Energy company UNG looks to give warm welcome to foreign investors

Uzbekistan Special Report interview with Ulugbek Ashurov, deputy chairman, Uzbekneftegaz

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GlobalMarkets: How has the government’s strategy for the energy sector affected Uzbekneftegaz (UNG)?

Ulugbek Ashurov: Our primary task is to create a new vertically integrated company that corresponds to international standards of efficiency, transparency and corporate governance.

We have already started our work on the transformation of the company. We began by realising nearly 300 non-core assets, a process which is due to finish by the end of this year.

We have also started work on the sale of our service companies, which will take place next year, in order to increase competition in the market and lower the price. This will be done under open tender and we expect the majority of buyers to come from the private sector.

The next step is to make the company more attractive for public market investors. Our financial statements have been audited by EY for the past three years and we are currently preparing to move to IFRS standards at the start of next year.

We are also working on improving our corporate governance. We have created a supervisory board and are planning to appoint independent directors with good experience of the international oil and gas industry. The process is already underway and we expect it to be completed by the end of the year.

In addition, we are looking to appoint executives from outside Uzbekistan to our management board. We are currently recruiting internationally for a first deputy chairman, who will be responsible for the implementation of our investment programme, and for our deep processing and downstream projects.

Once we have completed our organisational restructuring, we want to achieve an international credit rating and then issue a Eurobond.

GM: Why is capital markets access important for UNG?

UA: We want to change the way we fund ourselves. Until now, all our financing has come directly from the state or with a sovereign guarantee. We want to issue a Eurobond in order to diversify our funding sources and reduce our reliance on government support.

We have had discussions with large investment banks and financial institutions, and the feedback we have received is that there is strong appetite for our bonds among global investors.

Some banks have encouraged us to come to market this year, but we believe it is important to finish our corporate transformation first. What we are hearing from investors is that their top priority is having access to high-quality and transparent financial statements.

Once we are confident that we are up to international standards, and have seen an increase in our production levels, then we will be ready to issue a Eurobond.

After that, the government’s strategy calls for the privatisation of UNG via an IPO before the end of 2024. We will remain state-controlled but investors will have an opportunity to buy up to 49% of the company. 

Before that, however, we will need to make substantial improvements to our profitability and our production capacity.

GM: What level of investment does UNG require?

UA: We have around 40 projects lined up for the next 10 years with a total cost of around $34bn. We expect half of this to come from foreign direct investment and loans.

GM: Where do you see the greatest opportunities for development?

UA: The investment policy of UNG is aimed firstly at replenishing reserves and increasing hydrocarbon production with the use of advanced technologies, carrying out geological exploration on poorly explored and complex subsoil areas, and intensifying production at fields with hard-to-recover reserves.

We want to modernise and improve the efficiency of our existing oil refineries, as well as introducing advanced information and communication technologies across the industry. We want to digitalise all our processes, starting with our wells and finishing with the distribution of our final products.

It is also important to remember that the energy sector in Uzbekistan not only covers the extraction of resources from the earth but also the system of complexes for processing raw materials and manufacturing products.

We want to deepen the processing of hydrocarbons and introduce new high added-value petrochemical products to serve the domestic market and for export.

GM: What are the key development projects in this area?

UA: One of our biggest projects is the construction of a plant for the production of synthetic liquid fuel (GTL) based on purified methane from the Shurtan Gas Chemical Complex, which is one of the world’s largest gas processing and polymer production plants.

The plant will produce high-quality diesel and aviation fuels that meet stringent environmental standards, unparalleled in quality and the absence of harmful impurities. The project will cost $3.7bn and is being financed by our own resources at UNG and international loans.

We are also implementing a series of large projects , one of which is moderinising of the Bukhara refinery, that allows the release of high-quality fuel — gasoline and diesel fuel — in accordance with the requirements of the Euro-5 Directive.

Furthermore, work is underway to establish a gas chemical cluster based on methanol-to-olefins (MTO) technology. We are collaborating on this project with Air Products, as well as with the engineering and construction companies from South Korea and Singapore.

The implementation of the gas chemical cluster project will allow the production of new types of products, such as polyethylene terephthalate, polystyrene, polyvinyl chloride, propylene oxide polyol.