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We’ve gone beyond oil refining: we’re now ready to start building roads ourselves

We’ve gone beyond oil refining: we’re now ready to start building roads ourselves

Gazprom Neft has established a new business, Gazprom Neft Road Construction — this decision having been taken in early 2021, with the new business starting work as early as April. Levan Kadagidze, Head of Gazprom Neft’s Commercial Affairs Directorate, answered Interfax’s questions on the outlook for roadbuilding.

Head of Gazprom Neft’s Commercial Affairs Directorate Levan Kadagidze

— How and why did an oil company come up with the idea of setting up a non-core roadbuilding subsidiary?

— The idea came up following completion of infield roadbuilding projects at the company’s fields in the Khanty-Mansi and Yamalo-Nenets Autonomous Okrugs. We realised that we had gone beyond oil refining, and were ready to build roads ourselves, independently. We’ve got a base for that in the form of our bitumens business, which we’ve been actively developing for the last 15 years.

Gazprom Neft’s bitumen-derivative materials are used in building and maintaining highways for various traffic loads, as well as for bridges, tunnels and airfield pavements. Our specialists advise roadbuilding companies and make recommendations on the direct laying of roadbeds.

This integrated and cohesive approach has, on the one hand, made it possible to improve roads’ quality and durability, on the one hand — and to develop our own scientific knowledgebase, engineering technologies and highly prized skills and competencies, on the other. We will be putting these to good use in the new roadbuilding company’s operations and activities.

— When will this new subsidiary get off the ground as a standalone industry entity?

— Gazprom Neft Road Construction will start implementing its first projects at the start of the next roadbuilding season. Concurrently with this, we’ll be carrying on with recruiting a specialist team with the right skills in road construction, and will be addressing organisational issues, procuring specialist equipment, expanding production capacity, and securing the necessary licenses and permits.

We believe our competitive advantage lies in our BRIT brand’s soil stabilisation technology — which means we can cut costs in building and overhauling transport facilities by 15–20% in comparison with traditional construction. We can practically build an asphalt—concrete road for the price of a gravel road.

— Nonetheless, is this new unit being established more for Gazprom Neft’s own needs? Or are you expecting it to occupy its own niche in the roadbuilding industry?

— The new business’s activities can be divided into two phases. The first phase will prioritise the construction of transportation facilities at Gazprom Neft’s fields. This will allow us to further test our technology under the difficult climatic conditions of the Russian Far North. We expect to build around 350 km of these kinds of roads by 2025.

The second area concerns developing road networks in Russia’s regions. Our technologies can be used in building both regional and municipal roads. This will help bring road networks in small population centres up to standard, and provide permanent transport links between towns and cities.

— What, exactly, will the new subsidiary be building in the immediate future? Are there any plans to get involved in major projects outside the oil and gas industry?

— This year will see us building roads at Gazpromneft-Khantos, Gazpromneft-Snabzheniye and Gazpromneft-Terminal facilities in the Tyumen Oblast and the Khanty-Mansi Autonomous Okrug. All necessary design documentation and estimates are already in place and, as soon as weather allows, we’ll be starting construction.

We’re hoping our technological solution will prove interesting to a lot of our partners, so we’re open to collaboration. Added to which, our technology might also prove of interest to roadbuilding companies, who could put it to use independently. In which case, we’re ready to share our solutions, skills and competencies.

And yes — we’re currently in negotiations on using our technology on some of the country’s most important highways.

— How quickly do you expect the roadbuilding subsidiary to start paying its way, and how soon do you expect it to start turning a profit?

— Production of building materials for Gazprom Neft Road Construction will be taken care of at our plants in Vyazma, Ryazan and Omsk. It’s possible that local emulsion production facilities might be set up to provide immediate support for the business, going forward. Added to which, in order to operate in the regions we need a fleet of specialist construction equipment —something we’re proactively putting together.

Our new venture will specialise in building roads from local hardcore (local soils), and in recycling roadbuilding materials — thanks to which, there’s no need to organise expensive logistics solutions from other Russian regions.

On which basis, according to our calculations, the company should be generating positive cash flow from operations in its first two to three years.