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Interview of First Vice-President, OJSC Globalstroy-Engineering Vladimir Lagutin


Vladimir LagutinFirst Vice-President, OJSC “Globalstroy-Engineering” Vladimir Lagutin answers the questions of Prom-oil correspondent

- Mr. Lagutin, please tell us the history of establishment of OJSC “Globalstroy-Engineering”. How and when was it created? What are its performance indicators for the past year? How have you been overcoming the crisis?Globalstroy-Engineering
Globalstroy-Engineering OJSC (short title – GSE OJSC. – Ed’s. note) was created more than 15 years ago. Now, it is one of the Russian largest companies which activities include turnkey construction of major oil and gas facilities, main pipelines, motor roads, industrial and civil infrastructural facilities. It main services cover contractual activities, trading, related services.
Dynamical participation in new projects helps GSE OJSC expanding the geography of its activities from the High North and South to the Russian West and Far East. The Company’s construction objects are located on the sites in West Siberia (Langepas, Kogalym, Urai, Khanty-Mansijsk, Pokachy, Salekhard, Nakhodka, etc.), the Russian European North (Ukhta, Usinsk, Varandey, Arkhangelsk, Murmansk, etc.), West (Vysotsk), East (Sakhalin Island), Midland (Nizhny Novgorod, Volgograd, Astrakhan) and South (Novorossiysk and Stavropol).

The most wide-scale projects implemented by the Company in the recent years include:
- Construction of the CTC oil pipeline system – Tengiz–Novorossiysk pipeline and the CTC marine terminal;
- Construction of the gas pipeline Yamal-Europe, SRTO (North Tyumen Region) - Torzhok and Pochinki-Izobilnoye, gasification of the Orel and Kaluga Regions;
- Development of the Yuzhno-Shapkinskoye oil and gas condensate field;
- Construction of the 1st, 2nd and 3rd stage facilities of the oil and oil products distribution and transshipment center RPK NP LUKOIL-II in Vysotsk, Leningrad Region with total capacity 11 mnt annually;
- Construction and modernization of the units of the hydrocracking hydrogen production facilities and sulfur recovery units with throughput capacity 3.5 mnt annually at the LUKoil-Permnefteorgsintez refinery (Perm);
- Construction of the deeper conversion facility, the catalytic reformer LF35/21-1000, and the crude oil distillation plant at the site of LUKOIL-Nizhegorodnefteorgsintez LLC in Kstovo;Globalstroy-Engineering
- Project management and construction of the polypropylene-80 production facility with capacity (including expansion) 120 thousand tons annually in Budennovsk, Stavropol Krai;
- Construction of the 530-mm oil pipeline on support stands “Main Transfer Pumping Station Yuzhnoye Khylchuyu – Onshore Tank Farm Varandey 162 km long;
- Modernization and capital construction at the Ukhta, Perm, Volgograd and Nizhny Novgorod refineries; of the petrochemical facility LUKOIL Neftechim Bourgas AD (Bulgaria), of the Odessa refinery of LUKOIL-Odessa refinery OJSC;
- Construction of the Varandey oil-loading terminal (subsea oil pipeline, fixed offshore ice-resistant off-loading terminal, onshore tank farm V= 200,000 cub.m.) with capacity 8.2 mnt annually;
- the Yuzhnoye Khylchuyu field development Project management and construction of the Main Transfer Pumping Station with crude oil throughput 8.2 mnt annually.

