Energy security - a top priority: Oszkár Világi

ENERGY supply security is a top priority. Though the Druzhba pipeline remains the key supply route at the moment and for the future, the renewal of the Adria pipeline is also important, Slovnaft CEO Oszkár Világi said in an interview with The Slovak Spectator. Világi also shared his thoughts on developments on the oil market, fuel quality, environmental safety, bio fuels and development in the Bratislava Region.

Before becoming CEO of Slovnaft in 2006, Oszkár Világi was a member of the Slovnaft Board of Directors from 2005. Before that, he used to be a member of the company's Supervisory Board. Világi's law firm represented many significant foreign investors who came to Slovakia, including US Steel, France Telecom, and others. Világi graduated from the Law School of Comenius University with a Masters Degree in law in 1985 and received his Doctor Iuris degree in 1990.
photo: Oszkár Világi, CEO of the Slovnaft company

ENERGY supply security is a top priority. Though the Druzhba pipeline remains the key supply route at the moment and for the future, the renewal of the Adria pipeline is also important, Slovnaft CEO Oszkár Világi said in an interview with The Slovak Spectator. Világi also shared his thoughts on developments on the oil market, fuel quality, environmental safety, bio fuels and development in the Bratislava Region.

The Slovak Spectator (TSS): In spite of the fact that the price of crude oil is staying relatively high on the global markets, the price of petrol has recently fallen slightly. What influenced this price decrease? How do you expect fuel and oil prices to develop in the near future?

Oszkár Világi (OV):Crude oil is the most important raw material in fuel production so fuel and crude oil prices tend to correlate in the long term. However, from a short term perspective, both commodities live their own life on the international markets and their prices are very much influenced by each commodity's balance of supply and demand. This is the main reason why we recently witnessed decreasing petrol prices while crude oil prices were peaking. This was reflected the situation of improving refinery utilisation and higher fuel production across the world, which resulted in a looser balance of supply and demand in the case of petrol. Regarding future developments, the market has already calculated known risks into the price of crude oil. So if no new risk factors appear, I believe oil prices will float in the range of $60 to $80 US a barrel. I would not expect higher petrol prices in the next few months.

TSS: The number of supermarket filling stations has doubled over the last year and in regions where they operate they pushed fuel prices down by a crown. Do you think this kind of business is competition for Slovnaft?

OV: This is a global trend. The number of hypermarket filling stations is increasing across the globe and Slovakia is not an exception. Oil companies have to be prepared to face this competition. However, we have to take into account that hypermarkets are not selling fuel as their core business but only as a complementary activity aimed at attracting customers to their stores, which are the main source of their profit. Therefore, they do not need to make a profit on fuel sales. Moreover, it is worth mentioning that while hypermarket filling stations usually only sell fuel with a basic additive package blended during production, which they have to do to meet Slovak standards, branded filling stations, including Slovnaft, sell fuels with extra additives that ensure things such as a cleaner engine, a smoother start, better acceleration, and less consumption if the car is in good condition. Thus, car engines clearly benefit, especially in long run, from these higher quality fuels with additives. Of course, people will always want to buy cheaper fuel, just like they prefer buying cheaper bread, milk, and clothes. But from the long-term point-of-view, it is not necessarily more economical, as the cheaper fuels can influence the vehicle's condition and performance. The costs of repairs and maintenance that result from these savings could completely eliminate the short-term advantage of the somewhat cheaper fuel.

TSS: The EU supports the use of renewable resources and bio fuels. How do you see the development in this area? Will Slovakia have the necessary capacity to produce bio fuels?

OV: Slovnaft has started to supply both the domestic and foreign markets with bio fuels in line with legal requirements and Slovakia's commitment to the EU and have thus contributed highly to Slovakia's leadership in this field within the V4. Based on analyses, Slovakia's agricultural sector has the capacity to meet the currently required bio-component content in fuel. However, the EU envisions that the required bio-content could more than double in the future. This could alredy cause problems for the EU's agricultural sector. We can already see growing food prices across the globe as demand has been growing, both in the food industry in the energy industry. This is a new game that needs new rules. The food and agricultural industries on one hand, and energy industry on the other have to find a new balance. That is why it is important to closely examine the benefits and drawbacks of such plans on both the EU and national levels. That is why we in the MOL Group have already started analyzing so-called second generation bio fuels, which utilizes bio waste for bio fuel production.

TSS: The media thoroughly covered the Austrian, half state-owned oil company OMV's attempt to take over MOL Budapest. What impact would the possible takeover of MOL by OMV have on Slovnaft and on this region?

OV: Slovnaft is currently the most efficient and one of the most complex and modern refineries in Europe. In the last 10 years, the MOL Group has become one of the most dynamic companies in our region in terms of growth. In the case of any takeover or merger, one has to see the synergies it would bring. For the time being, we do not see the synergies from a potential OMV-MOL merger as the business areas of both groups strongly overlap. Moreover, we believe that such a takeover would raise serious competition concerns and could even destroy shareholder value. Due to this, the MOL Group prefers to continue in its own value-creating growth strategy, which we believe is beneficial for all stakeholders.

