Lukoil Lubricants Austria Gmbh Sets up Unique Manufacturing Site

OCTOBER 2015 PUBLICATION OF LUKOIL LUBRICANTS COMPANY (LLK-INTERNATIONAL)

NEW STRATEGY FOR NEW REALITY CONQUERING NEW FRONTIERS HEAD OF INDUSTRIAL OEM DEPARTMENT LUKOIL LUBRICANTS RINAT KALMANTAYEV TALKS ABOUT FOR THE MIDDLE EAST COUNTRIES THE CHANGES IN WORKING WITH INDUSTRIAL OEMS

MEDITERRANEAN SHIPPING COMPANY PREFERS LUKOIL MARINE LUBRICANTS

LUKOIL LUBRICANTS AUSTRIA GMBH SETS UP UNIQUE MANUFACTURING SITE

LLK-INTERNATIONAL GENERAL DIRECTOR MAXIM DONDE: PAGE 2

We see opportunities for developing the company and we intend to take advantage of them in 2015.

CONTENTS

2 INTERVIEW "We’ve Always Stayed One Step Ahead of Our Competitors"

8 CORPORATE AFFAIRS 2 LUKOIL Lubricants Austria GmbH Sets Up Unique Manufacturing Site

11 PRODUCT LLK-International’s Austrian Arm Completes Branding Switch, Puts Stake on GENESIS

14 PARTNERSHIP Mediterranean Shipping Company Prefers LUKOIL Marine Lubricants 8 16 MARKETS Conquering New Frontiers

20 PRODUCT Demand for Gas Engine Oil Grows in Europe

22 EXPERTISE New Strategy for New Reality 14

24 REALIZE STRATEGY

"МАСЛА@ЛУКОЙЛ" October 2015 "МАСЛА@ЛУКОЙЛ" is a publication of LLK-International Publisher: RPI Address: LLK-International, 6 Malaya Yakimanka, Moscow 119180 Phone: +7 (495) 980 39 12 e-mail: [email protected] Press run: 2,000

The magazine is registered by the Federal Service for Media Law Compliance and Cultural Heritage. Registration certificate ПИ №ФС77-28009

1 "We’ve Always Stayed One Step

INTERVIEW Ahead of Our Competitors"

LLK-International General Director Maxim Donde tells our magazine why the global crisis is a good time for business growth, dwells on the spe- cifics of perception of Russian lubricants, and explains how a domestic lubes producer has transformed into a global market player in 10 years.

Mr. Donde, we are having this con- have often turned into immense pos- Maxim Donde| The present day un- versation at a difficult time. Yet despite sibilities. What do you think this year doubtedly poses new challenges to some tension that we all feel, it’s a will be like for LLK-International, and all of us, but I believe that these chal- well-known fact that crises have often do you see any opportunities for lenges are a prerequisite for dynam- been a pivotal point, and challenges growth? ic development and moving forward, which is typical for our company in particular and LUKOIL Group on the whole. We see opportunities for developing the company and we intend to take advantage of them in 2015. We have all necessary resources for that: a range of high quality products meeting market requirements, new R&D developments, upgraded plants that manufacture advanced technology lubricants, and skilled staff.

Crisis or not, time moves on. This year LLK-International celebrates its 10th anniversary. You have been the head of the company all this time. How would you rate its performance during this decade?

M.D.| A lot has happened within these 10 years: our formation and search for something new, ups and downs, small victories and ep- ic breakthroughs. We have followed this direction and kept growing stron- ger, more confident in the path that we had chosen. We have always believed in what we do, we knew where we’re headed and what we want to achieve. This decade has been like a perpetuum mobile in action. Permanent movement is our mot- to. LLK-International stands for dynamics, energy, creative approach to make something better. It’s about will- power and striving for great achievements — and all this is a core of a suc-

2 cessful business. LLK-International has spirit, it’s a way of life predeter- Last year, LLK-International signed an agreement with MMK for the sup- mined by that spirit. People say that ply of LUKOIL INTEGO oils. A three-year contract was signed with Norilsk destiny is a purpose achieved. Our Nickel GMK (Mining and Metals Company), as well as an agreement team is a group of like-minded peo- for the lubricants supply to Siberian Coal Power Company (SUEK). ple, companions dedicated to their Chusovoi Metallurgical Works, the largest manufacturer of car springs cause, who have been fulfilling their in Europe and supplier to KAMAZ, AZ URAL, UAZ and NEFAZ auto- potential through great achievements makers, will use LUKOIL oils. The import substitution program has been and victories during all these years. implemented with Russian Railways. LUKOIL lubricants will also be sup- plied to Korshunov Mining Plant, Southern Kuzbass, Mechel Group. LLK- Do you mean to say that economic dif- International continues cooperation with Mosgortrans. ficulties, which are today’s reality, will make no major impact on the LUKOIL lubricants business? in Russia. Recognized worldwide.” M.D.| Import substitution has been It’s a rather laconic phrase. I be- a matter of discussion and a trend in M.D.| I cannot claim that we will lieve that one of our key advantag- Russia over the last six months, but avoid difficulties. After all, we exist in es is the experience we gained dur- I should add that we have been suc- a single market and we all play in the ing these years, including experience cessfully implementing this concept for same field. It’s rather an issue of who in overcoming hardships en route to quite some time. Our products are of has different kinds of advantages achieving further growth. This is a sol- high quality, and are as good as and that will be of major importance un- id foundation for new achievements, often better than their foreign counter- der complex circumstances. We have so we are more than ready for drastic parts. This is confirmed by test results dedicated these 10 years to build changes in the Russian market, which and OEM approvals. In the past, im- our own advantages. Our meticulous at the moment trends towards encour- ported equipment such as passen- work has produced an unmistakable aging domestic manufacturers. We ger vehicles or machinery was most- result: LLK’s advantages are obvious do have products to offer to Russian ly lubricated by foreign-made oils not only to our partners in the Russian consumers and we are confident in while the use of domestic lubricants market. We have turned into one of their quality. was pretty scarce. I believe the cur- the world’s major lubricants compa- rent economic situation will stimulate nies, and global recognition is grow- The current situation in Russia is indeed consumers to change that habit. We ing continuously. By the way, it’s re- favourable for domestic lubricants have been offering replacements for flected in our motto dedicated to our manufacturers: implementation of im- foreign products in various fields of in- 10th anniversary, which has been port substitution programs in many dustry and transport for some years approved by virtually everyone in industries is a pressing issue, and the now, and we intend to strengthen our the company. The motto reads: “Born lubricants market is no exception… position.

3 It sounds ambitious. Is the current М.D. | We appreciate their trust and М.D. | Since 2010 as per LUKOIL range of LUKOIL lubricants going to develop mutually beneficial partner- President’s order LLK-International meet the needs of most domestic in- ships. LUKOIL lubricants are success- has been replacing lubricants and dustries within the framework of import fully used in metal, power and mining coolants of third-party manufactur- substitution programs? industries, as well as in other industri- ers with lubricants and coolants of al sectors. The important thing is that LUKOIL, TEBOIL and OMV brands M.D. | We are 100 percent ready the range of LUKOIL’s industrial lu- at the Group’s factories. I would like to do that in practical terms. LUKOIL bricants has been developed in view to express my gratitude to the heads Group’s share in Russia’s lubricants of specific use of equipment in var- of LUKOIL Group’s production, pow- production totals 45 percent. It’s a ious industries, through tremendous er generation and refining sectors for weighty figure. The important thing is efforts of LLK-International’s team supporting this idea, which is currently that we offer more than just high qual- and our partners. It is a matter of being implemented by all LUKOIL sub- ity products. We are a reliable partner great importance: the results of tests sidiaries. Two years ago the program and we do have our advantages. We that we regularly carry out at plants was expanded through the inclusion practice full-cycle cooperation with and OEM approvals confirm that we of LUKOIL-Stavropolenergo, LUKOIL- corporate consumers of our products are moving in the right direction. In Rostovenergo and LUKOIL-Energoseti in various industries, whether they are the context of current economic con- plants. Last year, we made another industrial lubricants or oils for com- ditions in Russia that we discussed big step forward, and in 2015 we aim mercial or passenger vehicles: from above, this year we expect multiple to switch all the Group’s contractors development and manufacturing of growth in demand for high quality in- over to LUKOIL lubricants. new products meeting modern equipment specifications to timely delivery and a range of services related to use Two years ago the program was expanded through of our lubricants. We are efficient and the inclusion of LUKOIL-Stavropolenergo, easy to work with, and that’s what our LUKOIL-Rostovenergo and LUKOIL-Energoseti plants. partners appreciate.

