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Wednesday, 13 December 2017 13:45

Our queen is our profit margin, Dauren Madin Featured

Caspian Energy (CE): Caspian Offshore Construction is the first Kazakh private shipowner. What helped and what hampered you on the path of establishing the Company’s business?

Dauren Madin, Chairman of the Board of Caspian Offshore Construction: Before answering your question we must look back into the history. As you know, Kazakhstan traditionally was never a marine nation.  Therefore, following collapse of the Soviet Union, very little marine infrastructure, if any, remained in Kazakhstan.  As a consequence of it, a great vacuum has appeared in the local market of marine manpower, which we had to deal with when we first entered the market.  Lack of professional marine manpower, lack of knowledge and experience obviously were the main obstacles.  By the way the issue with local crewing still exists, although situation is slowly improving.  But when we look ten-twelve years ago, crewing was not the only challenge.  Raising finance necessary to support new build programs at reasonable interest rates was also a challenge.   Can you imagine that our initial loan was raised at the staggering 16 percent per annum!  On the other hand, the process of developing first private marine company was so exciting and our commitment and desire to succeed were so strong.   Over the years we have managed to build a fantastic team consisting of young, educated and open minded individuals who work closely with highly experienced professionals from marine industry, who had years of sailing practice in international waters and in the Caspian.  This tandem of youth and experience, always learning from each other, provided for greater synergy resulting in our organization becoming a leading shipowner and operator in the Caspian region, who operate today in Kazakhstan, Russia and Turkmenistan. 

 

CE: How would you assess investment attractiveness of your field of expertise?

Dauren Madin: Our business is capital intensive, so one cannot expect a quick return.  Our strategy however is based on long term development, which today allows us to attract long-term financing on terms acceptable to our business model.  I think it is a classic “win-win” situation, especially with terms of financing, which we are now able to obtain from both domestic and international market have significantly improved.  Starting 2010 we have diversified our banks portfolio, which now also includes European Bank of Reconstruction and Development.  Having such a reputable financing institution engaged into our project is a clear sign that our business model is sustainable and thus attractive for long term financing and investment.

 

CE: To what extent is Caspian Offshore Construction encouraged by the Government in terms of using high tech digital technologies and environmentally friendly equipment in your business? Do you have any suggestions in this field?

Dauren Madin: Having “oil majors” as our clients does not leave us with too much choice, but to constantly improve our processes and level of services we provide, especially in respect to safety and environment.  It is impossible to achieve this without using modern, high tech, state of the art machinery and equipment on board the vessel.  And this is exactly what we do, having designed and build our entire fleet by European design bureaus and at leading European shipyards, who are always promoting latest technologies.

In terms of our support infrastructure we are using internationally recognized advanced software programs to run our planned maintenance system and budgeting process.  I must say that using these programs significantly reduces risk of a failure and does help us to be much more accurate in our planning, which in turn improves our operation, including safety and environment aspect of it. 

 

Caspian is a closed-in market with relatively high barriers of entry

 

CE: Do you consider the marine market in the Caspian Sea competitive enough in comparison with the world markets?

Dauren Madin: Caspian is a closed-in market with relatively high barriers of entry, however once the maritime companies are in, then normally they tend to remain in the region for a long term actively contributing to local competition.  Giving the size of the Caspian market and considering number of existing local players, representing Caspian States including Russia, Kazakhstan, Azerbaijan, and Turkmenistan, and taking into account active international shipowners from Western Europe, Middle East, and South East Asia, I think the competition level is adequate.    

 

Our business model is sustainable and thus attractive for long term financing and investment

 

CE: Do you expect preferences from the Government?

Dauren Madin: As a private business, we are profit driven organization, which means that our business decisions are always based on market demands.  Our long term strategy allows for certain flexibility when we can respond to difficult market situations by “sacrificing the queen”, as chess players would say.  In our case our queen is our profit margin.   In return, though, we may improve contract longevity or achieve economies of scale by securing additional work.  This is especially applicable to the current market situation, where rates and demand in general are falling.  At the same time if government was to offer support to minimize the effect of market downturn, we would always welcome the initiative and would consider the offer. 

