Gazprom's contractor wants to participate in the construction of the Central Ring Road. Stroygazconsulting is back among the largest contractors of Gazprom
Due to the transition to new contracts, the monopoly will reduce the staff of the central office
Gazprom is preparing to switch to turnkey contracts for new projects, several sources in the company and three managers of contracting structures told RBC. This will lead to the reduction of approximately 500 people in the concern and its subsidiaries.
Photo: Ekaterina Kuzmina / RBC
Vitaly Markelov, Deputy Chairman of the Management Board of Gazprom, in March informed the head of the corporation, Alexei Miller, that he instructed the heads of six specialized departments to prepare a comprehensive plan for a phased transition to the implementation of new projects of the Gazprom investment program based on EPC contracts by July 1 (a copy of the letter is available from RBC ). According to experts and market participants interviewed by RBC, as a result, under the new scheme, which shifts all project risks to the contractor, in 2018, about a third of the gas concern's program, which is estimated at 1 trillion rubles, can be executed. Moreover, reductions in Gazprom and subsidiaries can amount to up to 500 people.
Merger and cuts
EPC-contract (eng. Engineering, procurement and construction) assumes that the contractor undertakes full cycle works - design, purchase of materials and construction itself. In fact, this is a "turnkey" construction, and carried out for a fixed price, remuneration for project management and organization of work is not provided. At the same time, the customer has a minimum of authority to manage the EPC contractor or subcontractors.
In relation to Gazprom, work on the EPC principle can be carried out for the construction or repair of pipelines within the country and abroad, the supply of pipes and equipment, the construction of processing and LNG plants, and the development of fields. Gazprom has already signed EPC contracts for such projects as the Turkish Stream and Nord Stream 2 pipelines (the subsea part is being built by the Swiss company Allseas), the Amur Gas Processing Plant (the general contractor of EPC NIPIGAZ).
Calculations and proposals for the transition to a new system of work with contractors should be carried out by the heads of Gazprom departments responsible for construction, design, personnel, corporate costs, legal issues, finance and economics. According to Markelov's letter, the change in the principle of working with contractors will affect the administrative structure of the concern. It is planned to reduce at least three specialized departments: department 333 of Sergey Prozorov (responsible for construction), department 336 under the leadership of Andrey Skrepnyuk (design work) and department 121 of Mikhail Sirotkin (corporate costs).
The first two departments can be united under one leader. A possible merger of departments 333 and 336 was reported on April 13 by Interfax, citing its sources in the concern. According to the agency, out of 600 employees, only 400 people can remain in the combined department. At the same time, the head office of Gazprom is estimated at 4,000 people.
The plan for switching to the EPC system also provides for staff cuts in subsidiaries Gazprom invest and Gazprom komplektatsiya, which act as customers for a number of Gazprom projects. RBC's interlocutors in Gazprom and the company's contractors estimate the scale of possible staff cuts in Gazprom and its subsidiaries at a figure of 300 to 500 people. Two employees of the monopoly do not rule out leaving the company or transferring Skrepnyuk, head of department 336, to another position and call it "Prozorov's hardware victory." They also claim that the cuts are just being prepared. According to one of the scenarios, some of the employees whose functions will not be in demand after the optimization will be transferred to the group's subsidiaries.
Sergey Kupriyanov, spokesman for the chairman of the board of Gazprom, Alexei Miller, declined to comment on plans to switch to EPC contracts, possible reductions and correspondence of his head. Official representatives of Gazprom's largest construction contractors - Stroygazmontazh, Stroygazconsulting, Peton - declined to comment. The representative of Stroytransneftegaz did not respond to RBC's request.
