Rosneft and heavyweights from several Russian industries have entered lubricant and oil product supply agreements in reaction to the countrys economic crisis. The companies said Russian businesses should buy domestic as a way of coping with the rubles devaluation.
The key part of this effort is readiness of the countrys industrial behemoths to implement import substitution that would lead to new economic gains and increased competitiveness of domestic production, Rosneft said in a Dec. 4 press release.
Rosneft reached the agreements earlier this month with Metalloinvest, Siberian Coal Energy Co., United Heavy Machinery Plants, and Federal Grid Co. The oil giant will cooperate with each in the research, development, manufacturing and marketing of lubricants and other petrochemical products used in equipment that they use and supply.
These agreements lay out the basis for Rosnefts strategic cooperation with leading Russian industry groups, said Igor Sechin, the oil majors president. We are ready to supply them with lubricants and other oil products on attractive financial terms and without interruption. He added that in the challenging economic and political environment in the country, join efforts are key to making domestic industries more competitive.
Metalloinvest Chief Operating Officer Andrey Varichev said the partnership of leading Russian oil, metals and mining businesses opens new opportunities for the countrys industry. It will increase industrys production competitiveness. In the meantime, we expect reduction of operating costs and efficiency [improvements to] Metalloinvests activities, he said. UHM officials cited their companys long relationship with the oil giant. We are ready to endure over any burden for any mutual project that we do with Rosneft, said Mikhail Smirnov, head of UHM.
This is a very important deal, said Andrey Murov, head of FGC. It shows that large Russian companies need to achieve a high level of interaction when the countrys macro-economy is in a complex situation. Interaction between the companies will help them to be ready to react to the changing economic landscape.
The Russian economy was already suffering this year from devaluation of the ruble, inflation and low industrial output, and those problems were exacerbated by falling oil prices and international economic sanctions.
Some oil companies, particularly Rosneft, have had liquidity difficulties since Western financing markets were closed to them while their debt payments continued to come due. Last week Rosneft raised 625 billion rubles (U.S. $10.8 billion at the then current exchange rate) through bond sales to state-owned banks to help weather its current financial woes. The sales were widely viewed as contributing to the rubles steepest one-day decline since the 1998 financial crisis.
Since 2008, Russian refiners have had a stated goal of developing capacity to produce high-quality base stocks, partly to help domestic lubricant producers battle imports, which account for at least 50 percent of the nations finished lube demand. Not much has been done accomplished in terms of base oil production. Tatneft opened the only new API Group II or III capacity earlier this month.
In the light of the economic hardships that began early this year, other refiners – like state-owned Rosneft and Gazprom Neft, as well as privately owned Lukoil – have postponed or frozen their base oil projects
Rosneft is Russias second largest lubricant marketer and specializes in production of lubes for the countrys industry. In 2013 it produced 601,000 tons of lubricants and base oils, and held a 26 percent share of the Russian lubricants market, according to Moscow-based InfoTek consultancy.