LLK-INTERNATIONAL GENERAL DIRECTOR MAXIM DONDE:

„LUKOIL intends to expand extensively its presence in the synthetic oil market. This segment is the future of our business.“

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PUBLICATION OF LUKOIL LUBRICANTS COMPANY (LLK-INTERNATIONAL)JANUARY 2016

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CONTENTS

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"МАСЛА@ЛУКОЙЛ"January 2016

"МАСЛА@ЛУКОЙЛ" is a publication of LLK-International Publisher: RPIAddress: LLK-International, 6 Malaya Yakimanka, Moscow 119180 Phone: +7 (495) 980 39 12e-mail: Vladimir.Akramovsky@lukoil.comPress run: 2,000

The magazine is registered by the Federal Service for Media Law Compliance and Cultural Heritage. Registration certificate ПИ №ФС77-28009

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2 INTERVIEWАlways Moving ForwardLLK-International General Director Maxim Donde sums up the Company's performance in 2015

6 CORPORATE AFFAIRSEnergetic Expansion in All DirectionsThe heads of LLK-International's foreign subsidiaries speak about their companies' achievements and plans for 2016

13 CORPORATE AFFAIRSLUKOIL Recognized as Innovation Company of the Year in Maritime ShippingOur colleagues win a prestigious award for developing high technology marine lubricants

14 PARTNERSHIPSetting Up Industry StandardsLUKOIL becomes the first company in the world to receive the approval of Mercedes-Benz for 0W-30 engine oil for trucks

15 MARKETSLLK-International Prepares Ground for Breakthrough in ChinaThe Company starts building its own dealer network in the world's most populated country

18 PARTNERSHIPRenault Russia Picks LUKOIL GENESIS for Its Motrio BrandLLK-International enters another cooperation deal with a leading global car manufacturer

19 FORUMThe Year of OpportunitiesOur coverage of the 11th Moscow International Lubricants Week

23 PRODUCTLUKOIL Motor Oil, Gasoline Stations Recognized as № 1 National Brands in RussiaParticipants in a nationwide poll recognize LUKOIL's excellence

in lubricants production and marketing

24CORPORATE AFFAIRSAppointmentsThe latest key staff moves in Turkey and Ukraine

Mr. Donde, we can say that this is the time not only for summing up a single year, but the entire decade, too. You were there when LLK-International was founded. Does the Company to-day match the expectations you had at the time of its creation?

Maxim Donde | Looking back at the path that we have covered over the past 10 years, it is truly pleasant to know that many of our ambitious plans eventually came to fruition. I’d like to note that back in 2005 LUKOIL had held the leadership in Russia in terms of size of lubricants manufac-turing, but on the whole this business with scattered assets was somewhat questionable from the point of view of its efficiency and profitability. At that very moment LUKOIL President Vagit Alekperov set a specific task for us — to create a successful, prof-

itable company that would run the lubricants business.Performance figures tell a story of how successful we have been in this endeavor. The Company’s opera-tional profit has since been grow-ing by 26 percent each year. Our product range has meanwhile in-creased sevenfold (from 86 to 600 items). The number of automak-ers and equipment manufactur-ers’ approvals has grown 16 times (from 31 to 487). Finally, our annu-al growth rate of premium product sales reached 18 percent. When the Company was starting out, it was a local player, and today LUKOIL lu-bricants are available in more than 100 countries.In many fields the scale of our activi-ties eventually surpassed initial expec-tations. For example, our marine lubri-cants business, which has become one of the Company’s “calling cards” on the international scene, has demon-strated rapid growth. Back in 2008, we took our first steps in this business by founding LUKOIL Marine, and to-day our share in the global market of marine lubricants for maritime ship-ping exceeds 8.5 percent.In 2006, our big strategic success was the creation of LLK-NAFTAN joint venture for additives manufacturing in Belarus. The plant, which had once been the largest additives produc-er in the Soviet Union, was in sham-bles and on the verge of a shutdown. We weren’t afraid to invest money in its modernization and we retained the factory’s R&D specalists.

Last year was a special year for our company, the anniversary year. In our traditional year-end interview, LLK-International General Director Maxim Donde shares his impressions on the Company’s first decade, wraps up performance in 2015 and talks about prospects for further development of LUKOIL’s lubricants business.

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Today, the plant provides a third of all additives we use in lubricants produc-tion.From the very outset, we aimed to produce and market the lubricants that would have the approvals of the world’s leading car and equip-ment manufacturers. Ultimately, we achieved this goal. Moreover, thanks to our own R&D solutions LUKOIL is currently able to manufacture prod-ucts that even surpass industry stan-dards.

2015 was a rather difficult year for Russia’s economy. How did that reflect on the lubricants industry?

М. D. | We have thoroughly stud-ied year-end performance results throughout the industry. Official statis-tics suggests that there has been a cer-tain drop in industrial manufacturing and shipping.According to Rosstat, Russia’s GDP has shrunk by 4 percent. Generally, it correlates with a drop in lubricants sales across Russia. We have al-so witnessed a dramatic 30-percent

drop in imports of finished lubricants against the backdrop of the ruble’s devaluation. In this situation, the mar-ket offers good prospects for the best Russian lubricants such as LUKOIL products.The OEM’s continuing demands to improve the quality of lubricants, as well as certain changes in Russia’s car fleet, which is dominated by for-eign makes, have brought to the fore-ground the issue of quality of lubri-cants and their diversity. LUKOIL has always paid close attention to these issues, and that is why the Company today is able to supply a high qual-ity alternative to many imported lu-bricants.In this regard, it is rather telling that in 2015 our sales of synthetic oil for passenger cars rose 1.7 times. Current synthetic oil sales dynamics make us confident that we can win a 15-per-

cent share in Russia’s synthetic oil mar-ket in 2016.Growing our share in the segment of premium lubricants for imported and new cars has become a chief task for us. LUKOIL intends to extensively ex-pand its presence in the synthetic oil market. This segment is the future of our business.An important element of this strate-gy was the September 2015 launch in Russia’s retail market of LUKOIL GENESIS motor oil, which has per-formed greatly in Europe since 2012. This product has won a num-ber of first fill contracts at several European car factories, and is al-so used in many franchised work-shops in Europe and Russia as a ser-vice fill.

How successful was 2015 from the viewpoint of first and service fills?

М. D. | According to year-end results, we have over 10 existing contracts for first fill, including deals with auto-makers that rank in the top 10 glob-ally. We have significantly increased

our client pool in franchised work-shops, it has grown 2.4 times com-pared to 2013, and the sales of lubri-

cants through franchised workshops have more than tripled.The Company is aware of the big role such deals have in strengthen-ing the positive image of our brand. In franchised workshops lubricants are selected by specialists such as me-chanics and technical experts. Their decisions aren’t governed by emo-tions, but common sense, concrete fig-ures and facts, results of tests and tri-als, availability of car manufacturers’ approvals. The model of future con-sumption of motor oil is defined here.

ACCORDING TO LLK-INTERNATIONAL

GENERAL DIRECTOR MAXIM DONDE,

LUKOIL IS GOING TO BOLSTER

ITS REPUTATION AS THE LUBRICANTS BRAND

№ 1 IN RUSSIA BY GROWING THE SHARE

OF PREMIUM PRODUCTS

In many fields the scale of our activities eventually surpassed initial expectations. For example, our marine lubricants business, which has become one of the Company’s “calling cards” on the international scene, has demonstrated rapid growth

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Many well-known franchised work-shops, including dealerships such as Rolf and AvtoSpetsTsentr had used LUKOIL GENESIS even before it ap-peared in Russia’s retail market. The positive experience from first and ser-vice fills gives us confidence that this oil will also perform well in the retail segment.

Has LUKOIL GENESIS influenced the perception of the LUKOIL brand by owners of premium cars in Russia?

М. D. | Over the course of 10 years we have always put a stress on prod-uct quality, and such approach is helping us reap benefits today.I think that the Company was able to win the consumers’ trust and make our brand even more interesting to premi-um product clientele. If you read blogs, expert evaluations of our premium lu-bricants on specialized Internet sites, you will see that the feedback we’ve been getting on these products is very positive. Our new product, LUKOIL

GENESIS, has raised a particular in-terest among consumers.Тhe fact that the quality of LUKOIL mo-tor oil is on a par with the best import-ed lubricants has been confirmed a number of times by laboratory and field tests. Today, consumers know for sure that Russian premium lubricants can be the best. One of the acknowl-edgements of this assertion is LUKOIL’s recent win in the national contest as Brand №1 in the “Motor Oil” nomi-nation.

