October 8, 2012
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№ 9 (September 2012)

Industrial Technologies Park to be Built in Yaroslavl Region

Oil&Gas Eurasia: Why have you decided to set up a Technopark of this profile?
Mikhail Sochenko: Objective prerequisites for that arose long ago, and I would like to go into detail on this issue. Russia is one of the world leaders in oil production.

By This article was supplied by Industrial Technologies Park closed joint stock company

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However, only 48 percent of 489 million tons of oil produced in 2011 was processed at the refineries, and the rest of the crude oil was exported. This means that every year the state is losing an immense potential profit by exporting cheap crude oil but not expensive oil products which are characterized by a high refining degree and, consequently, that includes significant surplus value. I would like to particularly dwell on the Russian oil-refining of industry including 28 major refineries which have the processing capacity 3 to 20 million tons of oil a year, and total capacity for primary crude oil distillation approximately 255 million tons a year. The portion of these refineries in the all-Russian volume of crude oil processing is approximately 95.0 percent. Six of these 28 plants were put into operation before the Second World War, another six were built before 1950 and eight plants were put into operation before 1960. Approximately 80 percent of the equipment is antiquated and service life has exceeded all possible limits. Over 70 percent of the plants have the crude oil refining degree in the range of 55-70 percent, and only 30 percent of the plants have this degree exceeding 80 percent. As a comparison, the crude oil refining degree in the USA is now 95 percent, and in Western Europe - 89-95 percent. The majority of Russian refineries are characterized by the following:
High degree of wear of the fixed assets;
Application of obsolete, energy intensive and  environmentally imperfect technologies;
Low portion of advanced processes (catalytic cracking, hydrocracking and coking).
In this connection, most of the automobile fuel produced in Russia does not comply with modern quality standards (Euro-4 and 5) and it is exported at respectively low prices not as an end product but as feed stock for further processing.

OGE: What could be a way out of in this situation?
Sochenko:  I can see only one way out here – accelerate modernization. A decision on modernization of the whole industry of Russia was made at the political level. The “Energy strategy of Russia for the period till 2030” was adopted. The Government is realizing a number of programs aimed at the modernization of the chemical, metallurgical, machine-building and other branches of industry. According to the data of the Energy Strategy Institute, export proceeds of the companies of the fuel and energy sector (FEI) exceed 50 percent of all currency earnings, so modernization of the FEI plants plays a particularly important role in the economic development of our state.
The technological effectiveness of a refinery is determined by the Nelson refinery complexity index parameter. The higher the total complexity of processes, the higher the index, effectiveness and profitability of the plant. As a comparison, I would like to say that an average index of the North-American refineries is 10.8; in Europe – 7.4; in former CIS countries – 4.8; and after all, in Russia the complexity index is only 4.5. Accordingly, one can make a conclusion on the required scale of modernization of the domestic oil-refining industry. According to the forecast of the Main Department of strategic development and investment analysis of LUKOIL, transition of the Russian oil-refining industry to production of Euro-5 standard fuel will require investment of approximately $ 80 billion during the period from 2008 to 2017.
The scale of the task is aggravated by a serious problem related to  equipment design and manufacturing. The country has a shortage of competent organizations for calculations and design of oil-refining equipment. There are no efficient local technologies for hydrocracking and catalytic cracking processes proven by commercial introduction. Everything available now is hopelessly obsolete. There are virtually no high-tech products brought to the industrial introduction, due to lack of proper funding for domestic research and development and for testing production equipment prototypes at the operating refineries. American and Western European engineering companies with their technologies and, correspondingly, their catalytic agents, dominate the modern market of technologies for crude hydrocarbon processing.
Modernization requires immense investment first of all into the Russian R&D sector and then, based on the received results, into the reconstruction and construction of the production sector.  
For integrated solutions of the above listed tasks on designing and construction of modern refineries in the oil-refining sector of the fuel and energy industry, it is necessary to initiate collaboration of the interested companies of the industry on the integrated research and production base. This integrating base can be the designed Industrial Technologies Park aimed at processes improvement of raw oil carbohydrates conversion and creation of environmentally friendly hydro-carbonaceous and alternative motor fuels - «Industrial Technologies Park».

OGE: Describe more in detail the designed Industrial Technologies Park.
Sochenko: The Industrial Technologies Park includes several facilities:
Research and Development Facility (RDF), which includes laboratory buildings provided with equipment for the study of advanced hydrocarbon processing; also laboratory buildings with test boxes and test benches for adaptation of internal combustion and gas turbine engines to alternative types of fuel.
Research and Production Facility (RPF), which includes a small capacity refinery (crude capacity of 1 million tons) using the latest technologies for deeper oil processing; these technologies make it possible to get high-quality marketable products including a motor fuel not lower than Euro-5 class (as per the technical regulations) to be sold both domestically and onthe external market, and also infrastructure for off-site facilities.
The master layout plan of the RPF provides installation sites with all necessary services for testing of prototypes of units and modules for the advanced processing of crude hydrocarbons, these prototypes developed with application of the innovative technologies.
Social and Living facility (SLF) includes an administration, office, hotel and residential buildings with social amenities.