Last year, the company notably strengthened its positions in domestic dustrial lubricants. When it comes to Domestic industry professionals under- industry. Russia’s manufacturing giants our partners abroad and in the CIS, stand perfectly well the advantages of such as Novolipetsk Metallurgical there is a demand for our products LUKOIL lubricants. Russian car own- Works (NLMK), Magnitogorsk Mining in Belarus, Kazakhstan, Azerbaijan, ers, however, are rather conservative and Steel Works (MMK), Severstal, Finland and other countries. And we when it comes to choosing motor oils Kuzbassrazrezugol, Mechel, Norilsk are going to develop this coopera- for their cars, and as a rule they stick Nickel, Metalloinvest and many oth- tion further. with foreign brands. Currently, domes- ers all use LUKOIL oils. The confidence tic manufacturers are losing this battle of major companies speaks louder Are LUKOIL lubricants used in LUKOIL and LUKOIL is no exception. Taking than any advertising brochures… Group’s factories? into account favourable market condi-

4 tions, do you plan to increase loyalty day. I believe that many car owners LUKOIL GENESIS for the retail sector, of Russian car owners, and if so, how will become our regular customers in and Russian consumers will be able to are you going to proceed? the short run. appreciate its quality very soon.

М.D. | We approach this issue from Continuing on the topic of domes- Franchise workshop managers have several different angles. Our initial tic product perception, LUKOIL al- deep confidence in LUKOIL products target are those who make the first ready has a product that’s popular they recommend… decision to buy our products and among European motorists — LUKOIL then sell it and recommend it to con- GENESIS. Do you plan to launch its М.D. | They are true profession- sumers, i. e. dealers, trade represen- sales in the Russian market? Its suc- als who are skilled and competent to tatives, franchised workshops em- cessful track record in Europe could work in the car business, including the ployees and car manufacturers for make Russian customers more loyal, lubricants sector. Car manufacturers whom we hold training courses. We couldn’t it? provide complete information on lubri- provide them with detailed descrip- cant requirements to franchised work- tions of our products’ advantages, М.D. | LUKOIL GENESIS is indeed shops’ employees. On the basis of and also showcase the process of an established product in European that information and their own experi- LUKOIL lubricants production at our markets. It has been introduced in ence they then decide whether a mo- manufacturing plants in Russia and 25 European countries, and its sales tor oil, which is compliant with the car- abroad. After we do this, in most are growing. In Russia, we’ve been maker’s requirements, can be used. cases there are no further questions selling it for two years exclusive- If our motor oils meet requirements of about the quality of LUKOIL lubri- ly to customers of franchised work- a specific car manufacturer, they are cants, and the number of loyal cus- shops and today it’s safe to say that recommended for use. It’s that simple. tomers grows. At the same time we LUKOIL GENESIS enjoys steady de- conduct campaigns to bring this in- mand among the owners of luxury Many reputed automakers and equip- formation across to our end consum- cars undergoing maintenance. In the ment manufacturers prefer LUKOIL oils ers. And the most important thing end of September we have launched for factory fill and service fill. What is that we manufacture high quality competitive products that we are proud of. It isn’t difficult to be per- Based on the company’s performance in 2014, the supply of LUKOIL suasive when you have that kind of lubricants to franchised workshops has grown more than twofold. The attitude. Nowadays, Russian con- company signed contracts with such major multi-brand franchised work- sumers are more demanding, pay shops as Avtomir, Kanavto and Avanta. The company continues to co- more attention to product selection operate with Rolf and Avtospetscentre groups and expand ties with GM. and make a conscious choice. They LLK-International has reached an agreement with Chery for production are familiar with domestic products, and supply of service fill oils. the quality of which is fairly high to-

5 are the prospects for this sort of coop- MAN Group in Russia. We are going The achievements that you just men- eration in 2015? to supply oils to the group’s assembly tioned are conclusive evidence of the plant in St. Petersburg and to MAN’s company’s success in technology de- М.D. | Our company has achieved official service centres in St. Petersburg velopment, and they leave no doubt success as a supplier of lubricants for and the Moscow area. Thus, we have about the high quality of LUKOIL lubri- factory fill. We are proud of it and become the first domestic lubricants cants. At the same time, it sounds logi- we are going to pursue our goals fur- company supplying lubricants to the cal considering that LLK-International ther. Our factory fill oils are used by Volkswagen Group. It’s a great suc- is among the best high-tech compa- such companies as GM AVTOTOR, cess. Before the end of the year we nies in the market. Do you intend to General Motors Powertrain, Chery. intend to participate in a global ten- keep investing in innovations and top- Early this year we have become a der in Europe for supply of factory fill end technology, and if so, what ex- supplier of factory fill and service new-generation fuel-saving oils for actly do you plan to spend on? fill lubricants for trucks and buses of Renault-Nissan in Europe. М.D. | We have always thought that it’s important to invest in new research, production facilities and people since they are our key resources. Regarding introduction of new products in the market, the company develops new lubricants on a continuous basis. Our current product range includes over 600 items. Machinery and equipment manufacturers have granted over 400 official approvals. So when it comes to development of the company’s product range, our focus is on high spec oils produced in line with current requirements. Last year, we developed and launched production of 37 new products, and in 2015 we are going to continue this work. At the same time we don’t invest in development of new formulations only. We realize that production of modern quality oils re- quires high-tech facility management, so we pay a lot of attention to our manufacturing sites. Not so long ago we upgraded our Austrian site where we intend to build a tank farm and a mooring complex on the Danube River, which will enable transshipment of bulk cargoes by water transport. Construction had begun in February. Our Austrian plant is certified according to the standards of the German Association of the Automotive Industry (VDA). Today, we are Russia’s only lubricants producer that has had a plant certified by this reputed association. We also plan to certify our other lubricants plants located abroad and in Russia. Of course, our principal re- source is our team of professionals, and we are proud to say that young, educated, ambitious and talented people join our company every year.

