Russian foreign direct investment in Ukraine

Nataliya Blyakha                                                                                       PEI Electronic Publications 7/2009 

www.tse.fi/pei 

 

 

TNK-BP's Ukrainian unit plans to maintain 2009 production volumes at last year's 

level, banking on falling imports to keep demand for its oil products stable despite an 

overall slowdown in consumption. 

LUKOIL 

Russian oil and gas company Lukoil was established in 1993 by union of three oil 

producing enterprises and three processing enterprises. The company came to the 

Ukrainian market in 1997 by opening petrol stations in the East of Ukraine. Since 

1997 the company had been expanding its presence and activities in the Ukrainian 

market rapidly. (Sickora 2002) 

Lukoil paid about $ 7 million for purchasing a controlling stake in the Odessa refinery 

in alliance with the English Synthesis. Later on it become the owner of 98.4 % 

shares of the Odessa refinery plant (Izvestia 2008). Odessa refinery plant was 

acquired by Lukoil to ease export of oil through Odessa port terminal. 

Table 7 shows principal investment projects implemented at the Odessa oil refinery 

during 2003-2006. In 2007 Odessa refinery completed the first stage of 

reconstruction, which had begun in August 2005. The distillation unit and various 

other facilities were rebuilt during this first stage. In 2008 the second stage of 

modernization was completed by installation of a visbreaking unit, which will lower 

output of fuel oil and raise output of vacuum gas oil. (Lukoil Oil Company 2007). In 

2008 Lukoil invested $30 million into renovation and developments of the plant 

(Izvestia 2008). Lukoil plans to invest $500 million until the end of 2014 in the 

modernization of the Odessa oil refinery, and 200 million on development of its own 

gas stations. (Volkov 2007) 

Table 7 

Principal investment projects, implemented at the Odessa 

                        oil refinery 

 

2003 2004 2005 2006 

Construction of the 

trestle work for the 

liquefied gas filling, 

$ 3 million 

Isomerization unit 

construction, 

$12 million 

Reconstruction of the 

reservoir stock, 

$9.3 million 

Modernization of the 

AT unit, preparation 

for the viscosity 

breaking unit, 

$21 million 

Source: The Chamber of Commerce in Ukraine 

Lukoil is actively expanding its presence in the retail market of petroleum products in 

Ukraine, creating a network of gas stations which utilize 1.5 million tons of gasoline 

produced in the company. Lukoil has a network in Ukraine wich consists of 

approximately 250 petrol stations. (Shkarapova, Dubrohyz 2007). In 2008 Lukoil 

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Nataliya Blyakha                                                                                       PEI Electronic Publications 7/2009 

www.tse.fi/pei 

 

 

sold through its networks in Ukraine 23,7 % more petroleum products than in 2007. 

During following years most of the company’s investments will be concentrated in 

Odessa region. Because of the world financial crisis Lukoil has to cut its investments 

in 2009 into development of a petrol station network in Ukraine to $7,5-9 mln. 

Lukoil is also spreading out its business to chemical industry. In 2006 Lukoil and 

German company UHDE signed a contract to built polyvinyl chloride producing plant 

In Kaluysh city (Ivanofrankivsk region). The investment program “Lukoil-Naftekhim” 

permitted to commence the manufacture of chlorine and caustic soda at the plant 

will be active for two years. According to the contract, the plant would be able to 

produce 300 thousands tons of polyvinyl chloride in 2009. Investment value of the 

project is $ 200 millon. (Government Portal 2006) 

 

The dominating role of Russian oil companies in Ukraine is caused by the traditional 

role of Russia as a major exporter of hydrocarbons to Ukraine, Ukraine's geopolitical 

location for Russian energy transit to Europe and an active expansionist policy of the 

Russian companies to purchase facilities, including oil refineries in the CIS and Eastern 

Europe. 

The activities of Russian companies in the oil industry of Ukraine are directed to: 

•  reorientation of Russia's export from crude oil to export of petroleum products 

received in particular from Ukrainian refineries; 

•  acquisition of Ukrainian enterprises through privatization in order to have a 

presence in petroleum products consumption markets in Central and Western 

Europe; 

•  further strengthening of the Russian companies position in Ukraine domestic 

market of oil products through the creation of joint ventures and through 

building distribution networks.( Shpack 2002) 

Presence of Russian oil companies in the Ukraine's oil refinery industry has both 

positive and negative influence. First, capacity utilization of Ukrainian refineries is 

increasing, which improves not only the financial condition of these companies, but 

overall socio-economic situation in areas where these companies are situated (as most 

of them are decisive for the formation of local budgets), and in Ukraine in general. 

Second, ownership of refineries by Russian oil companies stimulates stable supply of 

raw materials, investments in the modernization of enterprises and improvement of 

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