Leading by example: Two landmark projects pave the way
Nick Zana, Managing Director, Eurasia Business Unit Chevron Overseas Petroleum Inc.
On behalf of Chevron, I offer sincere congratulations to the participants of the First Eurasia Economic Summit organized by the World Economic Forum. This conference demonstrates Kazakh leadership’s commitment to create a business climate that will attract and reward foreign investment.
We are proud to have sponsored the first Investment Summit back in 1997. It was an important event which brought together people from more than 40 different companies and 17 countries.
A lot has happened since that Summit to Kazakhstan, to the petroleum industry in the Caspian, and especially to our landmark joint venture Tengizchevroil (TCO).
Many things have changed since we began our ground-breaking partnership at Tengiz back in 1993.
But one thing hasn’t changed — our strategy for investing in this country because we have always been focused on the future.
We’re here for the long-term. We are continuing to invest in Kazakhstan because Kazakhstan’s potential is unmatched and the risks are manageable.
Our partnership at Tengiz and the CPC pipeline that is currently under construction demonstrate our belief in Kazakhstan’s future.
Since it began in 1993 the shareholders have invested more than 2.5 billion dollars in Tengizchevroil.
With that investment they have been able to increase their production from just over 30,000 barrels a day when they first started to 214,000 barrels a day today.
And they’ve been able to accomplish this feat while working more than 7.7 million man hours without a loss-time incident and cutting their unit production cost almost in half.
A world class performance by anyone’s measure.
In the future Tengizchevroil plans to continue to invest heavily to expand production capacity and improve operating efficiency. In fact, $3 billion over the next 4 years.
TCO’s future plans include drilling more exploration and appraisal wells and building new facilities and upgrading existing ones.
They also include several infrastructure projects such as steam and electric power generation and an office and housing complex in Atyrau.
Since 1993 TCO has accomplished great things. But how has Kazakhstan benefited from this partnership? Let me give you just a few examples.
In 1999 alone the Tengizchevroil operation brought $512 million in direct and indirect economic benefits to Kazakhstan.
And as TCO’s success grows, so too will the financial benefits.
TCO and Chevron support a wide variety of other activities in Kazakhstan. Social infrastructure, small business enterprises, health care, education and training programs for the elderly and children.
TCO and Chevron are committed to the economic development of the region.
A year ago Chevron started a Small and Medium Size enterprise development program in Atyrau (SME) in concert with the UNDP, Citibank, and the European Bank for Reconstruction and Development. A Business Advisory Center and two loan programs to support small and medium-size enterprises in Atyrau were established.
The Business Center has only been up and running for over a year. But so far it has provided business advice and guidance to more than 500 budding entrepreneurs in and around Atyrau. The Business Center has also provided training for 75 business men and women and government employees.
The Center has helped prepare business plans for over 94 clients, 34 of which have been approved for more than 1.5 million dollars worth of loans.
In addition to the technical assistance available from the Business Center, there are sources of credit available. According to the small loan program, more than 185 loans in the amount of about 1 million dollars have been given to existing businesses as diverse as furniture manufacturing, women’s clothing, and remodeling a filling station.
Besides the small loan program there is a micro-credit initiative that targets entrepreneurs who make their first steps in business. To date, there have been 33 groups formed who received total of $21,000 worth of micro-credits.
Recently Tengizchevroil has set up a new purchasing office in downtown Atyrau near Chevron’s office and the Business Advisory Center to assist interested parties who want to do business with the joint venture.
This new office will make it easier for TCO to work with members of the local business community and vice versa.
We are also focused on increasing Kazakh employment.
I am pleased to report that Kazakhstan citizens now hold more than 70 percent of the 3,000 staff positions at Tengizchevroil compared with just 55 percent when they started in 1993.
And TCO has an active training and development program underway to increase that figure to 80 percent by 2004.
It’s a program that includes both advanced schooling and on-the-job training at Tengiz and in the United States.
Tengizchevroil offers a generous package of benefits to all of its Kazakhstani employees as well.
Besides a good salary the company offers medical coverage, a pension plan and a home-loan program to its employees.
Let’s now focus on the Caspian Pipeline the key that will unlock the Tengiz treasure.
President Clinton in a letter to President Nazarbayev said the pipeline “will serve as a model of future cooperation and progress on the way to building a better world.”
I can’t agree more.
All of the partners remain confident in CPC’s ability to deliver the project on schedule that has “First Oil” being delivered in June 2001, with “Full Capacity” being achieved in the 4th quarter of 2001.
At Chevron we’ve always considered Tengiz and CPC to be inseparable parts of a greater whole. Taken together the fiscal impact of these projects is enormous.
