No. 1, 2006

Alexander Seleznyov


LUKOIL's gasoline filling stations in the Lower-Volga region are distinct for their wide choice of high-quality petroleum products and high corporate standards

LUKOIL's activity in the sphere of wholesale and retail trade right in the heart of Russia the Privolzhsky Federal Area is very important for the Company's development. Concentrated there is the country's great financial and intellectual potential which rests on a solid production basis and a well-developed transport infrastructure.

Right in the heart of Russia

Today, LUKOIL's marketing network embraces most of Russia's regions. Painted red and white the Company's corporate colors, its gasoline filling stations are a prominent feature along many of the country's highways. The LUKOIL management pursues an active policy of drawing in its sphere the regional sectors which still remain outside it on the Russian retail market of petroleum products. In early 2005 the number of gasoline filling stations and oil tank farms in the whole of Russia's retail trade network was close to 2,000. Petroleum products retail sales are growing steadily. Sold through the Company's network of gasoline filling stations in 2004 were 2.7 million tons of petroleum products 9.5% more than the previous year.

An important contribution to the Company's activity in the lower-Volga region is made by JSC LUKOIL-Nizhnevolzhsknefteprodukt, which provides consumers with high-quality, easily accessible petroleum products.

The history of LUKOIL-Volganefteprodukt began on September 1, 1995, following the establishment of the petroleum company NORSI-Oil by a decision of the Government of the Russian Federation. While the promoter of the oil company was the Government of the Russian Federation, its authorized capital was formed by the combined blocks of shares, which constituted federal property, of five joint-stock companies NORSI, Nizhegorodnefteprodukt, Vladimirnefteprodukt, Mariinefteprodukt and Nizhegorodniinefteproekt. And so, the newly-formed enterprise was quite far-flung geographically.

The company's current history began on October 19, 2001, when its controlling interest was acquired by LUKOIL. This date may be regarded as its second birth because the establishment of LUKOIL-Volganefteprodukt in the Volga area was a thoroughly considered and timely decision. This action was aimed at attaining maximum effectiveness in the sale of petroleum products through its own marketing network in the Volga area. Today, LUKOIL-Volganefteprodukt is operating over a vast territory, which includes nine industrial-economic areas the Nizhny Novgorod, Vladimir, Ivanovo, Vologda, Kostroma and Yaroslavl Regions and the Republics of MariEl, Chuvashia and Mordovia. At present, LUKOIL-Volganefteprodukt is completing its painstaking work to consolidate the marketing enterprises which are active in those territories and which belong both to LUKOIL and the former NORSI-Oil.

It is a serious task for a company which is present over a vast territory to achieve faultless coordination of the operation of its regional divisions within the framework of a single marketing and pricing policy, while excluding the possibility of competition between large territorial sales centers.

Many of these tasks were accomplished by Vadim Vorobyov, a talented manager who until recently held the post of the General Director of LUKOIL-Volganefteprodukt and who, since April 2005, has headed, in the position of LUKOIL's Vice-President, the Company's Main Department for Coordination of Production and Marketing of Petroleum Products in Russia. The new General Director, Andrey Spirin, is now responsible for organizing the sales of petroleum products in the Volga area. He is a modern type of manager young, well educated and promising. Although he has headed the company for a comparatively short time, he already has a clear notion of the tasks facing the company's personnel and sees constructive ways of their accomplishment. In order to compete successfully on the markets of the Volga area, where competition is really strong, it is necessary to ensure the high quality of petroleum products, faultless logistics, precise deliveries, optimal prices and a high standard of services.

A constructive approach

As regards relations between business and the power structure, an aspect highly important for Russia, LUKOIL enjoys a constructive and understanding attitude on the part of the latter in the Nizhny Novgorod Region. On November 22, 2005, Vagit Alekperov, President of LUKOIL, and Valery Shantsev, governor of the Nizhny Novgorod Region, signed an agreement on economic and social partnership between the company and the local government up to the year 2009, thereby prolonging the previous agreement signed in 2001.

In accordance with this agreement, LUKOIL-Volganefteprodukt actively cooperates with the administration of the Nizhny Novgorod Region, paying close attention to its plans concerning the development of the road infrastructure as well as of the cities, towns and villages in the region. The company has similar agreements with the administrations of other regions where it is active.

In the city of Nizhny Novgorod and its region LUKOIL-Volganefteprodukt has 102 gasoline filling stations and five oil tank farms. This is what remains after the removal of low-efficiency facilities under the program of optimizing the network of gasoline filling stations and oil tank farms, a program approved by LUKOIL's Managing Board. Generally speaking, however, broadening the network of retail and small wholesale trading facilities is a priority task for the Company's marketers. In all the areas where it is active, LUKOIL-Volganefteprodukt owns a total of 31 oil tank farms and 262 filling stations.

As Andrey Spirin has noted, in the modern conditions of doing business the company can no longer afford to maintain filling stations as mere gasoline-distributing points: today, each station, each worker must be able to sell goods and services. This means that now the company has no use for primitive gasoline filling stations at which you can merely fill up the tank of your automobile; the future belongs to all-round service stations with shops, lunchrooms and car-washing facilities. They must be able, Andrey Spirin believes, to stimulate actively the customer's interest for the company's goods and services.

