By Anton Yarovoy
Continent (Almaty), № 23 (135), 21.12.2004
The potential for exporting Kazakhstani unrefined products proceeds to expand. The International consortium Karachaganak Petroleum Operating B.V., operating the gigantic Karachaganak oil and gas condensate deposit with reserves of liquid hydrocarbons of more than 1.2 billion tonnes and 1.3 trillion cubic metres of gas, entered world markets this year. The work of this investor seriously impacts both the economy of the region and its social processes.
To Global Markets
The delivery of liquid hydrocarbons produced at the deposit to global consumers began in spring of 2004. This has become probably the most important event for KPO for the current year. This was expected not only by CPC shareholders, but by numerous consumers as well. Analysts are agreed in their opinion that Karachaganak oil will make a serious impact on the state of the raw products markets, as the matter surrounds significant volumes. It is sufficient to say that after the beginning of export from Karachaganak, the capacity of the CPC pipeline Tengiz-Novorossiysk, which transported 14.8 million tonnes of Kazakhstani oil last year, will increase to the first projected mark of 21.7 million tonnes. On May 16th of the current year, raw products began to be supplied to the Tengiz-Novorossiysk pipeline. The first tanker loaded with 89,000 tonnes of Karachaganak raw products departed from a terminal in Yuzhnaya Ozereyka near Novorossiysk during the night of June 10. The consortium partners are BG Group, holding 32.5% as well as Eni, ChevronTexaco, holding 20% and LUKoil, a holder of 15% in KPO. All participants within the consortium are currently increasing supplies to their consumers. Initially, KPO shipped up to 100,000 tonnes of unrefined products via the CPC system per month, but in the 3rd quarter of 2004, the annual volume of transportation reached 550,000 tonnes. By the end of the year, the company plans on reaching a level of 7 million tonnes annually. Thus, the consortium has become second after Tengizchevroil as the largest Kazakhstani supplier operating via the CPC system. In order to start the supplies of Karachaganak unrefined products to world markets, many complex and expensive technical operations are required. The issue is that hydrocarbons produced at Karachaganak, require a deeper and more complex processing than do products from other deposits. The facility for the processing liquid hydrocarbons for further export through the oil transportation system of the CPC was launched during summer of last year, the unit for gas re-injection to the Unit-2 collector for increasing reservoir pressure was installed, and the 635-km long export pipeline Karachaganak – Bolshoy Chagan – Atyrau was built, which connected the deposit with the CPC. All of these operations required multi-million dollar investments. As a result of the commissioning of new facilities, KPO managed to increase the annual output of hydrocarbons up to 7.5 million tonnes, and gas up to 8 billion cubic metres. As a comparison, last year’s condensate output at Karachaganak totaled 5.73 million tonnes, gas output amounted to 5.51 billion cubic metres. As the processing of Karachaganak unrefined products is a technologically complex process, very strict requirements have been made in reference to the ecology. It is no accident that large investments were allocated by KPO to projects associated with ecological safety and labour protection. Everything here is at the level of the latest world standards. In particular, the hydrogen sulphide detection systems at the gas preparation facilities have passed independent technical and ecological analysis, and are capable of registering the presence of hydrogen sulphide in any concentration exceeding a level of zero (0 ppm). At the level of 5 ppm, these systems would emit alarm signals. The air safety in the working zone is guaranteed through the regular monitoring of the air conditions around the gas preparation units, in accordance with GOST (state standard) and sanitary rules and norms, for the atmosphere surrounding work zones. KPO also participates in a long-term national interdepartmental study on the levels of activation of gas-analyzers, applied at units with high-sulphur containing gas production. The state requirements are very strict. In one word, it reality it was not so easy to boost exports, as it might have seemed at first glance.
The Role of Personnel Is Decisive
KPO management pins its operational successes primarily to its labour resources. Investment into local personnel is a top priority for the consortium. This is because a return will be enjoyed tomorrow on an investment that is made today. The foreign shareholders are certain of the fact that the nationalisation of personnel will contribute to the effective management of Karachaganak. KPO is providing education for Kazakhstani personnel as part of the International Management Program (IMP), in order to improve the employees’ managerial skills. By now the number of local employees at managerial positions increased from 5% up to 10-15%, and by 2005 the company plans to increase the number of Kazakhstani managers up to 22%. Modern personnel management systems demonstrated their efficiency within KPO subdivisions. The combination of progressive methods of process management and implementing knowledge of local peculiarities is a serious task for a manager. Since the beginning of the current year, 50 Kazakhstani employees from the KPO production directorate began training in the “Management for Supervisors” program, as part of the Supervisory Management Program (SMP), certified by the Chartered Management Institute from Great Britain. During the 11-month-long training course, conducted in a modular format, they will study disciplines necessary for the successful performance of medium level managers, including organisational behavior, information management, risk management, effective delegation and many others. This program supplements the technical courses excellently without an interruption in work for Kazakhstani personnel as part of the personnel nationalisation program. Following the course, students will take the attestation of the Chartered Management Institute and upon completion receive international training certificates. KPO allocated more than KZT 65 MM for this course. The Consortium also promotes “A production efficiency improvement plan” involving creative initiatives on the part of employees. Incidentally, it is indicative that the proposals from Kazakhstani managers turned out to be the best ideas. However, the consortium realises that support and training of not only its employees, but for workers at contractors is important as well. KPO is keenly interested in the proper functioning of the quality management system on the part of its Kazakhstani partners. As of today, more than 100 Kazakhstani companies have taken part in seminars for the improvement of business skills that were organised by the KPO Vendor Development and Qualification Department. The consortium also held a number of introductory seminars on project management and international standards. Recently, the Kazakhstani contractors Aksaispetsmontazh and Gidromet received a certificate of quality management systems based on ISO 9001 standards. The company points out that this is not charity, but rather measures, aimed at the increasing of the level of the partners’ work, and in general, the quality of production projects in the region. The educational initiatives in the IT sphere, sponsored by the KPO in the Oblast, are also aimed at the same purposes.
