Publication of LUKOIL Lubricants Company December 2013 (LLK-International)

New Year is a holiday longed for by perhaps all people on Earth. Let the New Year give you belief that it will be a year of new achievements, successes and fulfilments! Be healthy and happy. I wish you a festive spirit! LUKOIL President V. Yu. Alekperov LUKOIL Chairman G. M. Kiradiev

CONTENTS

2 HAPPY NEW YEAR! 6 3 FORUM Moscow International Lubricants Week 2013

6 CORPORATE AFFAIRS LUKOIL brand is synonymous with carefully calibrated and effective movement forward

8 PARTNERSHIP Breakthrough in Ukraine 12

10 Northern supply lines

12 LUKOIL lubricants in Georgia

14 LUKOIL lubes for key clients in Romania and Macedonia

16 LUKOIL starts producing lubes in Austria 16

18 Road to China

20 NEWS 20

«МАСЛА@ЛУКОЙЛ» #4 December 2013 "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 Dear Colleagues, Dear friends!

t’s a tradition that before New In 2013, we continued supplies IYear we summarize the outgo- to AVTOTOR Company as LUKOIL ing year, thoroughly weigh past de- GENESIS engine oils became the velopments and ask ourselves what first fill lubricants for Opel and has been done. Was it done well? Chevrolet, while LUKOIL gear oils Effectively? How can we improve our became the first fill oils for engines performance? of Hyundai trucks and KIA cars. So, what kind of a year was 2013 for The success of subsidiary LUKOIL us? It undoubtedly proved extremely Marine Lubricants also merits spe- rich in events. This applies both to per- cial mention. LUKOIL’s achieve- sonnel decisions – the management ments on the marine oils market team of LLK-International consider- were so impressive that we decid- ably changed – and to business pro- ed to dedicate them an entire arti- MAKSIM DONDE, cesses. cle in the magazine as well as oth- CHIEF EXECUTIVE The last day of the year is to be marked er important events of the outgoing LLK INTERNATIONAL by a landmark event – our Company year. will integrate Volgograd and Perm re- In conclusion, I would like to thank fineries’ oil blending and filling sites. all our staff for their diligent work. I am confident that this move will al- Any achievement is the result of low us to respond more quickly to our consistent and productive labor. customers’ needs while providing a Uncompromising work, first of all – strong level of service. on oneself – is the basis of success. I would like to mention the most im- Therefore, the drive for self-improve- portant achievements from a long list. ment should become the unwavering First of all, I am pleased to note that a philosophy for each and every one new generation of engine oil LUKOIL of us. It is important to remember that GENESIS was delivered to the Russian professionalism is unthinkable with- market and sold through domestic ser- out effective teamwork. The com- vice stations. A key issue in facilitating pany's success is impossible without the dealers’ task was the signing of joint efforts, mutual respect, trust and contracts with automakers for first fill of coordination of action. lubricants. This year, lube supply con- I am confident in the bright future of tracts were signed with Sollers Trading our business! House and ROLF Group. We started A tough, albeit interesting, year lies supplies of unique UZAUTOOIL and ahead of us. I wish all of us patience, conventional LUKOIL LUX oils to the energy, brilliant ideas and bold initi- entire dealer network of UzDaewoo atives, as well as good health, family in Russia. happiness and harmony.

2 Moscow International

Lubricants Week 2013 FORUM

Moscow International Lubricants Week is held every year around mid- November. This is an event which usually brings together all large players and experts from this market segment. With 2014 right around the corner and the upcoming 10th anniversary of the conference, we have analyzed changes in the format of this event. The main conclusion is that interest in lubricants is steadily rising, since over the past 10 years the conference has turned from a narrow industry event into a high-profile international forum.

fficial data eloquently • The 4th international conference ture machinery. This clearly shows that Oshow that the topic of lu- “Plastic Lubricants – 2013” the event is of interest not only to the bricants is gaining popularity eve- • The 4th special exhibition “Service representatives of Russian and foreign ry year that goes by. It is also be- and Equipment for the Lubricants oil companies or refineries, but also to coming increasingly clear that this Market – 2013” lube industry representatives as well two-day event is not long enough • The workshop “Infineum as automakers, trading companies, to hear all of the interesting topics Trends-2013” dealerships and consultancies, finan- and issues raised by the numerous cial and investment companies. And delegates from the lubricants indus- The conference is traditionally attend- aside from major industry players, an try. For this reason, the agenda of ed by the whole production chain of increasingly large number of small in- the conference was expanded to a the oil business: producers of base dependent companies are showing up at the forum every year. The broad range of attendees makes Conference data: 417 participants, representatives from it possible to deal with the most di- 163 companies, 23 countries. verse lube industry topics and assess such topics from multiple viewpoints. Alongside narrow technical presenta- whole week of discussions covering oils, additives and branding compa- tions, the agenda also features market- industry trends and topics. nies that certify tools and laborato- ing and trade issues pertaining to the Since its inception, the conference ries, as well as plants that manufac- development of the lubricants business. has seen the number of its delegates quadruple and in recent years it has been attended by over 400 people. The number of companies attending the event has been increasing every year and the range of attendees cur- rently spans over 20 countries. For instance, this year was the first time when delegates showed up from Iran, Nigeria and Ghana. The range of events at the conference underscores broad public interest in the most di- verse aspects of the industry. This year the official events included: • The 9th international conference “Production and the Lubricants Market – 2013”

