Uztransgaz transformation aims to fuel Uzbekistan’s economic growth

Uzbekistan Special Report Interview with Sayidov Ulugbek, chairman of the board, Uztransgaz

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GlobalMarkets: What is your goal for the next five years?

Sayidov Ulugbek: Our mission is to transform Uztransgaz into a world-class company in collaboration with international experts.

The first tasks are to make the company profitable and self-sustaining, and to achieve the highest standards of corporate governance. We want to make sure every aspect of our operations is fully transparent, from human resources and procurement to the realisation of investment projects.

To achieve this, we are bringing in external consultants in all areas with the support of a grant from the Asian Development Bank (ADB).

We are currently working to move to IFRS reporting standards from the start of next year and to obtain an international credit rating. We will then raise funding through the Eurobond market. We will also continue to attract long-term financing from international financial institutions.

After that, we will start to prepare to undertake an IPO before the end of 2024, as mandated by the president’s decree of July 9.

The size of the initial stake to be sold has yet to be determined. However, the state will retain at least 51% of the company. This is because we have a natural monopoly and it is important for the government to be able to guarantee all production companies access to the gas transportation system.

There is a lot of work to be done but we understand the challenges. I am confident that in three years Uztransgaz will be a very different company, based on the direction of travel set by our president.

GM: When do you expect Uztransgaz to be profitable?

SU: If prices were based solely on market mechanisms we would be profitable. However, at the moment, some sectors are still receiving gas at below-market prices.

The government is working hard to close this gap. Tariffs were increased on August 15 and, as a result, we expect to show a full-year profit in 2020.

The purpose of unbundling Uztransgaz from Uzbeneftegaz was to make the company profitable and reduce its dependence on government support.

GM: How much investment does Uztransgaz need?

SU: Our key focus areas at present are the modernisation of our gas transportation system, and the expansion of export and transit opportunities.

More than half of our main gas pipelines are more than 30 years old. We also urgently need to upgrade our network of gas compressor units. We have 250 units in total, of which 145 are outdated and need renovating or replacing.

We want to work with a single international partner on the gas compressor network project and will put it out to public tender.

We estimate the total cost of modernising our gas transport system at around $1.5bn. We have secured funding from the ADB for part of the project, and we also plan to work with the European Bank for Reconstruction and Development, World Bank and Japanese public sector funds.

GM: What are the biggest challenges you face?

SU:  One of the hardest tasks is to change our corporate culture and mindset of our employees. We have brought in external consultants to help with this and they are currently conducting training to bring our staff up to international standards.

Another major project is the digitalisation of our operations. We need to integrate all our processes, from pipelines to compressor stations, in one platform. This will hugely improve the efficiency of our operations. We are working closely with our strategic partner, Gazprom, in this area.

Our other main challenge is to improve our gas storage facilities. In our region, levels of gas consumption are very different in winter and summer. We need to be able to store gas produced during the summer period so that we can meet customers’ requirements and increase exports in winter.

We have a large underground gas storage facility at Gazli, one of Uzbekistan’s largest gas fields. We have set up a joint venture with Forus JSC, a Russian company, to reconstruct the storage facility. This will more than triple the gas storage capacity to 10 billion cubic metres.

Work is already underway on the first phase of the project, which will double the storage capacity to six billion cubic metres by the end of 2021. The second phase is due to be completed in 2024. Infrastructure at the facility will be modernised in parallel with the reconstruction work.

The total cost of the project, which also includes additional exploration and development of the gas and oil fields at Gazli, is $850m.

GM: Is Uztransgaz ready for projected increases in gas production?

SU: We are working closely with Uzneftegaz and are confident that we will be able to cope with the expected increase in production. Part of this will obviously be supplied to the internal market, where we are expecting a steady rise in demand in line with the growth of the Uzbek economy.

We are also ready to support the planned increase in exports. Uzbekistan is located on two main gas transit corridors. One runs from Turkmenistan via Kazakhstan to Russia, while the other connects Turkmenistan to China.

We currently supply around eight billion cubic metres of gas to China but have the capacity to increase that by a further 25%. In future, we want to utilise to the maximum all our export capacity. l