- Written by Lavinia Iancu
PEOP project: Securing Europe’s future energy supply
This year, the crude oil and derivatives carrier via pipelines and by rail tanks marked 115 years of existence of the crude oil transport via pipelines in Romania and 25 years since the company’s set-up. Together with Mr. Liviu Ilasi, Director General of CONPET S.A., we are willing to look over the important facts, the major achievements, the future projects of the company, along with the prospects for the year to come.
Mr. Director General, one can say that you share a history with the company you are leading, since you committed to CONPET right after graduation. What are the most illustrative pages of a virtual album describing the journey covered together, from the beginnings until now?
Liviu Ilasi: As you well said, my professional career is closely linked to CONPET. In 1989, as a new petroleum engineer graduate from the Oil & Gas Institute of Ploiesti, I was assigned to „Întreprinderea de Transport Titei prin Conducte” I.T.T.C (“The Crude Oil Pipeline Transport Company”). Two years later, I was already coordinating the activity of an important operating Sector on the Subsystem for domestic crude oil transport. Ulterior, I have experienced several managerial positions within CONPET – Head of Unit, Executive Director and, in 2005 I took over the management of the company as Chairman of the Board of Administration – Director General. The knowledge gained following my teamwork experience and the direct involvement in the development of successful projects in different business areas decisively helped me in my new capacity.
The next period was favourable to the development of major projects, the completion of old ones and implementation of a new management strategy of the company. In 2007, within the company’s general management, an internationally certified integrated management system «Quality - Environment – Health, Occupational Safety» was implemented, in 2008, the Modernization Project of the National Transport System of crude oil via pipelines (S.N.T.) was completed, so that in 2009, the Central Dispatch of the National Transport System was put into operation, at the company’s headquarters, in Ploiesti.
There was a time when I was temporarily separated from the team and the company. However, in December 2012, I returned as Director General of CONPET and we have resumed our journey together, as you beautifully expressed, becoming stronger and more competitive. In September 2013 the Bucharest Stock Exchange validated the good financial records registered by the company, by trading CONPET shares on the regulated market, Ist Tier, subsequently Premium. CONPET is now a modern company, profitable and attractive for investors, with professional employees and efficient management, a key player in the oil industry and on the capital market.
Nevertheless, the most important factor, in this entire picture, was and still is the team’s cohesion, a value that we have created together, value that renders strength and unity in ideas and objectives.
I am satisfied with our achievements so far and, over the long run, our desire is to give the crude oil transport via pipelines the well-deserved dimension, by turning CONPET into a regional and European operator.
What is the current position of CONPET on the European Map describing the energy transport?
Liviu Ilasi: Nationwide, CONPET is a strong and efficient company for the oil market and for the Romanian economy. The company conducts a business of strategic importance, by operating a network deemed as critical infrastructure. In other words, the supply of domestic and imported crude oil concerns national security.
If we refer to the Balkans, I can say that one of the strategic objectives of the management team is to define CONPET as a regional and European player in the energy sector, namely in the midstream segment of the oil and gas industry, by interconnecting the crude oil national transport system to the regional and, subsequently, the European one. The crude oil National Transport System via pipelines is currently being used one-third of its capacity, due to the reduction of the activities deployed by the Romanian oil industry operators. The completing of the oil pipeline Constanta - Pitesti - Pancevo and our company’s involvement in the project as pipeline operator would boost the use of the pipeline system operated by CONPET.
On the other hand, according to the latest statistics, the domestic crude oil production faces a natural decline generated by the worldwide oil price quotations. If investment solutions or alternatives for the development of new deposits are not identified, the crude oil supply of the refineries in Romania can only be performed in one way: by increasing imports. Consequently, the project would represent a solution for mitigating the risks arising out of the dependency on local players in the crude oil production and processing sectors.
Even more, given the major geo-strategic position of Romania, the interconnection of the crude oil national transport system to the regional and European systems would ease the Caspian resources connection to the South-Eastern European markets.
