MOSCOW. Aug 25 (Interfax) - Nikolai Gorban became the new CEO of the Caspian Pipeline Consortium (CPC), which is wrapping up its expansion, in June. Gorban, whose candidacy was proposed by Russian oil pipeline monopoly Transneft and approved by shareholders, spoke with Interfax about the challenges he faces in his new role, CPC's plans for pumping oil in 2016 and 2017 and the outlook for the consortium's operations following the completion of modernization.
Q: You recently assumed the position of CPC chief executive. What are the main challenges you face?
A: We are now completing the second and third phases of the expansion project, which will enable us to reach design capacity of 67 million tonnes. Taking into account the addition of additives, we are planning that this will be about 76 million tonnes. Therefore, the main challenge today is to complete the expansion project. Obviously it requires the maximum exertion of effort from all of its participants.
Secondly, we are consistently working on the integration of new facilities into the existing CPC pipeline system. And thirdly, we're continuing methodical work on improving CPC's core activities.
Q: What is the expected effect after the completion of the expansion? How do you assess the progress of work and will it be completed on time?
A: CPC, as you know, is one of the most profitable and reliable routes for transporting oil from the Caspian region to world markets through the port of Novorossiysk. The result of the expansion project will be the ability to transport oil in greater amounts, primarily from fields in Kazakhstan - Kashagan, Karachaganak and Tengiz - as well as the Russian field Filanovsky being developed by Lukoil. We have already received requests to increase oil pumping volumes from operators for all three fields in Kazakhstan. We are essentially creating the capacity surplus that is needed to increase oil production at these fields.
CPC's total throughput capacity has now increased to 52 million tonnes per year. This became possible thanks to the launch of new facilities built in the first phase of the expansion project. These are 19 facilities, including 16 in Russia and three in Kazakhstan. The OPS-4 oil pumping station was built in Stavropol Territory and the OPS-3 in Kalmykia, stations were launched and modernized in Kazakhstan - Tengiz and Atyrau. The tank farm in Novorossiysk was expanded to 700,000 tonnes. We expect the launch of another three tanks with capacity of 100,000 tonnes each by the end of the year. Thus, the capacity of the tank farm will reach 1 million tonnes.
Q: What facilities do you plan to launch in the near future and when does CPC plan to reach design capacity?
A: We plan to reach design capacity in the second half of 2017. In Russia, by the start of 2017 there are plans to completely finish work on comprehensive testing and ensure readiness for launch of oil pumping stations A-OPS-4A and A-OPS-5A (Astrakhan Region), OPS-2 (Kalmykia), OPS-5 (Stavropol Territory) and OPS-8 (Krasnodar Territory). In Kazakhstan, construction of two stations is being completed: A-OPS-4 will be put into operation in November 2016, and as for A-OPS-3A, its comprehensive testing is scheduled for December 2016, which will make it possible to put the station into operation in the first half of 2017.
Q: It was previously said that CPC planned to finally complete the expansion project by the end of 2016...
A: Yes, we planned to complete the project at the end of 2016, but due to certain objective and subjective reasons it turns out that the launch of a number of oil pumping stations is being postponed until next year. But this will in no way affect the system's ability to receive the requested amounts of oil from producers.
Q: What facilities' launches were postponed and why?
A: For a variety of reasons. There are land issues, issues of legislation concerning the launch of facilities, equipment supplies. In some cases, we had to replace the contractor due to poor quality work and failure to meet deadlines.
Q: Have sanctions affected the implementation of the expansion project. Are there problems with supplies of imported materials?
A: I can say that European Union and U.S. sanctions have not had a significant impact on the implementation of the expansion project. A large portion of the equipment was delivered before the imposition of sanctions, with the exception of some types of equipment that are part of packaged delivery, for example pump units. But the contracts have been signed, there is no prohibition, so we're not having difficulties. For many items, we managed to use the products of manufacturers from Russia or the near abroad instead of imports.
Q: What is the share of Russian equipment used in the expansion project?
A: By value, the share of Russian equipment and products is 70% in the total amount of equipment purchased for CPC.
Q: How can you tell today whether all of CPC's capacity will be used after the modernization is completed?
A: Everything will depend on production companies. The requests that have already come in for 2017, we will cover. But subsequently it already depends on the development of fields. I can't speak for our suppliers.
Q: How many requests does CPC already have for 2017 and for what amount of transportation?
A: So far we have only received tentative requests for next year. This is about 65 million tonnes.
Q: From whom?
A: These are all the same producers who feed oil into our system: Chevron, Lukoil, Rosneft.
Q: Is there a forecast for pumping oil in 2016?
A: Last year we pumped 42.8 million tonnes. This year we expect to increase pumping to 45.8 million tonnes thanks to the fields of Tengizchevroil and Karachaganak Petroleum. We also expect the first oil from Lukoil's Filanovsky field and the Kashagan field [the operator of which is North Caspian Operating Company (NCOC)].
Q: Is there a possibility that the pumping targets for this year will be revised? Do you expect new shippers?
A: The plan might be revised, but I hope only upward. There won't be any new shippers, because oil comes from the fields that I mentioned. There are no requests from other fields at the moment.
Q: Are you confident that the Filanovsky and Kashagan fields will be launched on time?
A: We have clearly confirmed requests from producers, according to which we plan our work. According to these requests, oil from these fields is expected to be received within the set timetable.
Q: CPC began paying down debt to shareholders in 2015. What is the size of the debt now and when do you plan to finally pay it off?
A: The debt is currently $5 billion. In 2015 we paid off $1.5 billion, this year we have spent $500 million on repayment of debt to shareholders. We plan to continue repayment of debt before the end of the year given available free cash. We are currently analyzing what the capabilities will be. I can't name the exact amount yet, but we will certainly pay off some portion.
Q: A month ago you said that CPC planned to spend about $1.5 billion on repayment of debt.
A: Payments of $1.2 billion-$1.5 billion is the threshold that we set for ourselves to the end of the year, and would like to repay to shareholders. But everything depends on operating expenses, on our revenue, and revenue depends on the amount of pumped oil, so it's fairly difficult to forecast here.
Q: You said earlier that the cost of the expansion project would not exceed the approved budget and that there would be some savings. What amount might be saved and what will this money be spent on?
A: The budget of $5.4 billion set by shareholders will not be exceeded. We can say that thanks to the dollar's exchange rate we have some savings, because most of our contracts are in the ruble equivalent or in Kazakh tenge. Thanks to exchange rate differences, we'll manage to get some amount, but its size will be known only after the expansion project is completed.
Q: There has been talk in the media about mass layoffs of workers after the completion of the CPC expansion project.
A: This refers to personnel engaged from construction contractors, seconded employees working on a rotational basis. These are the additional jobs that were created for the period of the project's implementation and these are people from other regions. But as concerns regions where we have a presence, the personnel that are working in core activities remain. CPC specialists working directly on the expansion project will be engaged in work in core activities as much as possible. We are smoothly integrating the newly built facilities and improving the operating system itself, which will require the creation of additional divisions for the system's operation. Therefore, we don't expect mass layoffs.
Interfax