Today, LLK-International is setting trends not only for oils but for lubes as well. The INTESMO plant that opened last September has the capability to

6 provide advanced lubes — including those that perform better than In 2014, the company developed and launched manufacturing of 37 their Western counterparts — to most new products, LUKOIL GEYSER HFDU fire-proof hydraulic oil, LUKOIL of Russia’s manufacturing industries. INTEGO Premium series of premium oil for rolling mills that meets the re- Please, tell us about INTESMO’s busi- quirements of global metals industry. LUKOIL TORNADO GT oil was pre- ness goals in 2015. scribed as the main lubricant for gas turbine engines. Last year was also marked by the successful market launch of LUXE LPG and SUPER LPG oils М.D. | The plant opened last intended for use in gas engines. We obtained 47 approvals for motor, September, but it has already prov- transmission and industrial LUKOIL oils that were issued by Russian and en itself as a reliable supplier of high foreign equipment manufacturers including MAN, Porsche, Cummins, quality lubes for many branches of Renault, Mercedes and Danieli. Russian industry. It’s a joint venture of LUKOIL and Russian Railways and it covers approximately 80 percent of have offices in 11 countries. Our lu- cants for ship engines. Shipbuilders the railway company’s demand for bricants are sold in 103 states around also show interest in our new devel- lubes. Later this year, INTESMO will the globe. Last year, we successfully opment — iCOlube intelligent cylin- supply to Russian Railways products entered the Arab market: Al Habtoor der oil lubrication. Our new partner, from the Kuskovo lubes plant, which Motors became the official distribu- Mediterranean Shipping Company, is currently non-operational. Railway tor of LUKOIL lubricants in the United decided to install this system on all of companies in Kazakhstan, Mongolia Arab Emirates. We set up a deal- its vessels currently under construction. and Latvia have also displayed inter- er network in Jordan. LUKOIL oils are We also supply NAVIGO 100 MCL est in INTESMO lubes and the com- successfully sold in Syria. We intend lubricants to over 100 ultra-large ves- pany is already shipping its products to develop LUKOIL lubricants business sels of this company, including 20 to these countries. This year, we are globally and in the long run we plan to largest modern container ships. Since going to increase export sales. Russian enter Asia-Pacific markets. last May these lubricants have been companies have shown interest, too: successfully used by Oman’s National Shipping Company fleet that includes 43 vessels with the cargo carrying ca- LUKOIL POLYFLEX EP2-160 grease was successfully pacity of 300,000–400,000 tons tested at the Chelyabinsk Pipe Rolling Plant, and LUKOIL each. Currently, LUKOIL marine lubri- THERMOFLEX ЕР2-180 grease at Mosgortrans, while cants are used by the largest operator LUKOIL CARBOFLEX grease is currently being tested by the and owner of cruise ships, the U.S. — Siberian-Urals Aluminium Company (SUAL) with an aim to based Carnival Group. The famous replace foreign-made greases. Still ahead is the testing and Queen Mary II runs on our oil, as well introduction of plastic greases at Severstal-Metiz and EPK- as the company’s new flagship cruiser Brenko Bearing Company. Britannia. I believe that our products will soon be in demand by other marine shipping companies, too. in 2015, NLMK and Novocherkassk Talking about your company as a Electric Locomotive Building Factory global market player, we should Mr. Donde, as we wrap up this inter- will also be using INTESMO lubes; mention its tremendous success in the view, I can’t help asking: what do you we are developing ties with European global marine lubricants market where think is LLK-International’s recipe for Bearing Corporation. Equally impor- LUKOIL currently controls 5 percent. success? tant is the fact that import-substituting It’s an impressive result within such a lubricants are tested on production short term. Do you have plans to fur- М.D. | I have mentioned before this sites on a continuous basis. It’s obvi- ther increase the company’s share this special drive to win that unites every- ous that INTESMO holds a strong po- year? one working here. We are always try- sition in its market niche. ing to move a step ahead of everyone М.D. | We have already moved from else. I think this is a recipe for some of As the leader of the Russian lubricants plans to action. LLK-International’s our successes. We are dynamic, and market LLK-International has always marine lubricants business is indeed this dynamics drives processes and striven to excel, steadily expanding its one of the most successful, not only on people in charge of them. Success un- global reach. What new markets are our company’s scale, but on the glob- doubtedly means a unique team that attractive for the company, and which al scale, too: the supply network for shares common values and goals. It of them do you plan to enter as early LUKOIL marine lubricants includes ap- means creation of products in line with as this year? proximately 900 ports in 74 countries. market requirements. We are in sync I’d like to mention that we are the on- with LUKOIL’s trademark motto — “al- М.D. | Expansion into foreign markets ly Russian company that has become ways moving forward”; we have nev- is one of our priorities. Currently, LLK- a true global player in this market. er stood in one place and never will; International’s production facilities LUKOIL NAVIGO 100 MCL lubricants we have always moved forward and are located in six countries, and we are recognised as benchmark lubri- will continue that way.

7 LUKOIL Lubricants Austria GmbH Sets Up Unique Manufacturing Site AFFAIRS CORPORATE

Seeking to expand its presence in the European lubricants market, LLK- International puts a big focus on LUKOIL Lubricants Austria GmbH. Over the next few years its Vienna factory is bound to become one of the modern lubricant manufacturing complexes in Europe. Its geographical location makes it unique: the factory is built on the bank of the Danube River, which flows into the Black Sea, providing unrivalled logistic advantages.

n June 2013, LUKOIL bought an has been fitted out with bespoke In 2015, LUKOIL Lubricants Austria Ioil blending plant in the Vienna equipment. The loading rack for serv- GmbH launched production of a suburb of Lobau. Since then the coming motor vehicles has been thor- range of LUKOIL lubricants. It needs to pany has conducted a major retool- oughly retrofitted. Virtually all busi- be noted that as soon as the LUKOIL ing effort there in a bid to improve ness processes at the factory have Group began integrating the facto- quality standards of its products. been overhauled to improve pro- ry, the facility started to use LUKOIL The plan to upgrade and optimize duction management efficiency. As base oils that had approvals for cer- production envisaged over 150 dif- a result, the current level of quality tain products manufactured in Lobau. ferent activities that included simulta- deviations during automated manu- In particular, this refers to the flagship neous implementation of several new facturing is 10 times lower than the product promoted in European mar- systems such as smart storage, pre- previous factory indicators and aver- kets — LUKOIL GENESIS synthetic mo- ventive equipment repair and main- age market indicators. tor oil series. tenance, collection and storage of Prior to its sale to LUKOIL, the facto- Late last year, a ceremony was held waste oils, sampling, storage and ry had been producing oils under to mark the launch of construction of logging of samples. The factory lab the OMV brand for almost 20 years. a terminal for transshipment and stor-

8 age of bulk oil. This event will certainly become one of the most important in VAGIT the factory’s history. LUKOIL President ALEKPEROV, Vagit Alekperov attended the ceremony together with representatives LUKOIL PRESIDENT of local authorities and high-ranking “European consumers show de- visitors from Moscow. Construction mand for our products. Their trust of the new facility is part of LLK- obliges us to assume high degree of International’s program to upgrade responsibility. We aren’t just retool- the Austrian factory. ing our lubricants plant in Austria, The terminal construction began in but actually creating an entire com- February and should be completed plex with an array of technological this autumn. In the past, the tank farm advantages: optimum logistics pos- could hold a little over 3,000 tons sibilities for delivery and storage of products. Once the entire com- of base oils and finished products, plex is finished this figure is going to a flexible manufacturing process grow more than twice, eventually to- in line with current European stan- talling 7,200 tons. A special moor- dards of key consumers – interna- ing complex will be built next to the tional automakers and equipment tank farm to receive base oils deliv- manufacturers.” ered via the Danube. Use of water transport instead of railway will help significantly reduce costs of shipping down to actually building the neces- Moreover, the plant is located in the base oils from the Volgograd oil re- sary infrastructure. vicinity of a nature reserve, and the finery. Using water transport at the manu- investment program provides for ex- The tank farm for products storage and facturing facility near Vienna will tra industrial safety measures. the mooring complex for transship- bring not only economic but ecolog- The motor oil segment is one of the ment will offer unique logistics poten- ical benefits as well, which is high- priorities in development of LUKOIL’s tial to LUKOIL. Back in the day when ly important in terms of social sig- lubricants business in Europe. In the plant had just been designed, its nificance attached to environmental February, an independent compli- previous owner, OMV, planned to protection in European countries. ance audit of LUKOIL Lubricants take advantage of the facility’s favourable location on the Danube RIGHT TO LEFT: LUKOIL PRESIDENT VAGIT ALEKPEROV, LLK-INTERNATIONAL GENERAL DIRECTOR River. However, over the 20 years of MAXIM DONDE, HEADS OF LLK-INTERNATIONAL EUROPEAN BUSINESS LINE YAROSLAV the plant’s existence OMV never got LITVINTSEV AND ALEXEY MOSKALENKO DURING A VISIT TO THE AUSTRIAN PRODUCTION SITE IN JANUARY, 2015

