No. 1, 2008

Oil of Russia magazine talks to Sergey Arefyev, General Director of LUKOIL-Intercard

In 1999, the year JSC LUKOIL-Intercard was established, using smart cards to pay for automobile fuel at filling stations was something unusual for Russia. Today, eight years later, they have become an integral part of the Russian fuel market, and the LICARD system introduced at LUKOIL filling stations has gained wide customer acclaim.

Q: What are the main achievements scored by LUKOIL-Inter-Card over the past years?

A: Our company has become a leader in the card processing services market in Russia, its main achievement being the trust of our customers. The use of state-of-the-art technology and high professional skills of our personnel ensure high standards of our services and maximum convenience and safety of payments.

With our fuel card one can fill a motor vehicle without using cash at all the LUKOIL gasoline filling stations included in the LICARD system. Today, we have issued more than 400,000 such cards. The total number of our customers is upwards of 78,000. In Russia, we have concluded nearly 8,000 corporate contracts with legal entities, including government companies and municipal services, the Ministry of Internal Affairs, the Ministry for Emergencies, city and region administrations, ambulance services, private companies with large fleets of vehicles, such as IKEA, Coca-Cola, Baltika Brewery, and quite a few others. Our most important customers are road carrier companies – both interregional and international.

Speaking about the competitive advantages of LICARD, one could mention uniform operating conditions of the entire chain and flexibility in relations with corporate customers. We have begun to offer fuel card holders various functional options, value-added services and attractive conditions, such as a flexible system of discounts and minimum rates for information services. The road carrier companies using our cards can keep track of their vehicles’ fill-up time and location and thus to monitor their drivers’ activities. Our policy in respect of payment should also be noted. No, we do not recklessly hand out commodity loans to one and all; quite the contrary, we approach this question with extreme responsibility and on an individual basis. Our corporate customers, however, have an opportunity for postponement of payment.

We also set great store by our individual customers, whom we have been offering discount and bonus cards over the last three years. The former enable them to buy petroleum products for cash at a discount at all the LUKOIL gasoline filling stations in the Russian Federation. From July 2007, our discount card began to be accepted at LUKOIL gasoline filling stations in Ukraine and the Republic of Belarus. LUKOIL-Inter-Card has issued about 3 million such cards and, as a matter of fact, the volume of fuel sales against them is truly impressive.

Moreover, a discount card entitles its holder to a discount not only from the price of fuel but also from the prices of goods and services sold at LUKOIL filling station minimarkets and at the shops of other partners in the LICARD discount program.

We also pay a great deal of attention to our regional customers – both legal entities and individuals. Today, our task is to enhance LUKOIL fuel sales by attracting new customers. Our card holders prefer LUKOIL gasoline filling stations to those of other companies. We have also developed and are about to implement a new extensive customer loyalty program.

Q: What are LICARD’s main customer benefits?

A: Its main advantage is universality and broad coverage. The system operates at 1,400 LUKOIL gasoline filling stations in Russia, and also abroad – in Ukraine, Belarus, Azerbaijan, Moldova, the Baltic States, and Poland. This year, we have entered the Finnish market and are going to start doing business in Serbia, Hungary, Romania, and Turkey. By 2009, all LUKOIL gasoline filling stations abroad (except those located in USA territory) will have been equipped with the LICARD POS terminals.

Even in the regions where there are no LUKOIL gasoline filling stations as yet, we have concluded agreements with a number of companies enabling us to expand the geography of our operations.

The results of customer surveys we have conducted show that fuel quality is the second most important factor of our competitiveness after the broad geography of our operations. LUKOIL gasoline filling stations have gained broad renown for selling only top-quality fuel. This is our major achievement of the recent time. In the past few years, LUKOIL has been actively marketing fundamentally new products, such as ecological fuel EKTO and Euro-4 diesel fuel, which are in high demand among consumers.

Q: What place in LUKOIL-Inter-Card’s development strategy is allocated to foreign markets?

A: Today, entering foreign markets has become a major objective for the near future. The fact is that, according to the results of the last year, our company accounts for 30% of all fuel sold under the fuel card program in Russia – a target figure which our company has long been striving to attain. The market in the Russian Federation has largely settled, and now we are carefully exploring the opportunities existing in it. Among other things, we intend to raise service quality, and also to build up a segment of highway filling stations.

Over the past few years, our company, together with LUKOIL’s core units, has participated in the development of a transport corridor creation program adopted by the board and now being actively implemented. It is aimed at improving the services provided to international carrier companies. The infrastructure to be included in this system will be expanded and customized. Among other things, such services as car parking, shower rooms, and mini offices equipped with fax facilities will be introduced at filling complexes. More attention will be focused on industrial and ecological safety. As a result, LUKOIL is expected to win an impressive share of the diesel fuel market. The program is being carried out in cooperation with the Association of International Road Carriers (ASMAP), whose members will be offered exclusive terms and special discounts.

As for foreign markets, we are now still at the beginning of the road in this area (except Ukraine and Belarus). We will have to solve a whole set of problems to extend the LICARD system to all the LUKOIL gasoline filling stations abroad and achieve the target figures comparable with those scored in Russia (at least a 20 percent share in the sales of fuel using our cards). LUKOIL gasoline filling stations operate in many foreign countries whose markets are highly differentiated and whose tax systems are widely different. Yet, our goal today is following our shareholders’ interests, as far as gaining a foothold in foreign countries.

Still another essential aspect of our operations is working with the fuel cards of major international systems. Using such cards, major international road carriers fill their vehicles with fuel at LUKOIL gasoline filling stations in Russia. Four years ago, we won a tender called by EuroShell and are now actively cooperating with it.

Q: How can an ordinary consumer or a road carrier company learn about the services offered by LUKOIL-Inter-Card?

A: Up-to-date and accurate information about the LICARD system can be obtained on the site www.licard.ru. This portal is intended to provide convenient services for our customers and our partners. It is equipped with such subsystems as Route Planning and Filling Station Locator enabling the user to learn where it is more convenient to fill a vehicle with fuel, at which of LUKOIL gasoline filling stations one can get discounts, and what the current fuel prices are – all of this not only in the Russian Federation but also abroad.

Q: Last year, the LUKOIL Group adopted a development strategy for the period ending in 2016. What goals and objectives does LUKOIL-Inter-Card set before itself in this connection?

A: In drawing up our programs, we make active use of the figures and parameters incorporated in LUKOIL’s strategy. In particular, we have adjusted our development plans for Russia and abroad. By 2016, we are planning to achieve a sales volume of 4 million tons of fuel (30-35% of LUKOIL’s total sales).

Our fuel cards should help increase petroleum product sales, attract major Russian and international road carriers, promote Euro-4 fuel use and the idea of developing international transport corridors. LUKOIL-Inter-Card is an advanced IT company using the most up-to-date technologies. We are confidently advancing along the road of contemporary business development.