Gazprom office in Moscow (Photo: Ekaterina Kuzmina / RBC)
Benefits and risks of EPC contracts
The press service of the NIPIGAZ company, which is part of the Sibur holding and is one of the general EPC contractors for the construction of the Amur GPP, told RBC that working on the terms of an EPC contract allows you to reduce costs by controlling all stages of the project. “For the customer, this model allows interacting with one counterparty, administering the contract only with him, and controlling the progress of the entire project and its timing. At the same time, the general contract in Russian practice most often it involves the preparation of working documentation and the execution of the construction work itself (Gazprom most often orders the design of the construction of pipelines to its own structures. — RBC), but as a result of the agreements, the scope of work can be expanded. Therefore, there may formally be no difference between the traditional Russian general contract and the Western EPC contract, ”a representative of NIPIGAZ explained to RBC. He added that an EPC contractor must have all the competencies necessary to perform the work, from having the right specialists in the company to the ability to purchase the necessary equipment.
RBC's source at Stroygazmontazh (SGM) explained that it is already working under EPC contracts on infrastructure projects. He cited the reconstruction children's camp"Artek", the construction of a gas pipeline to the Crimea, the construction of approaches to the Kerch bridge. Therefore, he is convinced that the contractor will cope with the contracts of Gazprom under the EPC model, the main thing is that there should be a sufficient number of contracts.
RBC sources close to Stroygazconsulting and Stroytransneftegaz are also convinced that these companies will cope with the function of an EPC contractor for Gazprom projects. One of them believes that the EPC contract model is beneficial for the contractor. “The main pluses are the growth in volumes and revenue,” he notes.
However, for some of Gazprom's partners, the new model does not seem so attractive. The manager of the company, which is one of the design contractors of Gazprom, said that due to the prospect of a decrease in the volume of orders, the company may cut up to two-thirds of the designers working in it (up to 500 people across all branches). The transition to EPC-contracts, in his opinion, threatens this company with falling out of the concern's chain of contractors.
RBC's source in another contract structure working with Gazprom on large construction sites says that the problem with EPC contracts is to increase the number of risks assigned to the contractor. “If the price of the contract is fixed, then it is important that all stages of payment are strictly observed. If payments under the EPC contract are delayed, this will lead to the transfer of risks back to the customer or to the revision of the contract price upwards. After all, the contractor has to take additional loans or negotiate with subcontractors to defer payment. This may also affect the timing of the project, ”he believes. According to the interlocutor, the margin for an EPC contractor, which has the freedom to hire order executors, may be slightly higher than with a general contract. This is possible with the maximum exclusion of intermediaries from the chain of service providers, including intermediaries for the supply of pipe products, he suggests.
Who will lose contracts
A top manager of a company involved in the supply of pipe products for Gazprom projects estimates savings on the services of intermediaries in the cost of contracts for the supply of pipes at 1-2.5% of the contract volume (the higher the contract amount, the lower the percentage of the intermediary in it ). He explains that the intermediary assumes certain risks, first of all, they relate to ensuring the quality of the materials. “Most modern large projects use high-tech pipes with a guaranteed service life of about 50 years. But out of a desire to save money, an EPC contractor may purchase products with a service life of 10-20 years. And by this time the contractor itself may cease to exist. Then the risks of the consequences of such savings, including the risk of accidents, fall on future generations and on the customer of the project,” he believes. The source of RBC is convinced that it is very risky and difficult to transfer pipe supplies to EPC contracts. Volatility in the metal market reaches tens of percent a year, in these conditions it is difficult to guarantee the quality of supplies at fixed prices for several years ahead, he explains.
He also notes that the EPC contract implies more freedom for the contractor and less control from not only the customer, but the public. “Now Gazprom is obliged to report the costs of its major projects and disclose the winners of major tenders, and after switching to EPC, we may not know anything at all about some of the contractors that the contractor will find and the real cost of their services. Thus, the possibility of officially attracting newly created companies with a staff of five people to Gazprom's multibillion-dollar orders is reduced, but they may appear among the subcontractors of the EPC contractor, and the market will not know about them, ”he warns.
Established in August 2016, the micro-enterprise Inter Management, which employs no more than five people, won 34 Gazprom contracts as part of the construction of the Power of Siberia gas pipeline, Interfax on April 23. total amount contracts amounted to almost 8 billion rubles.
