Doing business in the far flung parts of the old Soviet empire has been a chastening experience for representatives of multinationals that dominate the industry in the West.
Except for a small Moscow elite that traveled outside the former Soviet borders, names like Shell, Exxon, Mobil Texaco, and BP do not spark instant recognition among men who run, the world's biggest oil and gas producing operations.
Tony Vicars-Miles, Shell's coordinator for the former Soviet Union and eastern Europe, admits it is rather annoying that the average person in Russia has not heard of Shell, forcing the company to advertise its virtues in an attempt to make Russians as aware of the Pecten brand as their counterparts in Europe and North America.
ANONYMOUS TRADE
In 1990, the last full year of the old state trading organizations, the Royal Dutch/Shell Group sold $1 billion worth of products and made Purchases worth $900 million in eastern Europe and the U.S.S.R.
But it was a largely anonymous trade. Only in Hungary did the Shell brand name appear over gasoline service stations through a franchise agreement that started in 1961. Since eastern Europe emerged from Soviet domination, Shell has bought a 50% interest in the old franchise operation.
The drive is now on for downstream expansion in the East with operating companies, preferably 100% owned, up and running in all the countries of the Soviet empire with the possible exception of Albania. Shell is investigating how to set up a 100% owned company in Moscow, where Italy's Agip is the only gasoline marketer in business. Shell's short term strategy also could involve a company in the Ukrainian capital, Kiev.
Vicars-Miles says the main obstacle to establishing the new companies is the obscure ground rule for operating, although there are so few service stations the potential is enormous.
Moscow has only 70 service stations. There are only 520 in Hungary. Vicars-Miles reckons that if all major oil companies devoted 10% of their retail budgets for 10 years to develop the downstream sector in the former Soviet Union the area would still be underpumped.
Looking at other eastern advances, he said, "We shall have to think very hard about the Baltics, perhaps Khazakstan. There are some smaller republics where the Shell flag will be missing for a while, not because we are not interested in the long term but because there is a limit to what you can do at any one time."
BUILDUP IN MOSCOW
After a slow start, Shell is building teams of people on the ground. Two years ago there were four Shell employees in Moscow. By the end of 1992 the company hopes to have 25-30.
At this stage, Shell is looking at gasoline retailing and marketing other oil products and petrochemicals. Becoming involved in refining either through revamping plants or building, on a grassroots site does not command much priority. The group is nominally part of a joint venture petrochemicals project, but it looks more dead than alive.
Shell's main concern about processing, particularly modernizing plants, is exposing the company to future liability for past environmental abuses.
Two years ago there was a veto on involvement. However, the company is once again tentatively looking at the sector.
Copyright 1992 Oil & Gas Journal. All Rights Reserved.