Which events in the international mar-ket would you single out as the most significant for the Company?

М. D. | This year has been successful for our international business. We up-graded our plant in Austria, made a full-scale entry into the Middle East lu-bricants market, won a number of first fill contracts for global car manufac-turers.It is indicative that in 2015 the only lu-bricants plant certified by the reput-

ed German Association of Automotive Industry as per the highest A grade was LUKOIL’s Austrian plant. This sig-nifies European recognition of our business since the VDA 6.3 quality management standards system, which was developed by leading German automakers such as Mercedes-Benz, BMW, Volkswagen and MAN, to-day surpasses by far the norms of the car industry’s chief standard ISO/ TS16949. For us it was another con-firmation that the path we had chosen as a company was right.Another notable event was related to the marine lubricants segment. In 2015, LUKOIL received the presti-gious ‘Technical Innovation Award’ at Seatrade Maritime Awards cere-mony. LUKOIL’s unique products sur-passed the requirements of leading producers of marine lubricants for diesel engines.

What opportunities do you see for the Company’s expansion abroad?

М. D. | One of the key development targets that we are very serious about is China with its giant 7.5-million-ton lubricants market.In order to efficiently build our oper-ations in China, we decided to con-struct a plant in Kazakhstan. This man-ufacturing facility will become the hub for supplying LUKOIL products to Central Asia and the new, rapidly de-veloping Chinese province, Xinjiang Uyghur autonomous region.The launch of production of the 100,000-ton-per-year facility is scheduled for 2018.Our goal is to win 5 percent of China’s lubricants market. In 2016, we are going to build a dealer network in China and establish full-scale cooper-ation with car manufacturers.Another key area we’re interested in in terms of developing our busi-ness there is Central and South America, and Mexico in particu-lar. According to various forecasts, Mexico’s economy is expected to become South America’s largest, overtaking Brazil. By 2020 Mexico will have become the world’s sixth-largest car producer.This country is even more interesting to us as our subsidiary, LUKOIL Marine Lubricants, already delivers marine lubricants under the LUKOIL brand

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to nine key international ports of Mexico. Equally important is the fact that LUKOIL Marine Lubricants has ap-provals and recommendations for use of LUKOIL lubricants of all car manu-facturers in Mexico.LUKOIL has already broken into the fold of the world’s 10 largest play-ers in marine lubricants industry, and I’m convinced that it will continue to steadily strengthen its positions in the global market.

What are the Company’s priorities in 2016?

М. D. | Our chief tasks remain un-changed — we need to follow pres-ent-day market trends, grow our share and continue to build our presence in the most profitable segments of the lu-bricants market.LUKOIL intends to bolster its reputation as the lubricants brand #1 by offering the market high quality products such as LUKOIL GENESIS.This brand, dubbed “The Iron Character Oil”, has already earned excellent customer reviews. This pro-vides ground for us to set ambitious goals as we plan to triple the sales of synthetic oil in 2016.Our strategy in coming years is to continue to enhance our standing as a global, efficient player in the lubri-cants industry. We have all ingredients that are necessary to achieve success: the globally known brand, power-

ful manufacturing and R&D base in Russia and abroad, and a team of true professionals and fellow thinkers.

We will do everything it takes for the Company to remain a comfort-able and interesting place to work. LUKOIL has always striven toward

nurturing entrepreneurial spirit, pro-activity and desire to grow. I would like us to retain such atmosphere, to

have truly commited people continue to work here as we help them reach their high goals and fulfill healthy ambitions.

Our main tasks remain unchanged - we need to follow present-day market trends and increase our presence in the most profitable segments of the market

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AUSTRIAIn terms of development of LUKOIL’s lubricants business in Central Europe, 2015 can be called a breakthrough year without any exaggeration, primarily because of the success achieved at the Company’s new man-ufacturing plant in Austria. In early 2014, LUKOIL formally became the owner of the lubricants plant in the Vienna suburb of Lobau, and a year later it fully established itself in the lo-cal lubricants market.Within just a year and a half of hard work the staff of LLK-International’s Austrian subsidiary managed to com-plete the switch from the OMV brand to LUKOIL. By July 1, 2015, there was no single OMV barrel or can left at

the warehouses in Lobau, all shelves were packed with products painted in trademark LUKOIL colors!Тhe concerns that the brand switch could lead to a plunge in consumer interest in the new owner's products eventually turned out to be ground-less. The brand-switching campaign was performed almost seamlessly as the Company lost just a minor fraction of sales while retaining the 19-per-cent share in Austria’s lubricants mar-ket. And this is only the beginning — according to the Company’s plans, by 2020 LLK-International intends to grow its share in the local market to 24 percent. Moreover, its ambitious plans in the Central European region expand beyond Austrian borders. The facility in Lobau should be a spring-board for entering two of the larg-est markets in Europe, Germany and Italy, as well as the markets of a num-ber of other countries in this part of the continent.The plant’s modernization will largely contribute to reaching this goal. At the end of January 2015, the Company launched construction of a terminal for transshipment and storage of bulk lubricants that will be delivered via the Danube. Alongside the tank park LUKOIL will also build a mooring com-plex.According to LUKOIL Lubricants Europe executive director Yaroslav Litvintsev, the idea of efficient use of

the Danube as an economical and environmentally sound shipping route was already part of the plan when the Lobau plant was built in 1995. ”Nevertheless, up until now it has only been possible to supply the facility in a cost-efficient manner using the rail or road networks. This is going to change soon,” he says.Delivery by inland shipping will help LLK-International reduce CO

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LLK-International's foreign subsidiaries have made a significant contri-bution to LUKOIL’s development into one of the leading global players in the lubricants industry. Their gradual, steady growth over many years has been the foundation of the Company’s business expansion in the long-term perspective. In the year-end issue of the LUKOIL Lubricants magazine we spoke with the top managers of several foreign subsidiaries of LLK-International, asked them to talk about the achievements of their companies in 2015 and share their plans for the foreseeable future.

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EXECUTIVE DIRECTOR YAROSLAV LITVINTSEV

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emissions by 500 tons in the first year alone, stressed Litvintsev. Furthermore, the modern production facility in Lobau meets the strictest environmen-tal standards, which cannot currently be offered by other European manu-facturers. This is especially important in the context of securing first fill deals with car manufacturers in Germany, Benelux and Central European coun-tries since the high tech production fa-cility in Lobau provides competitive edge over industry rivals as regulators adopt tougher environmental rules on lubricants. The effort in this direction will be continued in 2016 focusing on promotion of LUKOIL GENESIS, the premium product which has been very popular amongst European con-sumers.

UKRAINEIn 2015, our Ukrainian colleagues al-so achieved big success by means of strengthening fruitful cooperation with a number of large industrial compa-nies such as Mariupol-based Ilyich Iron and Steel Works, Zaporizhstal Steel Works, Sumy Frunze Machine-Building Science and Production Association, Novomirgorodsky Cukor, Energoremont, Kievenergo and oth-ers. In the same year, 220-ton BelAZ trucks started the warranty period use of TM LUKOIL motor, transmission and

hydraulic oil, and some other large Ukrainian shipping companies such as Transpele and Multitrans also began using the same brand of oil. Another success story from 2015 was the sign-ing of a partnership agreement be-tween LUKOIL Lubricants Ukraine and AIS car manufacturer.However, things didn’t go smooth-ly all along. According to LUKOIL Lubricants Ukraine Director Vladimir Davidovich, the main factor, which affected fulfillment of 2015 plans was the Russian Federal Service on Technical and Export Control’s ban on Russian exports of lubricants to Ukraine, which forced LUKOIL