3 Notably, many of the presentations were analytical surveys based on specific individual examples. Many were surveys of a single market seg- ment and clarified their main topics through illustrations from the activity of their companies. This same principle was used in the presentation of anoth- er representative of LLK-International, Vladislav Smirnov, who addressed specific features of the Russian energy industry from the angle of how lubri- cants are used. Mikhaill Babushkin, in his presenta- tion “Developing production of high- ly efficient packages of additives at LLK-Naftan, talked about the recent success in the joint venture between Russian LLK Naftan and Belarusian Naftan. This JV has for many years been the leader of additives produc- tion in FSU countries. LLL-International has been a gener- by the other speakers. As a matter of The presentation of Tomas Rühle from al sponsor of International Lubricants fact, the marine lubricant business of BASF SE on connections between Week for many years. This year LLK Marine was the focus of constant base oils and additives was also of presentations were given by Viktor attention. This was no coincidence, great interest, as well as the presenta- Zhuravsky, general director of Lukoil since LLK Marine has been the pride tions given by Eidan Rose (Evonik Oil Marine Lubricants Ltd, Mikhail of LLK-International for more than a Additives) and Kosuke Fujomoto from Babushkin, deputy general director of year already. Interest in this presen- Toyota Motors Corporation. LLK-Naftan, Vladislav Smirnov, head tation can be explained by the fact The presentation of Naira Aslanian of sales project for the energy sec- that Viktor Zhuravsky talked not only from the Kline Group contained some tor, sales department on the domestic about the success of his company but interesting data on the Russian lubri- market of LLK-International. also about the marine lubricants seg- cants market. According to data from According to most of the people who ment as a whole. Apparently, most of that company, Russia is nowadays the attended the conference, one of the the participants were not aware of the largest European consumer of lubri- best presentations was delivered by features of this market, especially giv- cants. At the end of 2012 the scope LLK-International’s Viktor Zhuravsky en the fact that aside from LLK-Marine of consumption in the country amount- “Development of the global marine lu- there are no other Russian companies ed to 1,705,000 tons or 26% of the bricants business”, which was quoted that are professional participants of European market and 4% in global not only by industry journalists but also the marine lubricants industry. terms. Over the next five years Kline Group expects the consumption of lu- THE CONFERENCE ATTENDEES ALWAYS HAVE AMPLE OPPORTUNITY TO TOUCH BASE bricants in Russia to increase by 10%, AND CHAT WITH PEERS and 18% over the next 10 years.

4 Individual consumers (+27% over the facet of the event. During the coffee portant negotiations, some of which next 10 years) are expected to ac- breaks the halls adjacent to the con- lead to the stipulation of contracts. count for the bulk of incremental con- ference rooms were full of people en- “Special thanks to everyone for your sumption, as well as the industrial seg- gaged in lively conversation. This is a collaboration. It was great to vis- ment (+24% during the same length sure sign that the event truly enjoyed it Russia and take part in the confer- of time). Also, the company forecasts popularity and came at the right time. ence “Production and the Lubricants Market”. This event was very helpful. It was very pleasant to see most of the According to Kline Group, nowadays Russia is the biggest large companies that operate in the European consumer of lubricants. At the end of 2012 the scope lubricants industry together in a sin- of consumption in the country amounted to 1,705,000 tons or gle venue in Moscow. We will defi- 26% of the European market and 4% in global terms. nitely come back to the conference net year”, said Hossein Salimnezhad, Sepahan Oil Company. that the consumption of lubricants in The conference attendees always “It was a wonderful experience for us to the commercial segment will remain have ample opportunity to touch base participate in the Moscow International roughly unchanged compared to the and chat with peers. In addition, a Lubricants Week. Hopefully the organ- level in 2012. number of narrowly specialized in- izers will continue to hold such high-pro- Summing up the conference, it should terest groups made it possible to plan file events in the future”, said Gbenga be noted that the Russian lubricants a variety of breakout sessions. These Omokore Olufemi, quality control market is in a state of transition towards events are the launching pad for im- manager at LUBCON Nigeria Ltd. a more mature stage of development. In an effort to find ways and means of improvement, roll out new products, manufacturers are using trial and error methods to upgrade production, stabi- lize quality, minimize image risks and liability for goods produced. The fact that the Russian lubricants in- dustry has already grown up and has reached quite a high level of develop- ment is attested by the fact that next year the organizers of the conference have promised to add a new exciting element to the agenda – an industry award. Incidentally, it’s no secret that small talk on the sidelines of the conference may actually be the most interesting

5 LUKOIL brand is synonymous with carefully calibrated and effective movement forward AFFAIRS CORPORATE

Company Lukoil Marine Lubricants became the first and only company in the world to have received on the basis of full test cycle approval for a new cylinder oil with a base number of 100 in accordance with the requirements of the world's two leading manufacturers of marine en- gines – MAN Diesel & Turbo and Wärtsilä.

s a result of testing oil Lukoil A combination of these two factors seek new ways to cut costs and low- ANavigo 100 MCL conducted has given rise to a situation where en- er the speed of vessels in an effort to in 2011 and 2012, the main charac- gines designed for extensive opera- economize on fuel. teristics of the product laid as the basis tion at full speeds, are being forced to LUKOIL Marine’s key insight is that for a new standard for the newest and run at 10-20% of their nameplate ca- its experts were the first in the world most powerful marine engines and in pacity. For the sake of comparison, this to become aware of the actual risk of September 2013 became mandatory is like forcing a Formula-1 racing car such a problem arising long before it for all manufacturers of marine oils. to cruise at a speed of no more than became a global issue and the associ- The key advantage of the new devel- 40 km/hour. ated losses had escalated into millions opment LUKOIL Marine was the abil- The reason for cold corrosion lies, on of dollars. ity to effectively confront the so-called the one hand, in the development of "We found not only a timely effec- cold corrosion serious consequences of diesel engine manufacturing and the tive response to one of the great- which become dramatically apparent deployment of more cost-efficient, est technological challenges of re- as early as the first year of engine op- slow-speed more powerful units with cent times, but also created a record eration and may cause millions of dol- a super-long piston stroke, and the low oil consumption among all glob- lars of losses both for vessel owners and global economic downturn, on the al competitors, to be ahead of mar- manufacturers of marine diesel engines. other hand. Shipowners are forced to ket requirements," – said General

