KAZTRANSGAS JSC: BIG PLUSES OF THE TRANSFORMATION.

KAZTRANSGAS JSC – the national operator of Kazakhstan in the field of gas and gas supply successfully conducts the transformation program. All national companies included in the National Welfare Fund “Samruk-Kazyna” JSC are now carrying out this process. This need arose after a comparative analysis of the Fund and its subsidiaries with foreign counterparts, which showed that such international companies receive a larger profit at the same level of invested capital. It was then that the leadership of “Samruk-Kazyna” JSC took the initiative to implement the transformation Program, and in September 2014, the President of Kazakhstan Nursultan Nazarbayev launched it.

The first “swallow” in this rather complex process was the oil and gas sector of the country. Today, it is already possible to sum up the interim results and draw conclusions on how useful the processes of renewal have become on the example of the National operator in the gas sector. For questions about the activities of “KazTransGas” JSC said Deputy General Director for transformation and development Yerkanat Uakbayevich Temirkhanov.

– Yerkanat Uakbayevich, what is the transformation of KazTransGas, what exactly does this process?

– Transformation of KazTransGas is a program of large-scale transformations aimed at improving the efficiency and increasing the value of the company’s assets. In the rapidly changing, modern world, KazTransGas should also change: to introduce new, advanced technologies, new standards of business processes, to optimize management structures. Otherwise, any modern enterprise, especially such a large one as KazTransGas, is doomed to lag behind. The company we have is really big. More than 30 thousand kilometers of gas distribution networks, 14 thousand kilometers of main gas pipelines are in the management of KazTransGas. The company provides gas to over 7 million consumers. More than 14 thousand people provide uninterrupted and trouble-free operation of the entire system.

Having thoroughly analyzed our activities, we have made a clear program of transformation. It provides that further work of KazTransGas, as a National operator, will be based on “three pillars” – production, transportation and sale of gas, and it will be separate business processes, which will be engaged in our transformed subsidiaries. As much attention will be paid to the optimization of all business processes of the company.

We are creating an operator for the operation and maintenance of main gas pipelines and gas distribution networks based on our subsidiary “Intergas Central Asia” JSC. Prior to the transfer of these functions, “Intergas Central Asia” JSC was engaged only in the operation, maintenance of main, and transit gas pipelines. Now the entire gas distribution network, going from these main gas pipelines to the final consumer in all cities and villages of the country, is also transferred to the company for operation. In addition, all qualified production and administrative personnel engaged in gas transportation are transferred to “Intergas Central Asia” JSC from “KazTransGas Aimak” JSC.

This large-scale transformation of the subsidiary required changes in the work of KazTransGas Aimak JSC, which will fully concentrate on retail sales of commercial gas in the domestic market and work directly with consumers. The company will no longer deal with gas transportation and maintenance of distribution networks.

Now KazTransGas Aimak will actively implement investment programs aimed at gasification of regions and modernization of gas supply networks. The newly constructed gas pipelines will be transferred for operation to “Intergas Central Asia” JSC.

“Amangeldy gas” LLP will continue to work on increasing the resource base, exploration and production of gas. For this purpose, in accordance with the Program of development of the gas industry, in order to provide gas to consumers, we continue the development of the Amangeldy Group of gas fields in the Zhambyl region.

All these major changes led to the need for the operator for maintenance of our subsidiary companies, all branches of the KTG.

– What caused this redistribution of functions between your subsidiaries?

– During the analysis of our business processes, it was found that many functions or duplicated each other, or were not peculiar to a particular enterprise. After all, if one company is engaged in the transportation of gas, it should not solve the issues of its sale or production, and vice versa.

A simple example, earlier, JSC “KazTransGas Aimak” to serve the gas distribution system, had its own operator, a single control room, a large staff of specialists, that is, all the same thing that was available in the subsidiary –”Intergas Central Asia” JSC. After the innovations, there will no longer be two crawlers or technicians going on the same route, or two welders doing the same work at the same time. Figuratively speaking, there will be no separate “hot water locksmith and cold water locksmith”, all this will be performed by one worker. The work and services of the two subsidiaries will be optimized with the reorientation of working specialties. That is, the qualification requirements for all specialists and management personnel will increase. All this will avoid duplication of functions at all levels and increase output per employee.

– In addition to the processes related to the improvement of production activities of the company, what changes have affected the administrative and managerial level?

– Of course, first of all, the changes began with the head holding company. We have almost completed the process of creating an optimal structure of administrative and managerial personnel, based on a vertically integrated scheme, unified for the whole company.

