You're reading: TNK-BP prepared to reboot Lysychansk refinery with guaranteed oil supply

TNK-BP Commerce (Kyiv) believes it is possible to launch the Lysychansk oil refinery (LINIK) in Luhansk region if it receives a guaranteed annual supply of 4.8 million tonnes of crude on a tolling basis, the company said in a press release.

"One million tonnes of tolling crude cannot save LINIK. In technological and economic terms, in order to put the Lysychansk oil refinery into operation it is necessary to have guarantees for a workload of at least 4.8 million tonnes of oil per year," TNK-BP Commerce executive director Volodymyr Zhmak was quoted as saying in the press release.

He said the possibility of a temporary elimination of the value-added tax on imports of just 1 million tonnes of oil being discussed by the government is insufficient to resume the refinery’s operation and stabilize prices on the country’s oil products market.

The company said that domestic oil refining is possible only with the introduction of tax breaks or import duties that equalize oil prices for Ukrainian refineries and refineries in countries that are members of the Customs Union. Another measure could be the imposition of quotas on imports of oil products. These measures must be consistent and long-term, the company said.

"The government needs to understand that if Ukrainian oil refineries stop operating, the effect of this will be a far stronger blow to the budget and the economy in general than losses related to temporary tax breaks," Zhmak said, adding that the budget and the country’s economy could lose an estimated $1 billion if LINIK is shut down.

If the current trend continues, with the lack of government measures to support the sector, Ukrainian oil refining will be swallowed up in the expansion of foreign refiners. A whole set of measures is need in order to preserve Ukraine’s own oil refining, along with the jobs, pensions and GDP the industry generates, the company said.

In early April Ukrainian Premier Mykola Azarov said that the government is discussing the duty-free imports of one million tonnes of oil to launch Ukrainian oil refineries that had been stopped.

As reported, in late February 2012, CEO Didier Casimiro said that refining Naftogaz Ukrainy’s oil on a tolling basis at the Lysychansk refinery (LINIK, Luhansk region) would be viable at a rate of no less than four million tonnes per year.

TNK-BP halted oil supplies to the refinery on March 1, 2012 because of its losses. A decision was made to start maintenance operations at the refinery.

According to TNK-BP, the refinery was able to maintain its operations exclusively thanks to refining crude according to tolling schemes and exports of petroleum products to Russia. However, since the end of 2011, tolling operations began to lose economic attractiveness following Russia’s introduction of new tax rules and changes on the Russian petroleum market.

On March 15, 2012, Lysychansk oil refinery stopped fuel production and is completing preparatory work for a transfer to a repair mode.

The hydro treatment of diesel fuel, which was trailing in the production cycle, was stopped. Auxiliary production facilities were to be halted by the end of March.

The company employees were to be transferred to a four-day working week by the end of March.

The polypropylene line will be stopped by mid-April.

Private joint-stock company LINIK, part of Russian-British TNK-BP, exploits Lysychansk oil refinery.

The Lysychansk refinery’s total processing capacity is about 7.2 million tonnes of crude oil per year.