6 Director of LUKOIL Marine Zhuravsky It should be noted that last year was Victor, speaking at a conference on successful for LUKOIL MARINE in the December 13 devoted to the compa- segment of medium-and high-speed ny’s 2013 achievements. trunk piston marine diesel engines. "As a relatively young company, we In 2013 LUKOIL Marine signed an were not afraid to go against the mar- agreement to supply marine lubricants ket, despite the authority of his big- to the world’s largest owner and op- gest players, who actively promoted erator of cruise ships, US Carnival the idea of reducing the base number. Group. The agreement covers a fleet We chose a diametrically opposite of the company’s two UK subsidiar- way and the excellent results of our ef- ies P&O Cruises and Cunard Line, forts came as a surprise even to the en- including flagship Queen Mary 2, gine manufacturers " – continued Mr. the globe’s most famous cruise liner, Zhuravskii : – which is listed in the Guinness Book of "More than two years ahead of all World Records. competitors, LUKOIL MARINE today Another key project should also be is the only company in the world that mentioned. In October 2013 the has a two-year operating experience company provided the first fill for using oils under actual sea conditions the Russian Navy’s Mistral-type and tens of thousands of running hours Vladivostok helicopter carrier at the on more than 80 new large and very company’s STX Europe ship yard in large vessels, many of which are the Saint-Nazaire, France. flagship in their respective segments in A €1.2 billion contract to deliver two the world. We are also the only com- such helicopter carriers was signed at Summing up his presentation, Viktor pany providing global supply of this the St. Petersburg International Forum Zhuravsky noted: “We do not intend product. " in 2010. to rest on our laurels and even now At the moment, all world producers of The expansion of LLK Marine’s busi- LLK Marine is testing out a new revolu- marine lubricants are currently being ness and its technological expertise tionary system for using lubricants on forced to rethink their position and, in has not gone unnoticed. Two respect- board that will allow ship owners to fact, copy LUKOIL Marine’s approach ed and widely known profession- even better control their costs and al- to this problem and immediately pro- al publications Lloyd’s List and Sea so to ensure safe and effective engine ceeding with the development and im- Trade promptly rated LLK Marine as operation irrespectively of the type plementation of oils with similar char- one of the top five innovative compa- of fuel or area of navigation. We are acteristics. nies in 2013. confident that the LUKOIL brand will become synonymous for ship owners IN OCTOBER THE COMPANY PROVIDED THE FIRST FILL FOR THE RUSSIAN NAVY’S MISTRAL-TYPE with carefully calibrated and effective VLADIVOSTOK HELICOPTER CARRIER AT THE COMPANY’S STX EUROPE SHIP YARD IN SAINT-NAZAIRE movement forward”.

7 Breakthrough in Ukraine PARTNERSHIP

Collaboration with automakers has always been and still remains one of LLK-International’s key business areas. Joint projects with foreign car manufacturers in other countries are especially important. One of the best illustrations is an agreement signed in September with UkrAVTO, a leader in the Ukrainian automotive market.

he signing of this agreement ply a leader in the national mar- sive service network. This why a Twas prepared by experts ket, but also manufactures the full universal contract between Lukoil of the Department for Development range of products and imports pas- Lubricants Ukraine and UkrAVTO of Sales in Franchised Workshops senger and commercial transport covers a large number of areas. First over a period of several months. vehicles, which are leading glob- and foremost, it applies to factory The point is that UkrAVTO is not sim- al brands, and also has an exten- fills of lubricants in the corporation’s

Lukoil Lubricants Ukraine takes with the company’s new branded part regularly in major nation- products, while tasting cocktails wide automotive events. One of blended in LUKOIL’s laboratory the most important of these is the and enjoying some lively dancing. Capital Auto Show. This year it was a jubilee event since it has already taken place 10 times. Lukoil Lubricants Ukraine act- ed as the official lubricant part- ner for the auto show, which was held on September 14-15 in UkrAVTO automobile showrooms. Those who attended the show vis- ited LUKOIL’s display stand had a chance to become acquainted