Photo: Alexander Chizhenok / Interpress / TASS
Hundreds of billions for contractors
Gazprom's investment program for 2018 may amount to about 1 trillion rubles, Vesti-Finance reported in early December, citing information from Gazprom. Vedomosti wrote in mid-December that in 2017 it would amount to over 910 billion rubles, 625.45 billion rubles. of which (68.7%) will go to capital construction projects.
According to the head of the analytical company East European Gas Analysis Mikhail Korchemkin, if new scheme works will be implemented already in 2018, then orders for the construction of a part of the Power of Siberia, the Gryazovets-Slavyanskaya and Ukhta-Torzhok-2 pipelines for a total of 300 billion rubles can be implemented, which could amount to a little less than a third of Gazprom’s investment program » for next year. He agrees that "weird" contractors, companies with little authorized capital, will lose the status of the main ones, but may end up in the chain of subcontractors under EPC contracts, and payments to them will be difficult to trace. Korchemkin believes that the profitability of projects will increase compared to the current scheme of interaction with Gazprom, and the upward revision of project prices will continue, despite the formal principle of "fixed prices" in the European EPC model.
He also believes that part of the monopoly's costs following the implementation of the new model will be transferred to the future, since they are reflected in the accounts after the commissioning of pipelines and other facilities.
The manager of one of the construction contractors of Gazprom estimates the volume of EPC contracts of the concern in 2018 in the amount of 100 billion to 230 billion rubles. According to him, most of the contracts for the construction of the "Power of Siberia" and the upcoming expansion of the Sakhalin-Khabarovsk-Vladivostok pipeline were contracted on the previous principles of general contracting. According to his forecast, if it is introduced as early as next year, EPC may include such construction projects as the Gryazovets-Slavyanskaya pipeline worth up to 100 billion rubles, contracts for the reconstruction of pipelines (from 30 billion to 50 billion rubles a year) and them overhaul(up to 80 billion rubles per year).
Alexandra Galaktionova, head of the InfraONE research group, believes that Gazprom's transition to EPC will clear the market of gray contractors. In her opinion, Gazprom's major contractors are able to perform the function of EPC contractors, and such complex contracts will be more profitable for them, since, for example, preparatory construction works can be carried out in parallel with the design. She estimates the gain in terms of money at about 5% of the current profitability. Gazprom, in turn, will be able to save money on non-core divisions and reduce contract services. Increase average cost of the contract, and, consequently, the security under it, can cut off medium-sized contractors from Gazprom's EPC contracts. At the same time, the risks of the customer increase: if an unreliable company gets a complex contract, the losses will be more serious than if one of the project stages fails, the analyst concludes.
While still a member of the consortium, "Leader" insisted on improving the terms of the agreement or joining the partner's consortium, InfraOne analysts explained. Now such a partner may appear. There are two applicants - the Turkish Renaissance Construction, as well as a consortium that will include a major contractor of Gazprom - the VIS group, said three participants in the negotiations and two people close to Renaissance Construction.
A representative of the VIS group confirmed that the company claims to participate in the project in a consortium with the Italian Astaldi (participated in the construction of the Western High-Speed Diameter in St. Petersburg).
Representatives of Renaissance Construction and Astaldi did not respond to Vedomosti's request.
Renaissance Construction has made further progress in negotiations, two participants in the discussion of the project believe: an agreement of intent has been signed with it. However, this is not a legally binding document, adds one of them, negotiations continue. A representative of the state company Avtodor, which oversees the construction and operation of toll roads in Russia, did not answer a question about new investors.
New ring
The construction of a new ring road around Moscow with a length of 530 km should cost 313 billion rubles. Almost half of the funds allocated from the fund national welfare. Only one of the four sections will be free - the western part of the ring from Minsk (M1) to Leningradskoe shosse (M10).
Renaissance Construction, the general contractor for Lakhta Center in St. Petersburg, has recently run into problems in Russia. In autumn, FSB officers conducted searches in her office in a criminal case on violation of currency laws, TASS reported. The company then denied the allegations.
PF VIS is owned by its CEO Igor Snegurov and Dmitry Ryabov, who is also the CEO of TEK Mosenergo, a major contractor of the Gazprom group owned by Igor Rotenberg. But Ryabov plans to withdraw from the number of co-owners of the company, his acquaintance assures. A representative of the WIS group refutes this.
