Your association was founded in 1995. What was the major objective behind this decision?

The objective was and still is to reflect and express the interests of the oil sector, that is of vertically integrated companies in terms of oil processing and oil chemistry. The major objective is thus to make sure that the oil that is produced in Russia is also refined here.

We are not just talking about simply refining, but ensuring world level quality processing, developing petrochemical products, ensuring sufficient jobs and consequently developing related industries such as transport, defence, agriculture etc. The idea is that the petrochemical industry can be the engine of the development of the whole country's economic development.

Last year, oil production in Russia increased by seven to eight per cent. What do you think is the driving force behind this growth?

The driving force is that the economy is recovering from stagnation and that exports are increasing very rapidly.

Do you believe that increased oil production and higher prices will trigger more investments in the sector?

Russia is second to none in coal and gas reserves. It ranks on the third place in oil reserves. This is a good base to develop the national economy. However, it is important to use these treasures within the country, meaning processing domestically, and then export finished products in order to attract foreign currency into the country. This is why our tax legislation is now being improved to make it the same for domestic as well as foreign investors and to have a guarantee for raised funds.

Are there any particular areas where foreign investment is even more needed for the industry to grow further?

The main question we ask ourselves is why it is more profitable to invest in crude oil production rather than in the refining industry.

If you build an oil refinery or refining facilities, this will cost you about 1 billion dollars for each plant, construction will take three to five years and return on investment will take about ten years. Investors are usually reluctant to make such long term investments, especially here where we have a different investment and credit line system as in the USA or Western Europe, which is more profitable but at the same time more risky.

 









 

At the same time, as production increases export volumes increase as well. With the crisis in the Middle East and the instability in Venezuela, it seems that Russia has a major card to play. Do you believe this will further help the industry's development during the next two or three years?

It will of course help the industry as Russia has become the rule maker. As Putin and Bush are friends and Russia regulates the oil prices on the world market, it is now seeking to increase its oil supply to some extent to the USA and Western Europe so they can become more independent from OPEC. It is also important for Russia that the oil price remains at a level of twenty to twenty-five dollars per barrel. If the price remains at this level, other industries will also benefit from it and develop themselves.

This will help the entire Russian oil industry. Are there any specific companies that are benefiting more from these trends?

Oil companies such as Lukoil first were serious about oil production and are now serious about oil refining, not only in Russia, but also in Europe and even in the USA. They have purchased a number of oil refineries and have started working seriously with oil chemistry because it is here that the future of the economy lies.

We should also be very serious about energy and reduce consumption and consequently cost, so that the price can be competitive. With the accession to WTO, it will be very difficult for Russian companies to enter the world market, which is already shared and occupied but they will succeed.

So the companies, which will succeed, are the ones that expand and cover the final products market and develop new technology in order to lower the cost and increase the quality to be competitive on the world market.

Your association has been helping the Russian refinery industry to progress and develop for seven year. What has been your biggest! Achievement during these years?

In the first years of our existence, we tried to convince the oil companies to favour oil refining and we organised two sessions with the Ministry of Energy and oil companies for the government to participate not only in oil production development but also in refining. In the first years, miserable amounts were invested into oil refining, but they always expanded oil production and we were short of money for the refining aspect. The equipment amortization was as high as 80 % due to the fact that the state no longer supported the refining industry after the collapse of the Soviet Union, and the businesses have not yet understood the profitability and necessity of developing this side. Today oil companies have already allocated six billion dollars of their own funds to refining, which is just enough to solve current problems in order to join WTO.