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Less exports, more production

Vladimir EgorovInterview with Vladimir Yegorov, CEO of Gazpromneft-Aero

Gazprom Magazine

— Vladimir Yegorovich, how has the market for kerosene-type jet fuel been developing over the past year?

— The year 2011 saw a 6 percent worldwide average ridership growth, while in our country it was twice that much, 12 percent. The volume of cargo traffic in Russia grew by 5.4 percent in 2011. That means that the demand for aviation fuel also grew. Total sales of aviation fuel in Russia grew by 10 percent. I think that growth will be the same this year as it was last year.

— How do these figures compare to the levels that existed before the financial crisis?

— Total ridership in Russia in 2008 was slightly over 50 million people, while in 2011 it was 64 million. So, it’s already above the pre-crisis level.

As a whole, export shipment volumes of kerosene-type jet fuel were significantly cut back in 2011 and the first half of 2012. All Russian oil companies are selling their products on the growing domestic market. Export fell by 44 percent in 2011, but at the same time all oil companies expanded their production volumes. Gazprom Neft refineries increased their production by 9 percent.

— How have kerosene-type jet fuel sales volumes changed at your enterprise?

— During the first half of 2012, sales grew substantially both on the domestic market and abroad. Gazpromneft-Aero sold about 1.2 million tons of aviation fuel in Russia. Retail sales volumes grew by 21 percent, amounting to nearly 800,000 tons. The data for the first half of 2012 shows that we have 27 percent of the domestic aviation fuel retail market, which means we retained our status as market leader.

At present, we have several investment projects in the Siberian Federal District, which primarily results from Gazprom Neft’s proximity to the Omsk Oil Refinery.

We plan to raise the total volume of fuel supplies to end users to 1.8 million tons this year. The total sales volume should reach 2.5 million tons.

Our biggest partners at present are Transaero, Aeroflot, and Volga-Dnepr. We signed an agreement with Transaero to supply fuel during summer 2012 at 32 airports in fifteen countries. Following a similar principle, we fueled Transaero airplanes in eight countries in 2011. This year, pursuant to our agreement with Transaero, we began fueling in the Maldives, the United Kingdom, China, Croatia, Montenegro, Portugal, and the Seychelles.

— Tell us about the building of a network of fueling complexes at Russian airports, how is it progressing?

— This year, we completed construction of an alternative fueling complex at Sheremetyevo. Our company had invested about 2 billion rubles in this project. But that is not the final investment volume. In light of the prospective development of the airport, we expect to be able to expand that fueling complex. Thus, for example, the petroleum products storage facility, which consists of four tanks with a total volume of approximately 18,000 cubic meters, can be increased to 25,000 cubic meters.

As for airports, we have registered a new subsidiary called Gazpromneft-Aero Kemerovo, and also are continuing our partnership with airports with which we have concluded storage contracts (we have begun working in Kazan, Novy Urengoy, Omsk, Barnaul, and Vladivostok).

— How is collaboration with your foreign partners developing?

— We are continuing to work with Total. The volume of fuel supplied through Air Total increased by 50 percent from the first half of 2011 to the first half of 2012, surpassing 52,000 tons during the latter period. By the way, we ultimately plan several joint investment projects in the countries of Eastern Europe. In the future, we see Gazprom Neft as a global leader on the international fuel market, and Gazpromneft-Aero as one of the leaders of the international aviation fuel business with a network consisting of over one hundred airports.

Furthermore, we concluded long-term agreements this year with the Portuguese power company Galp Energia, the Italian oil and gas company ENI, and the Greek fuel supplier EKO. These were actually the contracts under which we began providing fuel on a regular basis to Transaero flights in Lisbon and Faro, Portugal, on the island of Madeira, Portugal, and at Palma de Mallorca Airport in Spain. In Greece, we have begun fueling in Araxos, Rhodes, and Heraklion, as well as in the Italian cities of Rimini, Verona, and Venice.

We have expanded our operations in the main tourist destinations: our presence has gone up from 53 airports to over 80. This includes forty countries with airports from Bangkok to Rio de Janeiro. The opening of new sales points has led to a rise in aviation fuel sales volumes abroad during the first half of 2012 of over 50 percent beyond the volume sold in the first half of 2011, reaching approximately 100,000 tons.

In August, we concluded a long-term agreement with the Emirates airline for the fueling of all its regular flights at Domodedovo Airport. Gazpromneft-Aero is already supplying aviation fuel for two daily flights from Moscow to Dubai. We plan to begin fueling regular Emirates flights using the largest passenger airplane in the world, the Airbus A380, designed to transport 517 passengers, in December 2012. These will be the first flights of the A380 in Russia. In total, we are currently fueling the planes of ten foreign airlines in Russia, and expect to attract still others.

— How about the CIS countries?

— We are currently developing our business in Kyrgyzstan. Gazpromneft-Aero Kyrgyzstan has invested over 30 million rubles in the upgrading of the existing fueling infrastructure at Manas International Airport. At Manas, we fuel planes for Aeroflot, Kyrgyzstan, flydubai, Air Bishkek, Volga-Dnepr, Yakutia, Avia Traffic Company, and others. Gazpromneft-Aero Kyrgyzstan has paid about 170 million rubles to the Kyrgyzstan government during just the first six months of operation.

Out of those 170 million rubles, about 100 million rubles were paid upon the results of the company’s performance during the first quarter in the form of dividends paid to the Kyrgyzstan government as joint co-adventurer. We plan to enter the markets of other CIS countries in the future, and we are currently actively engaged in pursuing those opportunities.

— How is your partnership with the Ministry of Defense going?

— Very fruitfully. Last year, there was an executive order of government designating Gazprom-Aero as the sole supplier and provider of services at eleven Air Force bases. A huge amount of work has been done since then. We invested approximately 1 million rubles in upgrading and equipping those fueling complexes. We have purchased and set up up-to-date machinery (for example, over fifty fueling trucks), and we made nine new laboratories. We have supplied over 400,000 tons of aviation fuel. Yet another government resolution in August 2012 gave us eleven more airfields to work with.

— Are you continuing your educational project in Ulyanovsk?

— Absolutely. Our collaboration with the Ulyanovsk Civil Aviation Flight School is developing very successfully. Furthermore, we signed a supplemental agreement involving the provision of a grant to the school for it to conduct work for unification of Russian and international rules for the supply of aviation fuel. This will create a synergistic effect both from an economic viewpoint and in terms of improving the competitiveness of Russian companies in general.

Our education center at the Ulyanovsk Civil Aviation Flight School began operating only recently, and nevertheless, during the second half of 2011, we managed to retrain sixty specialists working at both Gazpromneft-Aero and other companies. This year, the number of students should be at least twice as many. As for future prospects, we hope to open a university program at the Ulyanovsk Civil Aviation Flight School that will educate specialists in aviation fuel supply.

— What is that profession about?

— These are fueling complex operations engineers. Nobody is educating such specialists in Russia. We are currently putting together study programs and selecting a faculty of professors and instructors. Just like the rest of the industry, we need production specialists who know not only Russian standards, but international ones as well. Specialists with this educational background are practically guaranteed to find work.