LLK Contests Turkish Acquisition


Lukoil filed for arbitration in its 2008 acquisition of a lubricants blending plant and other assets in Turkey, fearing it might lose ground in the countrys lucrative petrochemicals market. The claim was filedlastmonth; financial details were not disclosed.

Several Lukoil subsidiaries in Turkey, including Lukoil Eurasia Petrol, filed a claim in the Stockholm arbitration court in relation to the Akpet deal, Dmitry Dolgov, Lukoil’s spokesman, told Lube Report in a telephone interview from Moscow.

In 2008, Lukoil purchased 100 percent of Akpet, owned by Turkeys Aytemiz group, to gain a foothold in the countrys lucrative petrochemicals market. The deal included a 12,000 tons per year lubricants production and packaging plant based in Izmir, a network of 693 franchise operated gasoline stations, eight oil storage terminals with total capacity of 300,000 cubic meters, several liquefied petroleum gas and jet fuel depots.

Lukoil purchase of Akpet for approximately U.S. $550 million came with a contract clause to be its exclusive petrochemicals supplier for 15 to 25 years. But Turkish mandates shortened the length of the contract period [between the countrys gas stations and their suppliers] to five years, Dolgov said, noting that worsened the economics of the deal.

In the last couple of years Lukoil maximized output at the Izmir plant, which in 2011 produced 22,000 tons of finished lubricants, of which 16,000 tons were sold domestically, and 6,000 tons were exported, Irina Rybalchenko, LLK Internationals spokeswoman told Lube Report.

With a population of 73 million, Turkey has significant market potential for us, she said. LLK International is the Russian oil majors lube arm. LLK Eurasia operates the blending plant and markets the companys products in Turkey.

LLK Eurasia is the exclusive supplier of Ankara-based TCDD, the state-owned railways company and Izula, a bus service operator for Izmir. Also, LLK recently became a lube supplier for Tuumllomsa, a Turkish locomotive and wagon manufacturer headquartered in Eski,and it is a long-term supplier for other Turkish coal mining and energy companies.

The company considers Turkey as a platform for expansion of its products in the Middle East. In Iraq, LLK-International sales are rising and we expect to reach a 4 percent share of the countrys lubricants market in 2012, Rybalchenko noted. Last year Lukoil held 3.7 percent share of Turkeys petrochemicals market. The company said most likely it wont exceeded managements short-term expectations for a higher market share.

Turkeys reduction in the length of the contracts between the gasoline stations and petrochemicals suppliers such as Lukoil, which could be a reason why the company is seeking arbitration, according to Grigory Birg, analyst at the Moscow analytic agency Investcafe.

In light of the change in legislation, the company believes it overpaid for [Akpet], He noted that Lukoil might have already negotiated supply contracts that exceeded the five-year limit established in the regulations.

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