1.3.Address of the Chairman of the Board of Directors
In 2019, Transneft exited the period of large-scale expansion of its pipeline system: the Eastern Siberia – Pacific Ocean pipeline system reached its design capacity and the ESPO – Komsomolsk Refinery oil pipeline offshoot was commissioned. This opened up new opportunities for export of Russian oil to Asia and the Pacific markets, as well as increased the reliability of oil supplies to domestic refineries.
At the end of 2019, Transneft showed an upward trend in its key performance indicators. The total volume of oil and petroleum products transportation grew by 0.7%, the oil supplies for export grew by 3.6%, including by 4.4% to China, the turnover of Novorossiysk Commercial Sea Port — by 7.6%.
In 2018, the IFRS financial performance of Transneft also demonstrated positive dynamics. Transneft’s revenue under IFRS grew by 8.6%, EBITDA grew by 12.2%. The Company’s net profit decreased by 12.6% due to the termination of non-recurring factors that led to its growth in 2018, as well as due to the creation of a reserve in the financial statements in connection with the incident at the Druzhba oil pipeline.
The key priority for further development of Transneft should be upgrade of its pipeline infrastructure. Starting from 2020, most of the Company’s investment will be allocated for technical upgrading and revamping of existing capacities.
The oil contamination in the Druzhba pipeline was caused by illegal actions of third parties, which led to oil that did not meet GOST requirements entering the system; the situation required a series of measures to restore oil transportation, strengthen safety requirements and oil quality control, implemented with the support of the Ministry of Energy of the Russian Federation. The Board of Directors of Transneft continuously monitors the progress of measures to eliminate and resolve the consequences of the incident, which did not significantly affect the financial position of the Company.
The key priority for further development of Transneft should be upgrade of its pipeline infrastructure. Starting from 2020, most of the Company’s investment will be allocated for technical upgrading and revamping of existing capacities. The priority objectives in terms of finance are to ensure a high degree of economic efficiency and cost control. The Company must guarantee a fair return level on invested capital and profitability for shareholders.
Also continued should be work in the fields of import substitution, energy efficiency enhancement and consideration of environmental issues and climate change risks when implementing the Company’s strategy.
Amid the new challenges brought by 2020, the Board of Directors has defined the primary objectives for Transneft’s management as ensuring reliable and sustainable operation of the pipeline system and protecting the employees’ life and health. Transneft knows how to face a challenge and how to make an adequate response. I hope 2020 will not be an exception.
Alexander Novak Chairman of the Board of Directors of Transneft, Minister of Energy of the Russian Federation