Tyumen Oil Company and East Line agree on an exclusive deal at Domodedovo

Published: 2/19/2000

On 15th February, East Line followed in the footsteps of Aeroflot by signing a general co-operation agreement with Tyumen Oil Company (TNK), under which TNK will be it"s sole supplier of jet fuel to Domodedovo Airport. Unlike Aeroflot, whose agreements with the oil companies cover a high level of reciprocity, it appears the East Line deal is a simple exclusive supply deal for TNK at the East Line controlled airport. However, East Line"s press service said it would promote TNK within the airport (to encourage business away from TNK"s competitors, DA LUKoil and Yukos). Under the agreement if TNK is unable to fuel aircraft at Domodedovo, owing to a lack of fuel, East Line can demand that TNK reimburses its losses. According to East Line, a single, reliable direct supplier of jet fuel is far preferable to the situation generally in Russia where fuel is acquired from intermediaries, incurring higher charges, which are increasingly resisted by airports and airlines. TNK also has an advantage in supplying the airport in that it has a subsidiary Ryazan NPZ, which produced 725,800 tonnes of jet fuel in 1999 and TNK estimates that, in 2000, in combination with another subsidiary Nizhnevartovsk NPZ will increase jet fuel production to 840,000 tonnes. The TNK refineries are reported to be closer to the airport than those of LUKoil and therefore are seen to be more competitive. During the high traffic summer season, DA needs some 60,000-65,000 tonnes of jet fuel per month and 30% less in the winter months. According to East Line, it is not tied to any time period with TNK and can break the agreement at any point if the oil company starts increasing prices. Simon Kukes of TNK however is looking for long relationship and predicts the agreement could last seven years. East Line claims that the deal is all down to price, however in the power politics of the sector deals of this type are rarely solely down to price alone. Associated articles: www.concise.org. 23rd September 1999; 24th January 2000

Article ID: 1438