In fact, Slovnaft trades with all member countries of the Central European Initiative (CEI), but its trade is very differentiated regarding commodities and products' volume. This year - 1999 - is to bring several considerable changes, which are to determine its prosperity in upcoming years, in the field of production restructuring and organisation of foreign trade. Primarily, finishing of construction of EFPA complex, replacement of export of heavy heating oils by engine fuel and run up of activities of the only trade company Slovnaft - Trade , which replaces previous three plants, are included into these changes. We discuss these changes in relation to the CEI-member countries with Dusan Valuch, Slovnaft a.s. Bratislava Marketing Department Director.

How would you evaluate trade with the CEI-member countries in 1998 as compared with 1997?

Within the framework of the CEI, there are several countries having very low or practically no import, including Bulgaria, Bosnia, Belarus, Macedonia, Croatia and Albania. Primarily, it is caused due to the fact that Slovnaft currently does not utilise possibilities of barter trade and is concerned very carefully with guarantees as to whether the customer will pay. Furthermore, the Ukraine, which imports 1 per cent of Slovnaft products within the framework of CEI-member countries, belonged among these countries in 1998. The Ukrainian market is very interesting market for us in the long run, but currently it is still considered to be a complicated partner for us from the point of view of trade conditions. In comparison with the aforementioned countries, positive development of export into the Czech Republic seems to be very important. In 1997, share of the trade between Slovnaft and the Czech Republic was 42 per cent of balance of the CEI-member countries and in 1998, it went up to 45 per cent. To make comparison, the second most important share was exports to Austria - it was 23 per cent - in 1998 and exports to Hungary - 22 per cent, where we recorded increase by 1 per cent in comparison with 1997. Market concerning refinery and petrochemical products of Slovnaft is stabilised in a long-term prospect in Hungary and Austria.

In 1998, very low prices of crude oil were recorded. Did the low prices influence also financial volume of your production?

Expressed in financial level, the trade volume in 1998 had worse position as compared with 1997. To make comparison, rather the opposite situation is in export expressed in tonnes, because exports to the CEI-member countries went up from the level of 1997 - it was slightly under the level of 2.5 billion of tonnes - to the level over 2.6 billion of tonnes in 1998.

You have mentioned the trade with the Czech Republic as a dominant. Is commodity structure narrow or we know how to apply wider assortment of Slovnaft products?

Commodity structure is sufficiently diversified. Regarding the Czech Republic, we export especially Diesel oil, the second place belongs to petrol and then heavy heating oils there. Heavy heating oil, being currently an important commodity, will probably maintain its position by June 2000. Polyethylene and asphalt also belong into the group of important commodities. Furthermore, aerial kerosene used not only for needs of aviation industry is attractive commodity, but it is a component which increase operability of Diesel oil in winter.

Has Slovnaft worked out strategy regarding where to export refinery and where petrochemical products for advantageous prices?

Within the framework of the CEI, there are also Slovakia's nearest neighbouring countries and primarily they are main importers of our refinery products and if it is possible also petrochemical and plastic products. Primarily, it is influenced by the fact that refinery products belong to the group of the least valuable products from the point of view of uniform price for a ton of product and therefore their price is the most burdened by transportation costs from the side of customer. Furthermore, evaluation of distinction in keeping transportation efficiency stems from that. Engine fuel, heating oils and asphalt are included among these products.

What are fundamental expansionist intentions regarding our neighbouring countries?

Slovakia's most important partner is the Czech Republic, what is also historically conditioned. In this field, there are most direct relationships, the least language barrier and that means there are favourable conditions concerning trade with the Czech Republic for further maintenance of its most important position.

The second position in the horizon of 5- to 10-year period will belong to Poland, where especially tariff barriers complicate our mutual trade. If Poland fulfils what it promised in relation to the European Union, we feel certain chance regarding trade on this territory from several reasons. Firstly, if we compare structure of Polish and Slovak chemical industries, there is possibility of mutual supplementation of markets of the two countries. For example, in the field of petrochemical products, we can offer interesting products, especially semi-products, necessary for Polish industry. On the other hand, we can compensate exports by taking delivery of semi-products from Poland for other Slovak chemical factories. Sales of refinery products is very interesting for us primarily because of Poland's relatively big market and so far, deficit from the point of view of own production. There was an explicit effort to resolve this state via intention to build up next refinery in southern part of Poland in town of Kenzelin Kozlek, but with regard to the fact that overall number of refinery capacities in central Europe is considered to have slight surplus, Polish colleagues did not find necessary support from the side of financial institutions being necessary in order to finance such a project. We can say that Slovnaft got in before by several years and it gained support for own project known as EFPA. So there are good conditions regarding export of our surplus to southern parts of Poland. Certainly, it will not be easy as the OMV and other European refineries, including new refinery capacity in Leun, Germany, finished one year ago, will have similar efforts. Polish market is very interesting for all of us but it will also be a territory of strong competition.

