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MIKHAIL SKIGIN: THE PORT IS AS MUCH A PART OF THE CITY LANDSCAPE AS PALACES AND THEATERS



In September Mr Michael Skigin together with the St. Petersburg Gov Alexander Beglov held a ribbon-cutting ceremony for the RUB 5bn project of redevelopment of the old part of Petersburg Oil Terminal (POT). The project was launched despite the plans to move all the facilities of Greater Port of St. Petersburg to a new location in Ust-Luga or Primorsk.


Mr Skigin in an interview with Vedomosti told when the investments in reconstruction would pay off, whether he believed in moving the port outside St. Petersburg and whether he had any plans to launch new investment projects.


- In September you started the RUB 5 billion redevelopment of the oil terminal’s old part. How will the capacity expansion affect the city's ecology?


- We are not planning any capacity expansion at this phase. Actually, we will expand the range of cargo types for handling, not the facility’s capacity. There are certain products that we are not able to receive at the moment: gasoline fractions and alkylates that require different technological processing, and that is what we are counting on. We are expanding the nomenclature of cargo based on what the market will need in a couple of years and beyond, because of the constant modernization of the refineries. We are adjusting to market conditions.


As to the environmental agenda, we are just doing everything to significantly improve the situation, because the standards that were used during the construction of the aged oil depot are very different from the modern requirements which we strive to adhere to. This is only possible by demolishing the old part and completely overhaul it to comply with the new standards.


- How quickly will the investments pay off?


- We think within 7 to 9 years. But it will depend on market environment. Today we have no explicit long-term "we-will-ensure-loads" commitments from our suppliers. Concerning the process of market shift to refined oil products, the reconstruction of oil refining facilities is a very long and capital-intensive process which does not go evenly everywhere. That is, when loading a new base, we will be guided by the current realities in the market, and the payback period can shift in one direction or the other.


- Of the 5 billion rubles, how much is your own money? Are there any budget subsidies?


- No, we are not applying for budget funds. So far we are investing our own funds and have entered agreements for open credit lines. We expect that bank financing will account for approximately 70%, our own capital – for 30%.


- When do you plan to complete the reconstruction?


- By 2025.


- There have been several announcements by the St. Petersburg authorities on plans of St. Petersburg to undertake a significant volume of transshipment of oil products from Belarus. What is the share of POT? What volume of oil products from Belarus are you handling now and will you be ready to receive the cargo after the facility redevelopment completion?


- I would say, our terminal reconstruction plans are not related to Belarus, because we have secured quite a considerable cargo volume from our main suppliers Russian refineries that are largely based in the European part of Russia with some of them in Siberia. We maintain a dialogue with them, and the refineries are suppliers of 90% of our terminal’s volume. This year POT projected to transship 810 000 tonnes of products under the terms of the intergovernmental agreement, and this projected volume has not yet been handled. It’s too early to say what will happen in the next years.


How Mr Skigin became owner of the oil terminal


Mikhail Skigin was born on March 18, 1980 in Leningrad. In 1990, he moved with his family to Germany, where he was educated. Then he studied at the Universitat St. Gallen in Switzerland. In 2003 his father, Dmitry Skigin, who was doing business in St. Petersburg, died of cancer in Nice. So, his children inherited several assets with St. Petersburg Oil Terminal being the ‘jewel in the crown’. Mikhail had to move back to Russia to take over his father's business. And now he is the Chairman of the Board of POT. He is also involved in development of other investment projects: Tollway Group; a port on the eastern coast of Sakhalin; Electra, a bicycle distributor in Russia and China, Geoprospect, a company specializing in geological exploration in West Africa, just to mention a few.


- In March, Transmashholding proposed relocation of the Greater Port's facilities outside of St. Petersburg. Now it is being discussed to move it to Ust-Luga or Primorsk. Considering that you have launched a multi-billion dollar reconstruction project, do you not believe in the transfer?


- We do not rule out this [relocation], but having gained some experience in obtaining all permits/approvals for large and complex industrial projects in the Russian Federation, I can say that even the preparatory phase will take many years, as well as the task of negotiating with all the site owners at the port. It is very likely that this cannot possibly happen quickly – there are some formal procedures that need to be followed. So even taking into account the long payback period, the POT redevelopment project and the port relocation project are quite different by their completion deadlines and almost do not overlap.


- You’ll probably agree that it is more pleasant to see on the shore of the Neva Bay new business-class residential areas instead of the seaport. Doesn't it affect the environment and the cultural image of the city in general?


- Most certainly, the port does not affect the cultural image of the city. The generally accepted "tourist" image is located in the center, not in the southwest, on the bay. But from a broader perspective, the port, like other St. Petersburg industries, like the Kirov Plant and the shipbuilding enterprises, are no less a part of the city's landscape than are palaces and theaters. It is the economic basis that has historically contributed to the city's culture with both funds and tourists.


