REFERENCE: KazTransOil CJSC (Kazakhstan) - comments of KASE Listing commission
27.08.01 00:00
/IRBIS, information of the KASE Listing commission, Aug 27, 01/ - The
following are the comments of the Kazakhstan Stock Exchange (KASE)
Listing commission regarding KazTransOil CJSC. The information is
published due to the passing the listing procedure of the Kazakhstan Stock
Exchange (KASE) under category "A" by first issue euronotes of KazTransOil
CJSC.
STATE REGULATION
One hundred percent of KazTransOil CJSC shares is owned by the Holding,
whose 100% of shares is owned by the Government.
The management. The company's management means that the
management of the Holding will be conducted by the Government in the
same manner as the previous management of the company. Based on the
resolutions #1159 and #1252 of the Government, the dividends paid out by
the KazTransOil CJSC till the year 2006 should not exceed 10% of its net
income. However, there is no certainty that the Government, as an indirect
shareholder of the company, does not change its opinion regarding the
amount of dividends paid by the company, and that it will support the
company's activities, including those aimed at expansion and planned
investments indicated in strategic plans. Also, there is no certainty that the
Government will not change the management manner of the Holding, or the
size of the block of shares of KazTransOil CJSC indirectly owned by the
Government, and makes negative impact on the holders of notes.
Tariffs on the services of KazTransOil CJSC are calculated based on the
law on natural monopolies, which is in effect in Kazakhstan, and along with
the expenses component of it, is approved by the Antimonopoly Agency.
From March 16, 2000 tariff coefficient gives a 15% return on assets and
compensates for the expenses (depreciation, wearout and financing cost).
Since the cost of the company's fixed assets is of great importance on the
calculation of the tariffs coefficient, the fixed assets were re-evaluated on
March 10, 2000 by American Appraisals Inc. on the basis of international
standards. Now, KazTransOil CJSC is working towards the acceptance of a
new tariffs coefficient method, where the expenses compensation and
returns on assets remain unchanged. However, new method will incorporate
fixed and variable components, which will make it more flexible and
therefore, more competitive. Fixed component will cover some financial
expenses, excluding the oil transportation distances, variable component will
take into account the transportation distance.
Quotation. Cash inflow of KazTransOil CJSC directly depends on the
quotation of oil and oil products transportation through Russia. Based on the
minutes of the talks between the Ministry of Energy and Mineral Resources
of Kazakhstan and the Ministry of Fuel and Energy of Russia on December
25, 2000 the quota for Kazakhstan was set at 17.3m tons. The
memorandum between Kazakhstan and Russia of October 9, 2000 sets the
principle of "a single route", whose sole operator is the Company. Annual
volume of quotas depends mainly on the political relations between
Kazakhstan and Russia. The management of KazTransOil CJSC is not sure
that the transportation volume or quota distribution on oil transportations
will not change in the future and damages the company's interests.
MARKET RISKS
The success of the activities of KazTransOil CJSC is significantly dependent
on the favorable oil market conditions. If oil prices fall, then there is no
hope that oil companies will keep investing in the future, which is required to
maintain oil production levels. Decline in oil production may force the
company not to meet its strategic goals set in the plan.
TECHNICAL RISKS
The main factor of technical risk for KazTransOil CJSC is a high degree of
pipelines wearout on certain directions, which may have a negative impact
on the effectiveness and the quality of the services. Most of the company's
pipeline system has been built in 70's (more than 60% of oil pipelines of
Western branch) and 80's (Aktobe branch and 75% of Eastern branch). The
pipelines are to be used for 30 years. As of December 31, 2000, the
company's 55% of pipelines has been used for 10 to 20 years, 32% - 20 to
30 years, 12% - more than 30 years, and 1% - less than 10 years.
