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Interview

with Pavel Kuznetsov, General Director, Starstroi

15.12.2011 / Energyboardroom

Mr. Shatalov, you held prestigious governmental roles both before and after the end of the Soviet Union. Would you describe how your career eventually became associated with the development of Starstroi?

Anatoly Shatalov (AS): My association with the creation of Starstroi really was a process of convergence. For 19 years, I was working in the Ministry for the Gas Industry of the USSR and there was a time when I was the chief engineer for the management of gas production supervising all of the Soviet Union’s gas production industry. This represented more than 200 production sites across the entire territory of the country and production amounted to more than 500bcm – roughly equivalent to the volume Russia is producing today.

During this period of development in Russia’s gas industry, I also had a direct role in the creation of a gas chemical sub-sector. Despite the fact that it was a complex sub-sector to develop considering that its technological elements combined the refining of gas with the production of sulphur and helium. However, it became a part of the overall gas chemical sector and works successfully to this day. Following the initiation of production from the Orenburg and Astrakhan gas chemical facilities more than 30% of gas was refined to obtain sulphur, gas condensate and helium. In comparison to the early challenges, there is only one problem today which what to do with the helium produced.

At the same time as these developments, the largest gas pipeline transportation system was being created with more than 160 thousand km of pipelines of a diameter of 1.4m and at a pressure of 75 kgf/m passing through Ukraine to Europe. In addition the export base of the country continued to be developed with and new more complex production fields being established making the Soviet gas the world leader for production volume.

Another aspect of my work over this period was my direct involvement in the purchase of technical equipment, pipes and equipment for the construction of industrial assets in the gas sector. The entire gas industry in the Soviet Union was being created whilst applying global technological breakthroughs in this field, and these technologies were subsequently applied to other assets in the industry.

At that moment, the USSR had a good level of experience from work on the Vietnamese shelf, where around 10 million tonnes of oil was produced under through an agreement on the sharing of production.

At the moment of the collapse of the Soviet Union the price for a barrel of oil was in the region of 10-15 dollars, whilst today this has increased to a rough figure of $100, which meant that many smaller wells ceased activity because the profit did not exceed expenditure for their production. Therefore in order to bring about the transition towards the market development of the industry the main question was in attracting foreign investment into the country – this was the only method of creating stability in this period.

At this time, the Ministry of Energy was created and incorporated six other ministries such as the Ministry of Oil, of Gas, of Geology, of Energy, and of Atomic Energy. I was nominated as the First-Deputy Minister of this Ministry which brought together many leading specialists which subsequently took key posts in the Russian oil and gas industry.

In order to implement the strategy of attracting foreign investment to the thermal-energy complex the government of Russia emphasised two main projects. Firstly the government ordered the construction and bringing into exploitation of oil and gas fields on the Sakhalin Island shelf (the Sakhalin 1 and Sakhalin 2 projects). Second, was the creation of a pipeline system for the transportation of oil produced on the territory of Kazakhstan and Russia for export, through the sea port of Novorossisk.

In order to carry out this work, the government selected a group of qualified specialists who were entrusted to prepare alongside international companies in these projects. The government presented me with the task of overseeing this work. After the preparation of international agreements on the construction of the oil and gas shelf for Sakhalin 1 and Sakhalin 2 and for the Caspian Pipeline Consortium (CPC), the question became one of finding a contract construction organisation. As a result of the subsequent tender, the work was given to Starstroi to carry out and the company managed the task effectively.

In order to implement these projects I was invited to work in the Caspian Pipeline Consortium and then in Starstroi where I work today as the deputy General Director of Maintenance.

I would like to discuss about how Starstroi was created and about my involvement in the company. During that period, it was clear that in order to provide for the smooth transition to a market economy international financing was necessary. Specific regions existed which were highlighted for the receipt of international investment, for example Sakhalin and Timan-Pechora. However because of the lack of large and even medium-sized investors, the main goal was the attraction of large energy producers to these projects. One such project was the Caspian Pipeline Consortium, which initially only had investment from Oman and Kazakhstan, without Russia. However, the Prime minister, Chernomirdin, with whom I worked for 15 years, involved Russia in this project. The shares of the project were then divided between the countries of Kazakhstan, Russia and Oman. However we invited around 15 companies to join our investment packet and around 10 large international companies such as Chevron and Mobil were also attracted to take part in the CPC.

Following this support and investment it was decided that the time had come to fnally implement the project. In 1997, I received the order to transfer to direct work on the CPC under the aegis of the Minister’s representative. I was meant to spend just 2 months working for the CPC, but these months transformed into 10 years. The main issue for the creation of this project was in uniting the construction companies and how to comply with American standards, since companies like Chevron would accept nothing less.