In this context, we hope that, once the preparation of the Energy Strategy of Romania for 2016-2030 is completed by the Ministry of Energy, the project will be recognized and promoted at European level, for the genuine contribution to the provision of the regional and European energy security and also, for the geo-strategic dimension to the South-Eastern European border.
Amongst the strategic projects made public on the occasion of the 2013 listing on the BSE, can be mentioned the interconnection of the national network to the crude oil European transport system. What exactly does this project state and how the works have been conducted ever since?
Liviu Ilasi: As previously stated, the interconnection of the national network to the European crude oil transport system remained one of the key elements of the company’s management strategy. Constanta - Pitesti - Pancevo project is an alternative route for the transport of crude oil in order to fuel the Pancevo refinery (Serbia), with possible extension to Bosanski Brod (Bosnia). CONPET may bring a major contribution to the construction and operation of the pipeline connecting Constanta to Pancevo, by making use of the overflow transport throughput of the existing network - Constanta - Pitesti, but also of the technical and logistic support and trained personnel. CONPET holds expertise in the area, facilities for pipeline construction and operation, an own Telecommunication System for the pipeline section crossing Romania and specialized personnel for pipeline maintenance and operation.
Together with the line of the ministry and of the other parties involved - Oil Terminal Constanta and the partners Transnafta/NIS Gazprom Neft from Serbia, we went further on with the Constanta - Pitesti - Pancevo project, a mini-PEOP – practically a section of the PEOP project, for the interconnection of the Romanian and Serbian transport systems. The initial approach, Pan European Oil Pipeline – PEOP targeted the construction of a major oil pipeline to connect Constanta oil terminal to Trieste terminal in Italy, easing the access of the Caspian crude oil to the European markets. Please note that we have reiterated the PEOP project during the prestigious global events on the national energy strategy.
My belief is that the PEOP project accounts for a viable solution to the geopolitical context in the Black Sea region and addresses the need to sustain the EU’s strategic objectives targeting the security of the energy supply, the interconnection of the energy systems at regional level and fair development of the energy transport routes.
Furthermore, in case of a Black Sea blockage scenario, the PEOP solution provides, through the crude oil inverted flow, i.e. from Trieste to Constanta terminal, the alternative for the supply of the refineries in Romania.
After three years of listing to Bucharest Stock Exchange (BSE), Ist Tier, please name the notable achievements of CONPET.
Liviu Ilasi: The latest notable achievement is CONPET’s entry in the watchlist of eligible companies for inclusion in the calculation of BET and BET-TR indices, starting October 2016. CONPET is the first and only company to have entered this list, the Decision of the Bucharest Stock Exchange Board coming as a recognition of the economic-financial performance recorded within the last three years as of the listing and of the efforts paid to enhance CONPET transparency and boost visibility.
Currently, CONPET S.A. is included in 5 out of 9 indices of Bucharest Stock Exchange.
Another achievement is the company’s consolidated position on the regulated market, status confirmed by the evolution of COTE shares. As of the admittance to trading on the regulated market administered by the BSE (05.09.2013) hitherto, the COTE shares price registered approximately 82% increase, reaching RON 80. This was reflected on the market capitalization which, during the afore-mentioned period, rose from RON 381 million to RON 682 million on December 31, 2015, CONPET ranking 16th in TOP 100 issuers by capitalization.
The upward trend described by the listing quotes of the shares issued by CONPET S.A. proves that COTE shares are not overrated, in fact they have ‘growth potential’, which fairly reflects the company’s economic-financial performance, a share which has enough force to remain attractive to the investors, over the short and long run. The stable and attractive dividend policy implemented by the Board of Administration and the strategy followed in the investor relations – higher dividend and maximized return on investment - represent determining factors having positively influenced the company’s performance. Consequently, this year, CONPET ranked second in the top of distributed dividends, by a value amounting to RON 7.29/share.
The company’s major achievements within the last three years reflect the force and potential of CONPET, materialized in professional management, in compliance with the corporate governance and capital market principles.
Seen as a means for attracting investment funds, the capital market is a major lever. How do you use this mechanism?
