with bunker companies working under the LUKOIL brand in Holland, Singapore and Turkey, LUKOIL-Neva offers high quality bunkerage services to customers at Russian and major international ports, thereby consolidating its reputation for reliability.