Lubricants Ukraine to quickly switch to importing lubricants from LUKOIL’s plant in Romania. There were occa-sional hitches, but thanks to good co-ordination their occurrence was re-duced to a minimum.“At the same time, the export ban al-so led to dropping some of the GOST series products that helped us improve the image of the brand and grow sales of our branded lubricants while the overall production numbers fell,” says Davidovich.2015 will also be remembered by a new success in cooperation with Ukraine’s leading car manufacturing companies. It began four years ago when the Company signed a contract for first fill for ZAZ Sens cars at the Zaporozhsky Automobile Plant, which is part of Ukraine’s largest automak-er UkrAvto. Since 2013 LUKOIL has been delivering lubricants to all three UkrAvto manufacturing sites, which at the time produced ZAZ Sens, Forza, Lanos and Vida models, Chery cars, I–VAN buses and Tata trucks.Simultaneously, the Company coop-erated with another large Ukrainian carmaker, AIS, which assembled Geely and SsangYong cars at its Kremenchug plant. In 2015, this work was crowned by signing the contract for first fill of motor and transmission oil in these cars (prior to LUKOIL’s ap-pearance in Kremenchug, the plant used premium oil of a leading foreign lubricants producer).“Unfortunately, manufacturing of new cars has virtually been halted in Ukraine, the plants have been shut down temporarily. However, our ex-perience in providing first fill lubricants

has helped us enter automakers’ fran-chised workshops and retain the status of a service products supplier to work-shops that provide maintenance to such cars as ZAZ, Chery, SsangYong, Geely, UZ-Daewoo and others,” ex-plains Davidovich.Our Ukrainian colleagues worked as intensively on promoting sales of in-dustrial lubricants. In 2015, the tests of LUKOIL INTEGO 220 circulation oil were successfully held in the sheet-roll-ing workshop (LPC1700) of the Ilyich Iron and Steel Works in Mariupol. Steady performance and high quali-ty of this product recommended it for use in ZH-5 lubricating system of the LPC1700 workshop, edging a lo-cal competitor. Eventually, in addition to LUKOIL GEYSER 32 oil, 300 tons of which are already being supplied each year, the Mariupol works will al-so be buying 500 tons per annum of LUKOIL INTEGO 220 oil.

Ukraine’s another large indus-trial company, Zaporozhstal Metallurgical Works, is currently con-ducting tests of LUKOIL STEELO 220 gear oil. After their completion we expect the signing of a contract for supply of around 400 tons per year of this oil.After evaluating test results another large plant, Sumy Frunze Machine-Building Science and Production Association, approved use of LUKOIL STABIO 150 compressor oil in air compressors. The effort is in progress to obtain similar approvals for use of LUKOIL STABIO 68 and LUKOIL STABIO 220 at the same plant.Meanwhile, the supply of Tp-22s tur-bine oil to Ukraine’s Novomirgorodsky Cukor sugar manufacturer, Energo-remont and Kievenergo power com-panies continues.2015 was also marked by the switch from developing distribution in terms

of quantity (today, LUKOIL’s dealer network covers the entire country) to quality. Among other things, this was done by systemizing the client base, launching new premium products in the market, expanding the product range and improving quality of the product shipped to dealers. An im-portant task for the Dealer Network Cooperation Group was the partic-ipation in creating a sales represen-tative’s unified presentation direc-tory and introducing it to new sales teams. In a presentable, informative manner the directory conveys rele-vant information about the Company and LUKOIL products, lists chief product equivalents and approvals, provides answers to most frequently asked questions in the retail sector. Besides this, all sales reps are includ-ed in the mailing list and provided info on new products, obtained ap-provals, new contracts with car man-ufacturers, etc. A mobile platform was created to facilitate exchange of operative data and provide real-time reporting, and it helped rapidly react to changes in the market.The targets for next year are quite se-rious — in 2016, our Ukrainian col-leagues’ main focus will be the growth of sales.“In the В2В segment we expect the sales to grow by 30 percent in the en-ergy industry, 25 percent in the ma-chine-building industry, 30 percent in the mining industry, and 10 percent in the chemicals industry. In the В2C seg-ment we plan to increase sales in me-dium-size packaging by 50 percent, and by 20 percent in small-size pack-aging,” sums up Davidovich.

LUKOIL LUBRICANTS UKRAINE DIRECTOR

VLADIMIR DAVIDOVICH

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KAZAKHSTANFor LUKOIL Lubricants Central Asia (LLCA) 2015 was a year of great achievements. One of the big-gest successes of LLK-International’s Kazakhstan subsidiary was the win in the tender for the supply of first fill oil for General Motors Powertrain in Uzbekistan, which will help continue deliveries of LUKOIL GENESIS pre-mium motor oil in 2016–2019. The scope of supply is preliminarily esti-mated at 4 million liters.Additionally, another break-through was made in dealing with Kazakhstan’s large industrial compa-nies when LLCA signed a contract to supply branded LUKOIL lubricants to ERG Group, one of the world’s lead-ing diversified mining and smelting groups with fully integrated mining, processing, energy production, logis-tical and marketing operations.As regards the dealer network’s oper-ations, in 2015 the Company's man-agement decided to shift from deal-ers’ fixed purchasing plans and reject the territorial principle of operations. This novelty helped attract new strong partners, establish direct contact with consumers that ultimately led to a sig-nificant growth of sales of lubricants in large-size packaging, particularly branded industrial products.Among the achievements in 2015, a special place belongs to the open-ing of LLCA’s rep office in the capital of Xinjiang Uyghur autonomous dis-

trict, Urumqi. “We expect to start sell-ing branded LUKOIL lubricants soon in this region, and by 2018 we will have prepared solid ground for mass sales of products from our new plant, which will be located only 300 kilometers from the Chinese border,” says LLCA General Director Roman Milash.Implementation of the strategic project to build a lubricants plant in Almaty continued in 2015. Despite the diffi-culties caused by the existing restric-tions on imports and exports of base and finished oil to/from Kazakhstan, close cooperation with Russian and Kazakh energy ministries helped reach an agreement in principle to lift the ban for the supply of raw materials to the future plant, as well as to pro-vide access to markets of neighboring countries, including the largest one in China.After lifting all restrictions, LLCA is cur-rently preparing designing documents in order to pass the state expert review in early 2016 and obtain a construc-tion permit. Construction will start in spring 2016. After putting the plant in-to operation in 2018, the new facili-ty should become the largest produc-tion and logistics lubricants complex in Central Asia, the hub for training and preparation of industry special-ists, and the most modern manufac-turing plant in the region. “Early on we expect to considerably strength-en LLK-International’s positions in the region thanks to our logistical advan-

tages, flexibility of manufacturing lu-bricants and packaged products,” adds Milash.According to him, the company’s above-mentioned achievements (LLCA is celebrating its third birthday in January 2016) are unthinkable with-out a homogenous team of profession-als who are able to solve even the most ambitious tasks. For instance, in regard to development of commercial activity on promoting LUKOIL lubricants in the consumer segment, LLCA managed to achieve steady growth of sales to end

users despite stagnating tendencies in the market. Simultaneously, it also re-duced volumes of stocked products at warehouses in the partner network.

LUKOIL LUBRICANTS CENTRAL ASIA

GENERAL DIRECTOR ROMAN MILASH

This was made possible thanks to a smart motivation and pricing system as well as energetic effort of the compa-ny’s staff in the regions.Over the last three years, sales have been growing in the industrial lubri-cants segment, too. Despite the loss of steady supply to one of the larg-est consumers, Kazakhstan Railways, LLCA managed to sign new big con-tracts with end consumers that include such industry giants as Arcelor Mittal, ERG Group, Kazakhmys and others.“Our most serious plans for 2016 in-clude the launch of LUKOIL GENESIS motor oil in the regional market that should help elevate the brand to a whole new level,” concluded Milash.