Liviu Ilasi: CONPET S.A. has been listed on the regulated market of the Bucharest Stock Exchange, PREMIUM category, for more than three years. All along this time, the Board of Administration, together with the management team, managed to secure a high transparency level, by the application of the good practices in terms of corporate governance, with particular focus on the investor relations. Our target is to enhance company visibility on the capital market in order to attract investments, an approach that generated positive reaction from the financial analysts, investors and shareholders. Consequently, to date, our shareholding structure includes global investors - investments funds such as Utilico Emerging Markets Limited, KJK Fund and Fondul Proprietatea. Furthermore, all this time, the company has been reviewed by financial analysts found in top five intermediaries on the market, and the liquidity of COTE shares went high. Also, the CONPET ranked the first nine companies in the White Paper on communication of the listed companies, for transparency and communication, pursuant to a study performed by the BSE for the evaluation of the information submitted by the companies traded on the Regulated Market, by their corporate websites.
The promotion of the company’s image in the Romanian and international capital market, in view of boosting the shareholders’ and investors’ trust in the business, definitely is the most effective means to attract money for major investment projects. In this respect, in order to reinforce the relation with the capital market stakeholders, CONPET has organized, more than once, various meetings, video and conference calls with investors, shareholders and financial analysts. The presence in the capital market eased our way to road shows aiming at promoting the company, outstanding events and meetings with worldwide investors, held both in our country and abroad.
To conclude, transparency, openness to the shareholders & investors and the stability of the technical-economic standing of the company in the short and mid-run are turning CONPET into a profitable, investor attractive business, thing that reflects in the performance of the share’s price, which has practically doubled, as of the listing of the company on the regulated market administered by Bucharest Stock Exchange.
What projects are under your management now? What are your plans and priority projects? Do you envisage business diversification? If the answer is affirmative, please elaborate.
Liviu Ilasi: One of the main targets for the next period is to seek alternatives to the declining business volume, that’s why we’re considering long-term investments and projects that trigger the development and boost of the company’s efficiency. In this respect, the CONPET management sets oneself to develop some major projects, targeting the implementation of the “Leak Detection and Location System” and “Monitoring of the Cathodic Protection System”, in view of improving the NTS performance and business efficiency.
Furthermore, the Board of Administration has set as strategic measure, the stimulation of the revenues by developing new income-generating activities, i.e. renting storage facilities, leasing rail transport infrastructure and atypical crude oil and oil products transport through pipelines.
All the development directions mentioned above are part of the CONPET Development Strategy and their approach shall be made focusing on maximising the CONPET profit, for the benefit of the company’s employees and shareholders.
As regards 2017 Investments Program, what are the main objectives you’re targeting?
Liviu Ilasi: For an enhanced performance of the Crude Oil National Transport System, in 2017 is being envisaged the continuation of the pipeline rehabilitation program, extension of the modernization and monitoring of the cathodic protection system of the major pipelines and implementation of a pilot project related to the detection and location of the pipeline leaks. We’re also pursuing the upgrade of the IT system (ERP), which will be implemented during 2017-2018. The project will improve and streamline the IT support for the logistics related to the crude oil pipeline transport business.As regards the modernization of the cathodic protection system, the benefits deriving from the investment completion, apart from the financial gain and the reduced environment impact, also relates to the preventive component, which is the attribute of such a modernized system. Among the financial benefits, the most important one refers to the capacity of an effective cathodic protection system to extend (even double) the pipeline’s lifespan.
Another major investment objective is represented by the implementation of an automated system for detection and location of the pipeline leaks. A feasibility study has already been made for the implementation of this system which enables the leak detection, in real time, from the moment of failure, with an accuracy of only a few meters. The investment completion would result, on the one hand, into decreased operating expenses and on the other hand, into reduced environment impact.
All the investments achieved, the investment objectives in progress and the ones projected in the future, contemplate the increase of the operating efficiency, which will reflect in the economic-financial performance of the company.
Given the present context described by the decline of the refining activity in Europe, what is the current total transport throughput of CONPET and which are the partners you have concluded short/medium-term contracts with?
