INTERVIEW - Lukoil Macedonia Sticks to Expansion Plan Despite Long Land Zoning Procedures

Lukoil Macedonia DOOEL Skopje's strategic goal to expand its current network of 10 filling stations remains unchanged but the prolonged zoning process for plots of land intended for the construction of such facilities has delayed the implementation of the company's investment programme, Kuku told SeeNews in an interview.

However, "the process has been shortened considerably following the latest changes in the Macedonian legislation”, Kuku said without elaborating.

With the recent amendments in the Construction Law the time needed for issuing building permits was cut to five days from seven, while a permission for launching construction projects can be obtained in five working days instead of 15 days previously.

Lukoil Macedonia launched its commercial operations in 2005 based on the memorandum of cooperation between the Macedonian government and the Russian oil giant. The memorandum calls for the construction of 40 filling stations and investment of over $50 million (34 million euro). The company's first filling station in Macedonia was opened in September 2006.

Several land zoning procedures are underway, concerning plots of land in the capital Skopje, the northern city of Kumanovo, the town of Gevgelija near the border with Greece, and Gostivar, in northwestern Macedonia.

Lukoil Macedonia planned to build its second filling station in the central city of Bitola in October, while the construction of a filling station near the city of Veles, on the motorway linking Skopje and Gevgelija that is part of pan-European transport Corridor 10, is expected to start in January, Kuku said.

“Simultaneously, we are also looking for an option to sign a franchise or lease agreement with other filling stations which meet Lukoil’s criteria,” he added.

Lukoil Macedonia, in cooperation with financial institutions, is also considering introduction of pay-at-the-pump system, construction of automated fuel pumps at big supermarkets and building filling stations for motor boats sailing in the Ohrid lake.

According to Kuku, Lukoil Macedonia has a domestic market share of 5% in the retail segment and controls 10% of the wholesale of oil products.

“We plan to increase our market share in the future but we are not going to grab a dominant market position”, said Kuku.

Makpetrol AD is the biggest fuel retailer in Macedonia with a share of some 60% of the oil products market at the end of 2008. Other market players include Greek-owned OKTA refinery, which owns several filling stations, and local fuel distributor Makoil.

Lukoil Macedonia has not been immune to the adverse effects of the global economic crisis. The slowdown of the Macedonian economy has resulted in a 12.8% fall in the company’s wholesale business in the last six months.

Macedonia’s industrial output fell by an annual 9.8% in September, after contracting by 9.9% in August and 19.8% in July, Statistics Office data showed.

Kuku did not elaborate on Lukoil Macedonia’s sales figures, saying only “it is very difficult to talk about the company’s income since we are still in a developing stage”.

Lukoil Macedonia ended last year with a profit that enabled the company to pay all its taxes to the state. It also should be noted that last year the company climbed to 9th position in the list of the biggest taxpayers in Macedonia from 10th position in 2007, he said.

The company’s main aim is to operate without losses but not at the expense of quality of its fuels and services, and without cutting jobs.

Kuku pointed out to several advantages for doing business in Macedonia, including protection of investment by international agreements and the country’s constitution, as well as favourable tax policy.

“Unlike many countries in the European Union, even some in the region, profit tax in Macedonia is just 10% and reinvested profit is not taxed at all,” he said.

As other advantages he highlighted Macedonia's free trade regime with CEFTA countries, facilitated trade regime with the EU, the complete liberalization of imports of oil products from the EU as of 2011, the stability of local denar currency that is pegged to the euro, and Macedonia's favourable geographic location.

Kuku praised the Macedonian government's decision to adopt the European Union's Euro 5 generation of standards for the quality of motor fuels, as of September 1. The Euro 5 standard imposes stricter emissions caps on both diesel and petrol cars, limiting in particular nitrogen oxides and particulate matter which pose the most serious health problems.

"This means more care for the environment and health protection and it will also bring benefits in terms of increasing engine efficiency and allowing for imports of the latest car models compliant with the latest fuel standards," he said.

Macedonia, a country of two million people, was granted a EU candidate status in 2005. The European Commission recently recommended the opening of entry talks with Macedonia in the light of the progress achieved by the country on the path to accession.

Elsewhere in southeastern Europe, Lukoil is active in Bulgaria, Romania, Serbia, Croatia, Bosnia and Herzegovina, and Montenegro.

($=0.6820 euro)