26 december 2009

Prime Minister Vladimir Putin meets with Sovcomflot President and CEO Sergei Frank

The two leaders have discussed Sovcomflot’s performance.

Transcript of the beginning of the meeting:

Vladimir Putin: Let us discuss your company's performance.

Sergei Frank: Mr Prime Minister, I would like to report on behalf of the board of directors that the basic parameters of Sovcomflot's five-year development plan have been met. Our steamship line's fleet has increased more than threefold in these five years, exceeding 10 million tons of deadweight capacity.

Vladimir Putin: How does Sovcomflot compare with other international companies?

Sergei Frank: Sovcomflot is among the five largest tanker companies in the world, but our main achievement has been decreasing the age of our fleet from 7.5 to 6 years. St Petersburg-based Sovcomflot is certainly one of the youngest and highest quality fleets in the world.

Our financial performance has improved significantly as well. According to independent valuations by stock market experts, our company's market price has grown fivefold. The dividends paid to our sole shareholder, the Russian Federation, grew fourteen-fold.

We are the first company in Russia to master new technology enabling us to transport liquefied natural gas in extreme temperatures and difficult climatic conditions, and to carry out shuttle deliveries of crude oil in the Arctic, which will certainly be useful in developing the wealth of natural resources on the continental shelf of the Russian Arctic and Far East seas.

Vladimir Putin: How have you been coping in the global economic crisis?

Sergei Frank: The board of directors adopted the company's development strategy up to 2015, which includes all the fundamental provisions of the national transport strategy. We believe that the first two years, 2010 and 2011, will be very challenging for tanker operators. Nevertheless, the strategy envisions increasing the key parameters of our shipping operations twofold. We have adopted an investment programme of $5.5 billion. As a result, we should see ourselves among the top three major tanker operators in the world.

The company's objective is to set up an affiliated world-class contractor to service shelf developments, specialising in cold climates and icy conditions. That is something that will be important for Russian oil and gas companies in the near future.

Much of our development over the next five years will focus on quality. We are aiming for a 20% reduction in fuel consumption and at least a 20% CO2 emission reduction. Whatever today's climate challenges are caused by, we believe in our technical and organisational resources, and in our economic potential.

Vladimir Putin: What share of your company's portfolio is accounted for by Russian shipyards?

Sergei Frank: Russian shipyards are currently our second largest equipment producer. Sovcomflot is the Russian shipbuilding industry's main customer; we have used $0.5 billion in investment in this sector over the past two years. I would like to demonstrate this on the map if you don't mind...

Vladimir Putin: Please do.

(Go over to the map.)

Sergei Frank: Mr Putin, I have already reported on the construction of the unique vessels, the Mikhail Ulyanov and the Kirill Lavrov, at the Admiralty Shipyards. It is a very demanding project, there have been certain difficulties, but, as the saying goes, the devil is not as terrible as he is painted. The Admiralty shipwrights have been quite effective in processing this order. You saw the launch of the Kirill Lavrov.

Vladimir Putin: As I understand, they have been effective in terms of quality and speed.

Sergei Frank: We only build vessels at Russian shipyards on a competitive basis. We intend to use these vessels, built at the Admiralty Shipyards, for trial runs to transport Russian hydrocarbons eastwards on the Northern Sea Route. It will open new markets for our oil and gas companies. We will begin these trial runs in summer. Sailing along the Northern Sea Route is not new, but it has never been done with cargo of this quantity and nature. It is a groundbreaking challenge. It is highly probable that we will have to navigate further north of the Novosibirsk Islands, since there are certain embarkation limitations in the Laptev and Sannikov Straits.

We are working closely with the Ministry of Transport, the Ministry of Energy and the federal directorate of Rosatomflot to make all necessary preparations for these runs. The new route will be half the length of the traditional route.

Vladimir Putin: ...saving fuel.

Sergei Frank: Yes, it will save fuel and, what's more important, will enable us to penetrate new markets, which is critical given the future development of Yamal. We will take into account the information gathered during these trial runs when designing new vessels and equipment, which will open new vistas for us in the west and the east.

Vladimir Putin: You are also referring to liquefied gas?

Sergei Frank: Yes, liquefied gas among other things, because developing the prototypes for these vessels at the Admiralty Shipyards allows us to go on to develop new, related, technology on the basis of these solutions.

I would also like to report, Mr Putin, that great efforts are being made to expand civil shipbuilding facilities in the Far East. We have developed one particular class of vessel, which we call Primorye. The 158,000-ton deadweight Suezmax. We are planning to build this vessel at the facilities in Bolshoi Kamen, currently under construction.

Vladimir Putin: It is twice the size of what is built at the Admiralty Shipyards.

Sergei Frank: Exactly, it will be the largest vessel ever constructed in either the Soviet Union or Russia. We hope they will be supplied to the fleet within three years. We have almost completed the preparatory coordination with the Unified Shipbuilding Corporation and its technological partners on this project.

Vladimir Putin: Soon we will review the progress made on this in the Far East.

Sergei Frank: I would also like to point out that we have met the technical requirements for this project. The Suezmax, which is under construction, is currently the most energy-efficient project. We do not use yesterday's technology in our vessels. We need to make sure what we build has both significant added value and the most cutting-edge technological specifications, and that includes in energy conservation and environmental standards.

Vladimir Putin: Good. But why do you need to go northwards here? Because of the depth?

Sergei Frank: A vessel can only pass here if its deadweight is less than 48,000 metric tons. And we are going to transport gas condensate after all.

Vladimir Putin: Along the deeper route?

Sergei Frank: Yes, the limitations are even stricter here, in the Laptev Straits. We used to go this way. Maybe we'll discover Sannikov Land all over again.

Vladimir Putin: Can these vessels go through this ice?

Sergei Frank: We are planning the first run between July and September. We are making thorough preparations, studying everything, including the ice sheet. All necessary icebreaking support will certainly be provided. However, this type of vessel, what we call a double action vessel, capable of sailing through 1.5 metre thick ice, makes this a realistic task. One could not even have dreamt about it a few years ago. Now we can ship Russian hydrocarbons to the ports in China, South Korea and Japan halving the journey time compared with the traditional route.

Vladimir Putin: These vessels will work on the Asian market, won't they?

Sergei Frank: In this particular case, the Suezmax, which we are going to build in Bolshoi Kamen, is a classic conventional vessel aimed at supporting new Russian pipeline systems in the Far East, primarily the terminal in the Kozmino bay. This vessel is perfect for servicing the Kozmino terminal. Of course, the Aframax vessel type will be very important in that market, but we hope that the Suezmax vessel will be significant as well. This is why we called this vessel type Primorye, since we want to build it in Primorye and are planning to use it there.

Vladimir Putin: Good. Thank you.