TURKEYIn 2015, LLK-International sustained momentum of dynamic develop-ment of LUKOIL’s lubricants business in Turkey, which had begun seven years ago after LUKOIL acquired the local AKPET holding that included an oil blending and packaging plant in Izmir. Among the success stories in 2015 we should note the growth of sales of LUKOIL GENESIS premium motor oil.“We started selling LUKOIL GENESIS on Sept. 19, 2014, and this year we added a “small packaging” line for

this production, and increased capac-ity,” says LUKOIL Lubricants Middle East General Director Adam Akhriyev. “Laboratory experiments have been completed per the new formulation that came from Russia, for the produc-tion of Genesis 5W/30 and 5W/40. The R&D Dept. in Russia has approved our activity, and this has been entered into our system. The effort to harmonize production is currently being made at LUKOIL’s quality control laboratory.”According to Akhriyev, in terms of pro-moting LUKOIL GENESIS the current plant location is very advantageous due to the fact that there is no waiting-

time as far as logistics is concerned. The results speak for themselves – in 2014, the company sold 138 tons of LUKOIL GENESIS in Turkey, at the end of November 2015 that figure stood at 209 tons. As production volumes kept growing, so did the sales via the dealer network and direct sales.The achievements in 2015 also in-clude expansion of the quality con-trol lab that allowed to perform a wid-er spectrum of lubricants tests. The lab has doubled in size since 2014, and its expansion has played a ma-jor role in terms of adopting the 2014 November mandate of HSSE and TS ISO EN17025 standards.“We made investments to purchase machinery and equipment. Thus we bought HTHS dynamic viscosity ASTM D4741 machine, Brookfield dynamic viscosity ASTM D2983 machine, man-ual to automation has been achieved in kinematic viscosity test equipment machine. We also acquired polishing and density determination devices,” explains Akhriyev.The executive added that in late 2015 LUKOIL’s dealer network in Turkey en-compassed almost the whole territory of Turkey except the cities of Eskisehir, Samsun and Erzurum. The company is already holding talks with potential dealers in these three cities and ac-

LUKOIL LUBRICANTS MIDDLE EAST

DIRECTOR ADAM AKHRIYEV

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cording to preliminary forecasts, this work should be completed in 2016.These successes spur further develop-ment. In 2016, the company plans to launch an offensive on all fronts: it will conduct special campaigns to sell LUKOIL GENESIS and build brand awareness; in the quality control lab new investments are expected for ma-chinery and standard-method pur-chases; mineral oil production capac-ity is also slated for expansion; in the direct sales segment a more intensive dialogue will be conducted with min-eral oil consumers; in the retail seg-ment (sales to fuel stations) more fre-quent customer visits are planned.

MIDDLE EASTThe Company had been preparing to enter the Middle Eastern lubricants market over many years, and 2015 was definitely a milestone year in terms of launching LUKOIL’s lubricants busi-ness in the region. The chief burden of responsibility for accomplishing these goals rested on the shoulders of the Dubai office staff headed by Regional Director for Motor and Industrial Oil Sales Joginder Singh Dahiya. The re-sults are impressive — in less than a year the Company signed deal-er agreements in six Middle Eastern countries, forged a partnership with a local blending and packaging lubri-cants plant and thus localized produc-tion of LUKOIL lubricants. Moreover, it also launched LUKOIL GENESIS pre-mium motor oil in the regional market.It wasn’t easy, but the rewarding feel-ing of satisfaction after accomplish-ing the tasks is definitely there. Singh Dahiya likes to say that a journey of a thousand miles starts with a single step. Judging by the results, we can say already that the first step was tak-en in a convincing manner.“We are happy with the achieved re-sults as startup operations are always very risky, time consuming and very difficult since all other major lubri-cant brands have been present in the region over the last 40–50 years,” says Singh Dahiya. “Moreover, our competitors already have distribu-tors, teams, distribution channels, high brand awareness while we have to set all these up from scratch and try to carve a share for LUKOIL from these established brands. Despite all these challenges and being the last entrant,

we have still managed to influence large distributors to give up their exist-ing lubricant brands and take LUKOIL products instead.”According to the executive, the Company has managed to find large distributors in all six member coun-tries of the Gulf Cooperation Council: the United Arab Emirates, Qatar, Bahrain, Kuwait, Oman and Saudi Arabia. Thanks to positioning products at premium level and tight cost control, the business became profitable from month one of operations.

One of the key factors behind this suc-cess was the partnership with the local blending and packaging lubricants plant. “This has helped immensely as lead times for delivery from Russia were high. Today, our clients are

able to get the products a lot faster. Moreover, they now have a choice — we can make bulk deliveries, but we can also ship our products in cans and drums,” explains Singh Dahiya. “Being on the ground increases cus-tomers’ confidence dramatically. With products available locally, they now don't need to stock up heavily occu-pying more storage space (as was the case when products were deliv-ered from Russia), which allows them to keep their margins lower.”In 2015, one of the most impor-tant events for the Company was the launch of LUKOIL GENESIS motor oil, which appeared on shelves in the fourth quarter of the year. Currently, distributors are stepping up the ef-fort to increase sales of this brand of oil through different distribution chan-nels. According to Singh Dahiya, LUKOIL GENESIS is very popular with the consumers who have used it. However, since it’s competing with the products that have been market-ed in the region for 40–50 years, and the competitors who advertise heav-ily above the line (ATL) and conduct below the line (BTL) campaigns, it will take some time and effort before es-tablishing brand awareness among a wider audience and entrenching the product in the market.Regarding plans for 2016 the execu-tive noted that main goals would be to provide necessary storage infrastructure (warehouses, bulk tanks) and transpor-tation means (delivery trucks, tankers) in

REGIONAL DIRECTOR FOR MOTOR

AND INDUSTRIAL OIL SALES

JOGINDER SINGH DAHIYA

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order to create favorable conditions for distributors in each of the countries the Company operates in. Besides this, the local office in Dubai will strive to pro-vide higher service level capabilities in terms of delivery and customer servic-es, increase distribution through channel expansion, merchandising. Also, adds Singh Dahiya, the Company needs to train distributor teams, so that the teams on the ground are in sync with LUKOIL vision and strategy for the region; edu-cate customers, increase awareness to consumers about LUKOIL and its prod-ucts; ensure brand activation through trade launches, technical seminars to in-crease awareness.

LUKOIL MARINE LUBRICANTS“2015 was a highly successful year for LUKOIL Marine Lubricants, in

which the relatively young company (founded in 2008) managed to fur-ther strengthen its position in the mar-ket, enhance brand awareness and reaffirm its reputation of a technolog-ical leader,” recounts LUKOIL Marine Lubricants General Director Viktor Zhuravsky.In 2015, LUKOIL Marine Lubricants built up an excellent market share, capturing 8.5 percent of the glob-al marine lubricant sector and top-ping a 20-percent share in key mar-kets such as Germany, Singapore and the Middle East. According to Zhuravsky, his company became the preferred marine lubricants supplier thanks to high quality products, com-petent staff and best-in-class services. Today, almost all major shipping com-panies use marine lubricants made by

LUKOIL, and the Russian company’s products fill the engines of some of the largest vessels on the planet.2015 will also be remembered as the year in which LUKOIL Marine Lubricants managed to further expand its supply infrastructure, for example, with additional warehouse capacity in Gothenburg , Sweden, and a new of-fice in Oslo, thus offering to customers increased supply flexibility and reduced lead times.In the same year, our colleagues al-so left their mark in the R&D sector. It came as no surprise considering LUKOIL Marine Lubricants’ past record of multi-ple successes in this field when the com-pany proved a number of times that it was capable of competing in the glob-al, rapidly developing marine lubricants market, and was ready to respond to both technological and regulatory chal-lenges. Thus in 2010 the company was the first marine lubricant supplier to intro-duce a 100 BN cylinder oil in reaction to changing engine designs and oper-ating procedures. The reputation of a technology leader was strengthened after developing a unique cylinder lu-brication technology called iCOlube® that the company successfully launched in the market in 2015 (on page 13 read more about the reception of this product by maritime shipping experts).In the wake of 2016 LUKOIL Marine Lubricants confidently looks into the fu-ture and thanks to further investments in R&D, development of HR poten-tial and infrastructure it will continue to move toward the goal of strengthening its positions as one of the global lead-ers in marine lubricants manufacturing.