The entire Central office of KazTransGas group of companies and five subsidiaries was relocated to one building. Such structural optimization provides huge savings due to multiple reduction and reduction of costs for maintenance and repair of offices, maintenance of administrative and economic services, office, security, Parking and Parking. One IT-Department with a common server, IP-telephony will work for all, special halls for negotiations and video conferences were created.

In addition, if earlier, the regional offices of subsidiaries were located in different offices, rented, bought administrative buildings, spent money on their maintenance, then as part of the transformation, they will also be placed in one office. Now in the regions instead of two there will be one branch and one control apparatus. A single Central office is being created, located at one point, and this will lead to the fact that all production costs will be reduced at least twice. Instead of two directors, two cars and drivers, two deputies and chief accountants and so on, everything will be in the singular! It gives even greater mobility, increases efficiency, and simplifies interaction. In addition, the released buildings and premises will be sold, the money will be spent on gasification and modernization of the gas distribution system. Today such work is carried out in all branches of “Intergas Central Asia” JSC and “KazTransGas Aimak”.

– You spoke about the introduction of modern technologies in the company. What exactly are you modernizing?

– The introduction of high technologies also gives great savings. Now in all divisions of the company, up to regional gas sites, programs for video conferencing and IP-telephony are installed. This allows you to quickly interact in real time, which means that there is no need for the cost of travel and long-distance negotiations. To hold a meeting, you do not need to come to Astana, and, conversely, from the center to travel to the regions. Again – not only multi-million money saving, but also many hours of time saving.

Thanks to modern technologies and dispatching system, being in Astana, we have the opportunity to observe the route of the main gas pipeline, gas distribution system and the work of the whole group of companies at any point in real time. If there is a problem, it is much easier to organize a “brainstorming” specialists and, in the “live”, to give recommendations for solving the problem.

Since last year, we have introduced an electronic system of personnel management and business processes. Now we conduct weekly reporting and evaluation of the work done. We got away from the old, paper records, month, quarter, and all that kind of writing. It’s no secret that such reports were made mainly for show, and did not bring the proper effect. A new, fully automated approach allows you to identify weekly problematic issues and quickly adjust business processes, without waiting for the end of the month, half a year and more quickly respond to changes in market conditions. By the way, this approach has much disciplined the entire staff of the enterprise.

– Such a large-scale optimization of business processes will release a large number of employees. Are you planning a big layoff?

– All the ongoing transformation and optimization in the KazTransGas group of companies do not lead to any reduction in the number of employees. Our personnel policy is aimed at career growth of employees through retraining and professional development. KazTransGas grows and develops from year to year. Therefore, due to the increase in capacity and production volumes, we cannot have a reduction in personnel. Those who want to develop and improve, to build their careers with us, the qualified production and administrative staff, will continue to work in the company.

Here one can add that the company pays great attention to personnel policy. We always promptly respond to the needs, questions and suggestions of our employees. For example, at the request of our employees, after the introduction of weekly reporting, we switched to weekly wages. Practice has shown that this form of payment is very convenient and practical, especially for young professionals and their families.

– You told that the company creates the operator on service. What exactly will be the responsibilities and why do we need such an operator in the structure of KazTransGas?

– The need to create a service operator arose during the ongoing transformation process. We conducted a detailed analysis of the use of machinery and vehicles. As a result, we found out that not all our equipment is used by 100 percent every day, and in some cases, this level is even below 25 percent.

That is, each subsidiary in each region contained its own fleet of vehicles and machinery. At the same time, for example, a crane or excavator, after the amount of work performed, could be idle until needed again. At the same time, another branch requires the same crane and excavator, they are purchased, and after the work is done, they are also idle. This led to the fact that the available technical potential did not work at full capacity. Therefore, it was decided to identify a company that will manage the entire fleet of vehicles and special equipment. Now, turning to the operator for service, one application will be possible to obtain the necessary equipment at the right time.

In addition, to account for and monitor the use of all equipment, GPS trackers will be installed on it, which will exclude its misuse. This will allow firstly, to optimize the number of vehicles, secondly, to reduce the cost of its maintenance, and thirdly, will allow the service company to update the fleet of vehicles, get rid of the old, and KazTransGas – to focus on its main activities. For us there will be no need for the content of production resources in this type of activity.

Previously, such work was carried out in “KazTransGas Aimak”, and allowed to reduce the mileage of vehicles by 2.6 million kilometers per year, at times reduced the consumption of fuels and lubricants, spare parts, reduced the fund of wages. As a result, the savings amounted to several billion tenge (KZT). All of this will help to save on services across the group companies of the KazTransGas.

– Really large-scale and effective transformations, and what else is planned to be made within transformation of the company?