9 plants and conveyors of VDA mem- MAXIM DONDE, bers, including such car manufac- LLK-INTERNATIONAL GENERAL DIRECTOR turers as Mercedes Benz, BMW, Audi, Porsche, Volkswagen, ŠKODA, “Currently, LLK- MAN, Scania and others. International is the only LLK-International General Director Russian lubricants com- Maxim Donde said that certification pany with a European was an important step in implemen- plant certified as per tation of the company’s business de- VDA 6.3 standard and velopment strategy in Europe. “Today, assigned the highest the reliability of production manage- ‘A’ category. This result proves efficiency of our continuous efforts to im- Using water transport at the prove quality manage- manufacturing facility near ment of the company’s Vienna will bring not only production facilities. In economic but ecological the future we plan to benefits. certify our other manufacturing plants, too.” ment at our factory is much higher than prescribed by the regulations, and the Austria GmbH was conducted in an category, which confirms a priority audit results confirm this. The status effort to reinforce the LUKOIL brand supplier status for leading German of a VDA-certified category ‘A’ sup- in the continental market. The audit automakers and VDA members plier will undoubtedly reinforce posi- reviewed the plant’s adherence to (Verband der Automobilindustrie) — tions of the LUKOIL lubricants brand in one of the most stringent and mod- German Association of the European and global markets.” ern standards in the car industry — Automotive Industry. Thus, the cer- LLK-International’s massive effort to VDA 6.3. LUKOIL Lubricants Austria tified factory in Vienna will be able expand the infrastructure at LUKOIL GmbH was assigned the highest “A” to supply lubricants to assembly Lubricants Austria GmbH proves that the Austrian site is becoming a LEFT TO RIGHT: LUKOIL PRESIDENT’S REPRESENTATIVE IN EUROPE ALEXEY LAMBIN, AUSTRIAN key stepping stone for development CHAMBER OF COMMERCE AND INDUSTRY PRESIDENT WALTER RUCK, LUKOIL PRESIDENT VAGIT of LUKOIL’s lubricants business in ALEKPEROV, LLK-INTERNATIONAL GENERAL DIRECTOR MAXIM DONDE Europe.

10 LLK-International’s Austrian Arm Completes Branding Switch, Puts Stake on GENESIS PRODUCT

Two years ago, LLK-International signed an agreement to acquire OMV’s lubricants business in Austria and the European Commission approved the deal in January 2014. Following the takeover, the new owner had to make a switch from one brand to another and build clients' awareness of the LUKOIL brand in relevant European markets. The Vienna-based LUKOIL Lubricants Europe team, headed by CEO Yaroslav Litvintsev, accomplished this goal in less than five months. In a recent interview with Masla@LUKOIL, Gerald Kaspar, European Marketing Manager talked at length about the re- branding campaign and particularly the positioning in Europe of LUKOIL’s flagship brand in the premium lubricants sector, GENESIS.

Could you, please, recap in brief the lubricants to our customers by tank without borders, which makes ship- campaign to introduce the LUKOIL loads. In other words, whatever the ping easier, with less bureaucratic brand to Austria and other European client’s choice, we have it! hassle. Also, the countries that I men- markets? tioned are located in the heart of Which countries are the main distri- Europe, and some of the most impor- Late last year we informed all of our bution targets for lubricants supply tant shipping routes cut through these clients that we were about to begin from the Vienna plant? regions, which translates to steady, switching from the OMV brand to high demand for lubricants, especial- LUKOIL. In January 2015, we start- We currently focus on the surround- ly in the long haul trucking sector. ed the switch by replacing drum col- ing markets of Austria, especially ors. For GENESIS we used its trade- on Germany and Italy as one of the What about your distribution chan- mark black-and-gold combination, biggest potential lubricants areas in nels, how are you getting across to and for all other product lines such Europe. clients? as Avantgarde, Steelo, etc, we used LUKOIL’s traditional red-and-white What are the major differences be- Today, we use three major channels. colors, which, by the way, provide a tween the Russian and European lu- The first is the B2B, automotive chan- very good marketing draw in Austria bricants markets? nel — mainly workshops (passen- considering that the national flag is red-and-white. Initially, we also kept shipping OMV We currently focus on the surrounding markets of Austria, lubricants in LUKOIL drums to exist- especially on Germany and Italy as one of the biggest ing clients and LUKOIL lubricants al- potential lubricants areas in Europe. ready in LUKOIL drums to new clients. We completed the switch on May 18. The reason to finalize by I’m not very familiar with the Russian ger car, truck, agricultural machin- mid-May had been the European market, but I can talk about some of ery workshops). Another channel is CLP (Classification, Labelling and the characteristic features of markets through our dealers, so-called “flag- Packaging) regulation that went in- in Europe. First of all, the competi- ship resellers”, who buy LUKOIL prod- to effect in June. We package our lu- tion is very strong and customer ex- ucts from us and resell them to their bricants in 1-, 4-, 20-liter cans, as pectations are rather high. In order to own clients, mainly smaller costum- well as 57- and 205-liter drums. be able to sell our product, we need ers and we have the industrial sector For larger orders, we also have top-level product quality supported channel that deals with big industrial 1,000-liter IBC’s (Intermediate Bulk by highly professional marketing ser- customers such as steel plants, power Containers), and we also distribute vice. Geographically, this is a market plants and OEM’s.

11 GERALD KASPAR TELLS A JOURNALIST ABOUT THE DRUM-FILLING OPERATIONS Do these oils need the same OEM specifications and approvals in Europe as in Russia or there are any How did you create the product port- product portfolio that complies with differences? folio? all requirements and helps European consumers figure out the new prod- There are for sure market differenc- We took the best products from the uct lines easily and make the switch es! Practically all of our existing OEM two companies’ portfolios and tried to make brand identification for our customers as easy as possible. The GENESIS quality, its numerous approvals by the world’s effort to create LLEE’s product port- leading carmakers speak for itself and make us confident in folio and switch to the new brand positioning it alongside these well-known global brands. required solving two tasks: to use existing product lines of LUKOIL lubricants to the maximum and to blend to LUKOIL lubricants. As an example specifications and approvals are valid into them unique products that had we switched former OMV premium for marketing LUKOIL lubricants in this been manufactured in Austria. Under product line BIXXOL Special engine part of Europe, but we did apply addi- the guidance of our colleagues oils into LUKOIL GENESIS SPECIAL tionally for a certificate as per VDA 6.3 from the Moscow-based Product series, thus making the minimum pos- standard* and we are also working on Management Dept. we created a sible change in terms of naming. certification as per ISO TS16949.

What communication strategy did you use to facilitate brand replacement?

We had investigated the market in order to identify the best place for positioning GENESIS. When you’re new in the market, you have only one chance to make first impression and proper-

* German Automotive Standard (Verband der Automobilindustrie), defines a process-based audit standard for evaluating and improving controls in a manufacturing organization’s new product introduction and manufacturing processes.

12 ly position your product. Having ana- lyzed the market, we decided to position GENESIS in the same range as Shell, Mobil and Castrol motor oil brands. Its quality, its numerous approvals by the world’s leading carmakers speak for itself and make us confident in positioning it alongside these well-known global brands. As a newcomer we also decided to choose new ways of marketing like Facebook, website (social media).