GSE OJSC is an active participant of Sakhalin Projects implemented in accordance with the production Sharing Agreement (PSA). These are, first of all, wide-scale Sakhalin I and Sakhalin II Projects, their Operators being Exxon Neftegaz Limited and Sakhalin Energy Investment Company, correspondingly.
In addition to field works at oil production, oil and gas processing and transportation sites, the Company pays special attention to development and construction of the civil and socio-cultural objects, as well as creation of the associated infrastructure (power, heat and water supply and sewage systems, motor roads):
- Reconstruction of the flight strips of airports in Khanty-Mansijsk, Tyumen, Surgut, Noyabrsk, Omsk, Kogalym, and Nefteyugansk;
- Construction and re-construction of federal motor roads Ural M5, Moscow-Riga, Moscow-Voronezh, the Saint-Petersburg traffic bypass section;
- Construction of buildings and erections of the Tula Armory Museum;
- Construction of plants manufacturing hygienic items and paper-board containers for SCA Hygiene Products Russia in the towns of Sovetsk and Venev, Tula Region;
- Residential complex in Khanty-Mansijsk;
- Ambulatory care clinic in Urai;
- Sports Palace in Kogalym.Globalstroy-Engineering

The accumulated professional potential allows carrying out all types of activities (from engineering to turnkey handover) of the newly-constructed objects, as well as reconstruction, routine repair and overhaul of the completed and existing objects, commissioning works, including pressure testing and service maintenance.

The Company’s organization chart includes more than 40 subsidiaries and affiliating investee companies. Among them, the largest are: design institutions - Gyprokauchuk OJSC (Moscow), Starstroy-Engineering LLC; construction, assembly and specialized companies - GSE Volgograd Company Neftezavodmontazh LLC (Volgograd), GSE Sever-Neftegazstroy LLC (Khanty-Mansijsk autonomous district), Vostoknefteprovodstroy OJSC (Ufa), Volgoneftekhimmontazh OJSC (Nizhny Novgorod), GSE Yug-Stroy LLC (Volgograd), GSE Stroitel LLC (Tula), Surgutneftekhimmontazh OJSC (Surgut), etc.
- The key customers of your Company are known to be the petrochemical companies. Could you name the exact share of particular industries in your portfolio: oil, gas, oil refining, petrochemistry and others?
Breakdown of work volumes by key types of activities may be represented as follows:
- Field development – 42%
- Petrochemistry and oil refining – 35%
- Civil construction and other – 14%
- Pipeline transportation – 9%

- How could you characterize the environment of your services market? Is competition in your market segment high? Who do you consider your actual rivals: Stroytransgaz, Stroygazmontazh, or any other companies?
In addition to Stroytransgaz, Stroygazmontazh, Stroygazconsulting, major foreign companies are currently operating on the Russian Market. Among them are: Flour Daniel, Technip, Technimont, Aker Solutions, Saipem, Petrofac, SNS-Lavalin and some other companies.
Competition on the oil and gas construction market is high. 

- Tell about the people working in your Company. Who are they? What is their average age and education? Where do you usually do recruiting? What is the average wage level? Is there any staff turnover? Globalstroy-Engineering
The GSE OJSC Group of Companies’ payroll lists 22.4 thousand employees, including 5.0 thousand managers and specialists and 17.4 thousand workers, Average age of managers and engineering and technical specialists is 40 years, of workers - 38 years.
They are mainly highly qualified employees with specialized vocational education and wide experience of work in the oil and gas construction area. Of total amount of production engineering and technical personnel, 82% of employees have higher or secondary specialized vocational education in Construction; 72% of workers got construction qualifications in vocational educational institutions. More than 1.5 thousand managers and specialists and 4.2 thousand workers annually attend enhanced training courses. The companies spend more than RUR 21 mn for these purposes.
In 2010, 172 employees of GSE OJSC Group got the industry’s awards – Honorary Constructor of Russia badges and Honorary certificates of the Ministry for Regional Development of the Russian Federation for long-term work and achievements in the construction industry.

The Company advances high corporate requirements to selection and formation of the succession pool and professional training of top managers (General Director, General Director’s Deputies, Chief Engineer, Chief Accountant, directors of representative offices and branches). Mandatory requirements to managers include higher specialized education and wide management experience in the construction industry. Candidates for top management positions in affiliate companies are selected through competitions. According to the due Integrated Management System procedure, the applicants for higher managerial positions are assessed for professional competencies in accordance with the approved manager work performance assessment criteria. The priority is given to candidates listed in the Corporate succession pool of GSE OJSC.

