After the most successful year in the history of the Serbian Petroleum Company, its chief executive officer reveals in the exclusive interview for Nedeljnik magazine that for the first time now “he may confirm that NIS has become a regional player in this market”. He also says that it is only a foundation for future development of the company which should grow into a regional giant. Mr. Kirill Kravchenko reveals to Veljko Lalić how they have managed to become a regional player for only four years, what their plans are, the Serbian-Russian relations and speaks about his closest associates, Red Star and Vladimir Putin
Mr. Kirill Kravchenko, NIS j.s.c. Chief Executive Officer shows an excellent fluency in Serbian language during the interview. When one of the most promising Russian managers says that the Serbian Petroleum Industry has become a regional giant with a tendency to grow, it implies another dimension.
We discuss the results of the most successful year in the history of the Serbian Petroleum Industry in his office in Belgrade (although he is fonder of the one in Novi Sad where he lives with his family.
– This was not an easy year for us due to the economic crisis and pressure on dinar, but we achieved most of our objectives set. The investments were increased to around 50 billion RSD, or 40% during this year. In addition to this we managed to reduce bank loans and the ratio of our debts and EBIDTA is around 0,45, meaning that our financial situation is completely stable for further development of NIS j.s.c. …
What were the key measures to achieve this? Nowadays everybody uses the global financial crisis and the Euro zone crisis as main excuses?
The most important thing for us is the fulfilment of covenants under purchase agreements, and then the increase of exports and oil and gas explorations. We have acquired almost one hundred petrol stations and locations in the neighbouring countries. Therefore for the first time now I may confirm that we have become a regional player in this market.
You say this with pride…
It is a fact! We have never boasted of our success, we only achieve what our shareholders demand from us, Gazprom nafta and the Government of the Republic of Serbia.
What else have they demanded?
We have initiated several energy projects, and we started the reconstruction of the HIPP together with the Government. Most of the objectives have been achieved so far…
What was essential for the success of “NIS case”? Let us remind, in 2009, Gazprom nafta acquired the company which was heading towards the bankruptcy?
The situation was very difficult back then – the debt exceeded one billion dollars and the Company constantly had negative results. In 2008, the investments were only 80 million Euro worth of, intended almost only for overhaul, maintenance and consultancy, but in four years we managed to strengthen the Company in various directions.
The direction number one driving our success was a constant increase in investments. It was a key number one. The second direction included the growth per segments. Our growth was based on production, increasing by around 80% since we operate here, and at the same time – which is even more important – our reserves have increased. And they are even greater than at the beginning. The third direction was our network of petrol stations and irrespective of a significant market shrinkage, we have made an increase in the absolute volume of fuel sales. Our market share has also increased. The last direction involves the costs we fight with, but in compliance with the most extensive social program in the Balkans – around 22.000 Euro was paid for each employee in average as a severance payment.
At the same time, we have engaged young experts who improve our Company operations and bring a new energy. This could be achieved only by a new team. It is the essence of our story. We have brought the best people from the whole region, from twenty different countries.
If you were to emphasize one particular factor, which one would it be?
A team of people and investments. These are two key factors. All other positive things ensue from that.
Upon acquisition of OMV in Bosnia, you have announced the opening of another 100 petrol stations in Bulgaria, Romania and Hungary by the end of 2013. How will this affect the positioning of NIS in the region and what are the basic directions of a long-term development with respect to NIS transformation from the petroleum company in a regional energy holding?
There are several plans regarding this. The long-term plan covering the period by 2030, the mid-term plan covering the period by 2020 and a short-term plan being a three-year business plan. As for the short-term plan, we plan to expand the petrol station network by double by 2015, where one half of the network is located outside Serbia. At the same time we plan to increase the reserves of petroleum and gas in the whole region of the Balkans, as well as to increase the production to two million tonnes.
The mid-term strategy was adopted by the Board of Directors in 2011 and we call it “Five Stars” – five million tonnes of petroleum and gas production a year, five million tonnes of refined products and five million in sales. Refining operations will be increased by 40% only next year, the products will meet Euro quality, other than small quantities intended for mechanisation in agriculture. We plan to take part in great projects in Serbia – a new tent in Pančevo and the reconstruction of TENT in Novi Sad. We need both wind and thermal energy in order to meet the EU requirements related to 20% of alternative energy. We have great plans regarding this as well, but we will speak about them some other time.
