Today, taking into consideration the unstable national currency rate and increased risks, product exporters and importers have a hard time. If the exporters are facing the problems such as how to plan the volume and rate of exports and how to save a part of currency earnings after obligatory sale of currency receipts, the importers are in more difficult situation. They even have to suspend the purchase, because the exchange difference requires to set absolutely unreal prices when selling products.
NIBULON is renown as the large agricultural producer and the largest Ukrainian grain exporter, but at the same time the company is carrying out import activities caused by NIBULON’s diversified business activities: the cultivation of grain and oil crops (more than 81 thousand ha of cultivated land), the transportation of commodities by road transport and by vessels of NIBULON’s own shipping company (28 non-self-propelled vessels, 9 tugs, plus a self-propelled floating crane), the construction of vessels at NIBULON shipbuilding and repair yard, the development of logistics infrastructure. An import component (purchase of fuels and lubricants) is very considerable in the supply segment and covers all the sectors of the company’s activities either cultivation or agricultural commodity transportation. Taking into account the price situation in the oil product market, NIBULON’s General Director Oleksiy Vadaturskyy described a concept of the company’s activity in this area,
“The fuel cost influences NIBULON considerably that is why we have to develop direct contacts to import fuels and lubricants from abroad in order to be independent of fuel prices set by oil traders. In this way, without involving resellers, we import seed grain and plant protection agents. The importers build exchange fluctuation risks into the product price; we purposefully reduce our expenses when importing.
Annually, the company spends 17 million liters of diesel fuel so that NIBULON’s large and complicated mechanism may operate. The fuel share in the prime cost of the basic agricultural crops comprises 12-15 %; the material expenses to operate cargo road transport comprise 45% of the total traffic prime cost; the expenses for shipping company are 36 %. “Our main tasks are to reduce this component in the prime cost, thereby contributing to the reduction of grain prime cost in the domestic market”, says Maryna Prylutska, a head of fuels and lubricants department. “The peculiarity of the situation in the domestic oil product market is that 90% of fuel is imported (only Kremenchug petroleum refinery is operating which products are supplied to a network of refuelling stations). The import dependence and the necessity to react to the unstable currency market efficiently make importers build exchange difference risks into the price and to ease risks at the expense of final consumers, physical persons or large companies… Taking into account the volume of fuel consumption, we need an efficient policy to save resources, and one of the ways is to import fuel. This mechanism enables the company to avoid a resource markup because of the unstable currency market and also to provide with qualitative resource during peak demand”.
Optimizing price segment is important but it is not the only one mechanism to reduce product prime cost. The company is implementing a number of organizational and technical measures aimed at saving fuel, namely the control measurement of fuel consumption, the control over fuel use, the choice of optimal operating modes, the reduction of norms to consume fuels and lubricants. To maintain machinery is an important factor. The well-coordinated work of NIBULON’s services is very important. Reasonable tender policy enables the company to purchase high-quality fuel at optimal prices.
NIBULON used to work with reliable oil traders in the domestic market that supplied high-quality fuels and lubricants. Direct supplies guarantee high-quality fuel. Modern eco-standards require to use Euro-5 fuel.
“In addition, NIBULON’s own import allows it to avoid exchange difference risk”, explains Maryna Prylutska. “Knowing the annual volume and the dynamics of fuel consumption, own import enables the company to provide itself with fuels and lubricants at lower prices in order to use fuel, purchased in February, during spring-summer, avoiding seasonal fluctuations in the domestic market.
The direct import guarantees reliable fuel supply, while oil traders, waiting for the changes in the exchange rate (yesterday the fuel cost 25 and today it can be 30), can postpone fuel sale, as the product is marketable. And own resource is a protective factor and the possibility to avoid market speculations.
The company has started to negotiate with producers from Belarus, countries of the European Union and Lithuania. “Earlier NIBULON used to work with the Ukrainian oil traders – owners of large refuelling stations”, says Maryna Prylutska. NIBULON is renown in the agricultural sector. Having provided the information about NIBULON’s activity (agricultural commodity cultivation, logistics component, etc), we were offered more profitable conditions, being the final fuel consumer. They strongly believe that NIBULON will purchase the volume announced, and the fuel will be directed to the development of agriculture and logistics”.
To be independent of the domestic oil product market is an important and prospective direction in NIBULON’s activities.