The average monthly wages of the production engineering and technical personnel and workers corresponds to the industry values.
We do the staffing through the municipal employment centers, recruiting agencies, I-net resources, newspaper and local TV advertisements, references given by employees of our companies. GSE OJSC pays close attention to recruitment of young specialists and workers. In total, our companies’ payroll includes 4.6 thousand young employees of age not more than 30 years, or 21% of total staff. In 2010, our companies hired 1.8 thousand young specialists and workers with specialized vocational education. Our companies have long-term agreements with 15 higher educational institutes and colleges on training of engineering and technical workers and specialists and with 20 vocational technical schools and worker-training lycees.
We invite experienced qualified specialists, as well as young workers to cooperate in implementation of new projects within the Company’s professional teams. Globalstroy-Engineering

- What can you say about the construction technologies you use? Do you use any unique techniques and methods not used by other companies, but being still rather effective? To what extent does your market segment employs advanced R&D achievements?
Implementing its projects, GSE OJSC uses only the technologies which have been proved in the Russian and foreign construction industries. Joint work of GSE OJSC and foreign companies gives excellent results –there is always a lot of thing to learn from each other.

Customers are continuously making their requirements to construction tighter. Priorities are given to high environment friendliness, safety and energy efficiency of construction. Leading construction technologies used in the today’s global construction market allow us complying with the said requirements.
Yes, we use them. I will tell more – there are technologies unique in a certain kind, since there are no similar objects in our area of construction; so, we never use typical solutions. We apply only individual approaches towards construction of a particular object. And with regard to the fact that the objects constructed by our Company are located in completely different points of the globe and different climatic belts, then our choice of individualization of particular projects is quite reasonable. Also, I would like to add that, under the technical retrofitting program of the GSE OJSC Group of Companies, the approved sum budgeted last year for acquisition of new machinery and equipment amounted to approximately RUR0.5 bn.

Of course, the advanced R&D achievements are demanded and appreciated by our customers. WE admit that the quick pace of the modern life urges us to keep abreast of the construction innovations, to spend much time searching for adequate solutions matching the dynamically growing requirements of our customers. The potential of modern technologies allows us achieving our targets in accordance with the slogan of our Company: Timely, with High Quality, within the Budget. And this is highly appreciated by the customers.
To increase economic efficiency of construction activities, construction project implementation, quality of construction and products of GSE OJSC Group of Companies, the Company’s Scientific and Technical Council was established. Its objective is pursuing the unified scientifically justified policy in terms of use of innovative technologies and advanced practices in the areas of construction, construction materials, products and equipment, as well as business processes and management systems. Globalstroy-Engineering

- What can you say about the external regulatory area in terms of a construction company? Is it required to update our legislation regulating the construction industry? Has the Self-Regulatory System (SRS) proved to be effective?
Today, the construction community realizes the strong need to amend SNiPs and GOSTs to bring them in line with the existing realities, or to replace them with mandatory-for-use National standards. Currently, this work is being done by the R Ministry of Regional Development in close connection with the National associations of self-regulatory organizations in the field of engineering surveys, design and construction. Let us wait for the results.

Of course, the legislation should be updated. But special caution is required to avoid creation of additional bureaucratic barriers on the way of creative activities of construction companies.
It is hard to give an exact answer whether the self-regulatory system has proved itself effective or not. During its short existence, the documents regulating this area have suffered continuous changes. Amendments were introduced into the RF Urban Planning Code, the RF Government issued its resolutions, the Russian Minregion and Rostechnadzor issued various orders. To trace these changes, the companies – members of self-regulatory organizations had to replace Permits to work which impact the capital construction objects safety, and not for one time. If a company dealt not only with construction, but engineering as well, it had to replace several Permits at once. In addition, a lot of unfair self-regulated organizations came to existence which issued Permits right and left, meaning only their commercial interests without any consideration to the fact whether a company given a Permit meets all the necessary requirements. These self-regulated organizations fear nothing, since they face no leverages. That’s why we invite only proved partners, who typically have a Permit to work issued by the specialized SRO NP Neftegazstroy, to work for our projects.