So what kind of feedback have you been getting from the market so far? Are European consumers ready to What brands are you manufacturing aim is to reach 10 percent of market buy Russian oil? there and do you plan to increase share within the next 3 to 5 years. output? Yes, they are! After some initial con- Besides GENESIS, what LUKOIL versation and introduction of the We blend all our products here, in- products hold the largest potential in company, clients accept the LUKOIL cluding GENESIS, Avantgarde, terms of sales? brand. To support that we do a lot of Steelo and other LUKOIL lubricants marketing articles in the trade press brands. Base oil will be delivered by The Avantgarde line, i. e. — the truck and our customers are well prepared, ship (by the end of the year), contain- oil business. Our industrial lubricants they trust us as a team since we are er or train already today. also hold a lot of potential. We are all well-known in the industry. Our In Austria, we control 20 percent very happy to have this product port- customers and partners have deep of the lubricants market and in five folio featuring nearly 1.000 items trust in our marketing effort and ap- years we want to grow our share to that enables us to meet the needs of preciate the job we’re doing. 30 percent. In other countries our virtually any customer.

13 Mediterranean Shipping Company Prefers LUKOIL

PARTNERSHIP Marine Lubricants

After developing and launching NAVIGO 100 MCL – a marine lubricant that revolutionized the industry two years ago, LUKOIL Marine Lubricants Ltd. is now successfully boosting cooperation with the world’s largest shipping companies. Early this year, the company signed an agreement with Mediterranean Shipping Company (MSC).

The agreement with MSC may be 395 meters long and almost 60 me- Based on the agreement terms, called a milestone for LLK’s marine ters wide. LUKOIL will supply 15,000 tons of oils business. The company has start- The shipowner was thoroughly choos- lubricants to MSC by the end of this ed deliveries of LUKOIL NAVIGO ing the lubricant for MSC OSCAR as year, thus providing over 100 ultra- 100 MCL new-generation cylinder the vessel is equipped with fuel-sav- large vessels with high-quality ma- oils for MSC OSCAR, the world’s ing engines. LUKOIL NAVIGO 100 rine oils. largest container ship. The vessel MCL is the first high-alkali low-con- The partnership between LUKOIL joined the fleet of MSC last January. sumption oil in the market, and ulti- Marine Lubricants Ltd. and MSC It can carry a record number of con- mately it was chosen over other glob- has considerable development pros- tainers at a time — 19,224. It’s over al counterparts. pects. Currently, MSC is building 20 more container ships, which will al- CURRENTLY, MCS OSCAR IS THE LARGEST CONTAINER SHIP IN THE WORLD so join the ranks of the world’s larg-

14 est vessels. As per the agreement, FUEL-SAVING ENGINES OF MCS OSCAR RUN ON A NEW-GENERATION LUKOIL Marine Lubricants will supply LUKOIL NAVIGO 100 MCL CYLINDER OIL oil for all of them. Along with LUKOIL NAVIGO 100 MCL, MSC vessels will use one more General Director Maxim Donde the production of new-generation LUKOIL product — iCOlube intelligent commented on the deal. marine oils. I am absolutely con- cylinder oil lubrication. This innova- “The top management of the tent with the choice of the marine- tion significantly reduces spending Mediterranean Shipping Company oil supplier for our company,” MSC on motor oil, ensures optimum oper- highly appreciates the undeniable Senior Vice President Pasquale ation, improves engine condition and technical supremacy of LUKOIL in Formisano said. decreases carbon oxide emissions in- to the air.

Based on the agreement MEDITERRANEAN terms, LUKOIL will supply 15,000 tons of lubricants to SHIPPING COMPANY: MSC by the end of this year. Mediterranean Shipping Company (MSC) S.A. was founded by Gianluigi Aponte in Brussels in 1970. Initially MSC was engaged “We have become the main oil sup- in tramp shipping with a single second-hand vessel named MSC plier to one of the world’s larg- Rafaella. Today, MSC is a global private shipping company, one of est shipping companies, thus prov- the world’s top container logistics companies. It has a wide network ing our ability to satisfy the global of 480 offices in 150 countries. The company’s global staff numbers needs of shipowners with any fleet approximately 24,000 employees. Its fleet consists of 445 contain- count. Furthermore, as a hi-tech er ships with total capacity of 2,275,000 TEU (as of late February company, we have again reaf- 2014). The company has access to integrated transport infrastruc- firmed LUKOIL’s undeniable lead- ture around the world (delivery by road, rail and sea) and is able to ership in terms of marine oils and provide area-specific services. MSC has over 200 trade routes and lubes and we would like to express its ships call at over 315 ports around the world. MSC services are our gratitude to our partners for their not limited to ocean freight. The company also offers storage and loyalty in choosing the revolution- land transportation, and is able to provide comprehensive door-to- ary iCOlube system for the most cut- door logistics for its customers. ting-edge and technically equipped ships of the Mediterranean Ship- ping Company,” LLK-International

15 Conquering New Frontiers MARKETS

LLK-International is eager to build a strong presence in the Middle East lubricants market targeting expansion into six Gulf countries.

aving broken ground in the markets in the world. In his recent in- world’s strongest in terms of per capita HMiddle East as a marine lu- terview with Masla@LUKOIL Singh income, which ranges from $16,000 bricants supplier, LLK-International is Dahiya spoke at length about a num- in Oman to $45,000 in U.A.E. to ap- currently making efforts to gain a foot- ber of issues that are critical to the com- proximately $100,000 in Qatar. hold in the automotive and industri- pany's success in a specific environ- It is also a challenging market for lu- al lubricants segments of the regional ment he describes as a typical D-I-F-M bricant manufacturers: local climate market. The key man behind this drive (Do It For Me) market. is very hot with temperatures often is Joginder Singh Dahiya, a science reaching 50 degrees Centigrade in graduate in chemistry by training who What are the characteristic features of the summer, humidity is very high, also holds an MBA degree in sales and the lubricants market in the Gulf coun- and fine sand almost invisibly seeps marketing and possesses vast experi- tries? into car engines. Harsh weather con- ence in working in the region. With 25 ditions and abundance of sand put years in the business under his belt — Joginder Singh Dahiya | This market an intense strain on engine perfor- including 15 that he spent working in holds a lot of potential for a number mance and lubricants producers the Middle East — the 46-year-old na- of reasons. For a start, it’s among the need to address all of these issues. tive of India joined LLK-International last August as regional sales director for automotive and industrial lubricants THE COOPERATION CONTRACT SIGNING CEREMONY WITH to help build the company's business in Y.K.ALMOAYYED & SONS (YKA GROUP), THE EXCLUSIVE DISTRIBUTOR OF LUKOIL LUBRICANTS one of the most competitive lubricants IN THE KINGDOM OF BAHRAIN

