LUKOIL created a new business sector in 2008: Power Generation.

The new sector includes all aspects of power business, from generation to transmission and sale of heat and electrical power, ensuring reliable supplies for the Company’s own needs and for external customers. As well as UGK TGK-8, which was acquired at the end of 2008, and the Company’s own power generating facilities at oil & gas fields in Russia, the sector also includes a number of power generators in Bulgaria, Romania and Ukraine.

 

Summary data	2008	2009
Installed capacity of combined heating plants, MWh	3 302	3 264
Installed capacity of hydropower plants, MWh	297	297
Installed heating capacity, Gcal/h	10 237	9 819
Installed capacity of boiler plants, Gcal/h	2 460	2 460
Electricity output, mln KWh	14 660	13 137
Heat production, th. Gcal	15 488	15 072

Structural Transformations

Restructuring of LUKOIL’s power business entered its final stage in the reporting year. The intended final structuring of the sector was achieved, consisting of 7 organizations, which began operations in 2009, including 4 generating companies: LUKOIL-Astrakhanenergo, LUKOIL-Volgogradenergo, LUKOIL-Kubanenergo and LUKOIL-Rostovenergo.

The generating companies manage assets of UGK TGK-8, which was acquired in 2008. The LUKOIL stake in UGK TGK-8 was increased to 100% in 2009 and the company was transformed from a public to a private limited company.

Power Generation

Total production of electrical energy in 2009 by organizations in LUKOIL’s power generation business was 14.7 billion kilowatt-hours. Total heat production by generators was 16.9 million Gcal.

Reduction in output of heat energy was due to lower demand and delayed start of the heating season as a result of unusually warm weather in Russia’s Southern Federal District.

LUKOIL works constantly to optimize production costs of its electricity enterprises, and applies strict control over implementation of anti-crisis programs for reduction of non-operating expenses.

Small-scale Generating

LUKOIL is continuing rapid development of its own power generating at fields. This enables substantial savings on electricity purchases and raises the level of utilization of associated gas, which is used as fuel for gas-fired generating. The Group generated 1,152 million kilowatt-hours of electricity at its own power generating units in 2009, representing 8.2% of total consumption of electricity by the Group in its production activities.

LUKOIL applies the latest technologies in its investment projects for construction and upgrade of generating facilities. This will ensure increasing reliability of power supplies to LUKOIL enterprises. Use of new technologies also enables the Company to limit spending on its electricity needs thanks to improvement of energy efficiency and use of the Company’s own refined products as fuel for power generation.

Energy-saving Technologies

LUKOIL works constantly to improve reliability of its electricity supply arrangements and to reduce spending on energy. The efforts have been coordinated through corporate programs (being implemented in 2006–2010) for energy saving and improvement of reliability of power supplies.

Savings of fuel and energy resources in 2009 as a result of the energy-saving program were more than $100 million, which is more than double the amount saved in 2008.