LUKOIL MARINE LUBRICANTS

GENERAL DIRECTOR VIKTOR ZHURAVSKY

13

At the annual Seatrade Maritime Awards ceremony

LUKOIL Marine Lubricants won in the “Technical Innovations” nomination.The experts of Seatrade, the world’s leading publishing holding, organizer of conferences, trade shows and train-ings on maritime topics, singled out our company’s contribution in the field of maritime shipping. LUKOIL manu-factures unique products that surpass the requirements by leading manufac-turers of diesel-fueled ship engines. LUKOIL NAVIGO 100 MCL oil has set new standards for the most modern

and powerfuel ship engines. The com-pany developed a new product line of biodegradable synthetic oils that meet the strictest requirements and modern security standards, as well as the inno-vative iCOlube grease system, which has sparked great interest among the world’s biggest shipping companies.LUKOIL is Russia’s only national com-pany that has truly become a global player in the marine lubricants mar-ket, winning a 8.5-percent share in the global market. Each twelfth vessel in the world runs on LUKOIL’s marine lu-bricants.

CO

RPO

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LUKOIL Recognized as Innovation Company of the Year in Maritime Shipping

LUKOIL Marine Lubricants was among the win-ners of a traditional contest held by the reput-ed UK-based Seatrade publishing house, which announced the laureates at an awards cere-mony held on Oct. 19, 2015, in Dubai. The jury recognized our colleagues' effort in developing high technology marine lubricants.

LUKOIL MARINE LUBRICANTS CEO VIKTOR

ZHURAVSKY AND REGIONAL DIRECTOR,

MIDDLE EAST, ASIA AND AFRICA, JUNE

MANOHORAN ATTEND THE AWARDS

CEREMONY AT THE SEATRADE MARITIME

AWARDS IN DUBAI

REACHING THE TOP IN SEVEN YEARS!

In 2008, LUKOIL entered the global marine lubricants mar-ket. In May 2009, the compa-ny’s lubes had been delivered to only three Russian ports, and in September the same year they could have been bought in 49 ports in 13 countries across Europe. Today, LUKOIL delivers marine lubricants to 74 countries supplying over 900 ports. The long list of ves-sels running on LUKOIL marine lubes includes the world’s big-gest ocean liner, Queen Mary 2 (see photo), and the two largest container ships, UASC Barzan and MSC Oscar.

LUKOIL is the first company in the world to receive the approval of Mercedes-Benz for 0W-30 motor oil for trucks.

Based on the results of suc-cessful lab, engine and

block tests that were conducted in Germany and UK with Daimler AG staff participating, LUKOIL was grant-ed Mercedes Benz МВ-Approval 228.51 for its LUKOIL AVANTGARDE PROFESSIONAL LS 0W-30 motor oil. LUKOIL has thus become the first and, as of today, the only company in the world whose portfolio includes 0W-30 oil for trucks officially approved as per the MB-Approval 228.51 standard. LUKOIL AVANTGARDE PROFESSIONAL LS 0W-30 is a ful-ly synthetic new generation motor oil, recommended for use in modern heavy duty diesel engines for trucks that meet Euro VI emission standards. Thanks to a balanced package of ad-ditives and Group IV (polyalphaole-fin) base oils, LUKOIL AVANTGARDE PROFESSIONAL LS 0W-30 is a unique product which has demon-strated superb operational capabili-

ties during the engine and bench tests, including improved antioxidant, anti-wear and low temperature properties.This oil ensures the engine’s cold start and reliably protects it even in the Far North at temperatures as low as -50 C. “We always adhere to the car manufacturers’ latest requirements and that is why we are often the first among those who offer bold and unique solutions to the market. This is exactly one such case when our prod-ucts create leading industry standards instead of just complying with them,” OEM Cooperation Dept. Senior Manager Yevgeny Korneyev says. “It is pleasant to know that virtually all of our innovative developments ultimate-ly get applied in off-the-shelf LUKOIL products, providing an absolutely new level of engine protection, fuel econo-my and environmental safety.”Today, LUKOIL AVANTGARDE mo-tor oil product line is one of the most popular products in bus and truck

fleets. The line’s flagship oil, LUKOIL AVANTGARDE PROFESSIONAL, has already replaced imported oil used in many Russian and foreign vehicles. For instance, the partnership of MAN Truck and Bus RUS and LUKOIL envis-ages supply of LUKOIL AVANTGARDE PROFESSIONAL oil to MAN’s official service centers in Russia, as well as to car fleets of Russia’s leading retail-ers such as Magnit, Perekrestok and Pyaterochka chains, which have all preferred LUKOIL to a Western pre-

mium brand. Mosgortrans, Europe’s largest opera-tor of ground public trans-

port with a car fleet of 6,000 buses with MAN,

Scania, Mercedes, Cummins and Deutz engines, also us-

es LUKOIL AVANTGARDE PROFESSIONAL oil.

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Setting Up Industry Standards

“VIRTUALLY ALL OF OUR INNOVATIVE

DEVELOPMENTS ULTIMATELY GET APPLIED

IN OFF-THE-SHELF LUKOIL PRODUCTS,”

SAYS LLK-INTERNATIONAL’S AUTOMOTIVE

OEM DEPT. SENIOR MANAGER

YEVGENY KORNEYEV

14

15

How is the Company doing today in China?

Alexey Fyodorov | We have been op-erating in this market for a few years now, our interests in China are repre-sented by a single dealer, Suifenhe Wanfengyan company, which sells motor and industrial oils, as well as oil for diesel engines. It’s extremely important to us that this company has demonstrated the qualities of a reli-able partner. It’s no secret that protec-tion of intellectual property is a very delicate issue in China.We continue to work closely with Suifenhe Wanfengyan and in 2016 we plan to make full use of its potential. At the same time, we want to set up our own dealer network in China. In other words, we don’t want to rely any longer on a single dealer covering the entire market, we intend to create a full-blown dealer network all over China. Past experience shows that all global majors work this way, all have rep offices in China, local production and develop their own sales network. Consequently, in 2016 we plan to start building LLK-International’s own dealer network in China.

What practical steps do you plan to take first as you work toward reaching this goal?

A. F. | Step № 1, as in any other mar-ket entry, is to look for dealers. We will run the search from here, and we have already begun working on

this issue. We need to prove that our business in China is viable and cost-effective, to execute our 2016 busi-ness plan and demonstrate convinc-ing performance growth at the end of the year. In early 2017, we plan to make a joint decision with the Company’s management to set up a subsidiary in China. By then we will have put together a team of experts who are going to move to China and continue to build our business there. Naturally, our Chinese sub-sidiary’s team will also feature local specialists.

Besides developing a dealer network, what other tasks are a priority for your team?

A. F. | The chief task today is to make sure that our products are marketed as widely as possible in China so that lo-cal population is familiar with them, Chinese consumers shouldn’t be sur-prised by our presence. In this regard, a fairly good reception of Russia by the Chinese people is going to help. Back in Soviet times, our experts played a big part in the development of China’s industry and technology, and this is remembered particularly well by the older generations of Chinese people,

MA

RKET

SLLK-International Prepares Ground for Breakthrough in China

Trailing only behind the United States, China is the world’s second-lar- gest lubricants market that boasts a 7.5-million-ton annual consump-tion. Our Company is also looking to secure a spot in this highly com-petitive market. Alexey Fyodorov, the leader of the China business devel-opment project, explains what steps LUKOIL is going to take in coming years to strengthen its positions in the world’s most populated country.

Shanxi

Beijing

Heilongjiang

Jilin

Liaoning

Hebei

Tianjing

Shandong

Jiangsu

Hubei

Henan

SichuanChongqing

HunanJiangxi

ZhejiangShanghai

Anhui

Guizhou

Guanxi AR* Guangdong

Fujian

Yunnan

Tibet AR*

Qinghai

Gansu

Xinjiang Uygur AR*

Dealer network build-up in the cities of 1st, 2nd and 3rd category (2016)

Dealer network expansion areas (2017) * Autonomus Region

Inner Mongolia AR*

NinxiaAR*

Hainan

Shaanxi

STAGE-BY-STAGE DEVELOPMENT

OF LLK-INTERNATIONAL’S DEALER NETWORK

IN CHINA

16

who even today refer to Russia as the “elder Soviet brother”.Moreover, the rapprochement be-tween the two countries is taking place at the political level, too, and all this rhetoric does strike a chord, when you say “Russian lubricants”, it immediate-ly draws attention.This is a very positive background for our business, but we shouldn’t re-ly exclusively upon it, we need to of-fer the products that enjoy the biggest demand via local online and offline stores. That’s why our priority task is to create the biggest possible dealer net-work that would offer our products in all market segments.