16 MOMENTS AFTER THE SIGNING A COOPERATION AGREEMENT BETWEEN prominent distributor partners helps LLK-INTERNATIONAL AND AL HABTOOR MOTORS, us get renowned distributor partners THE EXCLUSIVE DISTRIBUTOR OF LUKOIL LUBRICANTS IN THE UNITED ARAB EMIRATES in other countries because here rep- utation matters to the channels as it gives them confidence that major Moreover, original equipment man- try events taking place here. It’s like business houses have partnered with ufacturers (OEM) advise local mo- a showroom. If you get U.A.E. right, LUKOIL. However, this wasn’t easy as torists to make shorter oil change in- you’ll get right any other place, too. being one of last major entrants since tervals than in Europe. If you drive in Connectivity by Emirates also helps. all existing large business houses al- Europe, any major car manufacturer U.A.E. was followed by Qatar and ready had a tie-up with major lubri- would recommend that you change Bahrain almost simultaneously. We cants brands. In certain markets, we your oil after 25,000 kilometers chose Qatar because of a massive replaced existing major lube players whereas here you would be advised construction effort currently under way to tie up!!! This has made competitors to change it after 15,000 kilometers. there for the 2022 FIFA World Cup. very nervous. Here, premium cars used to have the It’s a very small country and hav- "European tag" of 25,000 kilome- ing worked there previously I want- Which countries are going to be next ters, but eventually had to lower it to ed us to be present in that market and in terms of business expansion? 15,000 kilometers because of fine capitalize on these huge construction sand clogging the engine filter. projects, which will inevitably drive J.S.D. | Apart from these three coun- demand for both automotive and in- tries, GCC also includes Kuwait, U.A.E., Qatar and Bahrain were LLK dustrial lubricants. Oman and Saudi Arabia. In Kuwait International’s top choices in terms of Bahrain is next door to Qatar and we already have a distributor and po- entering the Gulf lubricants market. we decided to take advantage of tential distributors have already been Why these three, what influenced that its proximity and build our presence shortlisted in Oman and Saudi Arabia. decision? there as well. So far, it has been a Currently, we are doing due diligence classic success story: we became in these two countries in terms of fea- J.S.D. | The Gulf Cooperation Council profitable from first month of our op- sibility, business plans etc, and we (GCC) includes six member countries erations as LUKOIL has been posi- will appoint distributors there soon. and our intent is to be present in all of tioned in line with major lube com- Appointment of distributors in phases them within the first six months of op- panies. This also allows us to have a allowed us to have a fully functional erations. Since our Middle East of- decent marketing pot to plough back supply chain. fice is located in Dubai, presence in money in marketing activities. Our U.A.E. was our first choice. U.A.E. strategic goal is to capture a 5-per- What products enjoy the highest de- is a major export hub for Africa and cent share of the automotive lubri- mand in these markets? the entire Subcontinent. Dubai is a re- cants market in the Middle East in gional business center that regularly next five years and we are already J.S.D. | Middle East markets can be draws scores of businesspeople from being seen as the fastest-growing lu- split into passenger vehicle lubri- around the world to numerous indus- bricants player in the region. Having cants (PVL), commercial vehicle lu-

17 bricants (CVL) and industrial lubri- at around 25–30 million liters and panies currently present. LUKOIL is the cants. Gasoline is cheaper than diesel Bahrain at around 18 million liters. latest entrant into the market, but we here, so a very large percentage of want to grow fast. So we sell to dis- vehicles use gasoline. In case of PVL What about shipping, where do you tributors in U.A.E., Qatar, Bahrain who it’s still mineral grades like 20W50 get LUKOIL products from? already have a network of 200–500 SL/SJ, which are prominent in the customers, including spare parts shops, high street, but in the franchised work- J.S.D. | The beauty of a large multi- garages, B2B customers. Service sta- shops channel fully synthetic grades national company like LUKOIL is that tions are left out since they are owned like 5W40, 5W30 SN are pre- the products can be drawn from differ- by state oil companies. One of the dominant. We have also had orders ent plants around the world when nec- strategic things that helped us become for our premium brand, GENESIS. essary. Initially, we were getting them profitable in the first month was that Independent workshops are educat- from Russia, but now we have full sup- we had chosen partners who run fran- ing customers towards 10W40 semi- ply chain capabilities in U.A.E., in- chise workshops of Bugatti, McLaren, synthetic lubricants. In CVL, the key cluding blending. We are doing third- Bentley, Rolls Royce, Mitsubishi, JAC, grades are mineral 15W40 CI‑4/ party blending here, and we have a Nissan, FORD, HITACHI, Cherry & CH‑4 and Hydraulic oil 68. Some mold for can manufacturing. We are many more. So when customers go grades like 10W40 semi-synthetic capable of producing cans of all siz- to their outlets, they use LUKOIL now have started to pick up due to educa- es, but the most popular are 1-, 4-, 5-, and we educate them by supplying oil tion by the OEM’s and oil companies. 20-, 208-liter cans and bulk deliver- change stickers, floor mats, seat cov- Today, semi-synthetic and synthetic ies. Today, we can supply all major ers, etc. but once the car goes out of oils account for about 10 percent of grades to Middle East countries and warranty, they also see that LUKOIL demand, but it’s increasing. The re- surrounding markets from Dubai. The was being used and customers de- maining 90 percent is covered for by blending plant was endorsed by our mand LUKOIL from the after-market mineral grade lubricants. technical team and the products are people. So we do two things at one manufactured in full compliance with go: make them use LUKOIL and create What market sizes are we talking LUKOIL formulations. It's like having demand in the after-market. about? Apple computers produced in different countries around the world. What about retail sales through super J.S.D. | The overall market size of GCC markets? countries is around 650 million liters. Can you tell us a bit more about your Country-wise we have the following market entry strategy? How do you J.S.D. | They don’t exist. Unlike split: Saudi Arabia accounts for approx- plan to conquer this market? Europe, the local market is a 100 imately 450 million liters, U.A.E. 80 mil- percent D-I-F-M (Do It For Me) mar- lion liters, Kuwait and Oman consume J.S.D. | This is a very competitive market. Do It For Me, not Do It Yourself! 40 million liters each followed by Qatar ket with more than 100 lubricant com- The price of labor is cheap, a full-time live-in housemaid’s monthly wage is $250–300, and many people hire THE COOPERATION CONTRACT SIGNING CEREMONY WITH ARABIAN SUPPLY CENTRE (PART OF them. They don't want to cook and AL JABER GROUP), THE EXCLUSIVE DISTRIBUTOR OF LUKOIL LUBRICANTS IN QATAR clean themselves, let alone change

18 their oil, so lubricants aren’t sold catering to the entire Africa and sub- AUTOMECHANIKA DUBAI 2015 EXHIBITION through supermarkets at all. continent. These products are export- ed all around the region because it's Can the experience gained in working a hub where clients don't need to pay heavily on ATL/BTL. However, we in- in the Middle East market be useful in customs duty. Other advantages intend to carve out a niche for LUKOIL expanding LLK International’s activi- clude a strategic location — we're sur- lubricants in this market through right ties in India and China? rounded by sea and it is very easy to strategy, right tactics and rigorous on- export from here. ground implementation. J.S.D. | It certainly can. We have had Finally, before getting transferred to We need to create consumer aware- many queries from India and China the Middle East, I had worked with ness, so that people familiarize with during the recent Auto Mechanica ex- Shell and BP/Castrol in India in a se- LUKOIL products and start buying hibition where LUKOIL lubricants were nior role handling a large number of them. This means that after appointing distributors we will have to train their teams, and then expand distribution This is a very competitive market with more than 100 to their outlets, activate the market in lubricant companies currently present. LUKOIL is the latest terms of ATL and BTL, so that people entrant into the market, but we want to grow fast. come to know about our products. We need to have different proposals for different segments — passenger vehi- showcased by one of our distributors. states, and that helps in understanding cles, commercial transport vehicles — The Middle East has the largest expa- consumer behavior over there. and different channels. We have just triate communities from south Asian started, and after establishing our- countries like India and China. This What do you plan to put the biggest selves first in the PVL and CVL seg- helps understand consumer behavior stress on in the near future? ments we will begin targeting indus- of the people representing more than trial lubricants next year. If you try to 100 countries. In Dubai alone we have J.S.D. | In six months, we will be pres- do too many things at once, you may around 170 nationalities. The majori- ent in six countries. After establish- fail. Our strategy has been to create ty are expatriates who account for 87 ing our presence in all GCC countries unique and valuable position through percent of the U.A.E. population, the we will need to boost our distribution different set of activities. I am very con- remaining 13 percent being local. across various channels, increase fa- fident that our passion, zeal, energy Secondly, U.A.E/Gulf has a blending miliarity with and loyalty to LUKOIL and strong desire to succeed backed capacity that surpasses the country’s products amid intense competition of up by LUKOIL and its leadership will lubricants consumption by 20–25 about 100 players. Many of our com- help us achieve our goals fast so that times! Gulf countries blend more than petitors have been present here for we are an MNC lubricants player 2 billion tons of lubricants per year, 30–40 years and they are advertising having worldwide presence.

