Continuum and Factor Groups are not disclosing all the details of their future participation in the restoration of one of the refineries. But even at the outset, differing development strategies could create an insurmountable barrier between the competitors.
Two camps in the government coalition have begun formulating different approaches to reducing petroleum product imports and developing domestic oil refining. Earlier this month, Serhiy Tyshchenko, the owner of the Factor group of companies and close associate of People's Front leader Serhiy Pashinsky, stated that, in his opinion, 50% of diesel fuel sales in the country are currently off the books. As a solution, he proposed tightening excise tax policies in Ukraine's southern regions, reinstating criminal penalties for smuggling, and introducing a prohibitive duty on petroleum product imports at the WTO-permitted 6,5% rate for the modernization of one refinery. Tyshchenko believes the state should invest the proceeds from duties and import restrictions in the Odesa Oil Refinery, which is managed by the state-owned enterprise Ukrtransnaftoprodukt (its director, by a lucky coincidence, is Oleksandr Gorbunov, a former Factor member).
Two months earlier, Igor Nasalik, then a candidate for the position of Minister of Energy and Coal Industry, also voiced his position on the development of domestic oil refining. "We have five refineries where the refining depth is no more than 55%. One needs to be modernized, but the yield (refining depth) should reach 93%. The project could cost around $1 billion," he stated.
Nasalik also explained that the state must conduct a preliminary study to select a suitable refinery for the project. "Providing such a refinery with oil is not a problem, and the use of the Odessa-Brody pipeline could be considered as an option," he concluded.
The first and foremost contender is the Kherson Oil Refinery of the Continuum Group, co-owned by Petro Dyminsky, a longtime business partner of Nasalik. This refinery could receive oil via the 555-kilometer Odessa-Kremenchuk reverse pipeline. Furthermore, the possibility of utilizing the Odessa-Brody pipeline is also possible if modernization of this refinery begins. However, for this to happen, Continuum would have to be willing to share its oil resources with the Western Ukrainian refineries of Galicia and Naftokhimik Prykarpattia. These refineries belong to Ihor Kolomoisky's Privat Group and, due to a lack of raw materials and their hopeless technological backwardness, have long been out of operation. Given these factors, as well as the ongoing feud between Privat and Continuum, such a scenario seems far-fetched.
The second candidate for modernization is the Odessa Oil Refinery, mentioned by Serhiy Tyshchenko and connected to the Odessa-Brody oil pipeline by a pipeline. This enterprise clearly doesn't fit into the Continuum Group's strategy of expanding its influence in the oil refining market outlined above. And this shouldn't be seen as a political conflict between Minister Nasalik of the BPP and Tyshchenko, a close associate of the People's Front—it's purely a matter of business.
If the Odessa Oil Refinery and the Ukrainian Oil and Gas Refinery succeed in winning the state modernization project, the Factor Group of Companies will likely want to establish a potentially profitable business supplying the said enterprise with oil (currently, Tishchenko's company imports only small quantities of petroleum products—up to 15 tons per month—from Belarus).
Another question that remains open is where to obtain the necessary resources. Russia is unlikely to be a reliable partner in this matter, not least because the Ukrainian authorities have completely denied access to the Odessa plant's assets, VTB Bank, which is controlled by the country's government and to which the plant's assets are held as collateral.
Regarding the opposite strategy of developing Ukrainian oil refining at the Kherson Oil Refinery, the stakes don't appear high. With a loyal minister, Continuum Group will be well positioned to advance the modernization project jointly with the state (thankfully, the feasibility study for modernizing this refinery has long been completed) and attract a third party to the project, such as a Chinese investor. At least, no one has yet claimed that the memorandum of intent signed several years ago by Continuum Group companies to modernize the Kherson Oil Refinery jointly with PetroChina has lost its relevance.
And most importantly, if the proponents of the "Kherson path" do nothing at all to restore the industry, nothing will change for them, and everything will be fine. As for the lobbyists for the "Odesa option," however, their risks appear much higher.
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