A strategic objective of the Company by 2020 at one moment was the production of five million tonnes of petroleum and gas a year, with the same volume of refining and sales of petroleum products. Will NIS be able to implement this strategy which appears to be a little unreal now?
This is a good questions since based on current projects by 2020 we would be able to produce 3.5 million tonnes. That is why we need new projects. As for the financial situation and shareholders’ desire, we believe that we can achieve that plan. Investments are required and that is why we invest great amounts in petroleum and gas explorations. We have significantly increased investments in that area, particularly in the Republic of Srpska, Hungary and Romania. It is always the same – if you want to earn great money in petroleum and gas production, you must invest great amounts in geological explorations.
Our citizens are mostly interested in profit distribution. Do you plan to pay dividends for the first time now or everything will go in investments and debt payments?
I can say openly that we have closed the holes of previous years. In mid year we defined the dividend policy prescribing that at least 15 percent of net profit will go on dividends. However, the Shareholders’ Assembly and the Board of Directors will make a decision on this, but based on our Statute and dividend policy, and the shareholders will get dividends.
This means that citizens will get dividends?
Based on our policy and the fact that we have eliminated the losses of previous years, we may expect the payment of dividends.
NIS is the biggest taxpayer in Serbia (it is estimated that around 94 billion RSD are paid for taxes and contributions). Are you aware of your role in the Serbian economy? You are practically on top of that chain.
Our role is rather significant. Last year we paid around 80 billion RSD and this year – you are right – more than 90 billion RSD for taxes and contributions! For comparison, Telecom paid less than 20 billion RSD for taxes and contributions last year. The Serbian Electrical Power Industry is significant, but in comparison to us, we pay by 30% more. Therefore I can agree with you that we are on top of that chain, but also to confirm that taxes will be increased next year.
You have been criticized in public at one moment that your closest associates and management staff members do not include Serbs. Is this true and who are the Serbs you have great confidence in?
It was the situation in the beginning and now we may say that there are several very good and promising Serbs among top management staff. The three of them – one in charge of the HIPP, one in charge of the strategy for business development and one in charge of great projects, belong to the top management staff. The Serbs in the second level management account for around 80%. The majority of our daughter companies in the Republic of Srpska, Romania, Hungary and Bulgaria are managed by Serbs. We have a program of staff exchange between NIS and Gazprom. Serbs work in full capacity in Russia and we expect to see them in the most significant functions in other countries in near future. Therefore I see no problem in this respect. The Serbian staff members are more and more numerous in management and we have great confidence in them.
Is there anyone who you would like to mention?
Let’s wait a bit and not mention the names. They need to pay full attention and commit to business and I would not like to make additional problems and pressure by mentioning their names.
Three years in succession you have been elected the most powerful foreigner in Serbia by a daily paper. Do you feel that powerful? Are there any situations in which you feel completely helpless in Serbia? Foreigners often speak of slow administration, instable political situation. What is your biggest problem in Serbia?
With respect to power, the evaluation refers to the company, not to me as a person. We all have problems with bureaucracy sometimes, and with respect to stability, I believe that we have passed the hardest time of government formation, elections and that we have a good and constructive cooperation in all levels of authority now. I believe that this trend will continue. We have both Gazprom nafta as the major individual shareholder and the Serbian Government and a great number of citizens, minor shareholder behind us who wish that NIS operates with success. Therefore, there are no issues which cannot be resolved for us.
After Fifth October changes, Russia was mostly disavowed by a new Serbian political elite in public, and the Russian capital had an unfavourable position in investments compared to the companies from the West. Has this changed in the last couple of years? Are the Russian companies equal, even preferred players in the Serbian market now owing to Gasprom nafta, among others?
Ten years ago, Russia could not invest a lot in foreign countries because it fought its own battle with the crisis. Now it can make investments and the first objectives in that respect are the regions where we have traditionally good relations not only in the area of economy, but both historically and culturally. Serbia is definitely one of the best countries Russia should cooperate with. As regards the current situation, I think that the Serbian government has a very balanced policy in attracting big investors from all over the world. I personally feel very good vibrations towards Russia and we try to behave the same. We speak Serbia, pass exams in Serbian culture and promote Serbia in Russia as well in order to attract new investors and tourists.
Do you feel that Russia has become the first line strategic partner?
I feel that the first good economic results bring more enthusiasm and that the Serbs feel that Russia is a reliable partner. I think that Serbia nowadays has a choice to join the European Union and at the same time to have one big friend – Russia. You have good relations with China and I believe that this is a great advantage for Serbia nowadays since it can additionally balance its development not relying only to the EU investors.
