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Slovnaft is fuelling regional growth

Taking its cue from another Slovak industrial giant, the VSŽ steel mill, the Slovak oil refiner Slovnaft is gradually becoming a multinational corporation, spreading its gas stations like a net around central Europe.
"We have already established branch offices in the Czech republic, Hungary and Ukraine, and we are now building a new chain of gas stations in Poland," said Slavomír Hatina, Slovnaft's General Director. He added that the company's current expansion plan provided for close monitoring of quality standards in the European Union (EU), because all of Slovnaft's new central European customers will one day be EU citizens.

Taking its cue from another Slovak industrial giant, the VSŽ steel mill, the Slovak oil refiner Slovnaft is gradually becoming a multinational corporation, spreading its gas stations like a net around central Europe.

"We have already established branch offices in the Czech republic, Hungary and Ukraine, and we are now building a new chain of gas stations in Poland," said Slavomír Hatina, Slovnaft's General Director. He added that the company's current expansion plan provided for close monitoring of quality standards in the European Union (EU), because all of Slovnaft's new central European customers will one day be EU citizens.

Glittering results

Despite last year's volume of investments, which set a record in the company's hundred year history, Slovnaft's annual net profit for 1997 rose sharply to 1.702 billion Sk ($50 million) from 1.290 billion Sk in the previous year. The company credits flexibility in eliminating the negative effects of currency fluctuation as being largely responsible for the rise in profits.

"The planned 1997 gross profit was about 2 billion crowns," Hatina said. "In the end, we hit 3.1 billion Sk, even after losing more than 700 million Sk on unpredicted exchange rate fluctuations. However, we were able to eliminate the effects [of the fluctuations] at least partially."

Slovnaft imports all its crude oil from Russia, and pays its eastern supplier in US dollars. On the other hand, the Czech Republic, Slovnaft's biggest foreign market, has been paying in Deutsche marks. Due to the mark's slide against the dollar last year, Slovnaft had to take steps to change its trade policy.

"Even our employees reacted by saying 'how can we persuade our partners [to change the trade agreement] without any arguments? The dollar increase against the mark is not an argument'," said Hatina. "[But] if you want to keep your position, you have to find a solution."

They suceeded. Last summer, Slovnaft persuaded its Czech clients to pay them in dollars, thus avoiding the dangerous currency developments that badly mutilated VSŽ profit last year. The eastern Slovak steelmaking giant saw its net profits cut to 595 million Sk from 1.3 billion in 1996.

Growing multinational

Last year, Slovnaft invested 9.37 billion Sk ($276 million), twice as much as in 1996 and over three times more than in 1995. As a direct result of the investment, Slovnaft has joined the company of central European multinationals.

The company's rise from a local giant to a strong regional player is partly riding on the back of a plan to build a chain of 18 petrol stations in southern Poland. "Actual construction of the first gas station should start in about two months, and will be completed before the end of this year," said Peter Gelačík, Director of Slovnaft Polska, the company's Polish affiliate. He added that the whole chain should be completed within three years.

"The biggest obstacle to overcome when building a gas station in Poland is the price of land, which is several times higher than in Slovakia," Gelačík said. Despite the overvalued land, Slovnaft has already bought three building sites and launched project works on them.

Together with another multinational, the Dutch corporation Shell, Slovnaft is aiming to acquire a chain of 57 Petra petrol stations in the Czech Republic. But Miroslav Bukvaj, Slovnaft Moravia's advisor, said that no other future partnership was being planned with Shell. The tender is now in the second round, and the Slovnaft-Shell team is competing against bids from ÖMV, Elf and DEA.

Currently, Slovnaft has 30 petrol stations in the Czech Republic, especially near the Czech eastern border. Slovnaft would like to move deeper into the Czech market in order to earn back the position it used to have before the split of the former Czechoslovakia. If the Slovnaft-Shell consortium is successful in the tender, it will have the third largest chain of petrol stations in the Czech Republic, numbering some 203 stations.

Good news ahead

Investment into new technology, Slovnaft managers claim, will lift the company into the ranks of the most modern oil refiners in central Europe. The largest investment project, called EFPA (Environmen-tal Fuel Project Apolo), is designed to recycle heavy oil residues and thus use the oil more effectively. It is scheduled to be finished in the first half of 1999.

"This project is important for us because of two things," Hatina said. "The first is more effective oil refining in the future, and the second is the environmental side of the question."

The refinery's level of technical sophistication is measured by the degree of conversion, or the efficiency with which a refinery converts heavy residues into light products such as gasoline and diesel. The global average is 51%, while Slovnaft is now at about 66-67%. "When EFPA begins, we will be able to reach 80%, which means that if today we produce 1.1 to 1.2 million tons of heavy oil waste, after the end of the project this will fall to only 300,000 tons," Hatina concluded.

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