Tatneft reaping fruits from its use of best corporate governance practices in the local oil industry
Like in previous years, Tatneft will hold its next annual general meeting of shareholders in the city of Almetyevsk, Tatarstan, in June. As a prelude to this vital corporate event, Viktor Gorodny, (PhD Economics) — a member of Tatneft’s executive management board, who also doubles as the company’s deputy CEO and head of its Property Department as well as the chairman of the oil giant’s Corporate Governance Committee — talked to The Russia Corporate World in a comprehensive interview that covered a wide range of the Russian oil major’s core activities and its future plans in the industry.
If you are to briefly sum up the results of Tatneft’s operations in 2010, what you would highlight as its key achievements in the year under review?
During the year under review, all the efforts of Tatneft’s Board of Directors (BoD), executive management board and employees were directed at realizing the strategic objectives set by the shareholders and securing a further growth of the company’s capitalization. The results of such activities led to a significant boost in capitalization, which, as at December 2010, stood at over 307bln rubles (or about $10.13bln), a figure that far exceeded the level achieved in 2009. In 2011, we expect the growth of the company’s value to continue at a much higher rate. Besides, Tatneft also fully met its responsibility to its shareholders by paying high dividend, which, according to the company’s financial report for 2010, was 4.5% higher than the industry’s overall average.
In 2010, Tatneft continued the realization of its strategy of vertical integration by expanding the geography of its activities and diversification of business portfolios. It increases its reserves via exploration for and drilling oil on foreign territories, including the CIS and Middle East countries, as well carrying out experimental industrial works on Tatarstan’s super-viscous oil deposits, and thus, forming a top quality portfolio of oil and gas industrial assets.
"High-level of professionalism of the board of directors, a key organ in Tatneft’s management system, is the main defining factor in the realization of the company’s strategic objectives and increasing the level of its capitalization."
Together with the expansion of its resource base and increase in oil drilling levels, the other top priority objectives of our company include the development oil and gas processing and petrochemical plants, expansion of sales market for oil, gas and petrochemicals, development of its own network of filling stations. The most important corporate event in the company’s life in 2010 that occurred within the frameworks of realization of vertical integration policy and strengthening of its oil refining processes was the commission of TANECO’s main complex. It is one of the largest, federal status investment projects, and the most advanced and modern oil refining factory in Russia with high production potential. In 2010, Tatneft also modernized its gas processing factories. For instance, a cryogenic plant with a high-level processing capability for making lean dry gas was put into operation. In the petrochemical sector, Tatneft has some of the nation’s most advanced hi-tech tire factories and a modern plant that produces full steel-belted tires. Our production at the Techuglerod factory is also developing successfully.
Tatneft’s retail business portfolio comprises a network of petrol services stations, where all types of fuels are sold. In conformity with its strategy for developing its filling stations network, Tatneft is expanding its activities into new regions, building, reconstructing and upgrading its filling station facilities to meeting modern quality standards required of its basic products and complementary services. Another one significant step taken within the frameworks of the company’s integration process in 2010 was the creation of our company’s own power source. To do this, Tatneft’s management set up a special new business unit, Teploelektroenergetika, in 2010, which now comprises Tatneft-Energosbyt, a management company, Nizhnekamsk Thermal Power Station and Almetyevsk Heating Systems.
"Tatneft in 2010 continued the realization of its strategy of vertical integration by expanding the geography of its activities and diversification of business portfolios. The results of such activities led to a boost in capitalization, which stood at over 307bln rubles (about $10.13bln) by the end of the year.”
Today, these assets are currently undergoing modernization. In the future, this new business unit is expected to unite all the company’s basic directions and activities in the energy sector, beginning from generation to and transportation to selling of thermal and electrical energy, including the so-calledsmall power’ resources. The development of our own power resources will enable our company to secure guaranteed and uninterruptable energy to meet our production needs as well as the needs of external consumers of heat and electricity, and thus effectively lowering their overall costs. It is expected that such business sectors as oil and gas processing and thermal electro-energy will in a long-term prospective become the most important growth factors that will boost Tatneft’s cash flows and its overall capitalization value.