The Future Of Social Changes
Almost all inhabitants of the region have felt real benefits from the realisation of the Karachaganak project. There is no industry that the development and operation of the deposit is not somehow concerned. Some businesses cooperate with KPO directly, and others do so indirectly through service projects, and growing consumption attracts a third. In general, all sectors of local economy are interconnected here. One can observe visual changes took place in the social development of the West-Kazakhstan Oblast. Pursuant to an agreement with Kazakhstan, KPO annually invests USD 10 MM in the social development of the region. These funds have allowed for a lot of construction during years of crisis. For example, in 1998-1999 the regional hospital in the village of Kaztalovka and an infectious diseases hospital were built in Uralsk. Some time later, this list was amended with a polyclinic of the Oblast hospital and the Cardiology centre. Currently, a construction boom is taking place in the Oblast. There are both private and government projects. The consortium stands out as one of major customers. As written in the social program of the alliance of foreign companies, the main directions of work are, “healthcare, education, and qualitatively new way of life”. The company attracts only Kazakhstani contractors for the realisation of social construction projects, and an indispensable condition on the part of the customer is high quality, strict and precise meeting of deadlines and the work schedule. Its own practice of the elaboration of such projects has developed over the years the consortium has operated in the Oblast. The Oblast Akimat based on the requests from the people makes the decision regarding what should be built and where. The list of already realised social projects is rather wide. The Kazakh Drama Theatre opened in 2002, is among the major projects. Incidentally, this is the only theatre in Kazakhstan that was built from scratch since independence. The originality of the architecture and the peculiar ethnic colouring contributed to the fact that the building has become the adornment of the central square of the Oblast centre. The investors’ funds were used to restore the Oblast Garifolla Kurmangaliev philharmonics and the front of the Oblast Ostrovskiy Drama Theatre. The alliance of the foreign companies helped make Teatralnaya Street into a pedestrian area, a sort of Uralsk Arbat. Now it is one of the most beautiful and favourite recreational places for city residents. Speaking about Karachaganak’s contribution to cultural development, one cannot but mention the fact that the KPO is a general sponsor of the annual Uralsk international violin contest. The organiser and permanent chairman of the contest jury is the world famous violinist Marat Bisengaliev. The investors presented unique musical instruments, manufactured in the 19th and in the beginning of the 20th century by famous instrument makers from France, Great Britain, Germany and Czech Republic as a gift to the orchestra under his directorship. Prestigious national and international sports competitions are conducted regularly in Uralsk. This has become possible thanks to new facilities such as a 1,350 seat Ice Palace and a swimming pool. KPO funds were also used to build several schools. The Children’s Village was built with special love and care. The national first lady, Sara Nazarbaeva, participated in the opening ceremony. KPO takes the most active part in the construction of roads, the implementation of energy independence programs and the gasification of the Oblast. Recently, the company completed the Aksai water supply system reconstruction project, investing USD 20 MM in the effort. These funds were allocated in addition to investments that are invested annually into social projects. As KPO says, the company takes special care regarding the Burlinsk region, where the deposit in located. In any case, the problems of the entire region are the focus of constant attention. Equipment for schools and hospitals, summer vacations for schoolchildren and veterans are financed; in addition, USD 200,000 is annually allocated in sponsorship assistance. The investors call this cooperation a policy of good neighbourly relations. It is true that their position speaks in favor of some serious progress compared with the last decade, both in Kazakhstan’s cooperation with its foreign investors, and in the attitude of the investors themselves to the country. Both parties realise their long-term interests. KPO operates the largest oil and gas condensate deposit as part of a 40-year Final Production Sharing Agreement (FPSA). Over this period it is planned to produce 320 million tonnes of liquid hydrocarbons and 797 billion cubic metres of gas, and to invest USD 15 B in the production process. The consortium, which has already established itself in global markets, is now only at the beginning of its journey. The implementation of a tremendous number of interesting operational and social projects in the next ten years will reflect in the development of the whole region.