Russian oil giant announces plans to form joint venture with Ukrainian lubricant producer later this year
ater this year. Lukoil will own a 51 percent stake in the new company, Lukoil‑Azmol, and invest at least $4 million to modernize Azmol’s Zaporizhya Oblast plant.
“The legal documents [creating the joint venture] will be signed by the end of the year,” Lukoil Ukraine Deputy Retail Director Aleksey Belenky said Oct. 29. “There is full agreement between Azmol’s stockholders and our company.”
Azmol marketing chief Yury Smakovsky said the companies had discussing a joint venture for about a year.
Azmol, the country’s largest producer of motor oils and lubricants, is a fully owned Naftohaz Ukrainy subsidiary founded in 1994. It employs 1,400 workers. Azmol’s production accounts for a quarter of the motor oil and lubricants produced in Ukraine. Plans are for the joint venture to lead to a significant increase in the plant’s production.
Belenky said that Lukoil also intends to improve Azmol’s product distribution network.
He dismissed speculation that Lukoil’s interest in the joint venture represents a Russian attempt to exert greater control over Ukrainian businesses. He said that Lukoil’s interest was financial, rather than political, and that the venture’s goal would be to increase export of Azmol products.
“The [Azmol] plant is located in Ukraine. Nobody is going to put it in his pocket and take it away,” Belenky said.
Belenky said that the Cabinet of Ministers had questioned how Ukraine’s economy would benefit from the joint venture, and he insisted that Lukoil would comply with the antimonopoly law and keep its share of the motor oil market to 30 percent or less.
The joint venture intends to market Azmol products in Greece, Turkey and Cyprus, where Lukoil recently acquired British Petroleum’s network of gasoline filling stations.
Azmol processes about 30,000 tons of oil per year. Under the joint venture plan, Lukoil will invest $4 million to make improvements to the Azmol refinery and increase production to 120,000 tons annually. There are also plans to enter the foreign motor oil market.
“Lukoil decided to get seriously involved in oil export, but without our help they couldn’t do it easily. For our part, we aren’t opposed to working with them,” Smakovsky said.
As Azmol is able to produce lubricants more efficiently and increase its production, prices will decrease.
“As we process more motor oil, we will be able to produce it less expensively and reduce the cost of motor oil at the plant,” Belenky said.
Lukoil Ukraine spokesman Oleh Bogatov said that Lukoil planned to invest $4 million in the joint venture over the next two to three years.
“Further growth will come from the modernization of motor oil production that the company plans to achieve through 2005,” Belenky said.
Smakovsky said that Azmol also expects to benefit from Lukoil’s ability to deliver oil to the plant for processing.
“Azmol’s desire to work with Lukoil is dependant on the creation of a closed production cycle. Without direct supply of raw materials from Lukoil, the joint venture makes no economic sense,” Smakovsky said.
Oleh Skvortsov, who heads Lukoil Ukraine’s motor oil sales department, said that among the first challenges the new venture will face is creation of a joint distribution network. Lukoil has a network of 159 filling stations in Ukraine, in addition to a dealer network involving 40 companies. Azmol has a chain of 20 dealers.
“In December, we plan to certify both Lukoil and Azmol dealers, creating an effective distribution program for the brands,” Skvortsov said.
Skvortsov said that Lukoil does not plan to change Azmol’s brand before 2005.
Smakovsky added that Azmol’s brand has its own history and consumer preferences, and that both brands should develop together.
Skvortsov said that Lukoil is continuing to develop its distribution network in Ukraine, and would have outlets in all 25 oblasts eventually.
Azmol produces 200 grades of motor oil, gear oil, lubricants and grease. The products are sold in Russia, other former Soviet republics and Bulgaria.
