NIS CEO for the agency SPUTNIK

February 21, 2019

The first person of NIS announces big investments and a new product in Serbia One of the most successful companies in the country — NIS, which pays between 13 and 16 percent of the funds in the budget in Serbia each year, plans new investments this year. In addition to the refinery, whose reconstruction was successfully completed last year, there are also plans for investments in green energy, in the energy of knowledge, and in new technologies. The goal is to expand in the region as well. We are talking with the CEO of NIS, Kirill Tyurdenev, about the performance of the Company in the previous period, and about the plans for this year.   During the visit of President Putin to Belgrade, you signed a Memorandum of Cooperation with the Mining Faculty in St. Petersburg within NIS’s project ‘Energy of Knowledge’. So far, this project has been very successful, what is new that this agreement will bring?  - You are absolutely right. We have signed the Memorandum of Cooperation with the of Saint Petersburg Mining University, as well as with Gubkin Russian State University of Oil and Gas. It is part of our ‘Energy of Knowledge’ program, which envisages investments and education of experts needed by NIS. We have established cooperation with almost 50 domestic and foreign educational and scientific institutions. We support the adaptation of more than 50 laboratories and scientific workshops at all universities in Serbia. We have given scholarships at Serbian and foreign universities to over 90 students, and more than 30 of them have already been employed by NIS. For us, this is an investment in knowledge that will give us highly qualified experts in our industrial branch later on, and make our company more competitive.   At the end of December, you celebrated the 50th anniversary of the Oil Refinery in Pančevo. What are the further directions for the development of the refinery? — First of all, I would like to say that this plant has a long history. It is the pride of our company. I think it is the pride and the leading company in the whole country. With the arrival of Gazprom Neft in 2009, significant funds were invested in the plant. First, a MHC/DHT station was built, in which we invested about 600 million euros. It enabled the plant to produce motor fuels in line with Euro 5 standard. We are now in the next stage, when we invest in a delayed coking unit, which will enable the production of more motor fuel, fewer other products, black products, with a low margin. The plant will become more economically efficient and better positioned on our very competitive regional market. We will begin to produce a new product — coke, which is necessary in civil engineering and we will cease producing high-sulfur fuel oil, which is good for the environment.   When you came to Belgrade three years ago, I asked you to do an interview — you said to leave it for later when you have results. What results would you identify as the most significant in the past year? — So far, no official results have been released. However, our financial balance improved significantly in comparison to 2017. In the previous two years, financial results have been improving significantly, by even 10 percent annually. I am talking about pure profit. Last year we paid a record sum of USD 1,700 million to the country's budget. These are all taxes paid by the company, on profit, excise duties.   The price of oil on the world market is very unstable, and Trump promises to punish Russia with even lower prices of black gold. How much is it possible to plan work in these conditions? — When we make our business plan, a three-year business plan, we also have a strategy until 2025 and we take into account conservative oil prices. We always plan quite conservatively. In the previous period, we planned on the basis of a price of USD 50, now prices are higher, and depending on the year we plan on USD 50-60. This enables us to calculate the economic effects of our investment projects in accordance with conservative assumptions. If the market conjuncture is shifting, we can adjust both our forecast and our investment program. But the market is now unstable, and hence dramatic moves must not be made. Investments often take several years. For example, two years are needed only for the construction of the delayed coking unit. Therefore, one should not be guided by the fluctuations of the oil conjuncture, because the market is unpredictable.   It is interesting that in a situation when the price of oil dropped to USD 30, many countries stopped exploring oil fields, but Russia did not do it. You did the same thing here. Did it pay off? — I think it did, because we have a good correlation of exploitation with our reserves. We believe that modern methods of exploitation and modern exploitation technologies make it possible to maintain a sufficiently high level of exploitation in the future as well. This is not easy because the deposits are exhausted in Serbia, and this requires significant investments by the company.   A new technology is needed because deeper drilling is required? — This is a question of seismic surveying, 2D, 3D, further processing of these data using new technologies, then exploration drilling, exploration wells, well maintenance, etc. There are many different stages. The technology is now improving and the precision of forecasting is increasing, as well as understanding of what is located at a depth of one and a half or two kilometers.   That means, if I understood you well, there is no need to drill in order to see if there is oil or not. It is enough to have 2D, 3D technology and you know that there is oil at the depth of 500 or more meters? — Unfortunately, it is not that simple. Or fortunately, because companies with good technologies can more accurately predict where the resource is located, how to get to it, and how to get it out of the ground. The 2D and 3D seismic surveying will only point to the location of the resource with a certain amount of certainty. Then goes drilling, which allows you to get a clearer picture.   