Liviu Ilasi: CONPET S.A. is the operator of the Romanian Crude Oil Transport System. We are the binder between the extraction sites, namely Constanta marine terminal and the refineries in Romania. We are managing a transport system which covers 24 Romanian counties, is 3,800 km long and has 27.5 million tons/year total transport throughput. From the Central Dispatch in Ploiesti, which is the operational centre of the National Transport System, we are coordinating and communicating, permanently, with the 15 local dispatches distributed in the 11 Romanian counties.
The modernized system is made of three major subsystems: the domestic subsystem, the import crude transport subsystem and the rail transport subsystem, for the oil fields which are not connected to the major transport lines. By the three major subsystems is being supplied, in continuous flow and under maximum safety conditions, the crude oil and derivatives transport from the oil fields to the refineries.
Our main clients are OMV Petrom, accounting for 80% in turnover and Petrotel-Lukoil – accounting for 19% in turnover, as per the economic-financial results of CONPET for 2016 Ist Half.
At the end of H1 2016, the company profit was still increasing. Which are your estimates for 2016? What about for the next period?
Liviu Ilasi: The annual financial results related to 2016 shall be included in the Annual Report; the information is then to be publicly disseminated following their submission to Bucharest Stock Exchange. Consequently, both the specialized public and the public at large may access all information and data regarding the economic-financial results of CONPET related to 2016, on the company website www.conpet.ro. The data for the presentation of the annual report shall be made public via the 2017 Financial Communication Timeline, also published on the company website.
As you kindly noted, the first semester of this year recorded very good results, the degree of achievement of the performance indicators for the first half of 2016 registering 109.55%, as compared to the budget provisions for the same period. An improvement of these indicators was recorded compared to the first half of 2015.
We are a solid company, with a professional management taking pride in the outstanding economic-financial achievements, a reputed and respected player on the Capital Market.
There is an understanding that CONPET profit grows primarily based on the augmentation of the transport tariff, approved by NAMR. Could you give us more technical details regarding the composition of this tariff?
Liviu Ilasi: I am completely aware of this understanding and I am trying, every time, to challenge and confront, by arguments, this view. As a general observation, in the methodology for the calculation of the tariffs pursued by the National Agency for Mineral Resources (NAMR), the setting of tariffs is correlated with the principle of economic efficiency and the observance of the market value principle, so that advantages or disadvantages should not be created in relation to one client or another. Please note that, to date, the transport tariff accounts for 0.571% in the price of the finite product at the gas station.
The perception according to which CONPET profit grows as a result of the augmentation of the transport tariff approved by NAMR lacks coherence. In case of CONPET, the management acts towards providing the system operation under safety conditions, meeting the exigencies of our beneficiaries and profit achievements to please our company shareholders, by the strict observance of the legal framework. The very good results obtained by CONPET in the past three years since the implementation of the professional management are, in my opinion, the result of a thorough administration and effective management, in full compliance with the above-mentioned principles, without making use of the tariff as an exclusive lever to secure profitability.
In early December 2012 you were appointed, once again, Director General of the company, capacity previously held (during 2005-2009). As an experienced manager with expertise both in the technical and economic area, what are the main issues included in your Agenda?
Liviu Ilasi: In my capacity of former and current Director General and also mere employee of the company, with a professional evolution that matches with the CONPET development along years, I am proud to celebrate over 25 years of work dedicated to the company, belonging to a generation of oilmen who managed, by effort, determination and professionalism, to bring the company to the position and reputation CONPET rejoices today in the energy industry in Romania.
Obviously, the company activity will focus, just as before, on three main action lines: maintaining stable financial results by solid partnerships concluded with our clients, observing standards of excellence in the transport operations and managing the risk situations, protecting the environment and the community.
For the prospects, I wish that, through a modern and robust management, we harness tradition and experience as to give rise to a complex vision, provide the prerequisites for a sustainable development and add global dimension to the crude oil transport business, which would be a worthy reward for CONPET.