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Lukoil flexes downstream muscles

  • 2006-12-20
  • By TBT staff
RIGA - Lukoil, Russia's largest oil company, announced this week that it would invest $12 's 15 million in expanding its retail network in Latvia by building new filling stations and buying out smaller competitors. The announcement coincided with a visit by Vagit Alekperov, CEO of Lukoil, to Riga, where he met with Prime Minister Aigars Kalvitis on Dec. 18.

Alekperov told the press that the Baltic retail fuel market was of strategic importance to Lukoil and that the company wanted to increase its market share in Latvia to 17 's 18 percent. According to Latvia's competition bureau, in 2005 Lukoil ranked third in the sector with a 9 percent market share.

Haim Kogan, head of Lukoil Baltija R, said the company would expand its retail chain from 38 to 50 filling stations, an investment worth some $12 's 15 million.
Latvia is just a small part in Lukoil's ambitious drive to become a downstream market leader in Eastern Europe.
Speaking at a company presentation in Moscow, Lukoil Vice President Leonid Fedun was quoted as saying that the company was close to acquiring 376 brand-name gas stations 's Jet 's from ConocoPhilips, which owns a 19 percent stake in Lukoil. The takeover would boost Lukoil's sales of refined products by 19 percent, according to Fedun.

If it goes ahead, the deal would give Lukoil an 8 percent share of Belgium's retail market, 4 percent in Czech Republic, 5 percent in Poland, 5.5 percent in Finland and 4.3 percent in Hungary.
Fedun also said Lukoil was trying to buy a 51 percent stake in Ceska Rafinerska from Unipetrol.

Currently Lukoil produces more crude than it refines, which tends to be the norm among Russia's majors. However, in accordance to its strategic plan, Lukoil aims to boost refining capacity to 100 million tons per year, up from the current 58 million tons.
Lukoil had been a contender for Lithuania's Mazeikiu Nafta refinery, but it was overlooked in favor of TNK/BP, a Russian-British joint venture, which in turn lost to Poland's PKN Orlen.

It was Alekperov's second attempt at acquiring the Baltics' only refinery, and no doubt Lukoil's chief, reported to be one of Russia's richest men, is not happy about his company's track-record in the region. The brief visit to Riga can be regarded as a step in improving Lukoil's long-term chances in Latvia.

In Lithuania, Lukoil's subsidiary, Lukoil Baltija, owns 114 gas stations and is the largest retailer in the industry. 2005 sales were up 16 percent year-on-year, in line with the company's ambitious downstream strategy.
Lukoil has 30 stations in Estonia, where sales fell in 2005. Reports indicate that the company's local subsidiary, Lukoil Eesti, wants to acquire a local chain to boost its market share.

Lukoil's revenues in 2006 are projected at $46 billion, or approximately three times the size of Latvia's economy.