By the way, there is nothing new about the idea of locating shops, car-washing facilities and cafeterias on the territory of gasoline filling stations: this has been practiced for a long time and successfully in other countries. Besides getting high-quality gasoline and high level of service, the customer may want to have additional services, such as an opportunity to rest and have a good snack at a low price. To deny the customer such an opportunity at your gasoline filling station, Andrey Spirin has stressed, means only one thing: to miss an opportunity to make a profit.

At the facilities of LUKOIL-Volganefteprodukt, prize-winning contests and lotteries are being constantly organized for the company's regular customers. For instance, a contest called A Carefree New Year to You! was held on the eve of the last Christmas and New Year holidays. Its winner got an automobile. Launched at the end of the year 2003, for the convenience of the company's customers, was a joint project of LUKOIL-Inter-Card and Petrokommerts Bank to promote acceptance of plastic cards at the company's trading facilities. At its filling stations, for instance, the company has introduced payment by international bank credit card, such as VISA and Master Card, as well as by the LICard bonus and discount cards, using which one can get quite a substantial discount.

While introducing new marketing standards, LUKOIL-Volganefteprodukt pays particular attention to the quality of servicing, even including the appearance and responsiveness of its salesmen. To this end, advanced training of the company's personnel has been introduced. Capable and hard-working members of the personnel always have a good chance of being promoted from ordinary operator to head of a station.

In order to present a full picture of the company's activity and to help eliminate shortcomings in its work there is a hot line which can be used by all customers. At all of its gasoline filling stations the company has large posters giving the telephone number of that round-the-clock hot line and welcoming users' remarks, requests and suggestions.

Quality takes priority

The leaders of LUKOIL-Volganefteprodukt realize full well that it is at its gasoline filling stations that the Company comes face to face with its customers who are ordinary Russian citizens, uninterested for the most part in the ups and downs of the Dow-Jones index or the quotations of the blue chips. Therefore, a customer's attitude and, more importantly, the public image of the company depend on the quality of the services provided and products offered.

The quality of gasoline at the filling stations of LUKOIL-Volganefteprodukt has a triple guarantee: namely, the output control of its Nizhny Novgorod Refinery which supplies petroleum products for distribution, the incoming control of the company's oil tank farm, and similar control of a particular gasoline filling station which also belongs to the company. According to Akim Talybov, Deputy Director of the Nizhny Novgorod oil tank farm, no deviations in the quality index of the refinery's products have been noticed, although the laboratory of the oil tank farm has all the latest testing equipment. The sustained high quality of the products turned out by LUKOIL's refinery is largely a result of the workers' excellent professional abilities and strict quality control there. On the other hand, according to Akim Talybov's observations, not infrequently there happen to be essential discrepancies in the quality of gasoline and its specifications submitted by outside producers for testing, who often turn to LUKOIL's professional laboratory workers for help. Regrettably, it often happens that homemade directly-distilled gasoline, with additives that outwardly help maintain the proper octane rating, is sold at privately-owned filling stations. Strangely enough, it is the customer himself who is partly to blame for that: in an attempt to economize some money per liter of gasoline, he risks that his motor vehicle may soon require serious and costly repairs.

The high-quality fuel which is sold at the gasoline filling stations of LUKOIL-Volganefteprodukt fully conforms to the strict European standards (specifically, standard E). As far as diesel fuel is concerned, LUKOIL was the first Russian oil company to start its large-scale production and to market ecologically clean diesel fuel, LUKOIL Euro-4, which has a lower-than-average sulfur content. In fact, it contains merely 0.005% of sulfur, or 40 times less than is provided for by Russia's state standard 305-82. This fuel meets the European ecological requirements for the 2004 version of the EN-590 diesel fuel (Euro-4). Besides prolonging the service life of the engine and ensuring an economy of fuel, the use of LUKOIL Euro-4 reduces by half the emission of combustion products. The output of this type of diesel fuel, both its summer and winter grades produced in Nizhny Novgorod by JSC LUKOIL-Nizhegorodnefteorgsintez, ranges between 120,000 and 150,000 tons a month.

In Russia, where considerable amounts of adulterated petroleum products are still being sold at the market, the question of the quality of the fuel bought at gasoline filling stations is of particular importance to automobile drivers. To improve radically the parameters of its fuel LUKOIL has addressed in recent years what it considers to be a key problem and carried out a reconstruction and technical renovation of its filling stations. These measures have made it possible to turn out products that meet not only the national but also European requirements to motor fuel.

However, the Company is not going to rest content with what has been achieved. According to the general development plan of the LUKOIL Group's refining organizations, by the year 2014 the output of diesel fuel which conforms to the Euro-4 standards may reach 10.6 million tons a year, and the investments in modernizing the Company's gasoline filling stations in Russia with the object of raising the output of high-quality petroleum products may total about two billion dollars.

The Company has far-reaching plans regarding the Kstovo Refinery of LUKOIL-Nizhegorodnefteorgsintez, specifically, an investment program which provides for an additional investment of $380 million in this enterprise. A unit for the deep refining is to be built at the enterprise, which will make it possible to double the output of light petroleum products. By 2009 the refinery will be able to turn out products meeting the Euro-4 standard, which will have a depth of refining of more than 90%. Meanwhile, only three years ago this index was slightly over 50%.

The objective of all these improvements is to ensure a steady growth of the sales, both wholesale and retail, of petroleum products and to increase the number of sectors of the Russian fuel market controlled by LUKOIL. In the Volga area, the Company's far-reaching plans are being effectively implemented by the collective of LUKOIL-Volganefteprodukt.

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Oil of Russia, No. 1, 2006
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