To increase the effectiveness of the services, cut the oil and water
transportation expenses, and increase the safety and reliability of its systems
and equipment, KazTransOil CJSC conducts rehabilitation and
modernization each year. In 1998-1999 the company's investments into the
repair and modernization of pipelines equaled KZT8.8bn ($61.1m), of which
KZT600.0m ($4.4m) was used to diagnose linear part of the pipelines. In
2000 new objects were put into service (oil pipelines, water pipelines,
pumping stations) costing KZT6.2bn. Till 2006 KazTransOil CJSC plans to
spend KZT2.8bn ($19.2m) to maintenance and repair of equipment and
offices.
CASPIAN PIPELINE CONSORTIUM (CPC)
CPC pipeline, with the capacity of up to 67m tons of oil a year, which is to be
put into service in August 2001, is an alternative exporting route to Atyrau-
Samara pipeline. CPC will help to transport oil to Russian sea port of
Novorossiisk, where the oil will be transported to European sea ports. All
operators of the Tengiz and Karachaganak oil fields are the participants of
CPC and have obligations (including NOC KAZAKHOIL CJSC) to transport
significant proportion of oil extracted from these field through CPC.
By the estimates of KazTransOil CJSC management, 70% (6.3m tons) of
crude oil, extracted at Tengiz field, is transported by railroad, and remaining
30% (about 3.5m tons) - through Atyrau-Samara export route. This pipeline
has a capacity of 15m tons of oil a year, and it is considered not to be able
to transport the amount of oil from Tengiz and Karachaganak fields when they
reach their full capacity. Management of KazTransOil CJSC believes that the
construction of Kenkyak-Atyrau oil pipeline, which will give access to export
routes (CPC or Atyrau-Samara) to the companies in Aktobe region, and it will
ease the loss of Tengiz and Karachaganak oil for the company, and
especially due to the fact that the oil from Aktobe region is transported to
more far distances. Therefore, KazTransOil CJSC believes that the outflow
of Tengiz and Karachaganak oil to CPC will not have a deep negative impact
on its annual revenues, and the introduction of CPC pipeline will provide the
company with additional revenues.
CPC pipeline gives its members more lower tariffs compared to those oil
companies, who are not the members of CPC. Besides, actual payment for
the transportation depends on whether the sender is the member of CPC or
not, and transportation cost increases for the companies, whose oil does not
meet the standards of CPC. Since the oil of Aktobe and Kumkol regions
does not meet the requirements of CPC their transportation costs will be
higher. It is expected that this factor will create a price competitive
advantage for the company over the CPC. In future KazTransOil CJSC plans to
establish "an oil bank" (collection of additional fees for producers of low
quality oil, because after mixing with the oil of high quality, it lowers the
overall quality of oil at the terminal) for Atyrau-Samara pipeline, where
tariffs will be set so that it will provide price advantage over CPC.
ENVIRONMENTAL RISKS
Activities of KazTransOil CJSC are accompanied with environmental risks,
typical to oil extraction and transportation industry; too much removal and
mechanical disturbance of soil; emergency situation during oil pipelines
exploitation (explosions within the equipment, at facilities, in an open air
areas and pipelines if there is leak, oil overshooting to the water and into
the air during the depressurization of the equipment, pipelines and tanks);
damage to the vessel, barge as a result of collisions or unfavorable weather
conditions, collision or derail of the trains resulting to oil spilling,
explosions and fires. In 2001 KazTransOil CJSC plans to spend about KZT102m
($0.7m) for environment protection measures, as well as begin SKADA
system project, the first stage of it to be completed in late 2002.
Up until now, the measures taken by KazTransOil CJSC regarding
environment protection, were not affecting its financial condition. Though the
company acknowledges that such expenses may increase in the future.
REGULATION OF NOTES CIRCULATION IN KAZAKHSTAN
Notes have been registered based on the practice adopted on eurobonds
market. The circulation terms of the notes and their obligation terms are set
by the conditions of the notes, Trust and Agent contracts dated July 6, 2001
with The Chase Manhattan Bank, through its London office. All disputes,
claims and disagreements, related to the issuer's obligations on notes, are
regulated by the English law.