Could you give a brief historical outline of Jugopetrol Kotor for the readers of Forbes Global?
First of all, I would like to thank you for your time and for this interview. Jugopetrol is a national company involved in selling oil and oil derivatives. It exists since 1947, which means that next year it will celebrate its 55th anniversary.
With the development of the economy in Montenegro, Jugopetrol, as an important infrastructure, also developed. It is known that the last century was marked by oil. Therefore, Jugopetrol had active development due to the fact that it was an oil company. Today it has no competition in Montenegro, which does not mean that it has a monopoly because of two reasons: 1) Jugopetrol does not establish the price of oil, that is done by the Government and 2) this is the activity which could be done by anybody who has the money.
The most important capacities of Jugopetrol are its oil installations of which there are three each with a capacity of 120 000 m3. That is enough for the needs of the Montenegrin market, because it absorbs around 400 000 tons of all derivatives. It means that the quantity we have provides three-month supplies in relation to the consumption in Montenegro.
In addition to the trade with derivatives, where diesel, petrol and crude oil are the basic derivatives, we have the warehouses for lubricants, the usage of which is not optimal. The maximum usage of those products used to be 5,000 to 6,000 tons and today it is only 2,000 - 3,000 tons, while the usage of oil is around 400,000 tons.
Apart from these warehouse capacities, we have the possibility to supply the airplanes at our two airports in Podgorica and Tivat. The usage is about 6 000 tons and these capacities are not so big because they are very near to our basic capacities. If we take Podgorica as a center, the maximum distance is around 100 km.
We also have a very developed network of petrol stations, 33 of them, which is not a very large number but Montenegro is small and it satisfies its needs. Recently, a number of private gas stations were opened, which amounts to around 20 of them. The further development of petrol station networks is possible by building new roads, modernization of roads and the development of tourism.
We have four yachting services for supplying boat and yachts with petrol in Bar, Budva, Kotor and Herceg Novi. We believe that it is sufficient for now.
For this kind of activity the transport is necessary. We have our own transport, the capacity of which is around 700 m3. It includes 33 tank trucks and one tanker in mixed ownership with a Greek company. My means of our own road transport, we satisfy around 60 % of our needs, and for the rest we hire private companies.
We also have sale capacities for the goods which are not in relation with oil - various goods for general use, from the car industry, household equipment, etc. We believe that, in the near future, that part will increase the dynamics of development, because, in developed countries petrol stations are no longer primarily intended for selling petrol and they have become places where you can buy various different things. The situation is not such here because the buying capacity of the population is low, so we have not undertaken any important activities in that field.
The most important thing that the business people look at is the financial results. A few years ago, Jugopetrol was worth DM 100 million, what is the situation now?
In any case that was the previous assessment, and the real value of Jugopetrol will be known when we find the strategic partner interested in buying our shares because Jugopetrol is worth as much as anyone wishes to pay for it. Our intention was to privatize Jugopetrol. At the moment, Jugopetrol is owned by the state (35%), funds (50%) and workers (15%). From this ownership structure, it can be seen that the state owns 85 % of company.
The intention of our State is to offer the tender for the sale of Jugopetrol and to sell 51% of the shares. The aforementioned assessment is only approximate value. The value of Jugopetrol depends first of all on our political situation. When we become a stable country, when we start applying the laws which are effective in the European Union, when foreign capital starts coming in, when we make transparent privatization, the value of Jugopetrol will increase because Jugopetrol has always been a stable company and has no competition.
Twenty private petrol stations are not real competition, on the contrary we support opening private petrol stations because we have warehouse capacities used for supplying these stations. The private sector has no possibilities to build new warehouse capacities and we need to have good prices in order to stimulate them not to build them.
Our policy, especially if we become privatized, consists in giving the existent petrol stations in franchise. Therefore we do not have any economic reason to suppress the private sector. The other reason why we estimate that we would be very attractive for privatization is the fact that buying Jugopetrol, the potential strategic partner does not pay just the price of the facilities but it buys new market.
How are you increasing your efficiency now, by investing in equipment or updating the IT systems that will increase the efficiency of your distribution?
There is no company that in the period of sanctions managed to preserve its capacities. However, we are an exception and an example and we managed to provide the maintenance of all facilities and even to increase our capacities with new investments and to install the most recent measuring equipment that is available. That is done on our installation in Bar, which is the station with the largest capacity. At our installation in Boka, which is called Lipci, we provide services for air transport and there are also several petrol stations and we have also installed very powerful information center.
Our measuring equipment enables almost completely automated data processing, which means that if a vehicle needs petrol at our station, at the exit it receives the invoice which is also sent to our administration thanks to modern telephone lines and the modern equipment we have.
Two years ago we introduced English language learning because our conclusion was that for every work with foreign companies the knowledge of the English language is necessary. It means that, if we have staff, saved capacities, comparatively modern capacities, our laws coordinated with the European laws and if the political situation becomes stable, it will be no problem for the privatization of Jugopetrol.
The other thing that must be done in cooperation with the Government is to develop a modern methodology for establishing prices. It is something that is functioning in the all western countries. So far, we had the practice of changing prices depending on the estimation of the Government, when it was necessary, which was normal in such a situation. It cannot be like that in the future because every potential partner who wants to buy the shares of Jugopetrol should be able to calculate what is the profit and what time is necessary to have the invested money back depending on the estimated traffic.