Is there similar situation regarding trade cooperation with Austria and Hungary?

Positions in Austria and Hungary exceed the level of 20 per cent, but they are considered to be two very difficult markets. Hungary can enter the EU in near future and so we consider these two countries as being qualitatively difficult markets.

Do you think that export portfolio is to be restructured in relation with these partners and if yes why?

The most serious restructuring means that we cease to trade in heavy heating oils, which presents and presented one of the biggest items. After finishing the EFPA construction, this product will be re-worked. We expect certain lapse and consequent restructuring - this means that heavy heating oils are to be replaced by high-octane petrol. Regarding financial volume, it is expected we achieve the level of about 70-80 per cent of current turnover of foreign trade in Hungary, as well as Austria. We would like to export our products to Bulgaria, Rumania and Poland during the lapse non-exceeding 100 per cent.

So far, trade with Bulgaria and Rumania is more or less symbolical. It is on the level of 1 per cent of all CEI-member countries, but primarily it is an area where we are trying to make direct contacts with domestic distributors. Concerning contacts, local supra-national companies do not have any nationally coloured base in purchasing policy regarding commercial issue. If we offer goods of same quality and we are able to deliver it in time for comparable prices, the price is the only decisive criterion. We thought about construction of filling stations in Rumania, but having evaluated financial and investment challenge, we focused on construction of filling stations in Poland. This does not mean that we will definitely leave Rumanian market as suppliers of engine fuel. Our customers in Rumania can be and probably will be OMV, Mol and Shell. Austrian and Hungarian firms are our big competitors at domestic market because they are entering our market, but we are able to cooperate on other markets.

In 1997, exports to Ukraine reached the level of 1 per cent and in 1998 the export recorded sharp fall. Where are, according to your opinion, problems? Is it result of stronger competition? What development do you expect regarding Ukrainian market?

This modest trade volume - 1-per- cent level - included especially lubricating oils. The decline proves unstable commercial environment. On one hand, the market is very under- saturated, so many products can be exported there, but unfortunately the purchasing power of Ukrainians is very low. In Ukraine, it is necessary to be careful in contacts with commercial partners and have high guares that payment for goods will run. Different issue is trade in refinery products. On the other side of Ukrainian border is its neighbouring country Russia, where goods enter the market from the rouble zone and it is still advantageous for Ukraine and mainly for its unofficial commercial structures. Therefore, there are created ways for penetration of cheaper goods onto market but without guarantee of quality. Economic state is on the level that there is an effort to maintain majority of issues live. So, quality and certificates are not taken into consideration and engine fuel is used to be bought for as lowest prices as possible. We would like to join this market in order to learn something about its specific issues and in case of improving efficiency of Ukrainian economy and trade normalising, we certainly will utilise that.

How does it (export) develop and what are its prospects into the future with southern members of the CEI?

Regarding our southern neighbouring countries, it is necessary to emphasise there is a big percentual increase of trade with Italy, even though overall volume is low. It is important to take into consideration the fact that Italian is very complicated but stabilised market.

Trade with Slovenia decreased from 2 to 1 per cent. Assortment of products exported to Slovenia is more extensive as compared with Italy. In Slovenia, we are running our activities, therefore we examine several partners and various products. So far, commodity assortment has not been examined yet. Italy has narrower commodity assortment. Slovnaft trades with Italy many years especially in the field of plastic products - polyethylene, polyprophylene, as well as phenols, aceton, natrium sulphides, toulene and xylene. It seems that our products have found out further customers especially in the field of plastic products.

After 1989, there was a certain vision that we will trade with economically-advanced and solvent countries with increasing development of our economy. Therefore, we as quickly as possible left eastern markets. Do you think that trade grow with transforming economies after transfer to freely exchangeable currencies is an expression that we want to return there?

