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Interview with the Executive Director of the Non-Commercial Organization The Russian Oil and Gas Constructors Union,

28.03.2011

     The Executive Director of the Non-Commercial Organization “The Russian Oil and Gas Constructors Union” in 2002-2006 Viktor Slavyantsev answers to the questions of the Prom-oil reporter.

- Viktor Vasilievich, please tell us about the oil and gas construction history. What is this area like to for today?

- In the Soviet times, all oil and gas facilities’ construction works were performed by the Ministry for Construction of the Oil and Gas Industry’s Facilities (Minneftegazstroy). This Ministry was established in the early 1970ies with the beginning of large-scale field development in West Siberia, and its contribution into the oil and gas projects implementation was decisive.  It was the key project's operator.

- Were all contractors subordinate to this Ministry?

- The main directorates (“glavks”) and trusts of Minneftegazstroy were, in fact, contracting organizations for oil and gas facilities’ construction.  The Ministries for Gas and Oil Industries were its customers.

- What is this industry currently like to?

- During 20 years, everything has been changed significantly. Now, almost all contractors are private companies with different forms of organization. Former construction trusts have been reorganized into open joint stock companies. Some of them have disappeared, the others have been preserved and developed.   New players have appeared on the market.  Some organizations, such as Globalstroy Engineering, Stroytransgaz, Stroygazconsulting, Stroygazmontazh, Zakneftegazstroy-Prometey and others, can perform the full scope of General Contractor’s functions.

- Are there data on the market size in 2010?

- No, there are not.  The size of the market can be generally evaluated based on the investment programs of Gazprom and vertically integrated companies and their capital construction budgets. 

- We have tried to make a breakdown by market segments: construction of the oilfield facilities and infrastructure, construction of gas and condensate facilities and infrastructure, oil pipeline construction, gas pipeline construction. Is it correct?

- And what about the processing facilities? Oil refineries, gas processing plants, petrochemistry and gas chemistry?

- We assigned them to infrastructural facilities? Or it would be better to separate them in a special segment?

- This is a substantial market segment. I do not even know if it is not this segment which provides the highest profitability.

- So, we should add oil and gas processing.  

- That’s right, if to mean the priority branches. Oil and gas production, transportation and processing facilities should be considered as construction facilities.

- If to make a share percentage breakdown, which segment will be the first – construction of production, processing or transportation facilities?

- Oil and gas transportation and processing facilities are considered the most resource and capital-consuming ones.

- What can you say about legal regulations in terms of a construction company? Does the regulatory base require revision?

- The regulatory base always requires revision. We are saying all the time that it should be brought in line with today’s requirements, with the international European and U.S. standards.  We should develop our own regulatory base. Let us take the existing law “On Technical Regulation”.  Some think that it has brought more harm than use, some think the opposite.

- What is your opinion about self-regulatory organizations (SRO)? Has this idea proved its value?

- For now, it’s early days to say that the idea of self-regulatory organizations, advanced by V.Pleskachevsky (the chief SRO ideologist in Russia), will work well. Such branch associations all over the world have gradually taken the authorities from the state bodies. Alexander Romanikhin (the President of the Russian Oil and Gas Constructors Union) has information about Germany. He is sort of our professor on German branch associations and unions: how they operate and what is their influence on the market, the state authorities and economical development of Germany in general.

- But German history has dozens of years of similar activities. 

- Yes, of course. To obtain a license in Russia, one is required to be a member of a self-regulatory organization and to pay the fees, and everybody understands this.  In oil and gas construction, for instance, there is a large SRO Neftegazstroy which unites more than three hundred companies dealing with oil and gas construction.

- But there are alternative organizations, aren’t they?

- Not all of them will be able to stay. There will be several able SROs connected with engineering and construction of the oil and gas industry’s facilities.  But the industry will not have many of them.

- How do you assess the quality of design engineering in Russia? Which engineering organizations are on top?

- I think that our quality of engineering is not much lower than abroad. During the last ten years, the companies have appeared which call themselves “engineering” ones, i.e. they deal with design, logistics, fulfill EPC and even EPCM constructing functions. In the oil and gas industry, these are such large companies as Striyttransgaz, Globalstroy Engineering. Gazprom has two major contractors: Stroygazconsulting and Stroygazmontazh. Stroynovatsia LLC deals with construction of large oil transportation facilities. They operate as General Contractors.  I think that the situation in other industrial construction branches is the same.

- So, there are no more independent design organizations?

- They are, and they are still working.  They have contracts with a customer or a major contractor if it deals with engineering.

- Can you name any of them?

- Gazprom, for instance, has Gyprospetsgaz in Saint-Petersburg, Centregaz in Nizhny Novgorod, BNIPIGazDobycha in Saratov; VNIIGAZ, the Donetsk Institute, TyumenNIIgyprogaz actively work in this area. Almost all oil and oil products transportation facilities of Transneft are designed by its own institutes – Gyprotruboprovod and VNIIST. Starstroy designed the oil and gas pipelines for Sakhalin 2 Project. The same companies designed the CPC (Caspian Pipeline Consortium) pipeline. Also, small engineering groups have appeared which hired the specialists who had worked in former design institutions. Typically, small groups have been separated from larger organizations and exist due to the subjective factor.

- What is your opinion about competition with Western companies?

- Competition was very hard in the 1990-2000, for domestic customer as well as for projects.

- Is it right that foreign engineering organizations bring foreign customers to the projects?

- We may say it, but we'll never prove it. In Russia, they will perform engineering works with regard to Russian standards and international compliance. They hold open competitions and tenders. All companies may participate and prove their ability to supply a service or a product with required quality and at a reasonable price. If Russian contracting organizations have studied to cooperate with an international customer and his counterpart –an international contractor, the work will bring success. For example, Globalstroy-Engineering, former LUKoil-Neftegazstroy CJSC, has positive experience on Sakhalin 2 Project.  They cooperated successfully with the American company Fluor Daniel.

- What is your opinion about prospective development of this market? Will there be mergers, takeovers, will new players come to the market? Due to what factors?

- Old and new players will be selected by two criteria. If subjective criteria are used in selection of contractors, the court will always have its favorites.  If a system is transparent, contracting organizations with better equipment and more able staff potential will be developed better.

- You mean that there is no any market?

- Formally it is, but in fact, it can hardly be named a normal market.



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