We have proposed new methodology, which includes the changes of the prices depending on the change of derivatives on the international market and the change of the rate of DM in relation to the US dollar
The next element would be that the State collects its revenues through taxes and that amount is fixed by the state. The fourth element of the price methodology is the margin left to Jugopetrol as a trader.
| Since we know that our Government is involved in reforms, we expect that our methodology will be accepted and it is the additional stimulus for future partners. It is normal that each partner, in addition to the financial assessment of the company, has estimated management structure. I cannot talk about it, since I am the head of that structure and there are people who take care of that.
Mr. Steve Remp from Ramco visited Montenegro recently and met with the President. I understand that there are possibilities for establishing a JV with Ramco and start off shore drillings. Could you give us an update on the situation?
Jugopetrol began its researches long ago in 1973. It is a trade company and it never had enough financial means to invest in oil discovery, since the research activities for oil and gas are the most risky of all activities. That can be done only by the companies already involved in oil production because of the great accumulation, which covers the risk of the research.
Those companies must do researches, because in the contrary they would be closed. Because of that we have contacted foreign companies and over 100 million dollars are invested here since 1973. There are four off shore drills and one on land. The main researcher were Buitsgas from Auckland, Chevron, INA, Naftagas from Novi Sad and Slovenians in very short period. Because of the unstable situation during the 1990s, the researches actually stopped.
The main characteristic of the period before 1990 was that drills showed that the area has good prospects and that stimulated further investments. A total of twelve thousand seismic profiles were recorded. Immediately after the abolition of sanctions in 1995, we organized a promotion of our research area in London in cooperation with the equivalent of the Ministry of Energy in the UK.
One of the companies which is doing off shore explorations in the area ranging from Budva to Ulcinj is Ramco company. They have invested more than 4 million dollars up to date, made reinterpretation of previous seismic data, made new seismography in the area covering around 1,000 km and came up with data showing that there were a lot of potential locations that should be explored by means of drilling with equal probability of finding gas and oil.
We did not start drilling yet because by the end of the year the exact location of the drilling should be given. During the first half of next year the drilling will begin. We haven't yet made the decision which drill would be the first one since there are some things that need to be explained before that. We have certain locations where, with one drill, the potential sources of both gas and oil could be checked while some of them are estimated as potential gas or oil sources.
The drill at the first location I mentioned would cost between 15 and 20 million dollars, while the cost of the other would be 4-5 million dollars. Our partner is now trying to find additional partners in order to drill at the more expensive location, where the probability is greater. If we do not find additional partners for that it will begin drilling on its own on one of the cheaper locations.
Is this the reserve that is estimated at 3-5 million barrels?
Daily exploitation will depend on how fast you want to exploit and how quickly you want to make profits, which is partly determined by drilling technology. We have to mention the distinction between the potential gas and oil locations. If the oil is found, the commercial value depends on the established quantity and expenses of exploitation. As soon as you take the oil out you have the market for it.
The situation is different when it comes to gas. You may have a commercial field, but as long as you do not find consumers you do not need to exploit it. Because of that we have organized a research, which shows that in case gas was found, it would be possible to build a gas power plant which would satisfy the needs of KAP. Part of it could be transported to Serbia, about 700 million m3, while about 600 million m3 would be sufficient for Montenegro. There is a possibility of transport of 1.7 billion m3 to Italy. That means that the production would be 3 billion m3 per year, which means that the exploitation of this field would prove profitable.
With all these projects and the privatization of Jugopetrol, as General Manager, what are you doing in order to attract investments to your country and your company?
We have already completed a great promotion and presented the information we had, which influenced the arrival of Mr. Remp. In addition to that, our legislature is very stimulating as compared to other countries since the profit tax is only 20 % and according to the law does not have to be paid during the first five years. The joint venture type of partnership was made, which means that 51 % of investments belong to the foreign partner. The result of that would be that, if oil was found, 51% of profit would go to the foreign investor. The deal could be different that in the same percentage oil would be divided.
During the research phase, since Jugopetrol does not have money to be involved in all those risks, the foreign partner has accepted to finance the whole research phase until the moment of finding commercial oil. At that moment Jugopetrol is obliged to settle 49 % of all previous obligations and to follow that continuity until the end.
Are you now focusing on joint ventures, waiting for the privatization or is the privatization going to begin right away?
The privatization will be in the first part of next year if there are no political instabilities. It will be public. The tender will be launched and on the basis of that tender around 51% of state capital will be sold.
This part is not in close connection with the issue of research because Jugopetrol has the subsidies of the Government for research, which means that it can be transferred to a future majority owner or to someone else if the owner does not want it. We believe that it has to be part of Jugopetrol since it is similar activity, since Jugopetrol knows a lot about that and the best guaranty for getting credits from banks could be the property of Jugopetrol. As for the privatization, it is necessary to establish aforementioned methodology of prices. We cannot attract any partners if they do not have basis to calculate the future profit.
Many people that I have interviewed before in the petroleum sector had all grown up in this particular sector. Is this the case with yourself?
My first job was in Jugopetrol. It was in January 1974 and I passed all the phases from transport, investments, development, research and now I am here. I have been learning all the time, mostly from the exchange of experiences with advanced companies. I think that the most dangerous thing for every company is to start making comparisons with itself or someone else.
The greatest problem of Jugopetrol is that it did not have any competition, which could have made us lose touch with the market conditions. Today, in order to spur competition we are in favor of privatization, since we believe that Jugopetrol can be even more efficient. We can be a part of some larger market and we support every initiative to develop similar capacities, because only in such competitive conditions the World Investment News Ltdr has to be the best one.
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