VIS was also a Gazprom contractor for a long time. From 2009 to 2017, its portfolio of orders, according to the company itself, grew from 74 billion to 513 billion rubles. Its two largest road projects are the construction of a Khabarovsk bypass and railway Bovanenkovo - Sabetta, says the representative of the VIS.
Investors have a condition - the construction of TsKAD-4 should be shifted after 2020, it is impossible to build earlier, said two people participating in the discussion of the project, confirmed by a federal official and two people close to Renaissance Construction. The government gives 36 months to build the road after getting the permit, says a person close to Renaissance Construction: about two years remain. So far, Avtodor, according to its representative, has not received such proposals – “at least official and reasonable”: the construction should be completed in accordance with the project passport approved by the government – by the end of 2019. But the builders’ possibilities are not unlimited, and they , unfortunately, do not depend much on government decisions, the federal official admits.
In early June, the head of Avtodor, Sergei Kelbakh, promised that an agreement with the concessionaire on the Central Ring Road-4 would take place in October, but so far this has not happened. Avtodor has been criticized more than once because of the Central Ring Road. In 2015, Dmitry Medvedev reprimanded Kelbakh, at the same time the Federal antimonopoly service. And in the spring of 2017, the Accounts Chamber issued an order to Avtodor due to the failure to meet the deadlines for the construction of the third and fourth sections of the Central Ring Road - if the state-owned company does not eliminate them by December 30, then operations on its accounts may be suspended, the auditor of the Accounts Chamber Valery Bogomolov threatened.
Not only the terms of the project are being discussed, but also the estimate, says the negotiator. Its increase in negotiations with the VIS group is not discussed, Snegurov reported through a representative. The costs are determined by the project passport and have not changed (more than 90 billion rubles, about half should be invested by the investor), a representative of Avtodor points out.
Avtodor demands that an agreement be first signed and an investor appear in the project, and “then somehow resolve the issue of postponing,” says one of the negotiators. But investors don't want to risk money, he adds. Foreign investors can be understood: investments in Russia are possible only under the condition of clear guarantees - in this case, the postponement, says Mikhail Blinkin, director of the HSE Transport Institute. In the summer, the deputy general director of Avtobahn (participant in the Southeast Highway consortium) Denis Anisimov estimated the degree of readiness of the territory for the construction of the Central Ring Road-4 at 20%, promising that the company would ask for a postponement of the completion of the project: “The fourth section is virgin land, it forests, swamps. Representatives of the Ministry of Transport and Autobahn did not answer questions from Vedomosti.
But the structures of Arkady Rotenberg and Gennady Timchenko will be engaged in different directions.
In 2016, Stroytransneftegaz (STNG; Volga Group of Gennady Timchenko - 31.5%, Gazprombank - 10%) concluded with Gazprom and its subsidiaries, according to SPARK-Interfax, contracts for almost 238, 6 billion rubles and became the new leader among Gazprom's contractors. Stroygazmontazh (SGM) Arkady Rotenberg contracts for 177.6 billion rubles, Stroygazconsulting (since 2016 shareholders - Gazprombank and Ilya Shcherbovich's United Capital Partners) - 121.2 billion rubles; only three companies have contracts for 537.3 billion rubles.
In 2015, the share of STNG, SGM and Stroygazconsulting received orders for 821 billion rubles, of which 803.4 billion rubles. (97.8%) divided the structures of Rotenberg and Timchenko: 498.4 billion and 305.2 billion rubles.
STNG's positions were strengthened thanks to the construction of the Power of Siberia export pipeline and the development of the Chayandinskoye field, in which the company takes an active part (230.7 billion rubles). The largest of the contracts related to the new gas pipeline was the contract for the construction of facilities on the 255-kilometer section of CS-1 Saldykelskaya - CS-2 Olekminskaya (74 billion rubles). In the western part of Russia, STNG had only one major contract in 2016 - 86.6 km of the second string of the Ukhta-Torzhok gas pipeline (12.7 billion rubles).