LLK-International’s future blending and packaging lubricants plant in Kazakhstan could play an important part in breaking into the Chinese mar-ket. Its biggest trump card is convenient logistics as the plant is located close to Kazakhstan’s border with China and the largest province in the country’s north-west, Xinjiang Uyghur Autonomous Region. Is the full-scale market penetra-tion going to begin there?

A. F. | We’re entering China via two directions, from the northwest and the

east. China’s east along the Pacific seas’ coastline features the coun-try’s most populated and economi-cally developed regions, its residents have money to spend, their purchas-ing power is significant.The other direction is the north-west route, via the Xinjiang Uyghur Autonomous Region. In fact, as China promotes President Xi Jinping’s idea to recreate the Silk Road under the “One Belt, One Road” concept, its west-ern provinces — including the Xinjiang Uyghur Autonomous Region — en route to Central Asia are going to re-ceive a strong development boost. Today, China is making huge efforts at all levels to develop these regions, and this is good for our Company and our subsidiary in Kazakhstan.

Where are LUKOIL lubricants sold to-day in China?

A. F. | Our dealer is located in the northeastern province of Heilongjiang, which borders Russia and has tradi-tionally good trade ties with our coun-try. As regards the future office of LLK-International’s Chinese subsidiary, we think it makes a lot of sense to open it in Shanghai — it’s a very big port and a major transport junction, and it’s very convenient to ship products from there to any destination in cen-tral China.

For more than a year, Chinese con-sumers have had the opportunity to buy LUKOIL lubricants online on Tmall.com. How successful has this campaign been in your opinion?

A. F. | Online sales in China are sig-nificant for the Company. There is one thing that’s characteristic of the lo-cal market: China is the world’s most populous country where online trade and courier delivery of small parcels are highly developed. Its development level can be compared to that of the U.S. online trade and delivery system, which is developed to the point that stores ship some items free of charge across the country. In China, the situa-tion is basically the same — shipping 1 kilo of goods from point A to point B in opposite corners of the country could cost, for example, 300 rubles.In Moscow, many a courier would think twice before accepting to deliv-er a parcel across town for the same amount of money. Besides, courier delivery in China is very convenient for buyers — they don’t need to go anywhere, don’t need to look for

anything, the product is delivered to their doorstep… That’s why we need to grow our presence on the Internet. One trading platform that our deal-er has opened is a good thing to have. However, if we want to get no-ticed on the Internet, we need to gain “critical mass” in online trading, then we’re going to be conspicous. In the future, we will continue to promote this distribution channel, and we will work with other online stores that are already on the Internet. Speaking of size and nature of demand for our products, we need to remember that our online clientele is composed of individuals who buy lubricants for their own needs, and the biggest or-ders in this category of buyers could be placed, for example, by truck drivers.

Does LLK-International plan to launch local manufacturing after setting up a company in China?

A. F. | Yes, it does. Following the reg-istration of our subsidiary we are go-ing to deal with the issue of organiz-ing contracted manufacturing and 20142013201220112010200920082007

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137.00154.00

THE GROWTH OF CHINA’S CAR FLEET

IN 2007-2014 (MILLION PIECES)

SINCE 2014 CHINESE CONSUMERS

HAVE THE OPPORTUNITY TO BUY LUKOIL

LUBRICANTS ONLINE AT WWW.TMALL.COM

Regarding specific deals we can say that we’re on the verge of signing a contract for first fill oil supply with a leading European car manufacturer, and the partner wants to cooperate globally, including China

blending at local lubricants plants. However, taking into account the fairly big size of China it wouldn’t be conve-nient to deliver our products to remote provinces – including the northwest – from Shanghai or other coastal re-gions. Bearing this in mind, it’s going to be very convenient to have our own plant in Kazakhstan, 300 kilometers away from the Chinese border, with a direct entry into the Xinjiang Uyghur Autonomous Region, the most devel-oped and the most populated region in that part of the country, which in the east borders the sparsely populated Qinghai–Tibet Plateau. That is why the plant’s launch in 2018 will come in handy and help us meet the big con-sumer demand in this part of China.

As part of the business development project in China you must have re-searched the local lubricants market thoroughly. What results has this re-search produced, what products en-joy the biggest demand?

A. F. | China’s lubricants market is very big. In terms of size, it’s approaching the U.S. market, today it’s a 7.5-mil-lion-ton market. Of these, motor oil for passenger cars accounts for approx-imately 1.5 million tons, demand for oil for commercial vehicles stands ap-proximately at 2.7 million tons, while the share of industrial lubricants is 3.4 million tons. We won’t be putting our bets on a sin-gle market segment, we will pursue all of them since each segment is interest-ing in its own way. For example, mo-tor oil for passenger cars is the most profitable segment though its size is smaller, but its financial yield is higher. Industrial lubricants represent the larg-est segment in terms of production vol-umes, there is a very high demand for this type of lubricants.

How interesting is the idea of promot-ing first fill oil at Chinese carmakers’ plants considering that some of the world’s leading car manufacturers

have already certified the quality of LUKOIL motor oils by issuing numerous approvals and permits?

A. F. | Of course, we’re interested in this. The fact that LUKOIL motor oil is used in engines of global car indus-try majors significantly boosts the Company’s image. Regarding spe-cific deals we can say that we’re on the verge of signing a contract for first fill oil supply with a leading European car manufacturer, and the partner wants to cooperate globally, includ-ing China. In the future, this company intends to build its own plant in China and we hope to be their first fill sup-plier there, too.

Do Chinese carmakers have similar plans?

A. F. | Yes, they do. In fact, we have already begun working on this. Currently, we have a project with Chery Automobile Co., the produc-er of Chery passenger cars, to car-ry out tests of our synthetic motor oil. We have already shipped a 300-liter batch of LUKOIL LUXE 5W-40 syn-thetic motor oil to China for the pur-pose of testing. The tests are under way, but we are confident that every-thing is going to be fine. Our business interests spread beyond Chery as China has many car manufacturers, and all of them are pretty big.

Taking into account the dynamics of development of southeast Asian coun-

tries’ economies, could the break-through in the Chinese market be viewed as the first step toward poten-tial expansion of LUKOIL’s lubricants business into neighboring Asian coun-tries?

A. F. | First, we need to boost our presence in the key market, which is China. It’s a huge market, and when it comes to the Asia-Pacific region we need to focus our attention on China. In the future, I’m convinced that we will be gradually building our global presence, including our operations in Asian countries.

CHINA’S BIG CITIES PROVIDE A MAJOR

BOOST FOR INTENSIVE GROWTH OF THE

COUNTRY’S CAR FLEET. IN THIS PHOTO: THE

NANPU BRIDGE IN SHANGHAI IS ONE OF

THE MAIN TRAFFIC ARTERIES OF THE WORLD’S

MOST POPULATED CITY

ACCORDING TO ALEXEY FYODOROV,

THE COMPANY’S CHIEF TASK IN CHINA

IN 2016 IS TO SET UP ITS OWN

DEALER NETWORK

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Renault Russia Picks LUKOIL GENESIS for Its Motrio Brand

LUKOIL has won the tender held by Renault Russia to sup-

ply motor oil under the Motrio brand. Over the next three years Renault will be marketing through its dealership network LUKOIL GENESIS oil under the brands Motrio ULTRA OIL 5W-40, Motrio ULTRA OIL 5W-30 and Motrio EXTRA OIL 10W-40.These brands of oil will be manufac-tured at LUKOIL's Russian plants and supplied in Motrio’s trademark black barrels and cans.Motrio is a Renault-owned trade mark. Founded in 1998, the brand manufactures spare parts and mate-rials for regular maintenance opera-tions. In particular, Motrio provides spare parts for Renault cars older than three years, as well as for other car brands. Today, Motrio products and

services are available in 35 countries around the world.LUKOIL already has a successful track record of manufacturing brand-ed oils for such companies as GM, SsangYong, UzDaewoo, KAMAZ, GAZ and UAZ.“This is a very telling victory. We were able to beat the competition that in-cluded some of the leading sup-pliers of foreign-made motor oils,” Anton Shevelev, manager at LLK-International’s OEM Cooperation Dept., comments on the deal. “Renault’s choice has demonstrated local and foreign automakers’ grow-ing trust in LUKOIL when it comes to manufacturing high quality products under their own brands. This decision puts more responsibility on our shoul-ders, especially in relation to major car manufacturers, and we will strive further to fulfill our obligations flaw-lessly.”

