2010 was the year of continuing development with a focus on operational efficiency. Refining and Marketing operates five refineries and related asset networks in the CEE region driven by the Supply Chain Management. Bratislava and Duna refineries continue to enjoy the advantage of their strong asset structure while major efforts to elevate INA Downstream performance have been in progress. Competitive crude and raw material supply and low cost product distribution are ensured by an extensive pipeline system and increased depot coverage. Regional wholesale activity is effectively supported by a widespread service station network of more than 1,600 sites in 11 countries with 7 brands operated in a multi-brand strategy by Retail Division.

Competitive advantage

MOL Downstream has an outstanding asset structure in the European refining sector. Our most complex refineries, Duna and Bratislava have had leading net cash margin positions in Europe since 2003 according to WoodMackenzie studies. Revamp of less efficient and sophisticated assets in Croatia and Italy gained momentum in 2010, enabling all of our refineries to produce Euro V quality motor fuels. While our refineries enjoyed the direct pipeline access to Russian crude supplies, seaborne crude markets provided an opportunity to select the optimal crude slate. The division optimized refinery operation to exploit synergies available in regional markets. Our extensive logistics network coupled with well positioned commercial activity reaching end-users continued to be key advantages of capturing sales margin revenues.

Retail Division is responsible for strengthening market position of fuel sales via convenience retailing activities across 11 countries. After a period of dynamic growth in the number of filling stations as well as in their geographic distribution, the key challenge now is to consolidate the existing filling station portfolio and improve its efficiency.
 

Key Achievements

Downstream takes advantage of its asset structure

 
High complexity refineries utilize the advantage of producing a higher proportion of valuable ‘white’ products (e.g. diesel, gasoline), which is one of the key drivers of MOL Downstream’s competitiveness and value creation as well.
Phase-1 of refinery modernization program in Croatia has almost been completed, which enables INA refineries to produce Euro V quality motor fuels to fulfil market requirements. In Rijeka refinery, a new hydrocracker unit has been mechanically completed to produce Euro V diesel products, while Sisak refinery is now able to produce Euro V quality motor gasoline thanks to the new investments. A new hydrogen generation unit and revamp of other older plants were also required for this investment, while the sulphur recovery unit ensures compliance with future European environmental requirements. Additionally to the compliance, the investments at Rijeka increase the refinery’s Nelson Complexity Index to 9.1 and improve its product yield towards middle distillates. Further projects are planned to increase the production flexibility as part of our effort to retain our ability to react quickly to changes in the external environment.
 

Access to pipeline and seaborne crude ensure refining profitability

 
Our landlocked and high complexity refineries designed for Ural type crude (Duna, Bratislava) may well take advantage of the direct pipeline access to Russian crude oil supply. Refineries with seaborne crude supply in Mantova, Sisak and Rijeka benefit from crude cargo trade and related optimisation of matching product supply with local demand patterns. In 2010 MOL paid special attention to select the most economic crude slate for refineries and increased the variety of processed crude in Croatia and Italy compared to previous years.
 

Setting the pace in efficiency improvement

 
Continuous efficiency improvement has to be the basis not just for the less competitive refiners, but even for the most efficient as well, thus MOL launched focused programs for the whole Group. Our five refineries and two petchem units enable us to improve internal efficiency and capture synergies, like higher external purchase power.
OptINA program was the first attempt to harvest quick-wins of the implementation of MOL standards to elevate the operational efficiency, spreading ‘best practices’ in Croatia as well. Maintenance of the sites was harmonized and production was optimized in order to supply the markets without disruption. In the first full year of the Program, implemented projects significantly over-delivered the preliminary targets.
Downstream continues and extends its EIFFEL Program (Efficiency Improvement Framework) in order to support strategic pillars of growth, efficiency and capabilities by a bottom-up approach that encourages people to be more innovative. The majority of savings is due to new creative and flexible solutions and small technology modifications. Beside the significant direct cost savings, the real added value of EIFFEL Program is the creation of a self-improving organization and the establishment of a modern knowledge sharing environment, which supports the cooperation within MOL Group’s multinational and multicultural operational area.
Refining has launched an Energy Conservation Program in 2010, with the aims to improve ‘traditional’ energy efficiency, reshape the contract management system and utilize online energy optimization due to the energy market deregulation. Additionally, harmonization and synchronization of the existing internal energy accounting-controlling systems into a common platform are intended.
In sales and distribution, the proprietary distribution pipeline network allows us the lowest possible cost to serve our customers. Additional cost reduction and rationalization in transportation were in focus by exploiting synergies aiming to improve road and rail tank car management and harmonize MOL and INA sales channels in Croatia and Bosnia and Herzegovina.
Retail Division continuously improves the efficiency of applied methods and technologies for filling station operation by implementing new engineering and efficient maintenance standards and energy saving lighting methods.
 

Commercial position and logistic services provide a clear advantage in regional competition


 

MOL Group has kept its market leader position in Hungary, Slovakia, Croatia and Bosnia and Herzegovina, while it has developed strong market presence in other core countries with high sales margin environments. Leadership role yielded 20% market share in CEE and SEE regions and increased sales volumes.
MOL Group started to develop a competitive logistics network in Romania, Serbia and Bosnia to serve increasing sales volume as it was performed earlier in Austria. Development of wholesale and logistic assets remains a key goal for MOL Group in order to enable offering higher volumes to end costumers.
Wholesale commercial is continuously developing its customer management, providing fast, transparent and easy access to information services through the Internet from order to payment.
In retail business the performance of our current portfolio has been reviewed on the basis of individual filling stations in order to determine future investment. Tailor made, site-by-site strategies are based on the forecasted results and competitiveness of the specific station and the country’s development opportunities. Nearly 2000 projects have been identified to be completed within the next five years aiming for solid cash generation at all sites, as well as for renewed Retail Visual Identity and refurbished hygienic solutions on more than 60% of the network.
Offering a whole range of extra services to travellers beyond selling fuel is an important element of MOL Group’s Retail strategy. The company therefore continuously seeks to improve convenience services at its filling stations. MOL Group and Marché International offer joint services at seven MOL stations in Hungary and seven Tifon stations in Croatia. In addition, in 2010 MOL Retail Division has renewed its Gastro concept under the brand name ’Corner’ with a wide scale of offers from fresh coffee and sandwiches to quick and convenient warm dishes, paying high attention to customer needs.

 

annual report 2010