– We are not only changing the structure, but the company is looking for all the possibilities of optimal use of available resources. The company’s management believes that it is necessary to take a new approach to the issues of prudent use of the existing material and technical base. For example, we are now considering the possibility of transferring working gas pipelines that are under conservation to the regions where gasification projects are being implemented. And this is thousands of kilometers of high-strength pipes. The quality of steel pipes has always shown and impose very high requirements. Therefore, their cost is very high, and we have a large number of pipes are now on preservation. If they are moved from one site to another, before that on modern machines and equipment to diagnose, clean, process and re-isolate, they will be able to serve another 20-25 years. The cost of such pipes will be several times less, and plus new jobs.

We also have compressor stations, which are also on preservation. Why experience transfer tubes to use here? All this work, again, is aimed at saving billions of tenge (KZT), which means – reducing the cost of investment projects for the country’s gasification, reducing the tariff load and gas prices.

– We have repeatedly heard about your environmental initiatives. Tell us, what steps are you planning within the framework of the concept of “Green economy”?

– In this direction the work goes on constantly. Our company is the initiator of the transfer of vehicles to natural gas fuel, which will not only save a lot of money, but also significantly reduce the environmental burden. Now comes the process of transfer of all KazTransGas vehicles for natural gas fuel. All this is consistent with the implementation of the Concept of the transition of the Republic of Kazakhstan to a “Green economy”. We have taken the initiative and received preliminary approval for the transfer of the entire Samruk-Kazyna holding fleet to gas motor fuel.

We want to extend this experience to the whole Kazakhstan. We already have an agreement with the company “Processing and Marketing KazMunayGas” about the installation through their network of filling stations for vehicle gas-filling compressor stations. The company’s management has developed a long-term plan for the development of the network of these stations in the country until 2022. To date, there are already 11 such gas stations. This is just the beginning.

The leaders of some areas, seeing such economic benefits, are also getting involved in this process. Recently, a Memorandum was signed with the Akimats of Aktobe, Almaty and Kostanay regions on the transfer of municipal transport to natural gas.

Our subsidiary – JSC “KazTransGas Onimderi” signed a cooperation agreement with a group of companies LLP “Allur Auto” and JSC “Sary-Arka Autoprom” in Kostanay for increase of the enterprise of domestic production of vehicles running on compressed natural gas. This initiative will allow car owners to significantly save money, because gas is cheaper than gasoline, and, again, will significantly reduce the environmental burden.

It can be added that within the framework of the Concept of transition to a “Green economy”, for the overall energy saving and environmental improvement, based on international experience, KazTransGas proposes to transfer multi-storey buildings from centralized to autonomous heating on natural gas. This will eliminate huge losses, up to 40% of thermal energy, up to 50% of hot water and will save billions of tenge (KZT) on the replacement and repair of heating mains. Calculations show that it is not necessary to endlessly expand and build new thermal stations and routes. This approach will significantly reduce the cost of utility bills, save a large number of energy resources, and make the air in our cities cleaner.

– Tell us about the dynamics of the company’s development, how is the situation in the field of gas production and transportation?

– Our goal is to continue the work on further integration and development of the domestic gas industry, to maximize revenues from gas exports and the use of transit potential. It should be noted that the company is developing quite dynamically in this direction. Last year, 23.5 billion cubic meters of commercial gas were produced. The domestic market delivered 12.4 billion cubic meters. For comparison, this amount of gas enough during the year to provide 4 million homes with 100 square meters or 40 million apartments in multi-storey buildings!

The volume of gas transportation through main pipelines totaled 105,431 billion cubic meters of gas. The construction of the linear part of the line “From” Kazakhstan-China main gas pipeline “has been completed, this year the third line of the gas pipeline will be put into operation. This will ensure the transportation of up to 55 billion cubic meters of gas per year.

KazTransGas signed an agreement with “Social and entrepreneurial Corporation “Saryarka”” on cooperation in the implementation of the project of exploration of methane in the coal seams of the Karaganda coal basin. With the Akimat of Aktobe region – a Memorandum of cooperation on the implementation of the project for the processing of associated petroleum gas of three subsoil users of the region. Now the gas at the Kozhasay field, which was previously flared, will go to consumers, which is an additional 250-300 million cubic meters of gas per year. The variant of the similar project for realization in Kyzylorda region is considered.

KazTransGas will participate in the implementation of a completely new innovative project – the construction of a natural gas liquefaction plant in the Zhambyl region.  This will provide remote areas of the region with gas; significantly reduce the environmental burden in the region. The investor was the Kazakh company “Astana-Trans-oil”, which plans to invest about 100 million us dollars in the project. KazTransGas, in turn, will provide connection to its gas pipelines and will supply the necessary volumes of gas for the smooth operation of the plant. In the future, we want to develop multi-vector, move towards the development of the gas chemical industry and liquefied gas.