Tengiz and the Caspian Pipeline are expected to contribute 150 billion dollars in direct and indirect economic benefits to Kazakhstan and Russia over the next 40 years.
Let me give you just a quick update on some of the major developments.
Where do we stand with the pipeline?
Well, first of all in Kazakhstan we have started inspecting and testing the existing pipeline which runs from Tengiz around the north shore of the Caspian Sea to Astrakhan to determine what repairs are going to be needed.
The contract for the rehabilitation of the Kazakhstani facilities was awarded on 30 March 2000. This was the last major construction contract. The scope of the contract includes construction of a new pump station at Atyrau, rehabilitation and upgrading of an existing pump station at Tengiz, as well as rehabilitation of the existing pipeline from Tengiz to the Russian/Kazakhstan border.
In Russia we are well along in preparing the site for the new marine terminal and tank farm north of Novorossiysk on the northern coast of the Black Sea. The contract for the Russian Pump Stations was awarded on 29 December 1999 and the contractor is in the process of obtaining construction permits.
And everything we need to build the offshore loading facility is ready to go. We just have to wait for the weather to improve a little bit.
Siemens, our communications contractor, is in the process of installing the communication system that we will use during construction. As well as the sleeves for the fiber optic cables that will support the backbone communications system once the project is complete.
Starstroi, our pipeline construction contractor, is currently laying pipe at rate of about 4 kilometers a day.
They have already completed almost 300 kilometers of what will eventually be.
A 740-kilometer-long string of new pipeline stretching from Komsomolskaya in Russia to the pipeline terminus at Novorossiysk.
The completed pipeline, new and refurbished sections together will be 1,580 kilometers long or just short of a thousand miles.
That gives you a brief overview of what’s happening with the pipeline at the moment.
Bottom line everything is on schedule to load the first shipment of crude at Novorossiysk on June 30, 2001.
When it’s fully operational the Caspian Pipeline will allow Tengiz to reach its full production potential.
While the pipeline is being constructed we will continue to move Tengiz oil by the alternate routes we have used up until now.
By rail, by existing pipelines, and by barge through Azerbaijan, Georgia, Russia, Ukraine, and Estonia.
As I have just described, Tengizchevroil and the Caspian Pipeline are providing tangible benefits to both Atyrau and Kazakhstan, and will continue to do so for many years to come. These are fruits of cooperation in the Caspian oil industry. Too often the media portrays theCaspian oil industry as a chess game, where you win and lose. TCO and CPC highlight a different story: they focus on shared success.
Their continued success will send the strongest message possible that Kazakhstan remains a stable and attractive environment for investment.
Can anything else be done to further improve that environment?
I believe there needs to be a continued reduction in the layers of bureaucracy in the government. Especially at the local level where jurisdictional overlap often occurs between regulatory departments and agencies.
These overlaps often cause confusion and delay and increase the opportunity for corruption.
There is also a need for further training in modern municipal administration and budgeting for mid and lower-level government workers.
And finally, local administrators need to be educated and trained on the new laws and regulations they are responsible for implementing.
Continued improvements in these areas I think will give investors more confidence in investing in Kazakhstan.
President Nazarbayev clearly understands and has successfully reformed the central government.
Two years ago he formed the Foreign Investors’ Council to advise him on how to improve the investment climate. He continues to demonstrate his personal interest and commitment by meeting with local company representatives to discuss ways to improve laws and normative acts on tax, work permits and visas, the legal system and Kazakhstan’s image.
The leadership of Kazakhstan is the single biggest reason the country has been successful in attracting foreign investment.
I would like to take this opportunity to acknowledge the efforts of Imangali Tasmagambetov, the governor of Atyrau Oblast, for the remarkable things he has accomplished in such a short time.
Let me list just a few of them.
He has begun a major beautification campaign in Atyrau.
He has repaired the main bridge into town and resurfaced and added curbs to many city streets.
He built two new museums, refurbished the drama theater, and improved the appearance of many of the buildings in town.
Because of what he has done in a relatively short period of time he has instilled a new sense of civic pride in the citizens of Atyrau.
And finally, I want to acknowledge and offer my congratulations on a historic event of great significance that was celebrated last year. The 100th anniversary of the Kazakh oil industry.
It was 100 years ago on November 13, 1899 that the number 7 well drilled at Karachungul in western Kazakhstan first flowed oil. This happened thirty years before Chevron discovered oil in Saudi Arabia with its own famous number 7 well at Damman Dome.
It is the 7th Anniversary in our partnership, and I believe our hard work and close relationships will provide us many more “Lucky Sevens” in the future.
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