Some more time is needed to feel the advantages of introduction of the Self-regulatory system in Russia. And what is most important, everybody should actively fight against unfair SROs, which significantly turn off positive factors of transition from licensing to self-regulation in the construction industry.Globalstroy-Engineering

- How do you assess the quality of design engineering in Russia? Is it effective, on your opinion? Which design organizations are ranked first or last? Is it possible that Western design organization could actively operate on the oil and gas market?
I think that the quality of design engineering in Russia is low. But the design engineers are not the only ones to bear guilt for that. . Adequate project performance requires precisely formulates customer’s requirements, technical data on the materials, equipment, design experience. Customers often change the initial data in the height of the design work, not agreeing to pay for corrective works. Manufacturers submit the data on the equipment only when the supply agreements are signed. And what is most important, due to absence of stable demand, designers have to work on any objects, including non-core ones. Standards are not considered due to lack of time, there is no information on the specific equipment due to lack of contacts. So, the issued designs pass expert consideration several times at best, or they are used for construction of expensive and unsafe objects at worst, if expert consideration is not a requirement.
Today, design engineering still suffers from the generational gap occurred in 1990s. At that time, young workers with good potential left design organizations due to low salary, having no time to absorb the experience of the older generation or to give their own experience to the next generation.

It is true that it is impossible to construct without a design, and to construct with a bad one takes a lot of money and time. It will need time to endorse the changes and money to re-work.
I would not like to differ between champions and outsiders. Each company occupies its own niche and creates competitive conditions beneficial for customers. But I believe that a good, high-quality design can be developed only by a specialized design organization which makes efforts to attraction, training and holding of young specialists and to technical development of the design process.
Activities in a foreign country are connected, among other things, with overcoming of the language barriers and studying the provisions of regulatory and legal documents. And this process requires a lot of time and money. That is why Western design organizations will not likely operate on the Russian market. On the other hand, they do not exist in a vacuum. Typically, they affiliate with engineering companies which are closely connected with technology developers and equipment manufacturers. And these engineering companies, having technologies, designs and equipment, come to the Russian market and hire Russian design organizations to do tailor-making. Since this process tends to develop, we should learn and use the Western experience in our domestic projects.

- What is your opinion about long-term prospective development of your Company? Do you plan mergers or takeovers? Are you going to enter international markets? Do you plan IPO? Globalstroy-Engineering
GSE OJSC is, first and foremost, a construction holding company consisting of subsidiaries – companies which provide a wide range of services to the oil and gas construction industry. The structure of subsidiaries has been changed a lot during past two or three years. There were mergers, takeovers and reorganizations. As a result, we have a formed transparent vertically integrated group of construction companies which is fully controlled by GSE OJSC.

The Company plans to end internal consolidation and reorganization of the holding. as for external mergers or takeovers, including those aimed to enter international markets, are not considered now. GSE OJSC is already working in Bulgaria, Ukraine, Kazakhstan; until recently, it has been working in Uzbekistan. It should be noted that this process means creation of new companies in foreign countries, not acquisition of existing structures.
As for IPO, our Company has been ready to enter public Russian and foreign capital markets since 2008, and this issue is within the authority of the Company’s shareholders. 

- And the last question I would like to ask you: what are relations between your Company and LUKoil? What are your existing contacts? Is your Company the largest construction contractor of LUKoil?
When LUKoil OAO started practicing tendering of work volumes, our relations changed in certain ways, but we are still the largest contractor of LUKoil. It should be noted that the volume of contractual works accounted for LUKoil in 2010 was 64%, while the work volume planned for 2011 is expected to be 52%. In addition, GSE OJSC actively participates in the projects of other customers, including Gazprom, Total, RusVinil, Surgutneftegaz, Rosneft and others.

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