Crisis couldn't stop us

Kyrill Tyurdenev, CEO of NIS, in an interview with Politika


In the first half of 2020, NIS’ operations were strongly affected by adverse global macroeconomic circumstances. This primarily refers to the drop in oil prices and the COVID-19 epidemic, which caused a dramatic decline in demand for petroleum products. In these circumstances, NIS’ priorities were to safeguard the health of employees and consumers, maintain the stability of the petroleum products market, preserve social security of employees and ensure continued investment in key development projects

Safeguarding the health of employees and consumers, maintaining the stability of the petroleum products market, ensuring social security of employees and continued investment in key projects were our top priorities in the previous period marked by the coronavirus pandemic. We cut costs and prioritized investments, but we refused to make savings to the detriment of NIS’ long-term growth as this will never be an option for us. We remain focused on projects that will bring the most benefits in the future for both our company and Serbia, said Kyrill Tyurdenev, CEO of NIS, in an interview with Politika.

NIS Company’s business results for the H1 have been disclosed recently. Are you satisfied with the results and what is, in your opinion, the extent to which the pandemic affected the results?

We were faced with an unprecedented situation in the global economy. All that happened affected our business, but the most adverse circumstances that hit us were the dramatic drop in the crude oil price in the world market and the decreased demand for fuel, particularly during the state of emergency due to pandemic. For example, the average price of oil in H1 was $39.7 per barrel, which is 40% less than at the same time last year. There were times when the fuel consumption was half of what was expected. All of this affected our company’s business and the financial results at the end of H1 come as no surprise.


Operation of NIS group in the first half of 2020

Despite unfavorable macroeconomic trends, NIS Group invested RSD 14.5 billion in further development.

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NIS succeeded in maintaining positive EBITDA i.e. RSD 2.3 billion, as well as positive cash flow of RSD 6.3 billion. However, adverse macroeconomic trends brought about a net loss of RSD 10.2 billion. We continued to invest in key projects, primarily to increase the refining depth in the Pančevo Oil Refinery, we resumed the construction of the Pančevo Thermal Power Plant and the oil and gas exploration and production activities. Also, we can be satisfied with our operational indicators as we managed to achieve the same or even better results compared to the last year’s H1.

Has the company revised its business strategy? Have you laid workers off or reduced salaries to save money?

I have to start by saying that everything that was up to us was done in the most optimal manner with which we are nothing but content. At the crisis’ beginning, we redefined our priorities: the first priority being the preservation of liquidity through redefining investment priorities and reducing operational and capital investments. The next priority was ensuring an increase in efficiency and savings at all company levels. We developed several crisis scenarios that allow us to quickly adapt to market conditions.

In spite of the difficult situation, we have not reduced salaries or downsized the staff,s while managing to ensure continued financing for key investments. In the first half of 2020, we invested RSD 14.5 billion in total, a real feat considering the conditions in which we operated.

What does your continued investment in Bottom-of-the-Barrel plant at Pančevo Oil Refinery mean for the drivers?

Once it becomes operational, the new refining depth in the Pančevo Oil Refinery will allow us to produce larger quantities of white derivatives – diesel, gasoline and LNG and to reduce or abandon the production of black derivatives, primarily mazut. To be more specific, refining depth implies bigger quantities of the top quality fuels in domestic production. For us, refining depth also implies a new product – petroleum coke. It is used in the construction industry and is currently being imported to Serbia. The bottom-of-the-barrel project’s worth is over 300 million euros. Pre-start activities are currently under way.

What are your forecasts for the year’s end if oil prices remain at this level? Will the results worsen or not?

As is the case with all oil companies, the results of NIS a.d. are under the strong influence of oil prices and market demand. When it comes to this pandemic, there is little we can predict about the future. If someone could predict the oil prices, he/she would certainly win the Nobel Prize. Analysts’ assumptions are that prices will remain approximately at the current level unless extraordinary events take place which we momentarily cannot predict.

What is the current status of negotiations for the privatisation of Petrohemija?

First of all, the tender process for the privatisation of Petrohemija has not yet been announced. We can talk about Petrohemija once the tender process is announced and we know the terms of the privatisation. All I can say now is that we understand the significance of Petrohemija for the Serbian economy. For this reason, NIS has actively supported the efforts invested by the Government of the Republic of Serbia over the past few years in finding a model that would help make Petrohemija’s operations stay sustainable on the long run. We supply primary petroleum to Petrohemija which is its primary raw material. Due to 20.86% ownership in this company and its connection to our refinery, the continuity of its operation is very important to us.