Rotenberg's company, on the contrary, has focused on increasing the transit capacity of pipelines through which gas will go to Turkish Stream and Nord Stream 2 in the future. In the project for the expansion of the South European Gas Pipeline, SGM received seven contracts with a total value of almost 79 billion rubles. The largest of them is work on the 126-kilometer section Pisarevka - Anapa (56.7 billion rubles). Another 40 billion rubles. SGM will receive three contracts for the construction of the second string of the Ukhta-Torzhok gas pipeline, which will be put into operation in 2019 and is designed to deliver gas from the Bovanenkovskoye field to western Russia. Of the contracts related to the construction of the Power of Siberia, SGM received only one contract in 2016, and that one is relatively small - 660 million rubles. for work on the section between Blagoveshchensk and the border with China.
Stroygazconsulting in 2016 received two contracts each in the western and eastern directions: 33 billion rubles. the company will bring the construction of the gas pipeline Ukhta - Torzhok and 56.3 billion rubles. - "The Power of Siberia".
From point of view financial results 2016 (according to RAS), SGM remains the leader with revenue of 276 billion rubles. - it practically did not change compared to 2015, when it amounted to 279.5 billion rubles. But the net profit of Rotenberg's company fell from 29 billion rubles. in 2015 to 11.2 billion rubles. in 2016
Breakthrough of the Year
In 2016, another major player appeared among the largest contractors of Gazprom - NIPI NG Peton. The value of the order portfolio of the Ufa company has increased over the year by more than 110 times to 227 billion rubles. Among them, only the general contract for the construction of an LNG plant in the area of the Portovaya CS will cost Gazprom 126.7 billion rubles.
STNG's revenue fell by more than one and a half times and amounted to 120.8 billion rubles. - in 2015 it was 188.3 billion rubles. The profit of the Timchenko company decreased less significantly than the profit of the Rotenberg company - from 10.5 billion to 8.1 billion rubles.
Stroygazconsulting became the record holder for revenue growth - it increased by 3.8 times: from 40 billion to 153 billion rubles. However, the company's loss has not disappeared, which remained approximately the same as it was in 2015 - about 6.5 billion rubles.
The amount of dividends paid to STNG and SGM at the end of 2016 amounted to 4 billion and 20.5 billion rubles. respectively. Stroygazconsulting, according to SPARK-Interfax, dividends for the same reporting period did not pay.
Gazprom has no real alternative to the companies of Timchenko and Rotenberg, says RusEnergy partner Mikhail Krutikhin: “There is objectively no one in Russia except for these two contractors and Stroygazconsulting to take on projects of the scale of the Power of Siberia. Therefore, there is nothing surprising in the fact that most of Gazprom's large contracts are distributed precisely between them. There is no reason to talk about any dependence in making these decisions.”
In 2015, the share of STNG, SGM and Stroygazconsulting received orders for 821 billion rubles, of which 803.4 billion rubles. (97.8%) divided the structures of Rotenberg and Timchenko: 498.4 billion and 305.2 billion rubles.
STNG's positions were strengthened thanks to the construction of the Power of Siberia export pipeline and the development of the Chayandinskoye field, in which the company takes an active part (230.7 billion rubles). The largest of the contracts related to the new gas pipeline was the contract for the construction of facilities on the 255-kilometer section of CS-1 Saldykelskaya - CS-2 Olekminskaya (RUB 74 billion). In the western part of Russia, STNG had only one major contract in 2016 - 86.6 km of the second string of the Ukhta-Torzhok gas pipeline (12.7 billion rubles).
Rotenberg's company, on the contrary, has focused on increasing the transit capacity of pipelines through which gas will go to Turkish Stream and Nord Stream 2 in the future. In the project for the expansion of the South European Gas Pipeline, SGM received seven contracts with a total value of almost 79 billion rubles. The largest of them is work on the 126-kilometer Pisarevka-Anapa section (56.7 billion rubles). Another 40 billion rubles. SGM will receive three contracts for the construction of the second string of the Ukhta-Torzhok gas pipeline, which will be put into operation in 2019 and is designed to deliver gas from the Bovanenkovskoye field to western Russia. Of the contracts related to the construction of the Power of Siberia, SGM received only one contract in 2016, and that one is relatively small - 660 million rubles. for work on the section between Blagoveshchensk and the border with China.