We must take into account the fact that the Port of St. Petersburg is developing economically and technologically. In comparison, in cities that have decided to redevelop the port, the situation was reversed. In Amsterdam, for example, the port itself sees a decline, and the cargo flow gradually shifted to Rotterdam. And it was only after that they started to talk about redevelopment.


The opposite situation is in Barcelona. Like St. Petersburg, it is a city associated with the culture and architecture of Antoni Gaudi, but it has the largest operating port in Spain, and no one considers its transfer somewhere else. And I must say that it occupies a very picturesque place, you could build a lot of five-star hotels. However, the city demonstrates a forward-looking approach, understanding that you can not ‘put all eggs in one basket’ and bet only on tourism. Moreover we can not do it taking into account the experience of pandemic when the tourist flow in the world has decreased many times.


Petersburg Oil Terminal JSC

Owners: Tujunga Enterprises Limited 27.73%, Mobalko Holding Limited 27.73%, Almont Holdings Ltd 22.27%, Zanfra Limited 12.03%, Novomor Limited 10.24%.

Financial performance (as of 2020): Revenue – RUB 4.9 billion. Net profit – RUB 2.4 billion.


Established in 1995. In 2020 handling of oil products at POT grew by 16.6% to 9.2 million tonnes. Total investments in the construction and development of the terminal at the beginning of 2020 were $210 million.


- According to your estimates, how costly would it be to relocate the Greater Port? You have previously said that economically it is not feasible. Have you changed your opinion?


- I have confidence that if any final decision is made by the authorities, it will be balanced and professional. But at the moment it is more of an idea, it is being discussed whether such a project is actually possible. Now they are modeling what it could end up in. Russian Railways has provided its calculations of how much it would cost to redirect freight flow bypassing St. Petersburg and build up a railway infrastructure for Ust-Luga. The figure was RUB 238 billion. And it is only a small part of a huge scope of work to be done. As of today this plan is still ill-considered, and it is difficult to forecast what decision on this issue will be made.


What we can say for sure is that until recently, the Greater Port of St. Petersburg was seen as a promising and developing area, where investors were eager to invest. Cargo owners were trying to conclude long-term contracts. And the proposed plan has made them grow wary. It is logical to assume that investors always need certainty, while clients prefer short-term contracts. Of course, the idea reduces the investment attractiveness of both the port and the city as a whole.


Significantly, at the end of the 1990s, the port was an absolutely depressed area. We can say that the life cycle of the current port began in the 2000s, when large investments flowed into it. They are beginning to pay off only now.


- POT's revenue in 2020 soared by 44% to RUB 4.9 billion. Why did it grow despite the COVID-19 crisis and falling crude oil prices?


- A paradoxical situation occurred due to oil prices plunge in 2020. Crude oil, which had decreased in value, was exported less and, consequently, the vertically integrated companies increased utilization of their own refineries. The refineries were loaded, and there was a big volume of oil products that had to be sold. We are an oil terminal, but the correct name would be ‘oil products terminal’ - we only handle oil products. Accordingly, the more petroleum products we have, the more we need to store and transport.


- Was there a decline in the demand for oil products?


- It was a very difficult situation. In March 2020, for example, we did not know what would happen in May, so we braced for the worst-case scenarios. But in the end we can say that such scenario was avoided.

- The market situation has changed this year, crude oil prices rose $75. What is your expectation for the year end 2021? Do you expect an increase versus 2020?


- No, for now we estimate that revenue and handled volume will be comparable to last year figures. In 2021 it will be 8.9 to 9 million tonnes versus 9.2 million tonnes a year before.


- Why?


- In general, the market is developing, and POT keeps pace with it or even developing faster. Since 2016, after the construction of new tanks and improved logistics systems, we have increased the number of oil product grades we can handle, from 4 to 20. And this entails a very complicated logistical job. Something can be mixed in the same pipe and something can by no means come into contact with something. Without exaggeration, everything must go like clockwork. We were able to do it, and the market can see it.


The economic situation appeared to be favorable. Yes, the oil price rose this year, and it again was profitable for oil companies to export crude oil, which they did in part. But at the same time, European economies adapted to the new pandemic conditions and consumption of oil products began to rise again pushed by increased demand this year.


- What is your company’s outlook for 2022?


- It's hard to plan for next year. We expect a slight decrease in the volume of handling cargo. We have already completely demolished the old part of the terminal. And even though we have commissioned a new 40,000-tonne tank instead, which we built this year, I think it will be very good if we can maintain the current level. But most likely, there will be a decline, because we still have a relatively large backlog of dark oil products. It may decrease due to a decline in demand for heavy fuel oil, and it is not a fact that we will be able to offset this decrease with light oil products.


- At the moment, what is the ratio of dark and light oil products?


- As of now, about 60% are dark products and 40% are light products. Most likely, in 2-3 years the ratio on the market will change: 40% - dark, and 60% - light. And in the future the ratio will change in favor of light oil products.