8 UKRAVTO Is the biggest automaker, dis- tributor and service suppli- er in Ukraine. It is the only company with a full range of production. It is the main ex- porter of vehicles to CIS and non-CIS countries. UkrAVTO corp. is the main importer and official dealer of over 20 well-known global brands of vehicles. These include: Daimler AG, General Motors, Maserati S.p.A., KIA Motors, Nissan, Toyota, and Chery. The com- pany has 400 dealerships and 170 service centers. dealerships. Under the terms of the Ukraine, starting next year the plan in Russia and other countries, and agreement, UkrAVTO regulates the is to increase the scope of lube sup- include: lubricant fills performed by LUKOIL plies to about 10 tons per month • Workshops for dealership employ- for all ZAZ vehicles (ranging from at service stations and the same ees in each city where the corpo- passenger cars to passenger buses) amount for production lines. ration has a footprint and Chery concern during the war- An important part of the contract is its • Working out an incentive program ranty period. These two automakers marketing component. The partners for master service receptionists/ currently hold leadership in terms of reached an agreement on under hood spare parts sales managers sales volumes in the country. sticker placement to identify the rec- • Arranging LUKOIL dealership dis- Assessing the collaboration param- ommendation for LUKOIL lube fills in plays (branded lubricant display eters in terms of figures, the minimum all vehicles during the presales period. stands, point of sale marketing ma- amount of branded products sold No Ukrainian automakers had used terials) by the service network of UkrAVTO this practice earlier. amounted to about 20 tons during Furthermore, the plan is to take a In view of the above partnership de- the first four months of 2013. Also, number of measures to promote the velopments, one may venture to about five tons per month go to- LUKOIL brand in the UkrAVTO ser- say that LUKOIL’s lube business has wards production lines. According vice network. Some of these mech- reached a new stage in Ukraine, that to the forecasts of Lukoil Lubricants anisms have been tested and tried of “extensive coverage”.

ZAPOROZHIA AUTOMOBILE PLANT Zaporozhia Automobile Plant (ZAZ) celebrated this year the 150th anniversary of its founding. This is the only company in Ukraine that offers a full range of production for passenger vehicles, including presswork, welding, painting, body equipments and vehicle assembly. The company’s production facilities are designed to manufacture 150,000 ve- hicles per year. The product range includes the ZAZ VIDA, ZAZ Forza, ZAZ Lanos, ZAZ Sens, and ZAZ Lanos Pickup. According to preliminary full-year 2013 results, ZAZ is becoming the lead- er of the Ukrainian auto market. Its market share stands at about 10-11%. Lanos, Slavuta and Tavria-Pickup vehicles are assembled at a rate of 32 units per hour. Finished vehicles roll off the assembly line eve- ry two minutes for eight hours.

9 Northern supply lines PARTNERSHIP

LUKOIL began to supply engine and gears oils to service centers of the major Swedish truck dealer Scania.

owadays, LUKOIL’s calling Ncard in the lubricant busi- ness is not only high­quality goods, but also a growing level of broad servic- es provided to the company’s clients. Since the beginning of 2013 LUKOIL has been delivering engine and gear oils to Lecab Lastbilar AB, a major au- thorized Scania truck dealer. It’s not easy to win the trust of clients with a new lubricant brand in the highly competitive and mature Scandinavian market, especially since the leading majors have operated there for a long time. However, thanks to a comprehen- sive approach to product supplies As opposed to the classical ‘customer-­ The advantage of the TMS is that we that hinges on the Tank Monitoring supplier’ approach, the TMS system have full supervision over volumes and System (TMS), long experience and allows the supplier to monitor the en- we can place orders whenever we local knowledge, LLE recently signed tire process independently and in re- think it’s necessary. This gives us the an agreement with Lecab Lastbilars al time without involving the customer. opportunity to route various client or- all service facilities in central Sweden. The system is quite simple and runs as ders through a single truck and cut our The added value service involves follows: specially designed sensors in shipping costs. Furthermore, in cases making uninterrupted supplies of oil the tanks read the actual level of oil. where we might have some oil left on using advanced online technology to The data is automatically relayed to the truck, the Left On Boards (LOB), monitor the volume in the tanks. the coordination center in LLE’s office can be delivered to another customer in Stockholm, where logistics experts which is equipped with a TMS, since, SANNA NILSSON, LEE LOGISTIC & plan distribution routes with several under the terms of the agreement with FULFILMENT MANAGER IN STOCKHOLM small orders (1000 liters and above) TMS customers, LUKOIL can choose at into the same truck. The truck can its discretion where and what amount load up to ten different products on- of product is to be delivered. The only to the same truck and depending on requirement set in stone is that the cli- the amount of orders per products the ent’s tanks must never be empty! truck could have a distribution round – The client never has to worry about of up to ten different customers. whether he has ordered oil, since we That is why this type of distribution constantly monitor tank reserves and is called Small Drops Deliveries, we deliver the product as and when Sanna Nilsson LLE logistics and ful- needed. As a result, the entire process filment manager in Stockholm ex- runs smoothly, Sanna Nilsson pointed plained, who went on to say that out. The client can spend its precious rolling several orders into a single time on other issues and make its op- compartment makes it also possible erations even more efficient, whereas to minimize shortfalls in case con- we can improve our cost efficiency. sumers boost their consumption on Needless to say, this is a win/win situ- an interim basis. ation for both sides.

10 LUKOIL’S PARTNERSHIP WITH LECAB One of the largest Scania truck dealers in Sweden, Lecab Lastbilar AB has service centers in Arvika, Karlstad, Kristineham and Sunne, which provide comprehensive sales, warranty and repair for Scania trucks. Lecab Bil AB is part of the Lecab group, with a headcount number- ing 170. The group’s annual turnover amounts to 700 million Swedish crowns (80.7 million euro). LUKOIL’s partnership with LECAB start- ed in 2011 when engine oils for passenger cars were dispatched to workshops of Lecab Bil AB, the sister company of Lecab Lastbilar, which services passenger cars by leading global producers as Audi, Volkswagen, SEAT, Skoda.