Stroygazconsulting in 2016 received two contracts each in the western and eastern directions: 33 billion rubles. the company will bring the construction of the gas pipeline Ukhta - Torzhok and 56.3 billion rubles. - "The Power of Siberia".
In terms of financial results for 2016 (according to RAS), SGM remains the leader with revenues of RUB 276 billion. – it practically did not change compared to 2015, when it amounted to 279.5 billion rubles. But the net profit of Rotenberg's company fell from 29 billion rubles. in 2015 to 11.2 billion rubles. in 2016
Breakthrough of the Year
In 2016, another major player appeared among the largest contractors of Gazprom - NIPI NG Peton. The value of the order portfolio of the Ufa company has increased over the year by more than 110 times to 227 billion rubles. Among them, only the general contract for the construction of an LNG plant in the area of the Portovaya CS will cost Gazprom 126.7 billion rubles.
STNG's revenue fell by more than one and a half times and amounted to 120.8 billion rubles. – in 2015 it was 188.3 billion rubles. The profit of the Timchenko company decreased less significantly than the profit of the Rotenberg company, from 10.5 billion to 8.1 billion rubles.
Stroygazconsulting became the record holder in terms of revenue growth - it increased by 3.8 times: from 40 billion to 153 billion rubles. However, the company's loss has not gone away, which remained approximately the same as it was in 2015 - about 6.5 billion rubles.
The amount of dividends paid to STNG and SGM at the end of 2016 amounted to 4 billion and 20.5 billion rubles. respectively. Stroygazconsulting, according to SPARK-Interfax, did not pay dividends for the same reporting period.
Gazprom has no real alternative to the companies of Timchenko and Rotenberg, says RusEnergy partner Mikhail Krutikhin: “There is objectively no one in Russia except for these two contractors and Stroygazconsulting to take on projects of the scale of the Power of Siberia. Therefore, there is nothing surprising in the fact that most of Gazprom's large contracts are distributed precisely between them. There is no reason to talk about any dependence in making these decisions.”
"Power of Siberia" instead of "Altai"
Speaking about specific projects, Sberbank CIB analysts write, in particular, about the high cost of building the Power of Siberia against the background of the previously considered alternative - the Altai project - and doubt the benefits of the contract for the supply of 38 billion cubic meters. m of gas annually, which Gazprom entered into with the Chinese CNPC in May 2014, with an average oil price of $65 per barrel.
Power of Siberia was chosen despite the fact that Altai was much cheaper: $55.4 billion versus $10 billion, Sberbank CIB experts note.
Sberbank CIB analysts claim that the Chinese were ready to sign a contract for Altai back in 2010. The length of "Altai" would be comparable to the "Power of Siberia" - about 3 thousand km, but the gas would come from the existing fields of Nadym Pur-Tazovskaya province and would be cleaned at the existing plants of "Gazprom" - there would be no need to build new facilities, argue the authors of the report.
The choice of "Power of Siberia", in their opinion, could be due to the benefit of the main contractors of "Gazprom" - "Stroytransneftegaz" and "Stroygazmontazh", which divided "almost equally" the main contracts for this project. “The larger the project, the more profitable the contracts,” the report says. “Unfortunately, none of these companies are publicly traded, so you can’t invest in them.”
The supply of gas through the Power of Siberia involves the development of the Chayandinskoye and Kovykta fields for $20 billion. The construction of the Amur GPP, which will process gas before sending it to China, will cost another $14 billion (Gazprom's latest estimate) to almost $20 billion ( Energy Minister Oleksandr Novak’s estimate) is indicated in the report. At the Amur GPP, NIPIGazpererabotka, associated with Sibur, will start working, which is a contract for 790.6 billion rubles. Among the shareholders of Sibur is Timchenko, who also owns a stake in Stroytransneftegaz, the authors of the report recalled.