Implementing the decisions of the Head of state, we are completing the construction of the Beineu-Bozoy section of the Beineu-Bozoy-Shymkent main gas pipeline. This is an alternative route of gas exports to China; it will increase our export and transit potential. As a result, it will increase the profitability of the company, which will be aimed at gasification and modernization of the entire gas transportation system.

– How changes in KazTransGas JSC will affect the rates of gas?

– The growth of exports, transportation, processing and the introduction of new technologies is the key to deterrence and constancy of price and tariff policy. As I said, the mechanisms of modernization and optimization are being implemented in all structural units of KazTransGas, which eliminates duplication of functions and work in all areas of business processes. We are completing the consolidation of technical and human resources across the group of companies.

KazTransGas is a national operator, so the company’s management has a state approach and large-scale thinking in solving social problems. The company bears a huge social responsibility and our desire for a fairly austerity, optimization of business processes, in no way should affect the population and the ongoing projects in the field of gas and gas supply.

Therefore, due to the optimal use of internal reserves, the company continues to maintain the price balance and tariff policy. In the future, our company plans to introduce common pricing principles, a single tariff and a comfortable gas price in all regions. At the same time, it will be mandatory to differentiate the cost by consumer groups.

– Let’s focus on consumers in more detail. How is gasification progressing in the regions of Kazakhstan?

– In this direction, the company is carrying out systematic work on the continuous supply of gas to consumers within the country. Last year, the Government of Kazakhstan approved the General scheme of gasification of the Republic. It assumes that by 2030, 13 regions will be gasified in Kazakhstan; the number of consumers will increase to 12 million people. To date, KazTransGas has done a significant amount of work, developed regional gasification schemes, and compiled an updated resource base for commercial gas. Together with the Akimats of the regions, relevant memorandums of cooperation in this field have been signed. Our company completed the project “Gasification of Almaty city and suburban area”, built 1226 km of gas pipelines. In East Kazakhstan, under the project of gasification of the city of Zaisan, the first stage of the launch complex was commissioned, gas pipelines were brought to 1100 subscribers and to more than 100 objects of the municipal sector. The city of Turkestan is actively gasified, where thousands of residents already use the most convenient and environmentally friendly fuel. With the beginning of the project on modernization of gas distribution networks in Shymkent padded 1962 km in Taraz 376 km of new pipelines. Thus, the most advanced gas supply system appeared in these large cities.

The planned commissioning of the Beineu – Bozoy section, which was mentioned above, will contribute to the gasification of more than 300 settlements of Kyzylorda and South Kazakhstan regions. Now actively works on laying of the bringing gas pipeline and distribution networks in the Kyzylorda region are conducted. This year, five settlements will be gasified, including the cities of Baikonur, Aralsk, Aiteke bi, Shieli and Zhanakorgan. Automated gas distribution stations will be built in all these areas, as well as intra-quarter gas pipelines.

– As a national operator, you represent Kazakhstan’s gas and gas supply sector and outside the country. How to relate and how to evaluate the work of your company on international markets?

– Really, international rankings can say how effective are the activities of the company, how it affects her activities of ongoing transformation. Fitch Ratings has affirmed the long-term rating of “KazTransGas” and our 100% subsidiaries, “Intergas Central Asia” and “KazTransGas Aimak” to “BBB-/Stable” rating Agency Standard&Poor’s also affirmed its long-term rating.

Pay special attention to the fact that our company on these ratings is kept at the level of the parent structure, the National company “KazMunayGas”. This suggests that the parent company conducts its work systematically and in the right direction, and it is aimed at further successful development of the oil and gas sector of the country’s economy.

Another factor confirming the international level and authority of KazTransGas is its credit reliability and investment attractiveness. This year, the company has concluded a loan agreement with major international banks such as Citibank, ING Bank and Natixis to attract a syndicated loan totaling $ 400 million. The loan is provided on favorable terms, for a period of three years with an interest rate of 1.5 % + 3MLibor.

JSC “KazTransGas”, a dynamically developing, competitive company, effectively using its resources and capabilities, successfully carries out the process of transformation. At the Forum of transformation of the Fund “Samruk-Kazyna”, the Head of state stressed that the future economic fate of Kazakhstan will depend on the success of the transformation process. Therefore, the national operator in the field of gas and gas supply, with full awareness of the responsibility entrusted to us by the President of the Republic of Kazakhstan, will continue to work on the transformation of business processes. This will make it possible to take effective measures to curb price and tariff policies aimed at improving the socio-economic well-being of the country.