Companies around the world have been impacted by the coronavirus pandemic. Kazakhstani enterprises in the oil sector are no exception. The General Director of «KazTransOil» JSC Dimash Dossanov opens up in an interview with «Interfax-Kazakhstan» on how the national oil pipeline operator managed to maintain good financial and production performance in the COVID-19 pandemic.
- 2020 turned out to be a challenging year for many industries, including the oil and gas sector. How has the economic situation in the world impacted the activities of the national pipeline operator?
- In 2020 many companies around the world have had to adjust their plans. The pandemic has impacted the oil and gas industry by decreasing the energy demand. In April last year, Kazakhstan committed to reduce its oil production under the collective OPEC+ agreement aimed at restoring the balance of supply and demand, as well as oil prices. Given the situation, the company mobilized its resources to ensure the smooth and safe transportation of oil.
Furthermore, we have taken measures to prevent the spread of COVID-19 amongst the employees of the company and contracting organizations. To this end, a Crisis Management Team was created to ensure the stability of production facilities. Thanks to the joint efforts and smooth work of our shareholders, public authorities and contracting organizations, the optimal operation mode of production and logistics processes has been organized. I would like to point out the professional manner with which our employees handled the crisis and their strict observance of quarantine measures. Together, we have been able to localize the impact of the pandemic and accomplish the 2020 goals and targets as showcased by the results of our activities.
- How would you rate last year’s results?
- The financial indicators showed positive dynamics: the consolidated net profit of the company increased by 24% compared to 2019 and amounted to about 56 billion tenge. The increase occurred mainly due to lower costs associated with the depreciation of the assets of the «KazTransOil» JSC’s subsidiaries in 2019. The positive dynamics in financial performance is also a result of the 15% increase in the oil-for-export tariff and the increase in foreign exchange earnings.
In terms of production indicators, there was a slight decrease, where the volume of transportation separately via the system of «KazTransOil» JSC’s main oil pipelines decreased by 5% compared to 2019. This was due to the natural reduction of oil production in mature deposits, as well as the traditional deposits of the Kumkol and Aktyubinsk groups. Besides, the decline in production under the OPEC+ agreement impacted the volumes of transportation as well.
«KazTransOil» JSC is the national operator of the main oil pipeline. Our strategic objective is to ensure the country’s energy security through stable transportation of energy resources.
The production tasks of reconstruction, replacement of pipelines, repair of the storage facilities were carried out amidst the pandemic. 95% of the Capital Investment Programme for 2020 was implemented in that year. This was achieved despite the closed borders and the challenges of supplying specialized equipment. Modernization and repair of production facilities is an integral part of the company’s activity. «KazTransOil» JSC has invested 228.5 billion tenge for these purposes in the last five years. The capital investment in 2021 will increase by 15% compared to 2020, and will amount to 54 billion tenge. This investment will be aimed at maintaining current production levels and ensuring the safe and secure transportation of oil.
Every year the Company conducts a questionnaire to understand how satisfied our clients are with the quality of the services provided. According to the results of the consumer survey, the satisfaction rate amounted to 100%. This is what we always aspire to, as it reflects the stability and reliability of the Company’s activities.
The Company’s strong operational and financial performance in 2020 were noted by Fitch Ratings, which confirmed a long-term foreign currency rating at the «BBB-» level with a «stable» forecast. According to the Agency, «KazTransOil» JSC continues to dominate the oil transportation sector in Kazakhstan, which is strategically important for the country’s economy. The company is not directly exposed to oil price fluctuations, which is a favorable factor for its business.
- The tariff revenue must have provided support for the company during the crisis period? Export tariffs for oil increased last year.
- Tariff increase is one of the measures to ensure efficient, reliable and safe operation of the main oil pipeline system. Almost 50% of the total operating income of the company is derived from the oil transportation for export. At the same time, it is worth noting that in recent years there has been a decline in oil exports on the «KazTransOil» JSC’s main oil pipelines. The natural depletion of mature oil fields, the diversion of Kazakhstani oil from export destinations to the country’s domestic market, and restrictions under the OPEC+ agreement were the reasons for the decrease in cargo turnover. These circumstances were reflected in the change in tariffs. There has been a 26.5% increase compared to 2014 with accumulated inflation reaching 57% over the period.
Furthermore, the full operation mode of the main oil pipeline system always requires large-scale investment. Tariff profits are directed towards the investment programme, the modernization and construction of the main oil pipeline system, and the sustainable development.
These investments are divided into three areas: first, reconstruction, expansion and modernization of existing production; second, construction of new production; and third, major repairs of existing production facilities. Dividend shareholder returns are also generated from the profits generated by the tariff increase.