One of the most significant areas of your work as the chairman of Tatneft’s Corporate Governance Committee is overseeing the activities of this committee. In this context, what is being done in the sphere of corporate governance practice to protect shareholders and investors’ rights and interests?
High-level of professionalism of the BoD, a key organ in Tatneft’s management system, is the defining factor in the realization of the company’s strategic objectives and increasing the level of its capitalization. Corporate governance is aimed at satisfying the interests of all groups of shareholders, whilst taking into consideration the interests of all the participants involved in the company’s corporate relations. It also focuses on control of investment and administrative risks, and finally, it is aimed at increasing the stability of a company’s development. Tatneft is constantly improving its corporate governance policies according to the latest tendencies and best industry practices. Our company frequently participates in corporate governance ratings. For instance, in 2010, an audit of our company’s corporate governance practice was conducted by the Russian Institute of Directors (RID), which gave it a positive grade, meaning its full conformity to the accepted corporate standards. Specifically, RID noted that Tatneft has set up an effective mechanism for working with its shareholders, which is based on full observation of all the existing statutory requirements and recommendations of stock exchange market regulators.
What types of corporate documents regulate this mechanism for cooperating with shareholders?
The basic documents regulating our work with shareholders include the Company’s Charter, where amendments necessitated by the changes to the existing legislation are added annually; the Corporate Governance Code; the Guidelines for holding shareholders meetings, the provisions regulating the BoD’s activities, Corporate Information Policy and the Guidelines regulating the use of insider information.
“Another target of our further development of corporate governance practice, in addition to meeting the requirements of the existing legislation, will be the possession of documents containing the principles and new aspects of the best Russian and international corporate governance practices.”
The interests of shareholders are also protected by the company’s laws on information disclosure, which regulates the activities of the Information Disclosure Committee with regard to the BoD’s functions. A high level of organization is needed to make these documents function properly. Solid experience has been amassed by the Securities Department of the Property Management Directorate, which actually functions as a corporate consultation center with over 15 years of experience of working with shareholders. The execution of this policy is seriously boosted by the effective management of the company’s consolidated financial reports and the experts that oversee our company’s cooperation with investors and shareholders. The shareholders registry is being run by one of the largest independent registrars in Tatarstan. The Corporate Governance Committee works in close cooperation with BoD’s other committees. The main result of our work is evident in the fact there was not even a single corporate conflict in the company in the year under review.
What were the Corporate Governance Committee’s achievements last year, and what are its plans for the current year and the near future?
In 2010, we drafted guidelines regulating Tatneft’s policy in dealing with shareholders that include all statutory requirements as well as initiatives that transcend these requirements, which are directed at increasing the level of mutual trust between the company’s management and its shareholders. The committee frequently monitors the current legislation on corporate laws, the requirements and recommendations of stock market exchanges regulators, as well as the best corporate practices and initiatives of both local and foreign companies. Besides, last year, along with management of strategic planning, we also launched the publication of an information and analytical directory, titled, ‘Tatneft in Figures,’ which contains all the key parameters of our company’s major operation segments, financial reports and statements as well as the company’s various financial indices for the past five years. The committee has also prepared and submitted to the BoD board a Unified Collection of Normative Documents on Tatneft Group’s Corporate Governance. This was the first edition and we plan to update it annually to reflect the amendments that will be made to the existing laws. Its regular publication will help promote the development of unified corporate management standards for all Tatneft Group’s subsidiaries.
Will this directory and its contents be made accessible to the company’s shareholders and investors?
Certainly, in fact, Tatneft, as you know, is a public company. The overall goal of policy on further development of the Corporate Governance Committee’s activities remains the provision of a guaranteed protection of the rights of shareholder and investors as well as increasing the level of interactions and cooperation among all interested parties. Another target of our further development of corporate governance practice, alongside with requirements of the current legislation, in our opinion, will be the possession of documents containing the principles and new aspects of the best Russian and international corporate governance practices. To this end, we are currently studying recommendations of the best and most authoritative experts in this sphere and also the experiences of leading Russian and top foreign companies that have attained a high level of corporate governance.
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