Zarubezhneft's units in Bosnia can't swing to profit before oil sector revamp

"The existing debts of the Nestro Group, within which the refineries Modrica and Brod operate, are owed to the parent company only, and should be viewed as investments by the parent company and its owner, Russia", a spokesperson for Optima told SeeNews.

Bosnia's two refineries, Modrica and Brod, fuel retailer Nestro and Optima Group all operate under the Nestro Group umbrella.

Nestro Group's oil refineries in Bosnia's Serb Republic entity suffered great losses in 2016 and their combined debt reached hundreds of millions of marka. The fuel retailer saw a very slim net profit but its debt remained high.

Oil refinery Brod [BANJ:RNAF-R-A] suffered a net loss of 71.5 million marka ($39.2 million/36.6 million euro) in 2016, taking its accumulated loss to a staggering 590.9 million marka. Oil refinery Modrica [BANJ:RFUM-R-A] posted a net loss of 1.04 milion marka last year, while its accumulated loss climbed to 56.1 million marka.

Fuel retailer Nestro Petrol [BANJ:PTRL-R-A] was the only Bosnian company of Zarubezhneft to end 2016 in a positive territory. It recorded a slim net profit of 4,530 marka for the year, but its accumulated loss lingered on at 10.6 million marka.

These results have analysts worried that Bosnia's oil industry is at risk of collapse, but Optima says otherwise.

"Stories of us leaving have been around since we first came to the Serb Republic and Bosnia and Herzegovina", the company said, adding that all the processes are in accordance with its long-term development strategy. 

Zoran Pavlovic, a Banja Luka-based analyst, told SeeNews he sees huge discrepancies in the way the Nestro Group is operating, given that the workload of its refineries is declining but costs are rising.

"When their results are analysed, it appears likely that they are a part of a business concept that will lead to the sale and/or the closure of the two refineries",  Zoran Pavlovic said in response to a SeeNews inquiry. "It is odd that the volume of oil refining in Brod is on a decline, but it still has fixed costs and is seeing its losses grow despite the smaller volume of work. The same thing is happening in Modrica."

Pavlovic also opined that Nestro petrol stations could be sold to another distributor.

“All of this is not sustainable in the long run”, he said.

Zarubezhneft, via its subsidiary NeftegazInCor, owns 80% of Brod, 75.65% of Modrica and 80% of Nestro Petrol.

Last month, Optima Grupa announced it is selling real estate assets with a combined value in the millions of euro owned by the two refineries and Nestro Petrol units.

In 2015, Optima advertised the sale of 20 properties. Local media speculated at the time that Zarubezhneft’s financial problems in Bosnia may be the main reason for the move.

The Serb Republic is one of two entities that form Bosnia, the other is the Federation.

(1 euro= 1.95582 marka)