So far, you have invested a huge amount of money in the development of NIS and the Refinery, but you have announced even greater investments for the upcoming period. In which areas? What are the further plans? — From the moment of arrival of Gazprom Neft, i.e. in the period 2009-2018, the company invested about three billion euros. In 2017, we adopted a strategy which allows for investments worth nearly two billion euros by 2025. The main directions include the construction of a delayed coking unit, better market position of our refinery, amounting to 300 million euros, maintenance of exploitation levels, and investment in electricity production. For us, this is a relatively new direction of company development. We also have the project for the construction of CCPP Pančevo. In addition to our oil refinery, in cooperation with our partner, “Gazprom Energoholding”, we are building a gas power plant which will produce electricity and steam. Moreover, we have a project for the construction of a wind farm in Serbia, also in cooperation with our partner. We are also building small power plants in the vicinity of our deposits, since in this way, it is easier to use the resources obtained from these sites to produce electricity.   Can you tell us how you deal with competition, as it is quite strong in Serbia? — The Balkans are an extremely competitive market. A large number of major oil refining plants are concentrated in the radius of about 500 kilometers. However, we always strive to find common ground with our competitors. That is, we manage to keep ahead of our competition in Serbia due to logistics as we supply Serbia with our motor fuels through our own network of petrol stations. We own approximately 400 petrol stations — 300 are in Serbia, whereas the rest is in Romania, Bosnia and Herzegovina and Bulgaria. The market we form with our competitors regulates our relations and enables all parties to make profit and supply our clients with fuel.   I would like to talk about something that I consider quite interesting, and I think you do too — I’m referring to the digital transformation of business operations. What does this actually entail? — This is a popular topic, and the phrase ‘digital transformation’ causes a lot of excitement. I can say that it is only the tip of the iceberg, what matters is beneath the surface of the water — a major transformation project, i.e. the transformation of the Company’s DNA. The transformation process entails the development of the Company’s interface with the outside world. For example, implementing the use of electronic documents. We are committed to our digital transformation, and we consider it an economically efficient project which will enable our company to build its competitive advantage. However, sometimes it is necessary to respond quickly, risk certain funds (probably not large amounts though) in order to give chance to new technologies. We have begun the process, we have established a new position — CDO, which means ‘chief digital officer’, a person in charge of the digital transformation within the Company. All our managers understand why this process is necessary, and that it is actually a resource which will help them achieve better and more competitive results. Simultaneously, it will help improve the Company’s response to challenges posed by the market in this industry.   How are other companies you cooperate with dealing with this process? Are they catching up with you, or are you at the top, while they are still stuck in red tape? — I believe that many of our competitors have started the process long ago, some of them being quite ahead of us in this sense, so we need to catch up; others are a bit slower, but all of them are active in the field. The most important thing is not to give to euphoria and digitalize just because of digitalization. All the projects need to be done by understanding them and the reason of their implementation. Digitalization is a sort of catalyst enabling you to alter the processes within the company, remodel business processes, change the company DNA. There are many elements in this. You need people capable of working with this technology and develop the related projects. You need young experts, educated ones, capable of doing this and, after all, those who want to. At the same time, it is the capability of the company to adopt certain changes in a prompt manner, and its ability to discard all kinds of obsolete rules - such as, the process requiring 30 signatures...   If you make this happen, you will win a Nobel Prize... — Many have already made this happen and did not win a Nobel Prize for it; it’s considered normal nowadays. Actually, we are living in an environment of fast changes with the rate of changes being a measure of the company’s competitive advantage. This is the reason why a company loses its competitive advantage and makes losses at the market, while our strategy is a long-term one and we wish NIS to be a leader in the local market, striving to become a leader in the regional market.   A call for tender for “Petrohemija” is expected soon. NIS already owns 20 per cent of that company and many expect that the Company will acquire the controlling interest. Is this part of your plans? — We are interested in the stabile operation of Petrohemija and, in relation to this, we frequently consult with the government, especially on the topic of future privatization of the company. We own 20% of shares in that company but we are also its supplier. If everything works in our favor and it is effective in terms of costs for NIS to buy the company, and maintain its competitive advantage - great. I hope the process will then follow.   What are your goals in the region? — Our aim is to keep a leading position in Serbia and become a leader in the region. Among other things, I believe that we have increased our competitive advantage in recent years. However, this is not a point where we should stop but continue with this work. Apart from exploitation, refining and sales of our products, our aim is to open additional directions to ensure a positive balance of the Company, pay dividends to our shareholders, pay state taxes, and provide energy-generating products and other services to our clients. To hire experts but also, in the end, to do interesting things. You can read the interview on Sputnik's website: