Caspian Energy (CE): Could you please tell about the main achievements of the Company for the last year? 

Dmitriy Solovyev, General Director, Cross Caspian Oil & Gas Logistics LLC: First of all, in 2013 we were successful to prolong the contract with Tengizchevroil (TCO) for 5 years. It is the most important achievement for Cross Caspian. It is also obvious that a certain volume of transit cargo of crude oil will be reoriented to the Baku-Tbilisi-Ceyhan pipeline (BTC) because the economy here is more attractive in comparison with the railway corridor. That is why our primary objective for today is to search replacing volumes for the railway direction. And it is not always simple because we have to redirect alternative cargoes from other directions where there is already established economy and technical model.      

Accordingly, we have to work out a more attractive economic model for transit of hydrocarbons by rail to the Black Sea. In this case the important role belongs to the issue of transportation costs in comparison with alternative routes. Taking into account growing tariffs of our contractors, which are included into our general transportation costs, certain difficulties emerge in this direction. Nevertheless, we are working in this direction and are going to talk with all participants of the corridor to negotiate and develop a more competitive economic model for attraction of additional volumes.

CE: What are the plans for the current year? Could you please tell about today’s goals and objectives of the Company? 

Dmitriy Solovyev: The key objective for 2014 mainly depends on the results of restructuring of crude oil transit in 2013. Taking into consideration that tariffs for transportation of freight by rail and by sea in the Caspian grew, our goal is to work out a more attractive economic model for transportation of freights by rail. It has negatively affected, in some sense, the competitiveness of the corridor and we have to work with all the partners to develop a more efficient economic model for cargo shippers because freights from alternative routes to our corridor can be attracted, first of all, by the economic factor.

CE: Which transportation options can the Company offer now to cargo shippers? 

Dmitriy Solovyev: In principle, the oil transportation scheme remains the same. It continues to work in a stable way as before. The matter is how to raise the economic competitiveness of the corridor. 

CE: Which triggers or tools can be helpful in this regard? 

Dmitriy Solovyev: Reduction of tariffs within the corridor can be helpful and tariffs should be reduced by all the players since one player cannot pay out of his pocket for the others. Apparently, it should be a result of the common policy.

In fact it is not an easy task to do and all players know it. It is a difficult issue because it requires a long-term approach. Raising attractiveness of the corridor for one type of cargo for a short-term period is not a right solution. Another tariff growth in the near future may cause the threat again.

Actually, it is difficult for the rail transport to compete with the pipeline transportation. The competition is very rigid. Nothing is impossible, but we need to take into consideration that if freight comes from Kazakhstan, it is the main potential source of growth for transit. In case with transit of crude oil volumes, which is not currently performed through the BTC pipeline system, we should compete with alternative corridors, including the Russian direction as well. To that end, we should offer more attractive transportation tariffs. It is not easy, because the number of participants of the corridor is large, including the Caspian Shipping Company, Kazmortransflot, the Georgian Railway LLC, the Azerbaijan Railways CJSC and Kazakhstan Temir Zholy JSC. Finally, attractiveness for cargo shippers does not depend only on tariffs in Azerbaijan and Georgia. It also depends on transportation costs from a location of shipping on a field towards Aktau port and on port expenditures. In general, all these aspects influence economy and the total throughput capacity. It is certainly a difficult process because it involves quite a large amount of stakeholders.

CE: What are the opportunities for increasing the transportation volume in the corridor and expanding services rendered by the company?

Dmitriy Solovyev: The carrying capacity of the corridor makes about 12 mln tons per year by railway and about 7 mln per year through the terminals into BTC. Now we can say that the carrying capacity of the railway is high enough, though, the capacity is to grow up to 14-15 mln tons after its reconstruction. However, its full scale operation will certainly depend on the economic attractiveness of the railway corridor. 

CE: Which technical innovations does the company plan to introduce and is deploying in the corridor at present?

Dmitriy Solovyev: Our main objective is to ensure stability, quality of services and minimization of any incidents because transportation of hydrocarbons requires particular control. Terminals undergo regular modernization. The equipment is changed by more advanced facilities. More updated automatic machinery is being applied. Modernization of assets is a natural process. However, the assets are launched for a long-term run as the oil transportation industry is capital-intensive and conservative. The Kulevi terminal has been commissioned quite recently and it is modern. The upgrading work was carried out at Sangachal terminal. The Garadagh terminal is under construction. Together with our partners we worked out a scheme of transportation of several sorts of oil to the point of destination in BTC. It is a sufficiently specialized technological process from the standpoint of documentation and performance of operations. The thing is that delivery of more than one sort of oil through the same terminal is an issue very strictly regulated by common operational procedures of BTC.  This matter also gained the logical conclusion, so the considerable volume of different sorts of oil is delivered into BTC through the Sangachal terminal. 

CE: Is all this work carried out in compliance with the international standards?

Dmitriy Solovyev: Absolutely! It is done both in compliance with the international standards and at the same time with specific requirements of the Baku-Tbilisi-Ceyhan regulation because every pipeline system has its own quality specifications, principles and rules of nominations, principles for oil refining, control over quality and principles for placement of volumes of the third parties in available capacities. All of it must be tracked down. 

CE: Which issues are regarded as of paramount importance from the standpoint of growth of attraction without taking tariffs into account? 

Dmitriy Solovyev: Just like any other branch, providing certain types of services, the economic attractiveness and economic effect gained from provision of services are considered one of the most important factors. Tariffs and transportation costs are certainly direct factors in this regard. There are indirect factors like de-risking that influence the economic attractiveness. 

Since the expectation of economic benefit is directly connected with the low risk, associated with transportation of hydrocarbons, it certainly requires ensuring minimum downtime of tankers and rolling stock, which are indirect costs, but are able to reduce the overall costs of such transportation. Besides, it is also stability that is of great importance for oil producing companies and oil traders. Stable provision of services in terms of quality and economic aspects enables to conduct long-term planning and ensure timely shipment of necessary volume of hydrocarbons within required timeframes. It is one of the main factors when analyzing attraction of any transport route. Noteworthy is also the necessity for ensuring safety of transportation, environmental protection and the work for prevention of any negative effects in this direction. These are factors that any serious consignor finds the most significant when evaluating a certain transportation route. 

Optimization of capacity utilization is definitely one of the most important factors because the availability of sufficient capacities and their offer to clients, nevertheless, does not rule out the necessity of working over minimization of the possibility of the shift or loss of quality of different types of oil and oil products. It also requires taking of measures for minimization of natural transit losses. 

Apart from this, noteworthy is also the work over flexible planning and provision of services. Despite the fact that any logistics requires a considerably diligent planning, it is obvious that the chain, which any oil producing company needs for delivery of oil products or crude oil to the world markets, is rather complicated. The chain involves a high amount of workers. Besides, there are unforeseen factors such as weather conditions, which may hinder timely approach of tankers, as well as certain difficulties that the partners of the company may face. Accordingly, all of these moments must be taken into account. Any negative effects caused by possible deflection from scheduled transportation must be minimized. This issue is solved through optimization of the technical process of oil trans-shipment, reservation of certain capacity in case of deviations or irregular transportation. Clients find it very important as it is also one of the most significant elements of assessment of reliability of certain routes for transportation of hydrocarbons. If any transportation route can hardly keep up with the schedule it is considered a big minus in terms of real transportation. It means that the route operates either at its maximum output or has not been optimized yet. Thus, from the standpoint of the client, the risk of losses from downtime of tankers, rolling stock and disruption of the schedule is very big. On the other hand, if a transportation route is flexible that enables to minimize negative consequences of deviation from set plans it is an additional attractive factor for the client, which indirectly enhances technical and economic attractiveness of the route. One of the main factors is also the ability of a route to build up a long-term model of cooperation with a consignor of goods as it will make the work predictable for a considerably long period of time. It is very important both economically and technically since hydrocarbons are considerably large cargo transported in bigger volumes and requiring big funds for ensuring transportation. Accordingly, the planning time-frame for transportation of hydrocarbons usually takes long. Any consignor operating with more than average volumes is assessing the transportation corridor for a long-term outlook. 

Nevertheless, when we speak about flexibility of provided services, we also mean the possibility of servicing consignors who would like to place volumes for a short-term period. We perfectly realize that the world market conditions may at a certain period require additional carrying capacity for a certain timeframe. If the corridor may provide such flexibility, it offers an opportunity to attract additional volumes that are placed for short-term period. It is also an important factor. The balance of interests of long-term players, engaged in the corridor, including short-term opportunities must be considered very subtly. 

CE: The 20th anniversary of the Contract of the Century signed under leadership of Nationwide Leader Heydar Aliyev is celebrated this year. The Caspian Energy journal, which represents an oil strategy of the Caspian countries, is also celebrating its 15th jubilee. In this regard, the Caspian European Club and Caspian Energy International Media Group are going to hold the I International Caspian Energy Forum -2014 in Baku. How would you evaluate this event? 

Dmitriy Solovyev:  The Contract of the Century, signed under leadership of Nationwide Leader Heydar Aliyev, paved the way for development of all economic sectors of Azerbaijan. I would like to congratulate all oilmen and readers of the journal on this significant date. Taking the opportunity, I also would like to extend my congratulations to the Caspian Energy on the occasion of the 15th jubilee. Progressing and enhancement of professional skills have helped you to almost reach a new stage, conduction of the First International Caspian Energy Forum-2014, which we hope will be held every year. I wish to congratulate your staff on this significant event, wish you creative and professional success, and extend gratitude to you for cooperation established between us. In general, it is noteworthy that the number of international forums, conferences, exhibitions and similar events, that Baku hosts, keeps constantly growing. It is not surprising since Azerbaijan, considering its development rates, is currently a leader of the region. Organization of the forum is quite a responsible task since the level of conferences and exhibitions held in Baku is growing day by day. Nevertheless, I am confident that the Caspian Energy Forum – 2014 will be organized and held on the highest level.