19 Demand for Gas Engine Oil

PRODUCT Grows in Europe

Last autumn, LUKOIL LUBRICANTS EAST EUROPE launched sales of LUXE LPG and SUPER LPG oils for gas-powered engines in Romania. The first few months of sales were marked by good results, and soon these products were offered to clients in Bulgaria. Against the backdrop of the current pan-European trend of growing use of LPG as a motor fuel, it is likely that LUXE LPG and SUPER LPG oils are also going to appear in other European markets.

he idea to produce LUXE time (seven to eight minutes on aver- A closer look at the European market TLPG and SUPER LPG age) chatting with the operator. This shows that over 10 million cars run emerged last summer and was offers an opportunity to introduce on LPG (which accounts for 4per- prompted by the market. LUKOIL lubricant products to the customer. cent of the entire European motor LUBRICANTS EAST EUROPE’s team In case of motor oil, just showing a pool). There are over 40,000 LPG carried out a market survey dur- nice-looking product won’t suffice, filling stations across Europe. It’s ing which they visited a large num- it is also necessary to describe its a fairly large market with a steady ber of filling stations and studied properties and advantages, which growth tendency. In 2008, LPG ac- the customers’ behaviour, includ- is time-consuming. We need to at- counted for 2percent of the fuel ing while filling-up their cars. The re- tract and engage the customer, in market. Experts say that by 2020 sults were quite interesting. It turned our case — a motorist. its share will grow up to 10percent. out that motorists didn’t spend most In recent years, the number of gas- All these facts suggest that LPG is of their time filling up conventional powered cars has grown in many the most promising alternative fuel fuel or paying for it at a cashier’s European countries. One of the main Europe. window. The biggest amount of time jor reasons why this shift occurred is In case of Romania, the last 15 was spent filling their tanks with LPG. the passage of tougher environmen- years have been marked by con- According to Romanian law, cus- tal laws regulating emission of harm- tinued growth in LPG consumption tomers are prohibited from filling up ful substances into the air. It is wide- at an average rate of 4percent per tanks themselves, this must be done ly known that gas engines are more year. The biggest contribution to by an operator. During this process environmentally-friendly and — just this growth is made by the grow- the customer spends considerable as important –more efficient. ing LPG consumption in car industry. Statistics show that in mid‑2014 there were 270,000 gas-powered ANDREY STERKHOV, cars in Romania. It should be men- LLK-INTERNATIONAL R&D DIRECTOR tioned that the owners of such cars used regular oil for petrol engines, “Our Romanian LPG project team which means this niche was abso- has done an excellent job. They lutely free. precisely identified a free niche in The next task in implementing the the local market – oil for LPG en- project was the preparation of a gines. The product to fill that niche commercial proposal, the key is- was properly described and then sue being which product this cus- we swiftly developed it together tomer group would be willing to with the Infineum team. I believe buy. As a rule, LPG stations’ cus- that this product is promising since tomers don’t own the most expen- the number of LPG-powered cars in sive cars, so they buy medium- Eastern Europe keeps growing on a price or just above-average motor continuous basis.” oil. They drive a lot, and make a liv - ing driving cars — they are taxi driv-

20 ers, courier company drivers, etc. cial equipment installed on their tion rates. Starting in March 2015, Bearing all this in mind, our project sites. LUKOIL LUBRICANTS EAST the product hit the shops throughout team got down to work. EUROPE offered cooperation to the country. Product launch was ad- The employees of the Research and AGR Romania, the largest import- vertised in the press, on the radio Technology Dept. in Moscow took er of top-rate equipment from Italy. and on outdoor promotional signs. an active part in product develop- The companies jointly tested LUXE At the end of last year LUKOIL ment. The Product Management LPG and SUPER LPG oils. The results oils for LPG engines entered the Dept. provided the Romanian sub- were good, and AGR Romania and Bulgarian market. In this country sidiary with marketing materials for LUKOIL’s own retail network be- the number of LPG-powered cars the new product’s launch. Infineum, came first customers. The price of is even larger than in Romania, ac- one of the world’s leading manu- LPG is another factor swaying the counting for 16percent of the mo- facturers of additives and a partner customers’ choice toward gas en- tor pool. Thanks to that the product of LLK-International, made a sub- gines — in Romania, this type of fuel has been marketed in Bulgaria on a stantial contribution to development costs half as much as diesel or pet - larger scale, not only in the capital of the new oil. In just three months rol, confirming the well-known fact region, but at all LUKOIL filling sta- this diverse team managed to de- that LPG engines are more cost- tions. According to Sabir Guliyev, velop and launch a new, modern, efficient. an oil expert with LUKOIL Bulgaria, high-demand product. Last September, a major event mark- there weren’t any complaints or crit- Our cooperation with the Roma- ing the launch of the new product icism in the customers’ feedback on nian LPG Association largely con- was held in the Romanian capital of the product. LUXE LPG and SUPER tributed to the successful prod- Bucharest. Stage one of the prod- LPG oil sales results achieved in uct launch in this country. Thanks uct promotion campaign focused two of the company’s largest tar- to this alliance our company was on Bucharest and its suburbs. This is get markets in Eastern Europe will able to market the product at the the region with the largest number facilitate product launches in other best service stations that had spe- of customers and highest consump- regional markets in coming months.

21 New Strategy for New Reality EXPERTISE

Head of Industrial OEM Department Rinat Kalmantayev speaks about shifts in LLK-International’s strategy in regard to cooperation with industrial Original Equipment Manufacturers (OEMs).

e live in an ever-chang- That is why we forged a new strategy for Wing world that poses new cooperation with OEMs, which encom- challenges every day. Development and passes the entire company and rallies improvement of technology has led to en- the efforts of all of our business segments. gines, various units and other machinery Today, we have a clear and precise strat- using different kinds of lubricants to grad- egy on interaction with OEMs in each sec- ually become more complex and de- tor of industry, which also takes into ac- manding when it comes to quality and count the capabilities and interests of our properties of oils and lubes. Industrial subsidiaries in Austria, Finland, Romania, consumers have also begun to issue Turkey, and the United Arab Emirates. It’s tougher requirements for domestic and important to note that the share and influ- foreign lubricants manufacturers as sig- ence of any European OEM in various in- nificant progress in machine-building re- dustrial sectors can vary greatly from the quires production of new types of industri- West to the East (downward, as a rule). al lubricants. These new conditions urged With this in mind our department, which RINAT KALMANTAYEV, us to re-adjust our strategy in dealing with serves as a development driver and helps HEAD OF INDUSTRIAL OEM DEPARTMENT industrial OEMs as we move to boost the understand tomorrow’s trends, is already efficiency of interaction, and shift from lo- establishing ties with top-priority OEMs in cal cooperation to focused and consistent China and India. Besides this, we aren’t interaction with OEMs as early as the de- only introducing innovations in terms OEM’s designers we include specifica- sign stage of various types of equipment. of geographical reach, but we’re also tions for LUKOIL lubricants at the stage Despite the fact that Russia is our key mar- changing the methods of cooperation of design documentation development. ket, LUKOIL is a multinational company, with OEMs. The very essence of our work with OEMs and in order to scale up we have singled Thus, for instance, we have been inten- has also changed. Previously, equipment out priority segments and key OEM in- sifying cooperation with key industrial manufacturers that needed to approve dustries in all markets where our compa- OEMs at the stage of designing various any given oil and lubricant were ran- ny is active. machinery and equipment. Jointly with domly selected: enquiries were singular, it was impossible to understand whether we would manage to replicate this experience in relations with other manufacturers. In the past, we also couldn’t know if this business direction was promising, or whether we could expand cooperation to factory and service fills. Finally, we didn’t have an idea if all efforts of our technical specialists and the OEM Relations Dept. staff would eventually be limited to signing a one-off contract. Currently, we try to anticipate the needs of the company’s commercial services, namely — we evaluate OEMs, select and work with major manufacturers in the largest industrial sectors, involve technical support experts when it’s necessary to