In addition, tying a gas contract with China to oil prices has a negative impact on profitability, Sberbank CIB experts say. With oil prices at $110 per barrel, a contract for 38 billion cubic meters. m of gas per year was estimated at $400 billion. Accordingly, Gazprom will sell gas at 10-11% of the oil price, Fek and Kotelnikova calculated. This means that with oil at $60 per barrel, gas will cost $6-6.6 per 1 million British thermal units (MBTU). “Even with an average oil price of $65 per barrel, the net present value (NPV) shows the expected return on investment. — RBC) of this project will be negative and will amount to about $11 billion,” the authors of the report stated.
Photo: Valery Sharifulin / TASS
The Power of Siberia project is likely to have a rate of return lower than the cost of capital of Gazprom (the cost of raising funds for the company), which means that it has a negative impact on the company's shareholder value, agrees Ildar Davletshin, a leading oil and gas analyst at Wood & Co.
But Gazprom has previously talked about the “undoubted” profitability of the Power of Siberia. “We have no doubts about the profitability of the gas pipeline. The price formula, which is written in the contract with China, allows us to feel absolutely confident at the current prices for hydrocarbons,” said Alexei Miller, CEO of Gazprom, in an interview with the Rossiya 1 channel in February 2018.
There were objective reasons for choosing Power of Siberia instead of Altai, Uralsib Capital analyst Alexei Kokin argues with colleagues: in western China, where Altai would come, the demand for gas is much less due to supplies from Central Asian countries than in the east (through the "Power of Siberia" gas will be supplied to the east of China). At current oil and gas prices (Thursday, May 17, Brent oil $80 per barrel for the first time since November 2014), the minimum acceptable return on the investment of the Power of Siberia project can be ensured, but everything will depend on its final cost, he concluded .
The co-owner of one of the Gazprom contractors claims that the construction of the Altai project has so far been abandoned “not because of the whim of the contractors, but because it was unprofitable for the Chinese to buy gas at the end point of the project: they preferred to buy this gas in Turkmenistan cheaper.” “Today, taking into account the policy of Gazprom, many large contractors in certain sections of the construction of gas pipelines generally turn out to be at a loss,” another source in the Gazprom contractor stated. “The era of high earnings from Gazprom projects is long gone.”
Low cost streams
The construction of gas pipelines to Europe bypassing Ukraine - Turkish Stream and Nord Stream 2 - is also beneficial primarily for contractors due to the high costs of onshore infrastructure in Russia, although pipelines are considered offshore, Fek and Kotelnikova said in a report. . In particular, the pipeline to Turkey involves a significant expansion of Gazprom's gas pipeline system in the south. The total cost of the project, according to the forecast of Sberbank CIB, will exceed $20 billion, while $3.5 billion has been invested - more than half was spent in Russia. In February 2018, Andrey Kruglov, deputy chairman of the board of the company, estimated the cost of the project at €7 billion.
Nord Stream 2, according to Sberbank CIB, will cost $17 billion - this amount also includes ground approaches to the gas pipeline (Gazprom estimated the project cost at €9.5 billion). The contract for the construction of one of these approaches worth 74.6 billion rubles. Stroytransneftegaz has recently been without competition, analysts recall.
Although both projects do not involve entering new markets (Gazprom already supplies gas to Europe through Ukraine and other routes), their main financial advantage, according to Gazprom, is savings on transit through Ukraine after 2019, when the contract ends, remind the experts. According to their calculations, in the case of Nord Stream 2 we are talking about $800 million, with Turkish Stream — about $500 million per year.
While maintaining gas exports through Ukraine, additional costs for Gazprom to transport 30 billion cubic meters. m would amount to $ 25-42 billion over 25 years, Miller in June 2016: gas transit through Ukraine costs 20% more than through Nord Stream 2.