LLK-International strengthens ties with Russia’s subsidiary of the renowned French car manufacturer.

ACCORDING TO AUTOMOTIVE OEM DEPT.

MANAGER ANTON SHEVELEV,

RENAULT’S CHOICE HAS DEMONSTRATED

LOCAL AND FOREIGN AUTOMAKERS’

GROWING TRUST IN LUKOIL WHEN IT

COMES TO MANUFACTURING HIGH QUALITY

PRODUCTS UNDER THEIR OWN BRANDS

Over the last decade, the Moscow forum has

gained the reputation of one of the world’s leading discussion platforms for lubricants industry professionals. The eleventh Moscow International Lubricants Week held Nov. 17–20, 2015, at the Azimut Moscow Olympic hotel was no exception. If there had been any doubters before the event think-ing that the turnout might drop due to a complex political and eco-nomic situation, those doubts were

dispersed on the very first day of the forum. Approximately 450 in-dustry professionals coming from more than 20 countries flocked to Moscow to participate in the event whose agenda featured 11th International Conference Lubricants Russia 2015, 6th International Conference Greases Russia 2015, 6th Specialized Exhibition Services and Equipment for Lubricants Market 2015, “INFINEUM Trends 2015: Making a Difference in a Complex World” Conference, as

well as an informal, “no ties” del-egates’ meeting at a cocktail par-ty. In line with the well-established tradition, the forum’s geographical reach continued to expand and in 2015 featured a newcomer dele-gation from Pakistan.LUKOIL Lubricants Europe execu-tive director Yaroslav Litvintsev took the floor first to welcome the partici-pants. The head of the European di-vision of LLK-International began his speech by analyzing the cur-rent situation in the industry and then

FORU

M

The Year of Opportunities

At a delicate time for the industry, lubricants market players should mo-bilize all resources, including front-end R&D achievements, in order to adapt to the changing market and identify new growth opportunities, suggest participants of the Moscow International Lubricants Week 2015, which was held in the Russian capital in the second half of November.

19

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wrapped up his Company’s perfor-mance in 2015, the year of LLK-International’s 10th anniversary.“I won’t call it a difficult year, I will call it an unusual year. The chang-es that have been taking place [in 2015] could be regarded as diffi-culties, but could also be viewed as opportunities,” Litvintsev said. “I be-lieve that many in this conference hall view them as opportunities. And for our Company this was an an-niversary year. It’s true, economic change is taking place in the mar-ket, but we were ready for that and this has been an exceptionally suc-cessful year for us, the year of op-portunities.”Hendrik Schoenfelder, Head of Customer Relations at Evonik Oil

Additives EMEA, spoke next. “It is spectacular to see how over the years this conference has conquered such a firm and prominent position in the in-ternational calendar of the lubricants industry and today we are welcom-ing here hundreds of registered partic-ipants, a pretty impressive number that reflects the importance of this event for the Russian market and beyond,” Schoenfelder said.Evonik has been a partner of the show since the very first Moscow International Lubricants Week and, according to Schoenfelder, the com-pany is proud that it had decided 11 years ago to offer support to the con-ference that continues to this day. “The development of the conference and Evonik's business in Russia demon-strate that it was a good decision at the time,” the executive added.Of course, he said, there are numer-ous issues today that can’t be ignored: the sudden slump of oil prices, cur-

rency fluctuations, trade restrictions, sanctions, countersanctions — all of them affect the economy and the lu-bricants industry. “However, we at Evonik believe in the proven strength of the Russian market, we hold firm to our position that we have gained throughout years of continuous striv-ing,” said Schoenfelder, and added that the cornerstone of Evonik’s ap-proach to lubricants business is re-source efficiency.

In a way, for the staff of global chemi-cals major BASF the Moscow confer-ence was the icing on the cake. “This year, we celebrate the 150th birth-day of BASF, and as our anniversa-ry year comes to an end, Moscow marks the perfect closure to the anni-versary celebrations in my business unit,” said Christoph Baer, BASF’s Head of Sales in Emerging Markets, Business Management Europe, Fuel and Lubricants Solutions. According to Baer, events like the Moscow International Lubricants Week “always provide a chance to show to the entire industry who you are.” But the reputa-tion of a big company with a recog-nizable name is not the only thing that might lead us to customers and part-ners, he added. In order to succeed in the lubricants industry today you need more than that in your portfolio — you need world-class solutions and servic-es, concluded Baer.His last statement has particular rel-

evance under current circumstanc-es in the Russian market, which over the last year saw demand for lu-bricants shrink by 5–6 percent, an InfoTEK-CONSULT survey suggests. This shouldn’t surprise anyone if we consider that one of the key oil sales sectors, the car industry, suffered a serious setback in 2015 in terms of demand for new cars. According to a PwC survey, the sales of passenger cars in Russia in January-September

LUKOIL LUBRICANTS EUROPE CHIEF

YAROSLAV LITVINTSEV TOLD THE MOSCOW

AUDIENCE ABOUT THE COMPANY’S

LATEST ACHIEVEMENTS IN THE EUROPEAN

LUBRICANTS MARKET

SAURABH LAWATE, DIRECTOR, BUSINESS AND PRODUCT MANAGEMENT,

CPI FLUID ENGINEERING (LUBRIZOL)

The forum surpassed my expectations for two reasons. Firstly, there was a lot of interaction among attendees. Most conferences follow the same script: people go to the meetings, go back to their hotel rooms and then return to the meetings. This conference was set up to give a lot of opportunity to attendees to interact with each other. The size of the conference was an important factor, too – it's a small event, and so it really gives more of a chance for interaction. Some conferences are just too big, with 10,000-12,000 people attending! Secondly, the quality of the presentations was very good. I liked the program, it offered a good spectrum of technical and commercial pre-sentations. We also had two speakers who offered overviews of the Russian lubricants market, though I wouldn’t object if there were more presentations like that. I plan to come back next year.

The plunge of Russia’s new car sales was the world’s biggest. Trailing in second place was Brazil where the car market shrunk by 20.5 percent and Japan was third (9.7 percent)

2015 fell by 43 percent compared to the same period in 2014. Over the first nine months of the year, a to-tal of only 950,000 new passen-ger cars were sold in Russia (mean-while, Germany posted a 5.5-percent growth selling 2.4 million passen-ger cars over the same period). The plunge of Russia’s new car sales was the world’s biggest. Trailing in second place was Brazil where the car mar-ket shrunk by 20.5 percent and Japan was third (9.7 percent). According to PwC analysts, Russia will need five to

seven years to recover sales figures from the peaking years.According to InfoTEK-CONSULT General Director Tamara Kandelaki, demand for lubricants correlates well with macroeconomic indica-tors. According to Gosstat statistics agency, consumer prices in January-October 2015 grew by 15.9 per-cent compared to the same period in 2014, whereas Russia’s GDP in the third quarter fell by 4.1 percent year-on-year. However, thinks Kandelaki, there is ground for optimism.

“In 2016–2017, we have two dif-ficult years ahead of us. But then comes 2018, and things will im-prove. We are entering the second year of the crisis with the experi-ence that we gained in 2015, which taught us to live at low oil prices,” she said. Speaking about the achieve-ments of Russia’s lubricants indus-try players she noted numerous suc-cess stories of LUKOIL, the market’s unanimous leader. “In this rather dif-ficult year, LUKOIL increased sales of high quality marine lubricants, built and put into operation INTESMO — the new greases plant, launched new products based on front-end formula-tions including the highly appraised

THE MOSCOW FORUM ENJOYS THE REPUTATION OF ONE OF THE WORLD’S LEADING

DISCUSSION PLATFORMS FOR LUBRICANTS INDUSTRY PROFESSIONALS

NICOLE DOERR, AREA LEADER “LUBRICANTS & INTERFACE MECHANISMS”,

AC2T RESEARCH GMBH (AC2T)

It's my fourth time here and I enjoy it every year. This fo-rum provides an opportunity to get concentrated news in one place for two days. The most important thing for me is to keep my contacts alive and make new ones. I also find useful the news on what’s going on in the Russian econo-my, especially figures and statistics about Russia that help me understand how the Russian market and R&D work. I'm quite happy with the topics we had. I think there was a good mix of economy, technology and research work, and this is something that should be maintained. In my opin-ion, this is the leading conference on lubricants in Eastern Europe.