Therefore a special company was founded which was capable of fulfilling this work to become the chief contractor and bring together construction companies which could build the pipeline. This company became Starstroi. After satisfying the demands of foreign companies and carrying out successful work, having complied with complex ecological demands in areas adjacent to resort locations, no one had any questions about the capabilities of the company.

Aside from the Caspian Pipeline System, I was responsible for the projects Sakhalin 1 and Sakhalin 2, which were also implemented thanks to foreign investment. At the end of the CPC, the only company which could provide services for these types of projects on Sakhalin was Starstroi given that it already gained experience of working in construction according to international standards. Therefore out of 5 large projects in which I represented the Ministry three were carried out by Starstroi and therefore my carer brought me here so that I might concentrate on implementing these pipeline projects. Starstroi brings with it a high level of technical expertise and is capable of carrying out the most complex projects, sometimes even in dangerous environments. This was possible thanks to the strong cadres and priceless innovations. Asides from its labour force, the company also obtained successful technological innovations from France and Italy.

And now Mr. Kuznetsov is implementing the future direction of the company having led a successful career managing telecommunications companies including Rostelokom. How can this experience be brought to benefit Starstroi?

Pavel Kuznetsov (PV): Of course, one of the strengths of Starstroi rests on the depth of experience of people like Mr. Shatalov within the company who have a good understanding of the oil and gas industry and excellent technical knowledge. However, in the 1990s there was a gap in the number of technical projects carried out in this industry. Over this time the telecommunications industry grew much faster in Russia and this is where some of the most advanced technologies were introduced. Now it is possible to see this as one of the most cutting edge sectors in the economy. In my case, I have been able to bring some of these practices into my work at Starstroi.

Regarding the similarity of these two industries, there are many common features between communication systems and pipelines. Pump stations for pipelines have their equivalent in telecommunications such as regeneration stations. Oil streams in pipelines are similar to information streams in cables and there are the same concepts of purification for both types of stream. Instead of pumps for oil we have cables and even the method of construction of the lines is very similar in both sectors.

At the same time telecommunications are used in all branches of an economy from medicine to defence and no industry can work successfully without telecommunications including the oil and gas industry. None of the pipelines can now work without telemetry and maintenance systems based on telecommunications. Therefore not only can I bring relevant technical experience of the telecommunications industry to my understanding of the business but I can create a telecommunications business within our services to pipelines.

Ultimately, any individual with a technical background can learn other technical aspects. Of course there are differences in terms of the way business is conducted and community in charge of oil and gas companies is very small and close-nit. However, our team is able to bring something new to the industry with new approaches and technologies.

In order to overcome this gap in technical expertise from the 1990s can you find other technical experts from other industries to come and work for your company?

The level of skills in the company was already very high but I have brought several people across and they now support me in my work. When I joined I was impressed by the skill-sets of Starstroi and now believe the company is one of the best in this sector.

What are the new directions that you are pushing the company in?

Currently, Starstroi is very strong in the maintenance of pipelines and this is a core activity which will continue. The company used to be strong in EPCM and this is a direction that we seek to restore. We have worked on Sakhalin projects and we will seek to undertake similar projects in the future. EPCM is a global trend for the construction industry and this is what the market wants. The financing issues faced by EPCM companies are not an issue because Starstroi now belongs to the Globalstroi engineering group holding 25 companies and which provides financial support. There is also a call in the market for more automation and most of the telemetry systems in pipelines are maintained now by foreign companies. We believe that Starstroi is well qualified to do this job with the expertise we have now in the company.

In five years time Starstroi will have developed five clear business units: maintenance, construction, EPC, logistics and telecommunications. It is not difficult to adapt in Russia and our approach should be more active in the market. This is why we are strengthening our commercial and engineering and financial blocks.

How are you able to provide for the next big construction projects and where will these be located?

Starstoi fulfilled serious construction projects and every time the team was established specifically for these projects. After finishing people left the company but we are still in good relations and can invite them back for new projects. We are constantly looking for new projects and tenders and our criteria for selecting these tenders are based on our key skill sets. So far these skills have concentrated on maintenance such as our work on the Korchagin field. But as mentioned, we will diversify in new directions including carrying out telecommunications projects as well.

Do you have a final message to our readers on behalf of Starstroi about Russia and its construction companies on behalf of Starstroi?

AS: Starstroi works at the highest level, carrying out work on energy complexes using the best standards.

PK: Our partners abroad should be sure that Russian companies have become very strong and we are highly responsible in what we do. We welcome potential international partners to the market.

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