KazTransOil Director Discusses Company’s Future, EEU

The state-owned operator of Kazakhstan’s main oil pipeline and the largest oil transportation company in the country, KazTransOil, is gaining a reputation for its financial stability. Moreover, by the end of the first half of this year, the company had taken in 36.8 billion tenge in net profit, which is 10 percent more compared to the same period in 2013.

EEUThe company has actively participated in the drafting of the Eurasian Economic Union (EEU) Treaty which was useful for Kazakhstan in preserving and consolidating its positions and interests in the field of energy within the EEU.

General Director of KazTransOil Kairgeldy Kabyldin spoke about the company’s future and potential in light of the EEU and its ongoing investment projects.

 What changes have taken place in the company in connection with accession to the EEU?

The signing of the EEU treaty by the leaders of Russia, Belarus and Kazakhstan was a historic event for our country that marked the beginning of a new round of integration. I’d like to note that KazTransOil, along with other Kazakh enterprises, contributed a lot to drafting the document. In the energy sector, the EEU treaty is largely focused on the organisation, management, operations and development of common markets for crude oil and petroleum products. Member states must guarantee long-term assurance of the transportation of crude oil and petroleum products on existing transport systems under their jurisdiction, including trunk pipelines. Tariffs for transportation services of oil and oil products are set for economic entities of member states at a level not exceeding the rates established for businesses from the transit country.

Also, EEU countries streamline the rules and standards for oil and petroleum products. In particular, the treaty will allow the energy sector of the member states to establish uniform requirements for the transportation and quality of oil and petroleum products.

What are the company’s plans in light of the trilateral economic union? What investment projects are currently underway and what is expected from them?

The EEU, of course, will have a powerful impact on all sectors of the domestic economy, including KazTransOil. As for cooperation with oil-transport companies, I’d like to note the following.

In order to ensure the transportation of Kazakhstan oil through Russia and Belarus, KazTransOil signed contracts on the provision of transportation services through Russian and Belarusian pipeline systems with the relevant transportation and forwarding companies. Similar contracts were signed with freight forwarding services regarding exports of Kazakhstan oil from offshore production sites. These companies include AK Transneft, Gomeltransneft Friendship, Transneft-Service, Neva Pipeline Company and Primorsk Trade Port.

For example, the volume of exports through the Atyrau-Samara system has already been set for the long term. This gives our oil companies confidence in planning because each market, such as the Black Sea, Eastern Europe, the Baltic countries and others has a specific price.

Kazakhstan oil is transported through Russia via the Atyrau-Samara route at about 15 million tonnes per year; up to 3,000,000 tons is moved by the Makhachkala-Tikhoretsk-Novorossiysk pipeline annually. The agreement between the governments of Kazakhstan and Russia on oil transit was recently extended until 2027.

In the short term, we expect growth in oil production, which will mainly be fueled by the Kashagan Field and increased production at the Tengiz field. Regarding this, two major projects are now underway: increasing production in Kazakhstan’s section of the Caspian Pipeline Consortium (CPC) to 52.5 million tonnes per year by 2015 and increasing the capacity of the Kazakhstan-China (Atyrau-Kenkiyak-Kumkol-Atasu-Alashankou) pipeline system to 20 million tonnes per year by sometime between 2017-2019 as resources become available. As of today, the NPS-8 and NPS-10 oil pumping stations have already been put into operation. They will increase the capacity of the main pipeline, Atasu-Alashankou, to 20 million tonnes per year. Also, the reconstruction of the Kassymov Pumping Station (Atyrau) was completed. Investments in the second stage of construction of the Kazakhstan-China oil pipeline totaled 24.3 billion tenge (US$133.5 million), excluding VAT, as of June 30.

I wouldd like to mention that along with the development of export potential, a no less important task is the development of our internal network of pipelines. We are investing to maintain our current assets, the integrity of the pipelines and the efficiency of pumping stations.

 KazTransOil is the first participant of the People’s IPO programme. Since the first initial public offering of the company’s shares on the Kazakhstan Stock Exchange, more than a year has passed. During this time, their market value increased by 60 percent. What provides a stable level of stock quotation?

The dynamics of trpassed in KazTransOil shares confirms that admitting the company to the People’s IPO programme as a pioneer firm was a wise decision. Indeed, its share price since the initial public offering in December 2012 has increased by approximately 60 percent from 725 tenge (US$3.98) to between 1,130 (US$6.20) and 1,140 tenge (US$6.26).

We are proud of the fact that the company created additional market financial instruments to benefit ordinary people and their assets. In 2012, shareholders received dividends of 10.34 percent of the initial price and by the end of 2013 – more than 15 percent of the initial price. In total, between the final 2012 and 2013 numbers, more than 70.77 billion tenge had been paid in dividends.

The growth in share price is based largely on our excellent performance in 2013. The consolidated volume of oil transportation reached 67.2 million tonnes, which is 2 percent higher than in 2012. The consolidated turnover of oil was 45.5 billion kilometre tonnes, which is 8 percent higher than the year prior. The volume of water supplied grew by 3 percent to 23.4 million cubic metres. We successfully implemented a cost management programme. Secondly, during 2013, a number of important projects to modernise and expand the system of trunk pipelines and oil transportation infrastructure were implemented. Last year, disbursement of capital investments amongst the group of companies amounted to 34.1 billion tenge (US$187.3 million), including a separate 28.8 billion tenge (US$158.22 million) for the company. Third, the credit ratings of the company are at investment level and corporate governance ratings indicate continuous improvement of the relevant system. In 2013, the corporate governance rating was 63.7 percent, which is 3.1 percent higher than the previous estimate. KazTransOil continues to grow. This year, 70.9 billion tenge (US$389.5 million) was allocated to the group of companies for an expenditure programme, as well as a separate 69 billion tenge (US$379 million) for the company.

 What is the personnel policy of the company?

KazTransOil is known for its highly professional staff. The high quality of KazTransOil employees is known throughout the country’s hydrocarbons sector. KazTransOil has been the dominant brand in its field since its establishment in 1997. We hold annual professional skills contests among our cadre of specialists. Winners take part in international competitions and compete with workers of large oil transport companies from Belarus, Russia and Ukraine. Management personnel periodically undergo re-certification. In 2013, 6,567 employees and 2,976 specialists in the first half of 2014 took part in specialty training. If they produce good results, their salaries and careers will grow. There is also a knowledge test because of the technical, environmental and other risks associated with the company’s field.

We have a talent pool and a system of vocational training and retraining. In January of this year, Verny Capital and the consulting company Reputation Capital Group presented their research on the corporate reputations of companies operating in Kazakhstan. KazTransOil took fourth place in this public trust ranking. After retailers and among real sector companies, we are first. This, I believe, is the result of the openness of our company.

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