21

LUKOIL GENESIS motor oil, and the list of foreign companies was expand-ed by the addition of OMV’s lubri-cants business, which gives hope for an increase in domestic production of synthetic oil,” Kandelaki said.According to her, other Russian lubri-cants industry majors also had a dy-namic year: Gazprom Neft launched production of G-Energy oil in Russia, boosted sales in the domestic mar-ket by 70 percent, increased sales of premium oil brands in the Eurasian Economic Union; Rosneft Lubricants completed integration of Rosneft and TNK-BP premium lube product lines, increased sales of top quality hydrau-lic oil for mobile and stationary equip-ment operated at temperatures lower than 40 C; and TANEKO successful-ly launched production and sales of Group III base oils.Dwelling upon LLK-International’s in-

tegration of the acquired Austrian as-set, Yaroslav Litvinstev offered a re-cap of the situation in the European lubricants market. Before the acqui-sition of OMV’s lubricants business, the Company owned two manufac-turing plants in Europe (in Finland and Romania), but due to a number of reasons, including logistical incon-veniences, it was difficult to make a strong push on the continent. The solu-tion was obvious: the Company need-ed manufacturing capacity in central Europe and the deal with Austria’s OMV took care of that. In addition to a lubricants plant, OMV’s heri-tage included a 19-percent share in the Austrian motor oil market. LUKOIL Lubricants Europe’s management had to solve a tough task: in just 18 months the company was expected to com-plete a switch from one brand to the other while simultaneously making an effort to retain the market share of the predecessor company.Execution was brilliant: by July 1, 2015, the switch was completed, the market share remained intact, and the sales volume loss was limited to only 6–7 percent. Despite an ag-

ing car fleet in Europe and the con-tinental lubricants market shrinking approximately by 2 percent each year, Litvintsev sees solid prospects for business development, primari-ly in high efficiency lubricants sales, including premium products. “Europe is a testing ground where lubricants producers can run tests of all high tech products,” the executive said. Besides strengthening the Company’s positions in the Austrian market, LUKOIL Lubricants Europe's ambitious plans include significant growth of market shares in Western European countries. By 2020, the Company plans to secure 5 percent of lubri-cants markets in Germany, Italy and Switzerland. Today, it controls less than 1 percent in each of these countries. Similar growth is expect-ed in Poland, Hungary, the Czech Republic, Slovakia and Slovenia.

The part of the agenda devoted to promotion of the latest scientific de-velopments in lubricants manufactur-ing was equally interesting. For ex-ample, BASF showcased solutions contributing to sustainable develop-ment of lubricants by using Group V base oils; Kvalitet Group Chairman Alexander Medzhibovsky spoke about the implementation of new, ef-ficient antioxidants in today’s lubri-cants; Evonik Oil Additives technical support manager Anatoly Smirnov presented his company’s achieve-ments in low temperature viscosity control of fresh and used oils.The list of speakers also included rep-resentatives of Infineum, Lubrizol, CPI Fluid Engineering, Chevron Oronite, AC2T research GmbH and a number of other companies. After the end of the official part of the conference, the delegates continued networking at a cocktail party. Having polled some of them, we found out that all were tak-ing home pleasant memories from the Moscow forum (which most of them rated as a top-level event) and would gladly return to the Russian capital next year.

Approximately 450 industry professionals coming from more than 20 countries flocked to Moscow to participate in the event whose agenda featured 11th International Conference Lubricants Russia 2015

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The LUKOIL brand won the “National Brand” titles in

“Motor Oil” and “Gasoline Stations” categories after the votes were count-ed in the nationwide poll.The traditional annual ballot, held during the Sept. 30-Oct. 16, 2015, span, gave Russian residents an op-portunity to vote for popular goods and services by filling out forms in national newspapers and online me-dia. Ultimately, the voters decided winners in 55 different “№ 1 Russian Brand” nominations. The majority of voters picked LUKOIL as their favor-ite motor oil brand and gasoline sta-tion operator.

The “№ 1 Russian Brand” award (also known as the “National Brand” award) is a prize bestowed on the best brand builders in the Russian market. The win-ners are decided by means of a na-tionwide consumer ballot. The award is now in its 17th year, having been established back in 1998. The major goal of the “National Brand” ranking is to identify brands that possess the big-gest degree of spontaneous awareness and create public opinion that portrays them as the best in class.Over the 17 years of the award’s ex-istence, the ballot in the “Motor Oil” nomination was held three times, and LUKOIL won each time.

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CTLUKOIL Motor Oil,

Gasoline Stations Recognized as № 1 National Brands

Voters in the 17-year-old national poll hand victory to LUKOIL in two nominations.

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VLADIMIR DAVIDOVICH is taking over in 2016 as General Manager of LUKOIL Lubricants Middle East Madeni Yag San. ve Tic. Ltd. Sti., LLK-International’s subsidiary in Turkey

In 2004, Vladimir graduated from the Gubkin Russian State Oil and Gas University majoring in chemical technology of primary energy sources and carbon-based materials. In 2007, he completed graduate studies at the same university. Since his arrival in LLK-International in 2008, Vladimir Davidovich has held a number of different posts in the Company. Until his most recent appointment,

he worked as director of LUKOIL Lubricants Ukraine. His main tasks will be to strengthen the Company’s presence in motor and industrial oil markets of Turkey and the Middle East.

RASIM AMIRALIYEV has been appointed Director of LUKOIL Lubricants Ukraine

Earlier, he held the post of head of Industrial Sales Dept. in the Russian market. Amiraliyev graduated from the Ryazan Higher Airborne Command School in 2000. He has worked for the Company since 2008. Amiraliyev possesses vast experience in building up the dealer network and making efficient sales to Russia’s key industrial companies. Priority tasks for the new director include increasing premium product sales and developing the dealer network in Ukraine.

ELENA MESHKOVA has been appointed Adviser to the General Director on legal issues and government relations

Earlier, Elena held the post of legal affairs director at Nezavisimost group, legal affairs director at Linvest investment group, and vice president at Integra group. At major Russian companies, she ran legal departments whose staff size varied from 20 to 90 employees. Elena Meshkova’s abundant experience in project management, corporate, contractual, court and claims work, as well as legal support of trans-actions, is undeniably going to contribute to improving the quality of

legal assistance to our Company’s operations.

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APPOINTMENTS

LUKOIL Marine Lubricants DMCC

Tel.: +971 4 430 0769

LubOilOrder@lukoil.com

www.lukoilmarine.com

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LUKOIL_Az_A4_Kompass_auf_Wasser_Layout 1 08.10.14 13:00 Seite 1

SYNTHETIC MOTOR OIL

LUKOIL AVANTGARDE PROFESSIONAL

* Compared to ACEA E4 requirements ** Compared to ACEA E7 requirements *** Compared to ACEA E7 requirements

Approvals/Meets requirements of:

• MB-Approval 228.5• MAN M3277• Volvo VDS-3• Scania LDF-3• Ford WSS-M2C212-A1• Caterpillar ECF-2• Cummins CES 20076/72• Renault RLD-2, RXD• Deutz DQC IV-10, III-10• MTU Category 3• DAF Extended Drain

Extended oil change interval

www.lukoil-lubricants.com

API: CI-4, СFACEA: E4/E7SAE: 5W-30, 10W-40

It is recommended for use in heavy-loaded truck, bus engines and other vehicles running on diesel fuel, and not fitted with particle filters, including turbocharged engines, fitted with exhaust gas recirculation systems and catalytic systems for exhaust gas cleanup that aim to reduce levels of NOx in exhaust gases.

55%*

lower oil consumption

73%***

cleaner engine

5.5 times

better wear protection

**