 

CE: Could you please tell about the services you offer today? What is the Company's turnover and its performance rates? Which new opportunities do you see for your Company in cooperation with companies from other Caspian littoral states?

Dauren Madin: Our core business is operation and technical maintenance of the marine fleet.  In addition to chartering our vessels, we also provide ship management services to our established clients – the oil and gas companies, who sometimes happen to become shipowners themselves, which is of course not their core business.  To date, the total number of marine vessels under our management is over forty units, including twenty one vessel, which we own.  The average age of our owned fleet is seven years, which makes it the youngest in the region. 

As far as our revenues are concerned the numbers have kept reducing over the last four years hitting as low as expected USD 85 million in 2017, which is the lowest level of revenues since our peak of USD 130 million in 2013.  This is a result of optimizing our cost in difficult market environment, reducing margins, sometimes to «at cost» levels, which in return allowed us to maintain our contract base, keep our crews and our fleet and to continue gaining valuable experience and improve our expertise. 

As an example, our strategy has resulted in securing two major contracts in Turkmenistan and in Kazakhstan in 2017.  In particular we have delivered two Diving Support Vessels to Dragon Oil Turkmenistan against a five year contract, and have commenced a new build program in the Netherlands where six tug boats are being built for TengizChevrOil operation at CaTRo channel starting navigation season 2018.

In 2017 we have also registered an office in Azerbaijan, and we believe to be well placed to commence our operations in this neighboring state in not so distant future.

 

Obviously we would like to have more and more active offshore projects in the Caspian

 

CE: How does the unsettled dispute on the Caspian Sea status affect your Company's operations? Are you interested in settling it as soon as possible and why?

Dauren Madin: Obviously we would like to have more and more active offshore projects in the Caspian.  Reaching agreement on the status of the Caspian and settling outstanding issues will certainly contribute to further development of the local marine market.  As far as Caspian Offshore Construction is concerned, our current business model and projections are based on offshore oil and gas projects that are not falling into a category of «disputable» ones.  All these projects are stable and are currently at various stages of their development.  

 

CE: Does your Company have access to the open seas? Do you plan to work in the non-CIS markets?

Dauren Madin: At the moment we do not operate in open seas, however entering the market outside of the Caspian, while still maintaining our presence in the region, is our long-term vision. 

 

CE: Do you apply services of the shipbuilding and ship-repairing facility opened in Baku in 2013How do you assess its activity in practice? 

Dauren Madin:To date we have not had a chance to use Baku Shipyard services, so I cannot really answer your question.  

 

CE: The new railway will be commissioned in Baku in October to connect the Caspian Sea with the markets of Turkey and the EU. Do you plan to use this route in the short and long run?

Dauren Madin: As I have described earlier in the interview we are specializing in offshore service fleet and are not operating in the merchant fleet market.  It does not necessarily mean we will not consider this opportunity, but as I have mentioned our decision will be based on market demand. 

 

CE: Could you please share your opinion about the North-South and One Belt, One Road projects? Do you see your Company in these megaprojects?

Dauren Madin: Being private marine offshore operations oriented operator we are also considering our participation in different sea transportation projects as well depending on commercial side of the matter. We have decent supervision experience in newbuild and vessel conversion projects having very well established relationship with several reputable design bureaus and shipyards in Europe along with available in-house accumulated expertise and manpower resources which allow us to rapidly redirect our operational capabilities into commercial transportation of dry-bulk and liquid cargo markets as well as establishing transportation of containers or ferry lines. With this respect this mega-projects opportunities are a good challenge for broad diversification of our activities and distributing the risks and profit/cost between different marine markets.        

 

Thank you for the interview

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