The flourishing of the Serbian culture and Serbian society was greatly affected by Russians emigrating from the Soviet Union immediately after the First World War. These highly educated people refined Belgrade with science, architecture, painting arts and supported the establishment of our national ballet, theatre, military schools and academy. Can a new wave of Russian influence in Serbia, in particular, businessmen, bring a new quality in Serbian-Russian relations, not having the base only in daily politics?
Culture is very important, but let’s say that in mid term we may provide support in business through our investments. For example, Pančevo Oil Refinery will be the best refinery in South East Europe in future. The increase of our reserves also contributes to the energy independence of Serbia. By expanding the network of petrol stations NIS increases Serbian influence in the region. I am not sure that we can compare this to culture but in real life we may provide our support.
You are a young man but you would definitely like to leave a “building” as Nikolay Krasnov, the architect of the Romanoff family who constructed some of the most beautiful buildings in Belgrade?
Two refineries, one of the best in petroleum products and the other in production of base oils will be two visible things my team will leave behind it. I can add also the most beautiful network of petrol stations covering the whole Serbia and region. We also have several new facilities in energy infrastructure increasing the level of energy safety of the country. This will be visible and real.
As a person holding a PhD in sociology, what do you think about the Serbian society nowadays?
I am more of an economist, and as regards the society I would say that we live in very difficult time. I have read a study based on which the Serbs are one of the most depressive nations, as well as that the Serbs do not like to work much. I would not agree with this and our example shows that the Serbs are very efficient in work, that they like culture and that they are positive in social life. That is why I believe that the economic development of the country is the best path for Serbia. Serbia has a long and beautiful history, being one of the first Christian countries with lots of significant men such as Nikola Tesla and Emir Kusturica nowadays. And it also has one very strong thing – a national pride.
Our nations are very emotional for each other. Vladimir Putin said that he would never had a welcome in the world such as the one organized in Marakana stadium. What do you think about that?
I think that this was said from the heart. I was with him at Marakana stadium back then. It was the top of the tops. We have good and open relations in all levels. There are few Serbs who do not want to cooperate with the Russians; I also think that there is no man in Russia who would not like to cooperate and strengthen historical relations with Serbia. I personally believe that it is only now that we have the capacity to strengthen these relations and to add economic relations to historical and religious ones and make the best cooperation possible between two countries.
Further to all events related to FC Red Star, what could the club fans expect from the general sponsor Gazprom neft? What is your personal attitude towards the club?
Red Star is the Serbian legend, but we know that people support different clubs here. That is why we support different clubs in different sports. Our major shareholder supports Red Star in football, Partizan in basketball and Vojvodina in volleyball.
Please note that we do business, other than sport clubs management and therefore our role is limited. We assess the condition and how it affects our reputation, but we do not get involved in current business operations of sport clubs.
How does Red Star affect your reputation?
As regards Red Star I think that it is a good step that Mr. Vučić took over the additional responsibility to reconstruct the club a bit. We have great confidence in the Chairman of the Sport Organization “Red Star”, Mr. Petar Škundrić who gives his best to bring the club to the group of the great ones. As sponsors we would like to help and a few days ago we offered them a more favourable agreement. Personally, I see the lights at the end of the tunnel. The situation is difficult due to big debts, but there is no other destiny for the club. Red Star can neither be closed down nor completely sold to tycoons.
The jokes starting with “There were one Russian, one American, one Englishman and one Serb” were popular in Serbia for decades. Have you ever heard one and which one do you like best?
I cannot remember now, but one of the first ones I heard was: “One Russian, one American and one Serb are asked how much they earn and how much they spend. American says: “I earn 1.000 USD, I spend 800 USD, I don’t know where the remaining 200 USD go; a Russian says: I earn 1.200 USD, I spend 500, I don’t know where the remaining 700 USD go, and a Serb says: I earn 1.000 USD, I spend 1.500 USD, and I don’t know where I get those 500 USD. This was the first one I heard when I came to Serbia, but then I realized that it was not the case.
The price of fuel next year will be below regional average
Fuel is very expensive in Serbia now. We cannot invite people to accept this, it is our price. But we do not make the price on our own and the state participates in it with 50 % through excise and other taxes. Next year we will have one third of domestic oil production and we will try to adjust the price and make the price below regional average. There is a space for price reduction, but only if oil price in the world market does not grow and if the exchange rate remains stable.