Evaluating this global trend, it is necessary to differentiate consumption products such as technical equipment, audio-visual technical equipment, cars, machines and others from goods produced by Slovnaft. In the first group, there is a strong competition between transforming countries, in the second group there are goods, which can be produced by any refinery or petrochemical complex in keeping similar quality if it has needed technology. Therefore, we have in mind an advantage that we can sell our goods anywhere, including countries with transforming economies, such as Albania. Primarily, we are interested in guarantee as to whether our customers are able to pay. For example, from 1992 to 1994, we had a great number of contracts and partners with economically-advanced countries such as the Netherlands and Germany, but the goods destination was Rumania or Bulgaria. Primarily, it was caused by the fact that theses firms (the Netherlands and Germany) were more experienced how to barter this trades. They knew how to be paid for delivery of our products in a non-financial way - in a form of well-sold goods in other countries. These are complicated and non-transparent operations and therefore we tried to stop them in a maximum rate and currently we trade in a way pay after delivery. From our point of view , it is not a question of return to these markets but the question of identification of solvent commercial partners. Number of such partners in transforming economies is being increased.

Slovnaft completely excluded barter trades at home as well as abroad. What is the state and what is prognosis of the development?

Regarding barter trade, it would be necessary to establish an independent company. So far, it has no importance for us. In Slovakia, there are enough partners able to pay by their agricultural production. Certain way utilising specific category of dealers, who are interesting because - they are able to produce small volumes but they are able to pay for delivery of oils via compensation of production of customer and they pay cash for delivery of Slovnaft, exists for Slovnaft. It is necessary to realise that such way of trading does not present a great volume of our trade.

What is situation from the point of view of commodity and territorial diversification of trade and impact on stability of Slovnaft's trade balance in certain fluctuation of world prices and territorial lapses such as to Poland, Hungary or Austria?

Talks with Austrian partners, who informed us that after run up the EFPA complex the market will in a sensible way react to trade in engine fuels, took place at the end of December. Watching 1997 and 1998, certain mitigation of consumption in engine fuels can be felt in central Europe. It can be caused by decrease of GDP (gross domestic product) growth tempo, development of saving engines, innovation of car park including the shift to sell smaller cars instead of bigger, as well as increase of diesel oils consumption. Slovnaft with its extensive offer enters this situation characterised by decreasing demand of car fuels, what can have a destructive influence on prices of these fuels. The question is what will happen, if we export relatively low volume of products to Austria, but we will try to export them to the Czech Republic and Poland and onto under-saturated markets. We will enter the markets and put aside our competitors, but the problem will not be resolved because surplus of car fuels will lead to need of re-evaluation and conclusion of those productive capacities not having the modern technologies. This is an advantage of Slovnaft, which has already built up such technology.

Export of other commodities is stabilised to certain extent because we are trying to trade with countries with transforming economies in petrochemical products and oils. There is also territorial and commodity successfulness fluctuating from one year to another.

Is there possibility to restructure production of refinery products to petrochemical ones - it means to products with higher added value and these apply on market such as in Austria or Italy in a more effective way - as prognosis regarding surplus seems to be more permanent?

Regarding this issue, it is necessary to stem from that fact that rate of distribution efficiency of petrochemical and refinery products fluctuates from three- to five-year cycles of booms and depressions. Currently, we do not know to say what is optimal proportion between refinery and petrochemical production. We expect we will more flexibly react on market claims after re-organisation and we decrease the risk in strategic planning because Slovnaft has simplified structure of trading as of January 1, 1999. By the end of 1998, it had four daughter companies dealing with foreign trade - daughter companies Slovintegra. These companies is to be joined to one Slovnaft - Trade based in building of Petrimex. After this re-organisation, Slovnaft is to have one commercial department on Slovak market and markets of the Czech Republic and other territories will be in hands of Slovnaft- Trade . One of the marketing aims of Slovnaft, as well as Slovnaft-Trade for upcoming period, is to primarily place increased production of oils onto central European markets and consequently work out prognosis regarding proportion between absorption market capacity to fuels versus petrochemical products and give signal to production. Partners on Austrian and Italian markets are demanding, but on the other hand commercially stable. Creation of stable and permanently developing positions on these markets is permanent intention of Slovnaft.

Slovak Trade FORUM