Transneft

Country

China, Greece, Bulgaria, Venezuela,

Year of entry

see below

Industry/ business area

• Rendering the service of oil and oil products transportation via the system of trunk pipelines;

• Participation in solving the problems of scientific, technological and innovational development in pipeline transport, as well as introduction of new equipment, technologies and materials

Entry mode (and goal)

• China: “Skovorodino – China’s border” project that is being realized according to the Intergovernmental agreement of cooperation in the oil sphere between Russian Federation and People’s Republic of China, dated

21.04.2009. The oil pipeline Skovorodino – China’s border is the branch of the pipeline system ESPO, it is meant for transporting the export oil to PRC.

• Venezuela: in 2009 Memorandum on mutual understanding was signed between the companies JSC “Transneft” and Venezuelan State Oil and Gas Company PDVSA. This Memorandum is aimed at organizing further actions of the parties on evaluation of the possibility of formation of a consortium for realizing the planning and construction works of infrastructure for transportation, storage and transfer of raw oil from the Oil Belt of Orinoco, the possibility of creation of a joint enterprise for exploitation and maintenance of the mentioned infrastructure or other forms of cooperation. In 2010 an Agreement on non-disclosure of information was signed.

• Kazahstan: Caspian Pipeline Consortium (CPC) is a major international crude oil transportation project with the participation of Russia, Kazakhstan and leading international oil and gas companies (such as Chevron, Shell, ExxonMobil, Eni, British Gas, Rosneft, Lukoil), created for construction and operation of a trunk pipeline more than1.5 thousand kilometers long⁶. Construction of the crude pipeline system commenced on May 12, 1999. On October 13, 2001 CPC loaded its first tanker at the Marine Terminal near Novorossiysk.

Perspective project (currently stopped) with:

• Greece, Bulgaria: Project of the oil pipeline “Burgas – Alexandroupolis”, the basis of which is the Agreement among the Government of the Russian Federation, the Government of the Republic of Bulgaria and the Government of the Hellenic Republic on cooperation in the process of construction and exploitation of oil pipeline “Burgas – Alexandroupolis”, signed on March, 15 2007 in Athens.

Realization of the project of oil pipeline “Burgas – Alexandroupolis” is aimed at creation of a new route, which will allow to transport the oil form the ports of Black Sea to the port of Burgas (Bulgaria) in tankers, and further, via the oil pipeline, to the port of Alexandroupolis (Greece) with further transfer to the tankers and transportation to the European and world markets, which will serve the enforcement of the energy safety of Europe and will allow to decrease the volumes of oil transportation in tankers through the overloaded straits of Bosphorus and Dardanelles.

So, partly brownfield strategy was used, as the construction of pipelines happens from scratch. There were huge FDI.

Motives

Pull factors for internationalization (i.e. growth opportunities).

The reasons are certainly to expand the market by being able to transport oil to other countries, thus earning both the company and the country (Russia) money.

China was chosen for the creation of joint pipeline project as China lacks its own oil and it was a great potential customer of Russian oil. As for the Kazahstan, it is important player in the oil industry. It has a good geographic location. CPC is one of the most economic and reliable routes for crude oil transportation from the Caspian and Black Sea Region to world markets⁷

Firm specific advantages used on the foreign market

The total market power in Russia, readiness to innovate

First mover or follower

- (the only player)

Type of state involvement in the process of internationalization

JSC Transneft is a subject of natural monopolies, (it is a monopoly in Russian oil transportation via pipelines), 100% of voting stocks are in federal property. JSC Transneft has also a strategic importance for Russian government and Russia which is one of the biggest natural resources exporter.

However, the financing of the construction of new oil pipeline is realized without using the budget (State) assets, due to the rational combination of the resources belonging to the company and those coming from the outside.

But Russian Government is very interested in the company’s operations since company generates a relatively big share of GDP. JSC “Transneft” does an intensive work of diversity of the directions of the deliveries of the energy resources and of the creation of highly efficient export routes. This enhances Russia’s role in the providing of international energy security.

Evaluation of the success of the internationalization

Internationalization is not completed; there are still many considered projects. However, those projects that were launched (i.e. the one in China) are successful.