However, the implementation of both projects will not make it possible to completely abandon transit through Ukraine, Sberbank CIB experts believe: “This will happen only if Gazprom’s exports to Europe decrease by about 20% compared to last year’s level (or by almost 40 billion cubic meters ). According to their estimates, Turkish Stream “will not break even for almost 50 years, even excluding inflation,” its negative NPV will be $13 billion. And Nord Stream 2, using 60% capacity, “will not pay off within 20 years".
Photo: Stefan Sauer / DPA / TASS
If Nord Stream 2 is used only as a replacement for Ukrainian transit without attracting new contracts in Europe, then, of course, it will be unprofitable, says Davletshin. But if Gazprom succeeds in attracting new contracts, especially against the backdrop of favorable conditions on the gas market, then we can talk about a rate of return of 7-8%, which is also not attractive enough for investors, he concludes. Nord Stream 2 will not allow a significant increase in revenue, Alexey Kokin notes. But you should not consider the project only from this point of view: the pipe is a substitute due to political reasons (conflict with Ukraine) and issues of supply stability: the Ukrainian gas pipeline system has historically been underinvested, he noted.
20-50 years is a good payback period for an infrastructure project, says a co-owner of one of Gazprom's contractors. And in addition to financial advantages, gas pipelines bypassing Ukraine have technical and geopolitical benefits, adds a source in one of the largest construction contractors of Gazprom: the gas supplier does not depend on the dictates of transit prices and is insured against the risks of problems with the failure of the Ukrainian GTS, which has not been modernized for a long time.
We talked about Igor
Sberbank CIB analysts are known for their critical attitude towards the largest oil and gas state companies. In October 2017, Alex Fack, Valery Nesterov and Anna Kotelnikova provided clients with a report on the Russian oil and gas sector, in which one of the chapters was called Rosneft: We Need to Talk About Igor. In this chapter, analysts criticized Rosneft's strategy, pointing out that after buying TNK-BP in 2013, the company directed $22 billion "on acquisitions without a clear focus." “The problem is that organic growth will be too slow to satisfy the ambitions of the CEO [Igor Sechin],” the document said.
Rosneft reacted sharply to this report. “There is a feeling that the people who compiled the report are on the verge of pathology. I would very much like the management of the systemically important bank of Russia to provide them with all possible assistance,” Mikhail Leontiev, press secretary of the company. Sberbank CIB later withdrew this report and issued new version, softening some of the wording and removing critical remarks about Sechin. The investment bank also apologized to Rosneft. Its head, Igor Bulantsev, that the first version of the report contained “gross violations of the accepted quality standards for Sberbank CIB analytics,” namely, “the established compliance procedures were not followed.”
In early May, the board of directors of Rosneft made changes to the strategy, which include, among other things, a reduction in capital expenditures and a reduction in debt this year by about $8 billion, or about 10%. “This can be taken as a response to the questions that we raised in our report in October 2017,” Sberbank CIB analysts write in a May report.
Pipes instead of dividends
Sberbank CIB analysts are not the first to pay attention to the cost of Gazprom's large-scale construction projects. “One gets the impression that for some reason the company does not work for shareholders, not for consumers, not for the state, but in fact for contractors who build various facilities for them,” complained to President Vladimir Putin about Gazprom, the director of Prosperity Capital (minority shareholder of Gazprom) Alexander Branis at the VTB Capital forum in October 2016. Then Putin acknowledged that this was “a very serious issue” and promised to meet with representatives of the largest companies with state participation by the end of the year and after that to give “assessments of the effectiveness of a particular company.”
The Association of Professional Investors last year turned to the government with a proposal to increase the size of Gazprom's dividends, its executive director Alexander Shevchuk told RBC. “Obviously, with a low payback on projects, it is more profitable for the state as the main shareholder and the company itself to increase dividends rather than invest in new construction projects,” he adds.
On May 16, the Board of Directors of Gazprom recommended approving dividends at the level of last year - about 190 billion rubles, or 26% of net profit under IFRS. This is twice less than the Ministry of Finance. The representative of the company explained that such a dividend size takes into account the need to "maintain a high degree of financial stability" and the implementation of "priority strategic projects", among which is the construction of export pipelines.