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Home / Issue Archive / 2007 / January #1 / Confidence is also Part of our Capital

№ 1 (January 2007)

Confidence is also Part of our Capital

Alexei Kuznetsov is Rosneft’s vice president for development projects, including Sakhalin. For this interview, we asked Mr. Kuznetsov about Sakhalin.

Rosneft Magazine: Mr. Kuznetsov, what is so unique about Sakhalin-1 and why is it such a dufficult project to implement?

Alexei Kuznetsov: Sakhalin-1 is the first project being carried out under a PSA in Russia with a Russian investor involved. Each step for us has been a first step. It’s like trying to walk across a bog – you take one step, and don’t know if you’re going sink or if you are still on solid ground and can take another step. In a sense, Sakhalin-1 has been a testing ground for all Russia’s legislation on PSAs, so it hasn’t been easy for the members of the consortium. We all had to make decisions on unprecedented and very involved legal issues and taxation matters. But thanks to the mutual confidence we had in each other, we were able to overcome all the problems.

Rosneft Magazine: This mutual trust, was it there from the very beginning?

Alexei Kuznetsov: Of course not – it didn’t come automatically. At the start, everyone insisted on his own point of view, that his approach was the best way to solve any given problem. To give a specific example, Exxon, which is the project operator, tried to convince everyone else for three years that we had to begin development with the Arkutun-Dagi field. Our experts at Rosneft, on the other hand, felt that it would be better to start with Chaivo because it was more ready, more accessible and required less capital, but their views were ignored during the early stages. But then, in 1998, after more oil reserves were found at Chaivo, the Americans conceded that we had been right. After that, we all began to listen much more to each other – and we started to trust each more as well! And that is one of our major achievements.

Rosneft Magazine: How much of Sakhalin-1’s success is due to Rosneft’s status as a state-owned company?

Alexei Kuznetsov: Rosneft was never a representative of the government in the project. Right from the start, the company representatives from Rosneft, Exxon, SODECO and ONGC Videsh sat on one side of the negotiating table, and the Russian government officials on the other. From the government’s perspective, it doesn’t really matter if we are a private or a state-owned company. I think the government’s position is fully understandable: if you’re going to call yourself an investor, then get on with it and follow the law irrespective of your status.

Rosneft Magazine: How much did the previous experience of Rosneft and its subsidiaries help with Sakhalin-1?

Alexei Kuznetsov: Many specialists at the company and our Sakhalin subsidiaries have a lot of experience in oil projects at Sakhalin and are throughoutly familiar with the island’s geology, so they know hpw to structure and optimize production. They can also find quick solutions and answers to any problems that arise with the local authorities. So in that sense, the experience of our people has been vital to the project’s success and in some instances simply invaluable.

Rosneft Magazine: And has Rosneft itself gained useful experience?

Alexei Kuznetsov: Without a shadow of doubt! In fact, we’ve gained unique experience. First of all, it’s enabled us to bring the work we do under Russian conditions up to nearly international standards. Secondly, we now have a team at Rosneft which really does understand how effective it is to work with foregn partners.

Rosneft Magazine: How does Rosnneft work with suppliers and sub-contractors?

Alexei Kuznetsov: I’d say that it used to be easier in old days. If we needed a pipe, we’d make two or three phone calls, do a little bargaining and buy the pipe! Now we work like all international companies and don’t buy a nail without a tender!

Rosneft Magazine: What about the social benefits from Sakhalin-1?

Alexei Kuznetsov: The numbers are pretty convincing all round, but by far the most important aspect is the creation of jobs for the local people. There was a large exodus of people from Sakhalin at the beginning of 1990s, and some 10,000 people employed in the oil sector left the island simply because there was no work.

When we began implementing the project, the first thing we had to do was to prevent people from moving away by providing them with work and a decent wage. So when the consortium discussed our policy on hiring sub-contractors, we declared openly that the top priority was to use the people from Sakhalin itself.

And we can truly say that our efforts haven’t been in vain because we now have thousands of locals working on Sakhalin-1 itself and on the modernization of the island’s infrastructure.

So thanks to the project, many companies have seen their staff increase ten or even a hundred times. There are also countless educational and training programmes available to increase the qualifications and professionalism of the local people.

Alexei Kuznetsov
vice president, Rosneft

Alexei Kuznetsov was born in 1951 and graduated from the Moscow Institute of the Petrochemical and Gas Industry named after Gubkin, where he majored in Oil and Gas Pipeline Installations, Gas Storage and Oil Terminals. He was the head of Sakhalinmorneftegaz-Shelf from 1995 to 1999 and the head of Sakhalin Projects from 1999 to 2000. In April 2000, he was appointed vice president of Rosneft. He is an Honorary Worker of the Oil and Gas Industry of Russian Federation and has been awarded service medals by Russia and Oil and Gas sector. Candidate of Technical Sciences.

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