22 conduct field tests on OEMs’ equipment, and submit all the information we gather Werner Baumann, LUKOIL Lubricants Europe Head to traders, who make deliveries to OEM of Business Development customers in domestic or foreign markets. Among other things, the success of this “We closely cooperate with the head office of Palfinger AG in Vienna, strategy is based on a rich track record of we have assisted the Moscow office in working with Palfinger’s plants in cooperation with key OEMs: we are ex- Russia, and will continue to do that. In September, our colleagues in Russia perts in lubricants, while manufacturers, launched deliveries to KAMAZ Crane Center (joint venture of Palfinger like no one else, have profound knowl- and KAMAZ). Meanwhile, LUKOIL lubricants are delivered to the majori- edge of their own equipment. We suc- ty of Russian mining companies. We have accumulated vast experience in cessfully create new specifications togeth- working with mining enterprises, and colleagues from the Moscow office er, acting as “trend-setters” in European assist us in cooperation with partners from the mining segment.” and global markets. For instance, our Austrian office staff are consulting devel- opers of a new specification for rolling tions of Russian oil companies and oil and perience in the mining industry helps de- oil produced by MORGOIL, an oil-lubri- gas transmission companies. The above- velop relationships with construction ma- cated bearings manufacturer owned by mentioned LUKOIL Stabio compressor oil chinery producers. This is not surprising Siemens AG Group. was successfully tested at compressor sta- as the same equipment manufacturers of- This activity is being developed in line tions of Sumy Frunze Machine-building ten produce machines for both construc- with the recent key trend — Russia’s import Science and Production Association tion and mining. The positive experience substitution program. We have tradition- (Sumy Frunze NPO) in Ukraine. Thanks of using LUKOIL lubricants paves the way ally developed constructive partnerships to systemic cooperation with compres- for cooperation with numerous producers with metallurgical plants that consume sor manufacturers, these companies’ total of equipment for the construction industry. about 3,000 tons of imported lubricants consumption of LUKOIL Stabio oil will top We are now actively developing this seg- per year, whereas total consumption in 3,000 tons per year. ment and already negotiating the supply this sector stands at about 90,000 tons Our companies in other countries have of LUKOIL’s branded OEM oils as a ser- per year. Machine-building and pow- been providing substantial support in vice fill for these companies’ equipment in er generation industries are leading the terms of implementation of the new strat- Russia. So far, we have already signed way in an effort to urgently switch to im- egy. Thus, LLK-International’s Austrian of- several non-disclosure agreements with port substitution. For example, we per- fice actively cooperates with the head some of them. form tests for an extended interval of the office of Palfinger AG, the largest man- Chosen strategy of cooperation with LUKOIL Stabio compressor oil change ufacturer of various cranes and manip- OEMs really works. Today, we know on Ural Compressor Plant-made com- ulators, in Vienna, enabling us to coop- where to go and what to do, we pos- pressors that run in all power substations erate successfully with Palfinger’s plants sess sufficient skills to carry out large and of the Federal Grid Company of Unified in Russia. We launched deliveries to complex projects, and we have estab- Energy Systems (FSK EES). Within the KAMAZ Crane Center, a joint venture of lished ties with colleagues in other de- project’s framework three-party testing is Palfinger and KAMAZ, that specializes partments and in other countries. On the being conducted at FSK EES facilities with in manufacturing truck-mounted special whole, this is a coherent and concerted the compressor manufacturer’s active in- machinery with the hoisting-and-transport industry-wide effort of a big team in all the volvement. Each year, the country’s larg- equipment (49% owned by Palfinger and markets where LUKOIL is building its lubri- est power producer consumes about 600 51% by KAMAZ). LLK-International’s ex- cants business. tons of this type of oil. Another example is our department’s cooperation with major manufacturers of screw pairs (there are only five of them in the world!) The approvals we received from Rotorcomp, Termomeccanica and other companies have opened doors for us at Chelyabinsk Compressor Plant, Uralkompressormash, Akron, FIAC Air compressors S.p.A. and many other companies. These OEMs’ compressors are fitted out with screw pairs produced by the mentioned screw pairs manufacturers. Meanwhile, our cooperation with Aerzener has grown to the point where we managed to develop special OEM-tailored synthetic oil for transfer of aggressive associated petro- leum gas and other types of gas, which is important since Aerzener’s compressors are installed at many compressor sta-

23 REALIZE STRATEGY

ООО LLK-International will supply LUKOIL-branded lubricants to the assembly facility and the service centers of OOO MAN Truck & Bus RUS. The lubes will be used in trucks and buses of the MAN and NEOPLAN brands manufactured and serviced here. “Cooperation with MAN Truck & Bus RUS is an important stage in the implementation of an PSJC LUKOIL program of import substitution for lubricants. Cooperation with the Russian office of Germany’s leading auto group will considerably strengthen the positions of OOO LLK-International in the lube markets both in Russia and in- ternationally, thus helping to achieve a whole new level of interaction with the global carmaker”, Maksim Donde, General Director of OOO LLK-International, commented.

OOO LLK-International and Ford Sollers Joint Venture have signed an agreement providing for the supply of LUKOIL GENESIS oils for the first fill of Ford engines to be manufactured this year at the new Ford Sollers Plant in Elabuga. The oils have been developed in full compliance with the Ford requirements and possess high performance level including fuel efficiency. “Participating in the foreign auto concern localization program is one of the indisputable priorities of the LLK-International business. Supporting the program we not only invest in the scientific and technical potential of the Russian lubricant industry but also contribute towards the successful development of the vehicle manufacturing industry in the country and its higher competitive ability”, stressed out Maxim Donde, General Director of LLK-International. Ford Sollers already uses LUKOIL fuels for the first fill at all its factories in Russia (in Vsevolzhsk, Elabuga and Naberezhnye Chelny). Expanding co-operation with LUKOIL will allow to totally meet the needs of Ford Sollers Joint Venture in combustibles and lubricants. LLK-International won Atomflot’s tender for the supply of 160,000 litres of TEBOIL TURBINE OIL 68 for the world’s only nuclear-powered lighter-aboard ship Sevmorput – the vessel that stands out in its class by sheer size and loading capability as it is able to simultaneously carry over 1,600 containers, which can be unloaded on an unequipped shore and even on an ice edge using flat-bottomed barges (the Sevmorput may take aboard 74 such barges.) The use of the Sevmorput is of great significance for delivery of goods to Russia’s remote regions, especially in the Arctic area. It is also an efficient tool for implementation of the strategic program to develop Russia’s Arctic.

LLK-International carried out this project as part of the import substitution program by localizing production of this type of oil at its own facility in Tyumen and arranging the manufacture and supply of high-quality Russian lubricants for this unique vessel. Approvals/ Meets requirements of:

• MB-Approval 228.5 • MAN M3277 • Volvo VDS-3 • Scania LDF-3 • Caterpillar ECF-2 • Cummins CES 20076/72 • Renault RLD-2, RXD • Deutz DQC IV-10, III-10 • MTU Category 3 • DAF Extended Drain

API: CI-4, СF ACEA: E4/E7 SAE: 5W-30, 10W-40

SYNTHETIC MOTOR OIL

LUKOIL AVANTGARDE PROFESSIONAL

* ** *** 55% 5.5 times 73% lower oil better wear cleaner consumption protection engine

Extended oil change interval

It is recommended for use in heavy-loaded truck, bus engines and other vehicles running on diesel fuel, and not fitted with particle filters, including turbocharged engines, fitted with exhaust gas recirculation systems and catalytic systems for exhaust gas cleanup that aim to reduce levels of NOx in exhaust gases.

* Compared to ACEA E4 requirements ** Compared to ACEA E7 requirements *** Compared to ACEA E7 requirements