- The construction of a new port on Sakhalin is yet another ambitious project of yours. You have announced is will require RUB 35 billion of investment. What is the source of financing?


- I am a minority shareholder in this project with design development phase being underway. The concession operator MGR LLC has a preliminary agreement with Gazprombank, the figure of RUB 35 billion is the total amount of investments. This includes: RUB 4 billion is the state's contribution under the concession agreement; they will be used for the construction of infrastructure. The rest: 80% - bank financing, and 20% - our own funds.


- Do you plan to launch other investment projects in Russia?


- Actually, our ongoing projects are so large that we would be willing to spend more effort on bringing them to successful completion. Then, when they gain traction, we may look into further investments. It's just like if you have three kids in a row, as a responsible parent you won't immediately plan for a fourth one.


I have the POT, a port in Sakhalin, the Tollway Group. Those are three major projects. My brother (Evgeny Skigin) has a company Konoplex (producer of hemp, linseed, mustard, sunflower, and other types of vegetable oils. - Vedomosti). The company already employs over 200 people. We also operate on the Volga a 5,500-tonne oil tanker of mixed river-sea class, which was built back in 2009. I also manage Botanica project, which I care a lot about. It thrives, it gives me a great deal of pleasure in the form of hearing the feedback "your place is so delicious, I like it so much that I even want to have a meal here all the time". The Two Captains Project, a film company, is also very satisfying. Once it started with a relatively crazy idea to make one movie, but now it's already a well-established film company, which has become a platform for other film directors who come and make their own cool movies.


If we talk about further efforts, then maybe there will be something in the field of oil transportation, because there is a clear understanding of how it all works and what will be in demand, but for now it's all at the level of ideas, without specifics.


- Is there any opportunity of getting back 2 billion rubles that you invested in the Ulmart project, once a leading Russian private online retailer?


- For me, this is probably the second saddest story in the world after the story of Romeo and Juliet! It's a real shame that such a brand was liquidated in a shareholders dispute. It's still incomprehensible to me how such a great company could be ruined. Even more incomprehensible against the background of the current prosperity of Ozon. I think that I did the right thing entering this field. But I could not predict that the shareholders would behave so self-destructively.


So far, after losses from the Ulmart project I still hope that I will get some money from it. On the basis of the Court of London rulling, I have to be compensated for $35 million which I invested in the company as a credit. This is hard to say now when it will happen; it depends on many factors, and luck is one of them. I am only one of the creditors, among them two banks VTB, Sberbank and affected suppliers. Quite a long line of them. It’s hard to guess how all this will end. But I will surely fight for it.


- Do you plan to develop your bicycle manufacturer Electra?


- The business is alive and well now. Russia pays nowadays more attention to rules for bike riders. When I first came to Russia in 2003, some bikers cutting through the traffic flow acted like somebody with a death wish. Now people enjoy bike riding, especially in Moscow with bicycle lanes all over the city. Saint Petersburg is also gradually changing toward that. Compared to Moscow, not very fast, but on the whole, there is a lot of progress.


- Bicycles and the Electra company are more kind of a hobby, passion, than a full-fledged investment with great payback prospects?


- It is a notable investment project. This year it was rather difficult, because there was a bicycle supply crisis all over the world. Because of the COVID-19, some factories shut down their operations and some components were not manufactured, which caused problems with bicycle production. And all of this was happening amid surging demand. As a result, prices have skyrocketed, and next year they will probably rise as well.


- Is the company's profit growing?


- 2020 was a very good year for the company. Even though the corona crises did not add to our optimism. At one point it even seemed that people wouldn't be able to enjoy bike riding. But it was exactly the opposite: because people didn't have enough pleasant experiences to go anywhere, the bicycle became a great alternative, and 2020 turned out to be a very good year in terms of sales. This year was also supposed to be pretty good, but supply disruptions let us down.


It's hard to tell what financial performance will be. Last year we sold 4,000 bikes, and this year the number will be approximately comparable.


- You said that in view of the POT value estimated nearly $200 million and other assets, you plan to enter the Forbes list. How soon?


- I did not say I was planning to get on the Forbes list. I said that maybe Forbes will notice my assets someday. That's not important to me at all. The important thing is that the business is focused on being environmentally friendly and good for people. The people who work for us understand that there are good businesses behind them, that they will help them in any situation in life. If these businesses ever get the attention of Forbes, that’s OK. But it's definitely not and never was an end in itself.


- In your view, is the overall situation for the development of business in Russia now comfortable? Or are there significant obstacles, such as the pandemic?


- Thank goodness, I am at peace with myself. When you're in that state, running a business is just a pleasure, because you get extra experience, which gives you extra comfort. The more comfortable you are with yourself, the easier it is to do your business. I'm grateful for the challenges the market presents, they bring a lot of knowledge which you can use further.


I think we will be growing in all business segments because we have great people working for us whom I value. I believe in them, and I think it is this mutual trust that will bring the benefits that we and our clients will then be able to appreciate, despite coronavirus hardships.

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