Inteview of CEO of NIS Kiril Kravchenko for Hungarian magazine Figyelo

April 26, 2013

The now 37 year old, despite being very protocolar on the official picture in suit, he's relaxed in everyday life. Kirill Albertovich Kravchenko became at 32 the CEO of the the Serbian oil and gas company. During his intern period he spent a short time in Szazhalombatta, and he speaks a few words of Hungrian, although being from Moscow. He studied sociology at Lomonosov University, and graduated in 1998. In the beginning of the 2000's he studied financial management at the Open University and later at IMD Business School. Between 2000 and 2004 he held several functions at the Yukos oil company. In 2007 he joined Gazprom oil department, and in 2009 was appointed as CEO of NIS. The new wave of the Russian businessman intention is to turn NIS, whose refineries a decade and a half ago were bombed by NATO, into a competitive European oil company. Partly due to the historical past, partly due to its connection with the State, in Central- and Eastern-Europe Gazprom, Your employer, was seen often with suspicion. Your personal experience confirms this? This question I hear pretty often. Naturally, as NIS is part of the Gazprom-group, which trough Gazprom Neft has a 56% stake in the biggest Serbian oil company. On the other hand there are differences compared to the group's other companies. Firstly because we operate as a joint venture. Beside the Gazprom-group, the Serbian Government has a 30% stake in the company, while the remaining shares belong to minority shareholders, in the beginning subscribed mainly by Serbian citizens . Since then most of these shares were acquired by various US and European investment funds becoming this way shareholders in the company. This is why Gazprom is not represented in the traditional way, our work needs to be done in a slightly different way. How does having a majority stake in NIS fits the Russian parent company regional business strategy? As You know the parent company has three different branches: gas, oil and electricity production. We are part of the oil branch, Gazprom Neft. Along with the shareholders, Gazprom Neft decided that NIS could become a regional center for the Russian company. Gazprom Neft currently plans investments in several countries of the region, focusing on South-East Europe. Another important decision of the shareholders was that NIS, a vertically integrated company to be present in all energy sectors, beside the upstream and downstream sector in energy management field too. If we were to look for models, MOL and OMV would be appropriate for this role. We hardly can reach the level of operations of these companies, as they are the biggest players in the South-East European region. And they are present in every sector. We want to do the same, this is why we extend our research and extraction activities in the Carpathian Basin, Hungary, Romania and Bosnia-Herzegovina. But we consider other countries too for expansion. Do you see OMV and MOL as competitors or as business partners? We have good relations with both companies at top-management level too. We consider them partners in the first place: in Romania for example we plan together with MOL a joint venture in the upstream sector. Beside we have a special cooperation on downstream sector too; in Serbia we supply their stations network with products. Elsewhere, in Romania and Bosnia-Herzegovina we buy from them. So, in first place, we consider each other partners. On the other hand, with regards to the stations network we are competitors too. In Hungary, what kind of activity would you start? We have two projects under development, in both we explore for oil and gas near Szeged, not to far from the Serbian-Hungarian border. In the first project with a Canadian company - Falcon which is our partner in the second Hungarian-registered company RAG both with 50% stakes. Test drills are under way; we don’t have any results yet. So please don’t ask the volumes we expect, we will see. Why explore in Hungary for oil, where the resources are limited, and the exploitation may not even be profitable? We see the opportunity for two reasons. Firstly we have the know-how for the narrow region of the Carpathian Basin. Second, it is part of our strategy to search for synergy between the exploration and extraction on one side and refining and sales on the other side. If we were to find oil, that would be sent to our recently revamped Pančevo refinery. If we would find gas for example, we have the means to use it for electricity production or as raw material. Many believe that the shale gas mass extraction and the European market interconnection would decrease Central and Eastern Europe ‘s dependence on Russian gas supply. Do you see Gazprom’s position in danger too? In my opinion Gazprom is not a monopoly for the whole EU, since it delivers only one third of the EU export. The EU has access to several gas sources, and some past Gazprom issues have nothing to do with the reality in my opinion. As I see Gazprom works under the same European rules as the Qatar or Algerian natural gas exporters. But, I repeat, NIS has not much to do with it. Although you are involved in the oil business, I am still interested if you can profit in any way from the North-South gas corridor and grids interconnection between the Baltic Sea and the Adriatic Sea. We do not participate in gas pipelines investments. My personal opinion is that one of these is viable, the South Stream (the Gazprom’s pipeline – e.n.). This would improve the region’s supply security. It would mean not only securing supply - having the energy carrier a disposal whenever needed, but will also boost sectors in connection with the pipeline construction. An example can be gas fired power plants. Regarding NIS, we extract natural gas too, and our shareholders decided to make profit of this activity too. One of the most evident solutions is gas fired power plants. Regarding South Stream, it would mean a complementary supply for the region and this can have only a positive effect on the whole region. If you would be to bet, which pipeline would you bet on South Stream, Nabucco or some other project? I would bet on the exploitable oil and gas deposits of the region. Not only because of our strategy, but also because this would be natural. The region has its own resources, the exploiting of which would be only natural. This is why of the yearly over EUR 500 million investment funds one third goes to expand exploration and exploitation. In the future, when the revamp of out refinery is done, the retail sector would be in focus, as currently over 80% of our budget goes to research and extraction.