OSCAR SVEDLUND, forts to become Scania’s best dealer in tive factor cited by Oscar Svedlund is CEO AT LECAB LASTBILAR AB Sweden and the selection of the oil sup- the proximity of LUKOIL dealers. “They plier is a pivotal factor in this context. are always nearby and we can turn to – “We have very clear recommen- them if necessary”, the manager said. Deputy head of LUKOIL Lubricants dations about cars and trucks from Nowadays, LUKOIL supplies 26 Europe Alexey Moskalenko said that Scania and other manufacturers about points across Scandinavia located in this service quickly gained popularity what actions should be taken dur- Sweden and Denmark using the TMS among Swedish oil consumers. ing certain service intervals and what system. Under the recently signed – Filling products are quite popu- quality of lubricants should be used. agreement with local public transport lar in Sweden, Moskalenko says. These requirements are the reason company Keolis Sverige AB and the Furthermore, such a business mod- why we now use only LUKOIL prod- Kuusakoski recycling company, near- el releases the client from the need ucts. We chose this company because ly 40 new supply points will be made to monitor residual amounts of oil in it provides us with consistently top- in the first quarter of 2014. The more tanks, as we ourselves handle this task. notch goods. Our clients and partners customers that we can contract to the According to chief executive director require high­quality oil and LUKOIL’s TMS system the more cost effective of Lecab Lastbilar Oscar Svedlund, products meet these requirements”, our supplies will become in the future, the company has made concerted ef- Oscar Svedlund notes. Another posi- Sanna Nilsson explained.

11 LUKOIL lubricants in Georgia PARTNERSHIP

Even though LUKOIL lubricants made their appearance on the Georgian market quite recently, they have already managed to earn the trust of lo- cal consumers. Admittedly, motorists cautiously greeted the new product in keeping with the stereotype: “Russian brands are for Russian cars and used foreign ones”. Incidentally, this stereotype was quickly shattered by the course of actual events. The operating practice of LUKOIL lubricants confirmed their high quality. And a broad range of products strengthened the case for buying these Russian products.

hanks to the optimal rela- Ttionship between price and quality, LUKOIL products have won acclaim in many segments of the Georgian lubricants market. These include consumer oils and lubricants for commercial transport, and in- dustrial lubricants. And in the case of Georgia, the B2G segment (state procurements), where LUKOIL lubri- cants have already made strong in- roads, deserves special note. At the end of August 2013 LUKOIL GENESIS automotive lubricants won a tender held by the Ministry of Internal Affairs of Georgia. It should be noted that the quality re- quirements for products offered by the contenders were extremely strict, thus making the victory of LUKOIL lu- bricants all the more sensational. As a result of the tender, the entire fleet of vehicles of the Ministry of Internal Affairs of Georgia, including new patrol cars (Skoda and Toyota), will be using LUKOIL lubricants. LUKOIL GENESIS engine oils are a family of fully synthetic oils, rep- resenting the result of cutting-edge technological achievements and R&D results by an international team of sci- entists and engineers in partnership with British Infineum – a global ad- ditive leader. The formulas offered to Europeans in the selection of a thick- «AUTO BILD» №50 (WWW.AUTOBILD.GE) ening agent were geared towards the capability of operating the new oil in

12 extreme conditions, with tempera- AS A RESULT OF THE TENDER, THE ENTIRE FLEET OF VEHICLES OF THE MINISTRY OF INTERNAL tures ranging from –30 to +30° C). AFFAIRS OF GEORGIA WILL BE USING LUKOIL LUBRICANTS

Deputy General Director for Commercial Issues ALEXEY cants. It was gratifying to know that in winter and does not overheat in STRELCHENKO, who was on a the main factor was not the price, summer, that is, it retains its quali- working visit in Tblisi on October but rather the quality of our goods. ties both in cold and heat. As for 23, 2013, talks about plans to In this way, the company managed the Georgian market, in our opinion promote LUKOIL’s lubricants on to strengthen its position on the lu- these lubricants fully meet the stand- the Georgian market. bricants market in this region and it ards of the police service, which fre- now has excellent prospects. quently involve extreme conditions What was the purpose of your recent when it comes to engine operations. visit? What are LUKOIL’s main advantages At a later time, LUKOIL GENESIS is compared to its other prominent ri- expected to be used at authorized Alexey Strelchenko | For LUKOIL the vals? service centers for auto warranty op- Caucasus has historically been one erations. of our key areas. The company care- A.S. | LUKOIL is one of the few com- fully monitors the promotion of our lu- panies represented in Georgia that What are your expectations as far bricants in this region. Nowadays, in runs an entire production chain, rang- as sales of products on the Georgian post-Soviet space, Georgia is a coun- ing from oil production to sales to lu- market are concerned? try where transformations are most bricants to end consumers. Therefore, obvious. Georgia has been expand- LUKOIL is able to guarantee the qual- A.S. | We are pinning high hopes on ing at a rapid pace, its vehicle fleet is ity of its goods, including base and the Georgian market and expect to undergoing changes and consumers ready-to-use oils. see strong expansion. I regret to say have the chance to choose. We have that there are a lot of fraudulent prod- been trying to attract clients by offer- European countries are the main sales ucts on this market as dishonest ven- ing them only top quality products. market for LUKOIL GENESIS engine dors pass them off as genuine. We’re Our calling card is also top-notch ser- oils. Georgia became one of the first working on this issue though, and vice. non-European countries that had the LUKOIL has an official distributor, This was hardly the first visit. My col- opportunity to use this product. What LUKOIL GEORGIA. We now have leagues and I travel to this country do you think was the motivation be- a dealer which, figuratively speak- on a regular basis to test the wa- hind this decision? ing, knows the background of every ters, i.e. to check whether we’re on single can that ends up in the retail the right track. However, the main A.S. | LUKOIL GENESIS is export- trade network. In other words, con- reason for my most recent visit was ed to Scandinavian countries, for sumers who buy LUKOIL lubricants an event, which, without exaggera- example to Finland. Let me remind can now be confident that they have tion, may be viewed as a milestone. you that this is a cold region where purchased the original and top-qual- The Ministry of Internal Affairs of high-performance lubricants need ity product which has passed the most Georgia chose to use LUKOIL lubri- to be used: our oil does not freeze rigorous testing.

