No. 1, 2006


Oil of Russia magazine talks to Constantin Tampiza, General Director of LUKOIL-Downstream Romania

A subsidiary of Russia's leading oil and gas company, LUKOIL-Downstream Romania has been active on the Romanian market for only eight years. Much has been done during this relatively short period: the Petrotel-LUKOIL refinery has been modernized and put into operation and is now producing high-quality petroleum products. Moreover, a far-flung retail trade network has been built. Today, it is obvious that LUKOIL's Romanian project is a success.

Q: How do you assess the activity of LUKOIL-Downstream Romania?

A: Although LUKOIL has been operating here since 1998, when the Company acquired the controlling interest of Petrotel refinery in the city of Ploesti, LUKOIL-Downstream Romania began developing actively only in late 2001. This was only natural since owning the Petrotel-LUKOIL refinery and having practically no retail trade network (until then there were merely 12 gasoline filling stations here in Romania) the Company experienced certain hazards because of the fluctuation of world oil prices.

Therefore, LUKOIL President and its Board of Directors took what was a strategic decision: to develop the Company's own retail trade network in Romania.

Today, we are able to cope with the fluctuation of world oil prices quite well: having nearly 300 gasoline filling stations and ten oil tank farms in Romania, we sell at least 1.1 million tons of petroleum products, including lubricants. I believe that 2006 will be the year when we complete the placing of modern gasoline filling stations along the Romanian motor roads.

Another highlight in the activity of LUKOIL-Downstream Romania over the past few years was putting the Petrotel-LUKOIL refinery into operation, following its substantial modernization. And so today, we have, on the one hand, a ramified, well-functioning retail trade network offering a wide range of services, and, on the other, we produce high-quality fuel, including diesel fuel of the Euro-4 standard, and gasoline of the Euro-3 standard. And soon we will pass on to the next stage. One of our most important achievements is the fact that the LUKOIL brand name is now well known and respected in Romania. In 2005 the volume of our sales here increased by approximately 40%, which is a fairly good result.

Today, the Company's Romanian project is working successfully, bringing profits. Moreover, our profitability of capital outlays is higher than the Company's average ratio.

Q: LUKOIL-Downstream Romania was one of the first in the Company to introduce the information system of managing business processes. What would you say are the results of its operation?

A: In 2001 we introduced the SAP R/3 system which ensures information support of business processes and managerial accounting according to the corporate standards. The information system of business management based on SAP/R3 embraces the main functional areas of management: logistics, control over outlays, finance and accounting. Its introduction has made it possible to organize uniform business management of the Company in Romania – from purchase of oil to marketing of petroleum products. The information management system has enabled us to apply our corporate cards. Today, about 35% of the operations are carried out with the help of our debit and credit cards owing to which our customers can get various discounts when buying petroleum products.

Q: How would you assess the company's personnel policy?

A: The personnel policy of LUKOIL-Downstream Romania is in accordance with the modern standards of conducting business. The selection and placement of personnel is done with due account of the corporate requirements. Specialists of different nationalities work in our company – Romanians, Russians, Moldavians. Many of the employees have candidate's and doctor's scientific degrees. We are also interested in enrolling young specialists, and to that end we cooperate with educational establishments. For instance, last November we signed an appropriate agreement with the Ploesti Institute of Oil and Gas, a well-known educational establishment which has trained about 33,000 specialists for various countries. Cooperation with it will enable us to solve the problem of acquiring qualified personnel.

Q: What is LUKOIL-Downstream Romania doing with regard to observing environmental safety standards?

A: Since Romania is to join the European Union in 2007, it must observe very strictly the standards relating to environmental safety and the quality of its petroleum products.

This could not but involve the activity of LUKOIL-Downstream Romania. We have revised a whole system of measures aimed at removing slime-collectors (with about 350,000 tons of waste) which have been functioning for the past 30 or 40 years and which we got when we bought the Ploesti Refinery, as well as measures aimed at the technological improvement of various installations. This will make it possible to cut back industrial emissions considerably. Speaking of modernizing the refinery itself, it will mean cutting back industrial emissions by half, reducing the intensity of the use of water, steam, etc., and using a higher-quality fuel with a much lower sulfur content.

Furthermore, all of our gasoline filling stations have vapor-catching systems. In that we have complied with all the required environmental safety standards. At present we are engaged in equipping all of our oil tank farms with similar systems as well. By March 2006, I believe, our oil tank farms will have met all the environmental safety requirements which exist in Romania today.

Q: What place in the activity of LUKOIL-Downstream Romania is occupied by questions of the social responsibility of business?

A: The company takes part in charitable activities, rendering material support to hospitals, associations of physically handicapped people, children's foundations and organizations, as well as various events associated with arts, culture and sports.

We render regular assistance to children's centers in the Cozmest commune, Jassy district, and in Bucharest.

As a sign of recognition and respect for the arduous work done by the people employed in the petroleum industry, LUKOIL-Downstream Romania restored the church at the oilmen's cemetery in Ploesti and helped renovate classrooms and living quarters, as well as school sports grounds in that city.

Responding to the needs of the people who have suffered from natural disasters in recent years, the company has rendered individual support to them, providing them with construction materials to restore their homes in the Constansa and Timisoara districts to a sum exceeding $100,000.

As far as the company's financial assistance to sports is concerned, it may be mentioned that for four years the Romanian capital's football team Rapid have worn the brand name LUKOIL on their shirts, and that Romania's car-racing team, headed by Mihai Leu, a national celebrity, is sponsored by LUKOIL-Downstream Romania.

The company's attitude to its personnel is extremely responsible. Taking into account the general downstream tendency, the LUKOIL-Romania Group provides employment to about 5,000 men and women. These people have all the necessary conditions for safe, highly productive labor, regular periods of rest, including at the Karlovy Vary health resort, and for receiving competent medical assistance.

Q: What are the plans and prospects for the development of LUKOIL-Downstream Romania in 2006 and 2007?

A: First and foremost, it is consolidating our positions on the Romanian market. In the 2006-2007 period we plan to reach a volume of retail sales of at least 600,000 or even 650,000 tons of petroleum products and, with wholesale sales added to this, increase our market share to 25%, which will make us the second biggest player on Romania's petroleum products market.

Furthermore, we are working intensively, selling LUKOIL's lubricants. Owing to their excellent viscosity and color index, they are much in demand. Every month we sell between 7,000 and 7,500 tons of them. Today, 38% of the lubricants sold in Romania are realized under the brand name LUKOIL.

Another aspect, which we will continue working on next year, involves the use of liquefied gas, specifically a propane-butane mixture. This is particularly relevant to households located in highland areas. Besides, we plan to increase the sales of liquefied gas at filling stations. Today, practically one-third of them are equipped with gas-filling installations. This is one of the most promising lines of business for our Company.

It should be mentioned that at present a European transport corridor is being created in Romania. Quite naturally, LUKOIL wants to take part in this project. We are now holding negotiations with Romanian administrative bodies in order to specify the places along the future artery where the company could build model gasoline filling stations.

I would also like to note the fact that very soon, on the vacant lots belonging to the gasoline filling stations of LUKOIL-Downstream Romania, some non-traditional facilities will be constructed – small motels with cafes. In this way we will be able to broaden the range of our services to customers and to utilize our land resources more effectively.

LUKOIL has invested huge sums in the development of the Romanian project and, quite naturally, the Company wants it to be a success. Therefore, our main task for the next four or five years is to recover all of the Company's expenses on this market.

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Oil of Russia, No. 1, 2006
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