- How much will be directed towards the dividend payments for last year?
- Since 2013 the Сompany as a pioneer of the «People’s IPO» has paid 425.7 billion tenge to its shareholders. The average annual dividend yield to the offer price for 9 years is almost 17%. In 2021, the dividend payments increased by 12% in comparison to 2020.
In proposing the dividend amount, the Board of Directors is guided by the basic provisions of «KazTransOil» JSC’s Dividend Policy, according to which the amount allocated for dividend payment is to be no less than 40 per cent of the net income of the company. Amongst the determining factors are the net income, solvency and financial sustainability, financing of the investment programme and others. Considering the external risks, it is important for the company to maintain financial sustainability. Therefore the board of directors recommended to allocate 50 billion 77 million tenge for dividends. The amount of the dividend for 2020 per one common share of «KazTransOil» JSC is 132 tenge.
- What are the investment priorities of «KazTransOil» JSC?
- Construction works on the «Kazakhstan - China» system of main oil pipelines are being continued. It is a project of strategic importance for both «KazTransOil» JSC and the Republic of Kazakhstan. Our aim is to make the shipment of West Kazakhstan oil to the «Pavlodar petrochemical plant» LLP and «PetroKazakhstan Oil Products» LLP (Shymkent refinery - IF-K), and export to China and Uzbekistan technically possible. This guarantees Kazakhstan’s energy security. Part of this project is the first start-up facility of the «Kenkiyak-Atyrau» oil pipeline reversal which was launched in 2020, the mechanical completion of the «Aman» oil-pumping station was carried out as part of the second start-up facility.
The second important project is the reconstruction and extension of the main waterline «Astrakhan - Mangyshlak». It is of social significance and is under the President’s watch. Water consumption is increasing in the Atyrau and Mangistau regions. The waterline is worn out and cannot meet the existing water demand of the regions. The planned implementation of the project will ensure the reliable exploitation, doubling the throughput capacity in the next few years. As per the President’s instructions our subsidiary the «Main Waterline» LLP has started to develop project and estimation documentation on reconstruction and expansion of the main waterline «Astrakhan-Mangyshlak». Our task, together with the local authorities, is to satisfy the water demand not only for production facilities, but also for the local communities.
- What was the reason for the early development of the company strategy until 2028?
- The Development Strategy of the Company until 2025 was approved in 2016. The innovative development of the system of main oil pipelines and its integration into the world energy system are the national operator’s tasks, which can be achieved by introducing global technologies into the production process. A digital technologies development program is being implemented at «KazTransOil» JSC. Considering the present-day realities of the digital age and rapid technological growth, we monitor the emergence of advanced technologies and introduce them at all stages of the company’s activity in a timely manner. The hallmark of progressive companies is digitization and drive for excellence. «KazTransOil» JSC has implemented a number of technological solutions in the last few years. The company strategy is based on the plans of the main shareholder JSC «NС KazMunayGas» (KMG), the Ministry of Energy of the Republic of Kazakhstan, which regulate the activities of companies in the oil and gas sector, determining the volumes of oil production and transportation.
At present, however, the oil industry features mature oil fields which are substantially depleting, and it is these factors that naturally affect the volumes of oil production and transportation. Considering the changes in the development strategy of our large shareholder JSC «NС KazMunayGas», as well as the completion of most key tasks by the company, it became necessary to update them.
- What significant projects have been implemented from the previous strategy?
- Since the approval of the company’s development strategy, significant projects have been integrated for implementation. For example, the transit of Russian oil has increased to 10 million tons per year, and a separate transportation of «low-sulphur» oil along the route «Atyrau - Samara - Novorossiysk» has been streamlined in the amount of 1 million tons per year. A long-term contract has been concluded for the provision of services for the maintenance of the «Caspian Pipeline Consortium-K» JSC in Kazakhstan. «KazTransOil» JSC has transferred the water supply service via the main waterline to the subsidiary company «Main Waterline» LLP. These projects are reflected in the company’s development strategy until 2028 along with new goals and objectives. We will continue to cooperate with JSC «Samruk-Kazyna», JSC «KazMunayGas», state bodies, and in particular the Ministry of Energy of the Republic of Kazakhstan, partners and minority shareholders to implement these objectives for the development of sovereign Kazakhstan. In 2021, we are celebrating the 30th anniversary of the country’s independence. I am sure that together we will contribute immensely to the reinforcement of Kazakhstan’s sovereignty.
Our employees are the most valuable asset of «KazTransOil» JSC. Every employee deserves high praise. It is strategically important to guarantee safe work conditions, deliver on social commitments, invest in knowledge and staff development, create jobs for the next generation of oil pipeliners.
- Thanks for the interview!