13 LUKOIL lubes for key clients in Romania and Macedonia PARTNERSHIP

During the second half of 2013 LUKOIL won tenders to supply lubricants to a number of key enterprises in Romania. The company’s partners now in- clude state-owned ROMGAZ (an upstream monopoly holder in Romania), national energy company Complexul Energetic Hunedoara, aviation com- pany AEROSERV and the Ministry of Defence of Romania. LUKOIL also has some achievements in Macedonia: since July the company has supplied lubricants to rescue and water supply units and also to the municipality of Skopje, which is the capital of the country.

UKOIL has operated in among LLK­International’s subsidi- tion, came when it was contracted to LRomania since 1998 and is aries (a wholly­owned subsidiary of supply LUKOIL GENESIS Premium the largest Russian fuel and ener- OAO LUKOIL, which is in charge of 5W40, LUKOIL AVANTGARDE gy company on the Romanian mar- lubricants development in Russia and PROFESSIONAL LS 10W40 and ket. The fiscal contributions of LUKOIL abroad) in terms of the range of last­ LUKOIL ATF Dexron III to the Group account for about 4% of the generation goods supplied for pro- ROMGAZ group of companies. country’s total budget revenue. In ad- duction. The bulk of these products Notably, this company is already dition, the company has created over are high ­performance fully synthetic LUKOIL’s partner in an upstream pro- 4,000 local jobs. lubricants. ject aimed at developing two blocks in Lubricants are produced on the loca- A high degree of trust in the qual- the Romanian sector of the Black Sea tion of S.C. PETROTEL­LUKOIL S.A re- ity of LUKOIL’s products has ena- (Est Rapsodia and Trident). finery, at the blending plant of S.C. bled LLEE to expand rapidly on the – “Winning the tender was very im- LUKOIL LUBRICANTS EAST EUROPE Romanian market of lubricants. LLEE’s portant for us, since over last years the S.R.L. (LLEE), which is the leader greatest success, without exaggera- key supplier of lubricants to ROMGAZ has been Hungarian MOL, which used to cover up to 90% of consump- tion. However, we managed to turn this situation around, and this year LUKOIL became one of the most im- portant suppliers to ROMGAZ, since we have won a substantial amount of lubricants to be delivered in 2013- 2015. We expect to increase our share of delivered goods in 2014”. An equally important victory on the Romanian market may be considered a contract to supply 70% of the total oil consumption of Complexul Energetic Hunedoara, the national energy com- pany. About 30 tons of hydraulic oil HLP and engine oils will be dispatched to this company. Customers’ port- folio of LUKOIL LUBRICANTS EAST EUROPE also includes Romania’s

THIS YEAR LUKOIL’S SHARE OF PRODUCTS TO SOME ROMGAZ COMPANIES EXCEEDED 60%

14 International Airport "Delta Dunarii" in LUKOIL’S CLIENTS ALSO INCLUDE ROMANIA’S INTERNATIONAL AIRPORT IN THE CITY OF TULCHE, the city of Tulcea, where LUKOIL MS-­ WHERE LUKOIL MS-20 OIL WILL BE USED IN THE CESSNA-172 AND AN-2 PROPELLOR-DRIVEN AIRCRAFT 20 oil will be used in Cessna­172 and An­2 propellordriven­ aircraft. The pro- ject become possible due to victory in Nowadays, the capacities of the blend- a tender announced by AEROSERV ing plant in Romania make it possible to aviation company, which specializ- produce lubricants that are supplied far es in the provision of aviation services beyond the borders of this country. The for touristic and agricultural purposes, volume of different kind of lubes pro- and also performs meteorological re- duced from readymade­ components at search. It is also noteworthy that these the production facility in Romania stood lubricants will be supplied also to state at 17,000 tons at the end of 2012. enterprise BULGARTRANSGAZ (the Romanian products can be found on the respective tender was won thanks to shelves of LUKOIL’s branded filling sta- collaboration with LUKOIL Bulgaria. tions in Central and Eastern Europe.

Since the summer of 2013 LUKOIL has also partnered with a number of companies in the Republic of Macedonia.

It should be noted that under the im- Since the summer of 2013 LUKOIL LLEE SALES AND MARKETING DIRECTOR port replacement program, regular LUBRICANTS EAST EUROPE has al- VIKTOR TITOV: "OUR GREATEST SUCCESS supplies of branded lubes have start- so partnered with a number of com- WITHOUT EXAGGERATION, CAME ed to be made to subsidiaries of TMK panies in the Republic of Macedonia. WHEN IT WAS CONTRACTED TO SUPPLY (Russia) in the territory of Romania, LUKOIL GENESIS PREMIUM 5W40 LUKOIL GENESIS PREMIUM 5W40, LUKOIL i.e. TMK ARTROM and TMK RESITA and LUKOIL ATF gear oil will be sup- AVANTGARDE PROFESSIONAL LS 10W40 AND (the annual consumption volume of plied to rescue units and to the mu- LUKOIL ATF DEXRON III ENGINE OILS TO THE these companies amounts to about nicipality of Skopje, the capital of ROMGAZ GROUP" 50 tons). Macedonia after LUKOIL Macedonia In 2013 LLEE strengthened its po- won an engine and transmission oils sitions as a supplier of lubricants to tender. LUKOIL AVANTGARDE and with international car manufacturer Romanian railroads. Compared to LUKOIL AVANTGARDE ULTRA- die- DACIA GROUPE RENAULT for its 2012, supplied volumes increased sel engine oils and LUKOIL GEYSER branded service under the Motrio by 10% this year and reached over ST 46- hydraulic oil will be poured in- brand. And finally, initial success has 900 tons. And finally, since the begin- to the vehicles of the city’s water sup- been achieved in the sales channel ning of 2013 LLEE has been the offi- ply unit. of branded service centers, as sys- cial lubricants supplier for a number This year has seen an increase in the tematic supplies got under way to of entities affiliated with the Ministry of range of small and medium packed a SCANIA and MB dealer – Euxin Defence of Romania. lubes supplied under a contract Trucks.

