Transneft’s development, retooling and reconstruction programme until 2020 has been considered. The programme includes the comprehensive upgrade of its system of oil trunk pipelines to meet production and processing requirements, the efficient transport of oil both domestically and for export, the creation of infrastructure for a flexible and competitive market of oil and oil products, and opening new oil markets.
Dmitry Medvedev’s opening remarks
Briefing by Energy Minister Alexander Novak
Meeting on the prospects of pipeline transport for oil and oil products
Dmitry Medvedev: Today we will discuss the development of oil trunk pipelines in the country. These pipelines form a unique complex both by domestic and global standards. I won’t describe it now, but all those present know well why it is unique. Its proper performance depends on its operator, Transneft. So today we’re going to discuss the development of Transneft.
Dmitry Medvedev: The main tasks of Transneft are the comprehensive upgrading of oil trunk pipelines for meeting the production and processing requirements, efficient transportation of oil at home and abroad, the formation of the infrastructure for a flexible and competitive market of oil and oil products, and opening new oil markets.
We will review the programme for the development, re-equipment and reconstruction of the company for the period up to 2020. The main tasks have been formulated in governmental and departmental documents. I am primarily referring to the comprehensive upgrading of oil trunk pipelines for meeting the production and processing requirements, efficient transportation of oil at home and abroad, the formation of the infrastructure for a flexible and competitive market of oil and oil products, and opening new oil markets.
Naturally, Transneft should develop in a balanced manner, taking into account the interests of related sectors (many sectors depend on it) and domestic producers, including high-tech industry. It should help Russia conquer new energy markets, primarily in the Asia-Pacific region.
Dmitry Medvedev: Transneft should develop in a balanced manner, taking into account the interests of related sectors and domestic producers, including high-tech industry. It should help Russia conquer new energy markets, primarily in the Asia-Pacific region.
There are a number of objective factors. Some deposits in Western Siberia are becoming depleted, and new deposits are being developed in the polar region and Eastern Siberia. It is necessary to develop oil processing in the south of Russia and the Far East. Transneft should consider all these tasks in its investment plans, including such ambitious goals as increasing the capacity of the Eastern Siberia-Pacific Ocean oil pipeline to 80 million tonnes per year by 2020.
Obviously, the company’s investment plans are closely linked with the Government tariff policy, which should encourage a transition to long-term tariff regulation. Quite recently we discussed long-term tariffs for electricity and gas with most of all those present here.
Dmitry Medvedev: One of the main tasks of Transneft is the increasing of the capacity of the Eastern Siberia-Pacific Ocean oil pipeline to 80 million tonnes per year by 2020.
In cooperation with the Ministry of Economic Development and the Energy Ministry, the Federal Tariff Service is drafting a relevant decision for Transneft. Experts are considering an opportunity to fix the parametres of the annual tariff adjustments on oil delivery by trunk pipelines. But the final decision hasn’t yet been made.
Today we’ll discuss these initiatives and other aspects of Transneft’s development, including dividend policy and other proposals. There are many proposals, which I hear from various players on the market. Let’s consider all of them.
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Briefing by Energy Minister Alexander Novak following the meeting on the prospects of pipeline transport for oil and oil products
Transcript:
Alexander Novak: Mr Medvedev has just held a meeting on Transneft’s draft investment programme up to 2020. The two-part programme has been approved. Its total funding up to 2020 is 1.99 trillion roubles, including 663 billion for the construction of new facilities and the remaining 1.35 trillion for the reconstruction of existing pipelines for oil and oil products.
One of the key projects approved today is to bring the capacity of the ESPO-1 pipeline to 80 million tonnes by 2020 and ESPO-2 to 50 million tonnes; and to build the Zapolyarye–Purpe and Kuyumba-Taishet pipelines, which will make it possible to deliver oil from the deposits of the Yamal-Nenets Autonomous Area, the north of the Krasnoyarsk Territory, Eastern Siberia, and the Yurubcheno-Tokhomskoye and Kuyumbinskoye oilfields.
The participants have approved two projects to increase the sale of light oils by 2020. These are the North project in the port of Primorsk (its capacity will be increased from 8.6 million tonnes to 15 billion tonnes and the South project (from Volgograd to Novorossiysk). This new facility for delivering oil products to sea ports for export will have a capacity of about six million tonnes.
In addition, we’ve discussed today tariffs that should be established for Transneft as an infrastructure monopoly. We’ve decided to retain the 2013 tariff for 2014 without adjustments for inflation, and to adjust it for inflation at 90% in 2015, 2016 and 2017; starting in 2018 the tariff will be adjusted for inflation between 90% and 100% but no more. But the latter decision will be made as this time approaches.
We’ve discussed the elimination of cross subsidies between westward and eastward oil transport. We’ve approved the decision to remove these subsidies on tariffs in 10 years, and establish higher tariffs on eastward transport for 10 years within the restrictions I’ve mentioned.
Naturally, we’ve discussed purchase strategies and ways of making the company more efficient. We’ve decided to set up a working group on introducing the most advanced purchasing standards. Transneft has a huge budget and a large investment programme and, hence, major reserves for streamlining expenses.
Question: Have you discussed dividend payments?
Alexander Novak: Yes, we have. A stage-by-stage plan of transition to IFRS has been proposed. Now this issue will be studied in more detail with the Ministry of Economic Development and Ministry of Finance to prevent any damage to the current budget. In general, this approach has been approved insofar as it does not contradict budget projections.
Question: Have the participants approved the idea of an additional issue of Transneft shares in favour of Rosneft to fund the expansion of the ESPO pipeline?
Alexander Novak: We haven’t discussed this issue. Let me repeat that the investment programme is funded by 172 billion roubles from tariff sources. This sum is enough for the construction and expansion of the ESPO capacities.
Question: So, this programme is funded from the inflation-adjusted tariffs? This is what you’ve said.
Alexander Novak: Absolutely. This is enough. Naturally, the programme is balanced out and the figures I’ve mentioned have the parameters of inflation-adjusted tariffs.
Question: So, Transneft won’t borrow from the National Welfare Fund?
Alexander Novak: Transneft has not applied for funding. It will fund expenses from its own sources (tariffs, profits and depreciation) and borrowings. Naturally, the company expects to pay off part of its debts during this period and take new loans, but on the whole the ratio of its debt to EBITDA will remain within the norm.
Question: How much will the company borrow?
Alexander Novak: The figures are in the programme. It is better to specify them. They haven’t changed during the meeting.
Question: At what pace will tariffs be growing for the ESPO pipeline? It is clear they will be growing – but at what rate, at least in the next three years?
Alexander Novak: The general tariff (we’re speaking about the national average tariff for the time being) will begin to grow in the next three years starting in 2015 with a 0.9 inflation coefficient. This means that when cross subsidies are removed, this general figure will be a bit higher for eastward transport and a bit lower for westward delivery, but on average the inflation coefficient will stand at 0.9.
Question: Have you specified the difference in these tariffs?
Alexander Novak: Economists and other experts will do all calculations but we’ve already made a decision in principle – to review the removal of cross subsidies in the next decade.
Question: Could you specify the allocations of the investment programme for the ESPO pipeline?
Alexander Novak: It allocates 172 billion roubles for its expansion.
Question: In 2014?
Alexander Novak: Up to 2020 under the investment programme.
Thank you.
