Kazakhstanskaya Pravda (Astana), No. 141 (25885), 11.06.2009

Look for Opportunities While in Crisis /Lubov Dobrota/

More than one third of the total oil product output in the country is produced by the Shymkent oil refinery. PetroKazakhstan Oil Products TOO is making several grades of gasoline and diesel, mazut, jet fuel and LPG. The vice-president of the Kazakh-Chinese joint venture, Azamat Akishev, is confident that the refinery is still not utilizing its resources to the fullest extent. For the past twelve years he has been working for KazMunaiGaz National Company and knows the oil product market well. By the way, Azamat Nurdauletovich is celebrating his fiftieth birthday today, but the reason for our meeting with him was a large-scale refinery upgrade project, the necessity of which was mentioned by the Head of the State in his Message to the people of Kazakhstan.

‘Our refinery is the most stable oil refinery in Kazakhstan from the viewpoint of product supplies. Last year the Shymkent Refinery processed 4,308,190 tons of crude oil. For better understanding of the growth dynamics I can say that it is higher by one-fourth million tons than last year. Our goal is to increase the light product yield. For this purpose the refinery has developed new specifications (standards), and beginning from last May we have mastered and certified the production of a new summer diesel grade DTL-5. It has improved the refinery performance in terms of light end yields thanks to the increased diesel output in summer, and also satisfied the growing demand for this type of fuel, especially during the sowing period. The refinery has also proved that it can work to the most up-to-date requirements and norms of the environmental management. A respective international audit completed in 2008 resulted in a certificate issued to certify that the organizational structure, covering such areas of the business as refining, transportation, storage of oil and oil products, is functioning in accordance with international standard ISO 14001:2004. I would also like to mention that, as we have set a course for enhancing the process control, the refinery is completing one more important innovation: a start-up of a complex computer system Sigma-Fine. The system is intended for calculation of a crude oil and oil product material balance for any period of type by individual equipment, process units and workshops and for the whole refinery.

Nevertheless we still have some problems. In spite of the fact that our refinery is the youngest among the three refineries operating in the country, it operates based on a reduced scheme and is inferior even to the Pavlodar refinery in terms of the conversion rate. The main cause is the lack of a Delayed Coker and a Catalytic Cracker in the process diagram, which represent two secondary processes that extract higher percentages of light oil products.’

‘Azamat Nurdauletovich, the Government has approved a program for the upgrade of domestic refineries and has even pronounced a preliminary cost of the refinery upgrades of more than three billion USD. In your opinion, how important it is and what your company is doing with this regard?’

‘The construction of the Shymkent refinery started in 1972, and the refinery produced its first products in January 1985, and the last process unit was commissioned seventeen years ago. So, the refinery equipment has outdated and cannot make products in accordance with quality standards. It should have been upgraded about ten years ago. As the Catalytic Cracker was not put into operation in the refinery in its due time, the light yield does not exceed 62 percent. You can judge about it yourself. Recently the International Fuel Quality Control Center (IFQC) made a research of the fuel quality in various countries of the world. Kazakhstan was at the 90th place in the rating prepared based on the research results. The list includes 100 items in total. In terms of these indicators we are even behind Uzbekistan and Azerbaijan. We import up to 35 percent of high octane gasoline from Russia. If we do not resolve the fuel deficiency issue, then in the future our position may be similar to that of Ukraine which is fully dependant on importers. It was not by accident that our President Nursultan Nazarbayev in his Message to the nation noted that “we will continue to finance and move forward the current promising investment projects. First of all it relates to the upgrade of oil refineries.” As a result of the upgrade we want to achieve several goals. Among them are a light product yield increased from 62 to 85 percent and a product range expanded due to manufacturing of such petrochemicals as polypropylene, benzene and elemental sulfur. Improving the product quality to EURO-4 standard requirements and enhancing environmental properties are also ranked among our priorities. The refinery crude oil capacity will reach six million tons. We have completed relevant marketing researches, and the feasibility study for the upgrade project is being developed to be completed by the end of this year, and then, as we excpect, the engineering and the upgrade itself will be commenced. It is very important that on May 14 of this year the RK Government approved the “Complex development plan for oil refineries of the Republic of Kazakhstan for 2009-2015”. The main purpose of this document is to ensure the security of energy supplies in the country and a complex development of the oil refining industry.’

‘The whole world is facing the financial and economic crisis today. Did it affect the operations of your refinery as well?’

‘Yes, we felt the consequences of the world crisis quite significantly. First of all, the fall of oil prices worsened the marketing situation in the external and internal oil product markets. Sales of oil products became complicated. We had especially hard time from last November till this February. All refinery tanks were full and we had to place mazut at other storages. The refinery produced more than 287 thousand tons of mazut or 72 thousand tons per month, while the domestic demand for mazut was about 150 thousand tons per month. Therefore all oil bases were filled with mazut. Even Energocenter-3 AO located in Shymkent that annually consumes mazut refused to accept mazut during the heating season, since it was more profitable for them to consume gas. Secondly, the depreciation of tenge resulted in the fact that the equipment and spare parts that we buy for a foreign currency from CIS and other foreign countries have significantly increased out expenses. It is not a secret that the Shymkent refinery is equipped with process units and equipment of foreign manufacturers produced in Russia, Ukraine, the USA, Germany, Poland and other countries. Spare parts and components to such equipment are either not produced in Kazakhstan at all or do not meet technical specifications, explosion-proof requirements, material quality and other parameters. Nevertheless, in 2009 the refinery is planning to buy goods, work and services to the total amount exceeding ten billion tenge. It is expected that the share of the Kazakhstan content in them will be 61 percent.’

‘Azamat Nurdauletovich, what other measures are being taken by the company management to prevent negative consequences of the crisis?’

‘We have adopted a complex anti-crisis program which includes such main actions as optimization of all costs, selling of unprofitable and non-core assets, a significant reduction of operating and administrative expenses, as well as a personnel optimization program. We have to be more responsible in deciding how and where to spend our funds and to set up our priorities in a more precise way. And our biggest achievement is that we did not allow any large-scale reductions and dismissals of the refinery operating staff to happen. You know, there is a Chinese hieroglyph for a ‘crisis’ which simultaneously means a ‘threat’ and an ‘opportunity’. On the one hand, the crisis makes us think better and work more dynamically. On the other hand, the crisis gives us an opportunity and a chance to show our worth and approve ourselves, to change our mind about something, and to find new ways for going forward. I am sure that the crisis will make us stronger.’

‘PetroKazakhstan Oil Products TOO was always showing its commitment to the corporate social responsibility policy. Does the management plan to make any corrections to the strategy of your company?’

‘In spite of the financial crisis and a drastic fall in oil prices that made many oil companies be more careful in spending funds, PKOP TOO is not going to refuse from its social responsibility policy. The oblast akimat and the company annually sign memoranda for social assistance. For example, this year it is decided to spend one million USD on social projects of the oblast. We constantly provide our sponsorship to the ballet school, the Sairam orphanage, the SKO Center for Support of Women and Children, kindergartens, and the Center for Prevention and Treatment of Infectious Diseases “Mother and Child”. The refinery financed the construction of a water supply line to Zhuldyz village and now its citizens have top-quality potable water. We also support many sport and recreational events. It is our city and we cannot be careless of its present and future.’