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Rosneft: A New Business Project In Armenia

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  • Rosneft: A New Business Project In Armenia

    ROSNEFT: A NEW BUSINESS PROJECT IN ARMENIA

    [ Part 2.2: "Attached Text" ]

    30.04.2014

    Mikhail Aghajanyan

    Political Analyst

    A new large business project brews in Russian-Armenian relations.

    Rosneft corporation is just one step away from entering the Armenian
    market. The agenda of negotiations between business entities of
    the strategic partner-countries in South Caucasus includes two main
    issues. Rosneft wants to acquire a share in the Nairit production
    complex and to supply petroleum products to Armenia. One of the leading
    Russian companies thus expands it geography of foreign markets. This
    is done in an important phase of Yerevan's integration in the Customs
    Union, with all the economic, political and social priorities stemming
    from that.

    On December 25, 2013 Rosneft, Italian Pirelli and Armenian Oil Techno
    companies signed a memorandum of understanding on joint establishment
    of butadiene-styrene rubber production. In the past years the Nairit
    plant changed hands several times and each new owner attempted to
    restore its production capacities, but did not succeed.

    Nairit used to be the only manufacturer of chloroprene rubber in the
    former USSR, In 1980s the plant's share in the global market for
    chloroprene rubber constituted 10-12%. By 1987 the plant produced
    over 75,000 tons of rubber annually. In 2006 the British consortium
    Rhinoville Property Limited acquired 90% of Nairit's stocks for
    $40 million, while the Armenian government kept remaining 10%. The
    plant has been idle since 2010, and a large debt has been accumulated
    for the wages of workers and administration. Rosneft involvement may
    re-energize the plant and dissipate the serious social tensions around
    it. The Russian, Italian and Armenian companies plan to organize
    production of tires. Rosneft intends to become the leading investor
    and shareholder of the plant, whereas Pirelli will carry out research
    and development in innovative rubber production technologies, together
    with the Russian and Armenian partners. The Italian company has also
    expressed willingness to purchase the final output of the plant.

    Given the relatively receptive Armenian market for vehicles and
    auto parts import, the tire production at Nairit plant promises high
    economic gains and increasing demand. In 2012 some 31,800 vehicles were
    imported in Armenia. About 60% of total imports were from Germany,
    while Japan followed next with 17.6% and Russia was the third with
    less than 6.3%1.

    In 2013 supply of light vehicles to Armenia increased by 18.3%. In
    the last twelve years about 312,600 vehicles were imported to Armenia,
    of which 67,200 from Russia (which is 21.5% of the total car imports).

    About 10,000 people in Armenia are involved in imports of vehicles
    and auto parts, as well as car servicing. About 70% of vehicles
    are imported by "physical persons" who do not work for specialized
    companies. Recently some alarming prognoses appeared for such
    individuals regarding possible car price hikes after Armenia's joining
    the Customs Union. It is too early to make final conclusions, because
    the process of reconciling the Armenian interests with those of future
    partners in the Customs Union is still under negotiations. However,
    it is already clear that Rosneft offers an opportunity to amend the
    situation in one of the most problematic industrial and social areas
    of the local market by creating employment alternatives.

    The second potential area of Rosneft involvement in Armenian economy is
    also closely linked to the car market. In the recent years passenger
    vehicles were the third largest imports to Armenia after natural gas
    and petroleum products. It is important to mention that a considerable
    part of energy imports in the country is directly related with running
    the vehicles (light vehicles as well as other types, such as minivans,
    buses and trucks). For example, natural gas filling stations for
    vehicles consume almost one-third of the natural gas total supply to
    all users.

    On April 4, 2013 Igor Sechin, Rosneft Chairman visited Armenia on
    a business trip where he was met with a highest political level
    reception. The outcome of the visit was signing an agreement with
    the Armenian Oil Techno company on cooperation for establishment of a
    joint venture for marketing and distribution. At the end of the visit
    I. Sechin presented his assessments for prospects of the business led
    by him in the Armenian market. According to him supply of jet fuel,
    petrol and diesel has a serious potential in Armenia. He also noted
    about the opportunity to "establish a platform for cooperation in
    this direction".