15 LUKOIL starts producing lubes in Austria PARTNERSHIP

At the end of June 2013 LUKOIL and Austrian OMV Refining & Marketing GmbH signed an agreement under which LLK-International (a wholly- owned subsidiary of LUKOIL) acquired OMV’s oil mixing plant with a ca- pacity of 35,000 tons per year located in the suburbs of Vienna. This strat- egy is in line with the company’s strategy to promote LUKOIL’s lubricant business in the global market.

MV’s plan, which is locat- cilities, unique R&D experience and distribution outfits located in Austria, Oed in a suburban area of vast professional expertise of the Bulgaria, Hungary, Germany, Vienna (founded in 1996) special- company’s employees are the key Romania, Slovenia, Slovakia, the izes in the production of lubricants: factors which influenced our decision Czech Republic and Serbia. industrial and engine oils marketed [to purchase this asset], said LUKOIL The deal will allow LUKOIL to achieve under the BIXXOL brand. The plant’s president Vagit Alekperov in an offi- three key goals. First of all, it will yield products are sold not only in Europe cial press release. synergies with LLK-International’s fac- but also in several Asian countries LUKOIL had sought for several years tories in Romania and Finland, in the (including Pakistan, Jordan and a suitable asset in Western Europe second place it will streamline the lo- Thailand). These production facilities to strengthen its positions in the lubri- gistics of lubricant supply to the com- will now start to launch high-perfor- cant business in this area. “We care- pany’s strategic partners, and, in mance premium products under the fully and cautiously considered the third place it will strengthen LUKOIL’s LUKOIL brand that will be available investment issues. After having stud- potential to develop new oils (the to European consumers. ied a number of options we definitely Austrian plant currently produces – A convenient geographical posi- found a top-notch and unique produc- 1,400 branded products). tion in relation to foreign automak- tion asset with a distribution system al- – “For OMV, this deal, in turn, rep- ers and industrial enterprises, a ready up and running in Europe”, said resents another step on the road to smoothly running distribution system Maxim Donde, general director of enhancing the company’s strategy, in Europe, advanced production fa- LLK-International. OMV has product which calls for judicious use of our

16 downstream and marketing assets”, Needless to say, the employees of parties involved in the process have noted Manfred Leitner, a member of the Austrian company are mostly attempted not only to come up with OMV’s board of directors who is in interested in the employment pros- fair personnel solutions, but also to charge of downstream and marketing pects and keeping their jobs during use straight and transparent talk in the issues. this difficult time for the European early stage of resolving this issue. The Human resources are an equally im- economy. presentation by LLK’s top managers portant asset. “We attach great val- – The key decisions regarding the life made it possible both for the compa- ue to the expertise of our employees of the company give rise to such is- ny’s business as a whole and its em- as we count on their skills and expe- sues, and this should come as no sur- ployees to gain a confident vision of rience. Through our joint efforts we prise, Philipp Strommer explained. All the future. will be able to improve LUKOIL’s lu- bricant business in Western Europe”, noted Maxim Donde. After the offi- A REGIONAL LEADER cial announcement was made about the deal between OMV and LUKOIL – ОMV is a regional leader in to sell the plant, the LLK management Central Europe. Shareholder sent a delegation to visit the office of capital is divided as follows: the Austrian company in Vienna. As International Petroleum Investment part of the visit, a corporate presen- Company (Abu Dhabi) holds 24%, tation on LUKOIL’s social responsi- Österreichische Luftverkehrs AG bility was delivered to the Austrian (Austroflug) has 31.5% and the colleagues as well as the Russian other 43.6% is in free float. The company’s lubricant development companies listed on OMV’s bal- strategy. ance sheet include an upstream division (2/3 of upstream oil and gas – The personnel and management projects are concentrated in Austria and Romania), downstream and of OMV unanimously applauded the marketing (the total number of the company’s filling station chain reached presentation of LLK’s top managers, 4,400 by the end of last year), as well as Gas & Power GmbH (a pipe- noting not only its professional prep- line operator which ships about one third of the total volume of Russian aration and the manner of its delivery gas exports to Western Europe) and OMV Deutschland (a wholly-owned but also giving an upbeat assessment company which enabled OMV to gain market leadership in southern of its program of social responsibil- Germany). The company also owns a 97% stake in Petrol Ofisi (a leader ity, the company’s position on this is- of the Turkish market for production of lubricants; the company owns a sue and the content of the program factory capable of producing about 55,000 tons of lubricants per year), per se is very convincing, according a 36% stake in Borealis (Europe’s second-biggest manufacturer of poly- to OMV’s chief communications man- propylene and polyethylene) and a controlling interest in Petrom (the ager of Refining & Marketing Philipp largest oil company in Romania). Strommer.

