By Heiko Pleines

02-02-00 When Simon Kukes became president of Tyumenneft (TNK) in 1998, he launched a plan to increase efficiency and to integrate the company from the oil field to the gasoline pump.
A vital part of his plan was the modernization of the company's single refinery at Ryazan and a filling station franchising program.

The first major renovation project at the Ryazan refinery was completed in autumn 1998, when an AT-6 unit was put into operation, allowing for a drastic increase in refining capacity and a 30 % reduction in refining costs. In 1999 a catalytic cracking plant and the atmospheric-vacuum oil primary treatment plant have been upgraded in order to increase output of high-quality petroleum products.
Another major modernization project is meant to increase the refinery's output of high-octane gasoline by 200 %. The project is to be conducted by ABB Lummus Global, but depends on a $ 292 mm loan from the US Export-Import Bank. Negotiations for the loan had started in autumn of1998 and as of mid-1999 an agreement had been reached. However, the loan was not disbursed because of the Chernogorneft controversy and the rather questionable role TNK played in it.
TNK has been able to find alternative sources of finance. In the summer of 1999, the company received a $ 60 mm loan from Russia's Sberbank. Moreover, bond issues in the second half of the year raised some $ 120 mm. Since only a part of these sums will be used for the upgrading of the refinery, the original modernization plan has fallen behind schedule.
Nevertheless, the Ryazan refinery is operating rather successfully. Last year, it processed 11.2 mm tons of oil, compared to 8.2 mm tons in 1998 and a mere 4.1 mm tons in 1996. With the help of the parent company, the refinery repaid nearly all of its debts to the state budget, amounting to some $ 38 mm, in December 1999.

The Ryazan refinery's relative success lies in the fact that TNK has done everything possible to supply the plant with enough crude, properly managingits marketing subsidiaries and retaining good contacts with relevant local administrations. TNK has also increased the number of its retail outlets with the help of an ambitious gasoline filling station franchising program. At present, more than 250 filling stations, about half of all the company's stations, are operating on the basis of the franchising program.
As David Flanagan noted in a special report to the FSU Oil & Gas Monitor last August (Issue No. 35, 1999): "With their distinctive royal blue mastheads, [TNK] filling stations have become a familiar sight all over Moscow, Tula and Ryazan. The integrated company, little-known in the international market only a matter of a couple of years ago, has in a short space of time become one of the most high-profile of all Russian products enterprises."
The refinery has also profited from a high share of sales on the export market, due to the fact that the government has routinely granted it special export privileges.

Yet one of the remaining weak spots of TNK, like that of many Russian oil companies, is refining capacity. The company has indicated that it would like to merge with Slavneft because such a move would offer great operational synergies. Slavneft owns two refineries, which together can process more than the parent company can produce. But since progress in this direction has been slow, TNK has also actively been looking for alternative solutions. Most recently, it has shown an interest in Ukraine's LINOS refinery.