Conditional profit

CPC shareholders will borrow a billion to expand the pipeline

Of the $4.6 billion that shareholders of the Caspian Pipeline Consortium (CPC) plan to spend on expanding the pipeline's capacity, about a billion can be raised from external sources. This was announced yesterday by the general director of the consortium, Alexander Tarakanov. According to him, the invested funds and borrowings made must be returned within the next eight years. In order for the specified deadlines to be met, experts note, CPC will have to use almost all of its profits to pay off debts.

The final amount of funds that CPC is ready to spend on expanding its 1.51 thousand km pipeline (linking Kazakh fields with Russian Black Sea ports) will be determined only by the end of this year - the final estimate should be signed on December 15. Note that the cost of increasing the capacity of this oil transportation artery has been constantly growing since 2005. Since then, the estimated cost of modernization and improvement has increased from $2 billion to $4.6 billion. “I think we won’t go beyond this figure, but it will be clearer by the end of the year,” Alexander Tarakanov said yesterday, adding that the consortium will try handle all the costs yourself. At the same time, the General Director of CPC admitted that in the next two to three years additional funding from external sources will be required. CPC did not name possible creditors of Vremya Novostey yesterday. “Around $1 billion may be needed within the current financial model, theoretically, by the end of 2012-2013,” Mr. Tarakanov said. The fact is that although construction should begin in March 2011, according to the pipeline capacity expansion project, the bulk of capital-intensive work will take place during the period specified by the general director. Thus, in 2012 it is necessary to modernize existing oil refineries, replace 88 km of pipeline in Kazakhstan, and improve the sea terminal. In 2013, three reservoirs of 100 thousand cubic meters each should be built. In addition, it is planned to build five new distillation stations. All this should make it possible to increase the throughput capacity of the CPC from the current 34.57 million (last year, shipments increased by 9.9%) to 48 million tons of oil per year. By 2014, CPC capacity is expected to increase to 67 million tons.

Experts believe that there should be no obstacles to the implementation of the project. “The necessary demand for pipeline capacity has been secured. Given the new sanctions against Iran, participants in Caspian projects will prefer not to take risks and will redirect their supplies to the northern direction. Additional volumes will be provided by newly launched fields in Kazakhstan,” believes UniCredit analyst Artem Konchin. According to his colleague, head of the investment analysis department of Management Company “Univer” Dmitry Aleksandrov, expanding the pipeline’s capacity will allow Russia to take over Kazakh oil. The general director of the consortium said yesterday that in the future, CPC expects to receive raw materials into its pipe from Kashagan, as well as from the Filanovsky field, which is being developed by LUKOIL.

In terms of raising borrowed funds, according to Dmitry Alexandrov, CPC does not foresee any difficulties either: “It’s easy to get a loan for such a project, especially with such shareholders.” Let us note that the owners of the pipeline, which is commonly called the only private oil transportation enterprise in the country, besides Chevron (15%), Lukarco (12.5%), Mobil (7.5%), Rosneft-Shell JV (7.5%), BG (2%), Eni (2%) and Oryx (1.75%) are also Russia (through Transneft controls 24%, another 7% through KTK Company) and Kazakhstan (through Kazmunaigas and Kazakhstan Pipeline Ventures - 19 and 1.75%).

At the same time, according to experts, the expansion project turned out to be far from cheap. “Although consumables did not rise in price so much, from $6.3 per ton per 100 kilometers of transportation, the price increased to $9.5. Thus, the specific construction cost of CPC is higher than that of BTS-2,” -- remarked Mr. Alexandrov. In addition, according to his calculations, if CPC's operating profit remains at about $500 million, almost all of it will be used to cover the billion-dollar debt. As Mr. Tarakanov explained yesterday, if the consortium resorts to borrowing, the borrowed funds are planned to be repaid by 2018-2019.

Petr GELTISHCHEV