“Rosneft” has offered Chechnya a replacement refinery

Photo: Sergei Karpukhin / Reuters

“Rosneft” has offered to build in Chechnya bitumen plant instead of the Grozny oil refinery with a capacity of 1 million tons of oil a year, the restoration of which asks Ramzan Kadyrov. Experts and this project is considered unprofitable

“Rosneft” considered unprofitable to build a refinery (refinery) in Grozny with a capacity of 1 million tons of oil a year; the Ministry has supported the position of the company, to the letter of the Deputy Minister of energy Kirill Molodtsov to the government office from March 1 (copy have RBC). Instead, “Rosneft” offers “to create new jobs in the Chechen Republic” to build a cheap bitumen plant. Its profitability is also in question, experts say.

The representative of Rosneft declined to comment, the press Secretary of the head of Chechnya, Ramzan Kadyrov has not responded to a request to RBC.

The representative of the Ministry told RBC that the Agency has formulated its position on the Grozny oil refinery and sent to the government, refusing to comment further.

The heir to the oil refinery named after Lenin

The head of Chechnya, Ramzan Kadyrov, has, since 2010, the refinery construction in the Republic with a capacity of 1 million tonnes per year (0.5 million tons of gasoline and 0.4 million tonnes of diesel fuel) with a processing rate of over 90%. The first oil refinery in Chechnya was built in 1895, later renamed Grozny oil refinery named after Vladimir Lenin, he was one of the largest and oldest companies in the processing of crude oil in Russia. Before the war in Chechnya had three refineries with a total capacity of 19 million tons per year (the plant named after Sheripov Grozny plant and Novogroznensky them. Anisimova). All of these plants were destroyed during the second Chechen war in the late 1990s – early 2000-ies.

In 2013, Russian President Vladimir Putin instructed to consider the possibility, stipulating that the solution must be economically justified. To build the plant was commissioned in Rosneft, which estimated its construction at 78.3 billion rubles ($2.5 billion in prices of 2013). The development of the project has already been spent 725 million rubles At the end of December 2016, the Minister for North Caucasus Affairs Lev Kuznetsov said, without explaining the reasons that the project of building a refinery in Chechnya pending “Rosneft” in the long term.

Construction of the refinery in Grozny, according to General Director of “InfoTEK-KONSALT” Tamara Kandelaki, redundant, since the local market provides oil refineries in Astrakhan and Volgograd. However, she clarifies that Chechnya needs development and jobs, expand the tax base.

According to preliminary calculations “Rosneft”, which is presented in the letter Molodtsova, cash flow Grozny refinery in the period from 2010 to 2022 will be negative and will be “minus 26.3 billion rubles.” in the conditions of reduction of volumes of oil refining, increase output of light oil products. “Reaching break-even point of the project is possible subject to funding, construction of infrastructure facilities at the expense of regional (RUB 5.6 billion) and Federal (38.7 billion rubles) budgets”, — quotes the Deputy Minister of the calculations of oil companies. Thus, in aggregate the costs would amount to 44.3 billion rubles, which is only 2.5 times less than Rosneft expects to spend on the construction of the Eastern petrochemical complex (VNHK) , despite the fact that its capacity is much higher — 12 million tons of oil for the first phase.

The interlocutor of RBC in the Ministry of energy believes that the budget of investments of this scale for the construction of a refinery to be unrealistic.

According to the energy Ministry, Rosneft as an alternative examines the possibility of construction of a bitumen plant running on imported tar.

Bitumen — a product of oil refining, is used in road construction and for the manufacture of roofing houses. In 2015, “Rosneft” on eight of its existing refineries produced more than 1.7 million tons of bituminous materials, or 30% of total consumption road sector of Russia, stated on the company website. Data for the year 2016 the company did not disclose.

The analyst of “BrokerCreditService” Cyril Tachennikov says that as a result of the tax maneuver and falling oil prices, the refining margins in Russia as a whole decreased significantly. From large refineries with a high depth of processing (which is economically more beneficial than a small plant to 1 million tonnes of oil) profit is only $4-7 per barrel of oil, he estimates. Therefore, the Grozny oil refinery is unprofitable taking into account the cost of its construction, he said. But also bitumen, in his opinion, Chechnya is more profitable to import from existing plants of Rosneft, especially in the absence of raw materials for its production within the region.

Russia is now a surplus of bitumen, said the head of “InfoTEK-KONSALT”. Excluding bituminous mixtures in Russia produces about 5 million tons of bitumen, with demand of 4.5–5 million tons a year, said Kandelaki. While operating refineries capable of producing 50% more of this product. She believes that the construction of a bitumen plant in Chechnya would cost much cheaper and can be implemented faster than oil refineries, however, its profitability is also in question.

“The high demand for bitumen can be achieved only in the presence in Chechnya of plans for large-scale road construction. However, such projects quickly come to an end, and the cost to repair roads is much less investment in their strip,” — said Kandelaki. In the case of the construction of the bitumen plant will need to provide the infrastructure for storage of raw materials — asphalt terminals, which could make the project more expensive, concludes the expert.