What plans does NIS have for Novi Sad Refinery?

This refinery currently produces oils, lubricants and technical liquids which are sold on the domestic and foreign markets. For us, the Novi Sad Refinery is an important asset and we are considering several different options. However, the analyses we conducted and the business logic dictate that at this point our priority should initiating investments in the Pančevo Oil Refinery, in order to further strengthen its competitiveness in the regional market.

What are NIS’ plans concerning other energy sources?

As far back as in 2012, we initiated the transformation of NIS from a classic oil and gas company into an energy company. So far, we have built mini power plants on eight locations in Serbia which consume gas to produce electricity and heat. We have invested about 20 million euros in this business segment. Last year we started producing electricity from gas, in the Jimbolia field, in Romania. We are currently developing the production and sale of heat energy obtained from geothermal sources and we are equipping our new petrol stations with electric vehicle chargers. Nevertheless, the most important project in the field of electricity is the construction of the Pančevo Thermal Power Plant, in cooperation with Gasprom Energoholding. This investment is estimated at approx. 180 million euros and the planned installed capacity is of up to 200 MW.

We are certainly keeping track of the market trends, thus taking into consideration projects in the field of alternative energy sources. However, I would like to point out that the current economic circumstances and the current crisis force us to focus our attention and investments on our core business activities.

Why was the company’s bank account frozen at the end of June?

Due to judicial execution procedure, one of NIS’ bank accounts was prematurely frozen (blocked) for a short period of time which lasted less than 24 hours, on June 30th. No funds were collected from NIS’ bank account and the freezing of the account was resolved thanks to the timely response of the competent bodies. The order for the enforced collection was discharged from the records of the National Bank of Serbia. This had no impact on our liquidity, therefore NIS was fully able to settle its obligations and shall continue to do so in the future.

Why is Serbia the only country in the region where fuel price did not drop below one euro, even when the oil price was below $19?

We are part of the global energy system with two-thirds of the total quantity of oil we process being supplied from other markets. This makes us dependent on two factors which are beyond our control: oil prices and the dollar exchange rate. One should also understand that quite a lot of time passes between the procurement of oil and the sale of fuels at the petrol stations. So, at the beginning of the year, we purchased oil at the price above $60, which dropped by 30% in one day in March alone. In the circumstances where we have previously purchased supplies, the economic logic allows for gradual rather than instantaneous price adjustments. It is up to us to put continuous effort to improve the quality of our products, increase our efficiency so that consumers can expect to purchase the top quality fuel at petrol stations.

What are your priorities for the remaining part of this year?

We have set several priorities. Above all, it is the health and safety of our employees and consumers as the pandemic is not yet over. Then, maintaining the social security of our employees who are working very diligently in these complex conditions. Finally, it is of great importance to maintain company’s liquidity and positive cash flow that will enable us to continue to finance key projects that promote the development of NIS.

What is your take on the cooperation with the Serbian government as the minority shareholder?

The commercial success of NIS over the past decade is the result of cooperation and understanding between Gazprom Neft and the Serbian government. Ever since Gazprom Neft has been present in Serbia, there is an agreement with the Serbian government concerning the decisions relating to NIS and we are looking forward to developing the Company further to the satisfaction of our two largest shareholders. I would like to point out that, despite the present crisis, the General Assembly of the Company adopted a decision to pay out the amount of 25% of last year’s net profit in the form of dividends.

Since the onset of the pandemic, NIS has repeatedly provided support to the society, both in terms of money or fuel?

NIS is a truly socially responsible company, it’s not a platitude. Early in the pandemic, we provided 270 tons of fuel for humanitarian flights of Air Serbia, which brought medical equipment to Serbia and returned our citizens stranded abroad. Throughout April and May, our parent company Gazprom Neft provided fuel free of charge to meet the needs of Serbia’s public services, Ministry of Defense and the police, medical and fire services. Also, we have not discontinued our corporate responsibility program “Together for the Community”, and this year, in cooperation with the Ministry of Interior and the Ministry of Education, we will invest RSD 114.5 million in the digitalisation of the education process and increasing safety in schools in 12 towns and municipalities across Serbia.