What was the key event in 2011?
2011 was the start of MOL Group Downstream integration. The Division’s extended value chain operates an enormous number of assets. Under this significantly improved arrangement, our goal now is to build on the high performance and multinational experience base of previous years. The fundamental requirement of the three main Business Units (Refining & Marketing, Petrochemicals and Retail) is to be the most effective in their own areas and, in addition, work together with Supply Chain Management leadership to achieve optimal Downstream operations. It is a challenging process, but in MOL Group we have been working in a multinational environment for years and have a lot of experience in strengthening cooperation between organisations and employees. Of course there has already been strong cooperation between the three big units, but now it’s getting more focused with synergies being explored and efficiency being improved.
How does MOL see the currently unfavourable external environment and industry profitability in general?
Unfortunately, hard times are upon us. Compared with 2010, in 2011 our 5 refineries alone generated USD 350 million additional expenses due to increased crude oil prices and growing purchased energy costs. Furthermore, both fuel and petrochemicals sales margins decreased. Although most consumers only face higher retail prices, it is not a favourable situation for producing companies anyway. As a consequence of the financial crisis and the factors I have just mentioned Europe still has significant refining overcapacity, markets and demand for almost every one of our products is shrinking. Financial figures for the second half of 2011 already show losses at nearly every European refinery. In 2011 Europe witnessed significant refining overcapacity and low utilisation rates. Around 10 refinery shut down and a further 20 operations will potentially be sold or shut down. The willingness to acquire is, of course, rather lukewarm in such a business environment.
What could the response be to these challenges? What is the outlook for the long term?
Our goal is to stay among the leaders in the present race and come out of the crisis strengthened by it. To achieve this, in the short term, a paradigm shift is needed to increase Downstream profitability. Our newly- established “New Downstream 2012-2014” programme focuses on this change, combining as it does all our efforts and actions through the value chain to increase efficiency. On the other hand, long-term global predictions have strengthened our opinions about changing trends in motor fuel demand. Our current asset structure with its selective investments, our focus on production complexity, flexibility and efficiency improvement actions coupled with GDP growth potential and possibly greater car penetration in the region give us grounds for confidence in the future. It is not by chance that the pillars of our Downstream directions are our regional commercial strategy, the enhancing of operating efficiency and the exploitation of organic and inorganic growth potential.
Can you highlight some of the key actions and projects which will contribute to achieving your targets?
Every business, indeed every country, just like MOL Group, has a mission. Our business objective is to maintain our strong position in the region by maintaining and strengthening our wholesale and retail positions in the most profitable domestic markets and increasing our role and position in countries near MOL Group refineries i.e. Romania, the Czech Republic, Slovenia, Austria, Serbia and Bosnia-Herzegovina.
We also aim to execute some selective investment projects such as the recently approved ca. EUR 100 million butadiene project which will produce sales of a highly profitable product while simultaneously improving the efficiency of internal product flows. The new ca EUR 260 million LDPE plant and steam cracker reconstruction project will maintain integration of our refining and petrochemicals businesses and ensure the production of nearly 30 types of polyethylene to appeal to new customers and create new markets in Europe.
What is the future outlook of INA?
The main task is still to support our Croatian partner become an efficiently functioning, profitable Downstream market player. To reach this goal, we still have a lot to do but I think we are definitely on the right track.
Compared to 2010, we managed to increase our share of motor fuel sales, worth mentioning in a country which also has sea-borne supply channels. De-sulphurized products meeting EU quality and environment protection requirements opened channels to European markets.
As far as upcoming years are concerned, the most important things for INA will be economical growth and on-going efficiency improvements, which is also valid for the MOL Group portfolio as a whole, but for Croatia in particular. Our refining assets complement each other so that transfers between Rijeka and Sisak allow us to minimize low-value product output and maximize production of marketable diesel. We have to continue refinery modernisation. As part of this, we are planning a residue upgrade project at our Rijeka refinery, improving its product yield structure in favour of higher margin products.
Product costs have to be lowered by continuously improving production unit and logistics system efficiency, also keeping an eye on energy utilisation including our own in-house consumption of crude oil.
How is Sustainable Development connected to this progress?
We are highly committed to Sustainable Development principles. Since integration, our intellectual capital flourishes and the Downstream Division will pay even more attention to Research & Innovation to make the best of this opportunity. Several projects in this area are underway at the moment, including waste-based bio-component blending, second generation bio-diesel and algae research, chemically stabilised rubber bitumen production, the investigation of the feasibility of biogas plants and waste plastics-based fuel production.