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. Last Updated: 07/27/2016

LUKoil Signs Deal With St. Pete

ST. PETERSBURG -- LUKoil, Russia's largest oil company, looks set to expand its activities in the northern capital - and especially its retail network - under a protocol agreement it signed recently with the St. Petersburg government.

The agreement commits LUKoil to building a network of 100 to 150 filling stations in St. Petersburg over the next two years and to raise its supply of oil products to the city.

"The company is ready to supply up to 100,000 tons a month to St. Petersburg, though volumes will depend on demand," LUKoil president Vagit Alekperov said at a news conference last Wednesday.

The company will also build three oil tankers at the Admiralteyskiye Verfi shipyard and build an orphanage at a yet to be determined location.

In a sign of LUKoil's growing commitment to St. Petersburg, the company plans to rent as its main office in the city a mansion on the Angliisksaya Naberezhnaya of the Neva River, a few kilometers west of the city center.

Monthly gasoline consumption in the city is about 100,000 to 150,000 tons a month, according to industry experts.

The commitment from LUKoil to build more than 100 stations marks something of a departure from previous LUKoil pledges to build from 30 to 150 new gas stations. So far the oil major has built just two stations in St. Petersburg.

Another two also operate under the LUKoil name as franchises. While other operators are opening gas stations that cost about $500,000 at a minimum, LUKoil St. Petersburg has invested about $3 million in its station on Pulkovskoye highway. There are 260 different gas stations in the city.

LUKoil has had a difficult time cracking the city's filling station market. The oil distribution industry in St. Petersburg has been a focus of organized crime activity in recent years, with several gangland-type killings of leading officials at fuel firms.

Earlier this year, Pavel Kapysh, 43, director of the Baltic Financial Industrial Group, was killed in broad daylight.

When a bomb blew up early last year at a LUKoil service station. local media speculated foul play was involved, but the company played down the incident, characterizing it as senseless hooliganism.

Despite LUKoil's stature in Russia, local gas station operators did not seem concerned at LUKoil's plans to expand into the retail market.

"If [LUKoil] gets support from the city administration and puts a lot of effort [into their plan], it will take at least three years to build 100 stations," said Vladimir Khilchenko, president and CEO of Faeton company, which operates about 30 gas stations in the city.

"There are no doubts the company has financial resources for it, the question is if the market will accept this number of new stations," he said.

LUKoil's pretax profits for the first nine months of 1999 were 19.98 billion rubles ($750 million).