TSS: There is still uncertainty where Transpetrol shares are concerned. What impact does this uncertainty have on Slovnaft?

OV: Transpetrol plays an important role in ensuring the delivery of crude Oil not only for Slovnaft but for the whole of Slovakia, and thus significantly contributes to the country's energy security. In the past expressed our interest in acquiring a stake in Transpetrol. We also offered to help the state in buying back control over Transpetrol. We still see this as the best alternative. However, if this is not possible for some reason, we believe that, from Slovakia's point of view, it would be good if the new owner of Transpetrol was a company that could improve Slovakia's oil supply security.

TSS: The Adria oil pipeline has come into operation. Could the Adria pipeline become an alternative to the Druzhba pipeline? How does Slovnaft see the stability of oil deliveries through Druzhba?

OV: As I have already said, long-term supply security is a top priority for us. From this point of view, we see Adria as the most important, already existing and functioning alternative supply route in the case of a disruption on the Druzhba pipeline, which is Slovakia's main supply route. The MOL Group made a significant contribution to supply security when it restarted Adria. I believe that Druzhba will continue to play a very important role for Slovakia for many years. However, we will continue to analyze all the relevant solutions that could contribute to energy security of the countries where the MOL Group plays an important role.

TSS: Slovnaft has invested a lot into environmental projects. Can you mention your most important recent environmental projects?

OV: In the last 12 years, we have invested more than Sk53 billion into technology upgrades and modernisation, quality development, and environmental safety. These investments have already exceeded the level of net profit generated by the company in the same period, which means that Slovnaft invested more than it earned into development benefiting all its stakeholders. If we want to consider only environmental projects (though all the key investments had ecological connotations), on an annual basis, Slovnaft invests about Sk400 million on average into environmental projects. For example, last year it was Sk800 million, as we intensified storage tank reconstruction and also the redevelopment of closed filling stations in order to make both the plots and the existing stations fully compliant with environmental requirements.

TSS: Slovnaft's profits are a thorn in the side of Prime Minister Robert Fico. Is Slovnaft more profitable than other energy companies in the EU?

OV: Slovnaft's profitability is fully in line with our peers and competitors and it is significantly lower than, for example, the profitability of telecommunication operators. Moreover, Slovnaft generates about 75 percent of its sales revenues from exports on foreign markets. And last but not least, we have to realise that the oil market is a global market and that oil companies, including Slovnaft, only have a minor influence on fuel prices. For example, in Slovakia, about 60 percent of the retail fuel prices are taxes and a significant part is represented by crude oil costs.

If we look at net prices across the EU, we see that Slovak prices are lower than the European average. Moreover, net petrol prices in Slovakia are among the lowest in our region. If Slovnaft set prices below the market price, we would squeeze out competition from the market. Currently, about 40 percent of the fuel sold in Slovakia is imported, which is normal in Europe.

TSS: The lack of qualified labour is currently one of the biggest issues. Has Slovnaft had problems in this area as a major employer, or does it expect any problems in the future?

OV: I believe that it is not worth complaining about the situation, we should rather focus on solutions. We at Slovnaft feel that the balance of supply and demand is the tightest regarding technical and chemical engineers and experts. Due to this, we have already launched a project entitled Growww2007, aimed at attracting the best graduates from Slovak universities to Slovnaft, offering them a one-year trainee programme and carrier opportunities in Slovakia's second-biggest non-financial company, Europe's most efficient refinery, and the country's third best employer. This way, we have already managed to gain 25 fresh graduates who have already started working for Slovnaft. We intend to continue this programme. Besides this, we would also like to put more emphasis on cooperation with secondary schools.

TSS: Will the new Labour Code influence Slovnaft in any way?

OV: Many things that were proposed in the recently modified Labour Code have already existed in Slovnaft for years. So I do not think that the Labour Code will have a significant impact on us. However, it might cause complications for smaller companies, but we will see its impact only after it has been effective for some months, maybe even years.

TSS: Car and technology companies are becoming more and more prominent in the Slovak economy. How do you see this development?

OV: We see Slovakia's growing automotive sector as a good opportunity for our petrochemical daughter company. We produce polymers, which are an important component for the suppliers of the car manufacturers.

TSS: How do you perceive the importance of Slovnaft in the Bratislava Region, in particular in the context of its regional development?

OV: Slovnaft is Slovakia's second biggest non-financial company, headquartered in Bratislava. This means that we are also the second biggest company in the Bratislava Region. We contribute to the country's industrial production by about 5 percent on average annually, which is very significant. We are the second biggest corporate tax-payer and we also contribute to the development of the Bratislava Region by our high quality remuneration system and social policy. I am very proud of this and I believe that we can be a model of employer-employee relations and corporate social responsibility for other companies also. I am very happy that not only our employees, but the general public appreciates this as well. Based on a recent survey, Slovnaft is seen as one of the top three most active companies in the field of corporate social responsibility, mainly supporting children, Slovak culture and sports.

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