OGE: Have you determined who will design and build the Industrial Technologies Park ?
Sochenko: Eight well-known foreing engineering companies competed in an international bid for rights to design and construct the Industrial Technologies Park. The China Machinery Industry Construction Group INC (SINOCONST) was appointed the general contractor on EPC turn-key terms (based on the FIDIC terms) and Shanghai Hoto Petrochemical Engineering Co., Ltd.(HEC) was appointed the contractor for Basic Design realizayion.

OGE: What criteria were used for selection of the applied technologies and the refinery capacity?
Sochenko: We were guided by the “Regulations on tying the refineries to the main oil pipelines…” approved by a Decree of the RF Government. According to these Regulations, the crude capacity of the designed refinery should be at least 1 million metric tons a year, and the oil conversion ratio should be at least 70 percent. The capacity of our refinery is 1 million metric tons a year. When processing of sour crude containing 1.72 percent of sulfur, the oil conversion is 92.3 percent, and light oil product yield is 82.6 percent. Main production utilizes catalytic cracking and many other processes which make it possible to produce automobile fuel complying with the quality standards not lower than Euro-5.

OGE: What is the cost-effectiveness of the Project?
Sochenko: Calculations of the cost-effectiveness and payback period for the Project were done with the help of the licensed software Project Expert version 7.51. Basic data on the cost of equipment for the main production and offsite facilities, and also the cost of the auxiliary materials were provided by the engineering company – the preferred bidder. Capital investment amounted to approximately $500 million. The design period is 1.5 years. The construction period is 2 years. The project payback period from the moment of the refinery commissioning to the moment of the repayment of the loan and loan interest is 5 years. Calculation results confirmed the high profitability of the project.

OGE: From what sources will the Project be funded?
Sochenko: The main peculiarity of the Project is that the funding will be done without state funds. The whole Project will be funded by foreign capital. The Project is already partially funded by our major shareholder Development of Industrial Technologies Ltd., and partially will be funded by foreign investment banks which expressed interest in our Project. I cannot give the names of these banks yet as the loan contracts are at the stage of conciliation now.

OGE: How will the research and development work of the Industrial Technologies Park be financed, you know that at the initial stage the research work is always unprofitable, and state funding is usually insufficient.
Sochenko: When developing the conception, we supposed that the Technopark would function as a self-supporting enterprise, the R&D work of which would be financed from the profit received from the research and production facility operation. During the first stage, it is profit from production and sale of the high-quality automobile fuel complying with the standard not lower than Euro-5 and other oil products. Later, there will be added profit coming from implementation of technologies developed in the Technopark and patented.

OGE: Where are you plannnig to build the Industrial Park?
Sochenko: In the Gavrilov-Yamskiy district of Yaroslavl Region.

OGE: What relationship do you have with the Yaroslavl Region Administration?
Sochenko: Our investment Project has received support from the Yaroslavl Region Government and at the Gavrilov-Yamskiy district Administration. We prepared an Agreement with the Government, which will be signed at the Investment Forum “Sochi 2012” in which we will participate as members of the Yaroslavl District delegation. We have already signed an agreement on collaboration with the Gavrilov-Yamskoy  district Administration, which describes in detail participation of the Park of Industrial Technologies in all social programs to be realized in the district.

OGE: What has already been done for realization of the investment Project?
Sochenko: We determined a strategic investor for realization of the Project and jointly with this investor we registered the Industrial Technologies Park in Yaroslavl District, and also set up a design office in Moscow. The investment program has been formed and financing of the pre-project work has been started:
– A land plot of 103 hectares was purchased and is now being transferred into the category of “industrial lands”.
– Meanwhile, geological and topographic surveys are carried out at this land plot, which are obligatory for the design and construction work.
– A notice of intent was prepared, public hearings on the Project were held and approval of the local population and regional administration was received.
– We prepared the documentation and organized international bidding for choosing the production flowchart, determined the general contractor for construction of the first stage of the Industrial Technologies Park – refinery construction on ЕРС turn-key terms (based on the FIDIC terms). The contractor for the basic design was determined.
– The Engineering Assignment on Designing was prepared and coordinated with the general contractor.
– The business plan with the technological justification and feasibility study was prepared.
– We prepared a presentation of our Project for the international investment forum which will be held in Sochi on the 20 – 23 of September this year. Now we are negotiating with the Technopark Skolkovo regranting of branch status of Skolkovo in petrochemistry.

OGE: What are the most important tasks you need to solve in the nearest future?
Sochenko: I believe that the most important task is to solve the problem of tying the Technopark to the main oil pipeline. As I already noted, there are Regulations on tying to the oil pipelines approved by the RF Government Decree. Though formally we comply with the criteria listed in the regulations, without an approval of the Project by the Government we can have problems with receiving a permit for tying to the pipeline. We sent an invitation for participation in the International investment Forum “Sochi 2012” to all members of the Government responsible for modernization of oil-refining industry plants. Presentation of the investment Project on the Technopark's construction will be made at this Forum, and we hope to get an approval and administrative support of the Project.  
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