    Since summer of 2012 Rosneft has been exploring the opportunities for
    sales of petroleum products in the Armenian market. The company may
    become the main supplier of petroleum products in the Armenia and
    establish a joint venture that would build a chain of 40-50 petrol
    stations, as well as a fuelling station at the Zvartnots airport
    of Yerevan.

    Currently the bulk of petroleum products are mainly supplied from oil
    refineries in Romania and Bulgaria. The Georgian port Poti is very
    important in the supply route and logistics, as it is the transit
    point for Armenia's system of economic ties with the external world.

    It is known that Rosneft has a strategic approach even when developing
    not so large external markets (such as the Armenian market for
    petroleum products, which is totally dependent on imports and is
    estimated at 350,000 tons annually). The Russian company aims at fully
    meeting the mentioned estimated demand in the internal market, which
    incidentally, tends to decrease2. It is planned to supply 370,000 tons
    of petroleum products annually to the country. In January 2014 the
    Rosneft management approved supply of this volume (up to $400 million
    worth) by Rosneft-Armenia company that was established on December 10,
    2013 jointly by Rosneft and its Armenian partner Oil Techno.

    Thus, Rosneft entrance in Armenian market for petroleum products
    implies a systemic approach, with involvement of all business links
    in the Armenian direction. Meanwhile, before creating a chain of
    gas stations and fuelling station at the Zvartnots airport, the
    source of supply needs to be determined along with the arranged
    route to deliver the products to the Armenian customers. In 2012,
    after learning about consultations between Rosneft and the Armenian
    side, the analysts pointed to the Tuapse Refinery that belongs to
    this energy corporation. In the official Rosneft website this plant
    is described as having "the most favorable location among Rosneft's
    refineries, and is also the only Russian refinery on the Black Sea
    coast". Experts note that the company continues working on expansion
    of the Tuapse Refinery crude distillation capacity from the current
    4.5 million tons to 12 million tons annually. Most likely, Rosneft
    will ship oil refinery output products to Armenia from this facility
    located in Krasnodar Krai.

    The Russian real industrial sector capital entrance to Armenian market
    is hindered by logistical difficulties. The land communications of
    Armenia to the external world have to go through Georgia in the
    north and Iran in the south. For quite a long time complicated
    relations between Russia and Georgia have been making vulnerable
    the establishment of transport communications from Russia to Armenia
    through Georgian territory. However, there is no other way. The foreign
    economic and political approaches have to be tied to the conditions
    dictated by geography.

    There is also a political context in Rosneft's entrance in the Armenian
    market, which is related to the sustainability of integration processes
    among the former Soviet Union countries. In particular, the success
    of Rosneft's Armenian contract may help assess how pragmatic was
    Armenia's choice in favor of the Eurasian integration project.

    Reasonably, Yerevan points out the absence of a common land border with
    Russia as a seriously obstructive factor for the country's involvement
    in integration schemes. However, Rosneft and other Russian companies
    have a good opportunity to build an arranged system for introducing
    petroleum products business without having a direct land access to
    the partner's territory. There is also an opportunity to revive
    the Nairit plant, which may turn out as yet another confirmation
    for establishment of systemic ties in the economic dimension of
    the Russia-Armenia relations. It would be interesting to follow
    what impact Rosneft's successful activities in the Armenian market
    would have on regional political issues that receive much publicity
    (such as reopening railroad section from Russia's Krasnodar Krai to
    Armenia that passes through Abkhazia and Georgia).

    1 Russian cars imports in the country in 2012 constituted 1.7% of
    total Russian exports to Armenia (as reported by National Statistical
    Service of Armenia, which amounted in $18.5 million). In the same
    year Russian exports to Armenia in the product category "rubber and
    articles made of rubber" amounted in $12.9 million.

    2 In 2013 imports of petroleum products to Armenia comprised 328,000
    tons, a 5.3% reduction compared to 346,000 tons in 2012. The main
    reason is that for many vehicles in the country natural gas is chosen
    as an alternative fuel. Some reports suggest that as many as 70%
    of all vehicles in Armenia run on natural gas.

    "Globus" analytical bulletin, No. 4, 2014

    Return

    __________________________________________________ __________________________
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    http://www.noravank.am/eng/articles/detail.php?ELEMENT_ID=12689

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