17 Road to China PARTNERSHIP

The World Touring Car Championship (WTCC) is one the most impor- tant global events in the world for racing car drivers. The stages of this competition are held in 11 countries on four continents. The next-to- last leg of WTCC-2013 took place in Shanghai on November 2-3. The final round, which traditionally runs in the Chinese city of Macao, was held on the streets of that city on November 16-18. The LUKOIL RacingTeam, which customarily takes part in this event, is the only Russian team on the circuit. This driver of this team won the individu- al classification of the championship for the third consecutive year – Ivan Muller.

Incidentally, one stage of the WTCC took place for the first time in the capital of Russia. Russia will be back on the calendar in 2014, which means we’ll be able to watch this amazing event again in June.

18 The WTCC championship will be broadcast by Eurosport, a major television channel, with over 500 million global viewers. This alone makes WTCC a unique market- ing tool. In line with LUKOIL’s lu- bricant promotion strategy for the promising Chinese market, LLK- International has decided to use the championship to launch a big marketing campaign. As part of the event in Shanghai the official Chinese dealer of LUKOIL lubes was awarded a dealer certificate dur- ing an official ceremony. After that, LLK-International’s representative Andrey Savin and General Director of the company/dealer for China Van Shaoguan answered questions asked by journalists in attendance. This exciting event received wide coverage in the Chinese media, helping to boost brand awareness in the country.

19 NEWS www.lukoil-masla.ru

LLE signed a contract members of the dealer/distributors net- conference. Speakers at the workshop with KEOLIS Sverige AB work, but also by potential clients that included Alexey Strelchenko, Andrey are Romanian companies. A special time Yasnovsky and Vsevolod Shirinkin. The of the conference schedule involved the success of the event is already appar- presence of companies from the FMCG ent, since numerous requests have been sector, which was greeted as a welcome received from potential buyers, while addition aside from the usual representa- preparations have been made, sam- tives from lubricants and spare parts busi- ples of base oils have been dispatched nesses. Notably, their participation in the and deals on trial deliveries have been conference was of great strategic impor- discussed before the end of the year. After 2 months of running successful- tance, since FMCG companies shared Furthermore, a contract was signed with ly field tests of 15,000 kilometres with with all participants their best practic- Infinity Oil AG to supply base oils to Lukoil products and 10 months of negoti- es and their experience about the way countries of Eastern Europe. Shipments ating the details in a partnership, LUKOIL to activate customers, to attract them to under this contract are scheduled to be- Lubricants Europe OY signed a contract their point of sales and to obtain repeat- gin at the beginning of December 2013. with one of Sweden’s biggest public ed buying. Given the expanded lineup of transport company’s; KEOLIS Sverige attendees, great attention was devoted LUKOIL’s blending plant AB. In the roll-out plan the company start- to the presentation of LLEE, its main busi- in Romania produced bottle ed supplying the busses in Stockholm in ness areas and operating principles on no. 10 million of lubricants January 2014. In February the compa- Romanian lubricants market. Companies ny roll out the distribution in Gothenburg that already work with LLEE also had a In September, 2013 LUKOIL’s blend- which is the second largest city in busy agenda. They were especially in- ing plant in Ploiesti produced bot- Sweden. Keolis has a total of 1,900 terested to hear about the company’s tle no. 10 million of lubricants. That busses in Sweden, of which 1,100 in new strategy for Romania in 2014. The means this bottle of 1 liter, LUKOIL Stockholm. The approximate volume of highlight of the event was a special video GENESIS PREMIUM 5W-30, on pro- supplies is expected to be 500 cubic which showed how lubricants are manu- duction and packing lines of LUKOIL meters, of which LUKOIL AVANTGARDE factured at the blending plant in Ploiesti. LUBRICANTS EAST EUROPE was pro- PROFESSIONAL LS 10W 40 and Starting next year dealers’ sales targets duced this bottle in branded, small AVANTGARDE PROFESSIONAL LA will be built on the recent segmentation pack (1,4,5 liter bottles) ranges of lu- 15w 40 will account for the biggest of the Romanian market based on sales bricants. The counting of the produc- amounts. The vehicle park of Keoils con- channels. Underlying the strategy are the tion in small pack started in October sists of many brands of buses which op- existing volumes of the markets in the var- 2008 when, at the blending plant, erate using a number of different fuels. ious regions of the country and their areas were introduced, fabricated and de- «With Lukoil's combined specifications of specialization. “This kind of approach livered new designed bottles in 1, 4 per product we have been able to de- will make possible to monitor sales of and 5 liters filled in with different rang- crease the number of different lubricant products and gain a better understanding es of lubricants and transmission fluids. products and made it both easier and of the market”, Viktor Titov summed up. cheaper for customers in their work- shop, but it also optimizes our logistics»,- LUKOIL’s base oils explains Sanna Nilsson, Logistic and showcased in Budapest Fulfillment Manager of Lukoil Lubricants Europe Swedish branch. Last year LLK International participated in the conference ACI’s European Base New-style dealer conference Oil and Lubricants Summit 2013, which was held in Budapest and brings togeth- A dealer conference of LUKOIL er producers of lubricants and addi- LUBRICANTS EAST EUROPE (LLEE) tives, OEM representatives and service was held last year in the Romanian city providers from over 100 companies. of Predeal. The conference was attend- LLK-International adopted a decision to ed for the first time not only by current hold a one-day workshop as part of the

20 2013 year results were summed up at LLK International amid a festive atmosphere