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Vice President of Transneft: we’ll be more careful in how we inspect minor license holders after an accident at Druzhba

Date of publication: 20 December 2019 Printable version

Vyacheslav Skvortsov

Ensuring a large company’s safe operations includes a multitude of various aspects: undamaged condition of physical facilities, checking the external impact, inspecting the counterparties as well as aversion of cyber threats. When the matter regards one of the largest infrastructural monopolies, namely Transneft transporting 90% of all Russian crude over its system, safety and security issues take on national proportions. And after an accident at the Druzhba oil pipeline, when the company faced a deliberate contamination of crude oil, ensuring the safety in Transneft became a global concern.  Vice President of Transneft in charge of safety Vyacheslav Skvortsov highlighted in his interview for Interfax, how the Company copes with internal and external challenges, and what conclusions were drawn following the export pipeline force majeur.

- How has the situation with illegal tapping as well as oil and petroleum products theft changed in 10 recent years?

“During the past decade the problem of illegal tapping has aggravated, because the methods of its perpetration underwent changes, turning more sophisticated and technologically advanced. Thus, malefactors use special equipment for horizontal directed drilling, making underground passages and building long tunnels. Only for three recent years we detected 19 tunnels to trunk pipelines, made by lawbreakers. At present criminals increasingly often lay extensive offshoots (sometimes more than 1 km long), to steal oil. And whereas prior to 2008 illegal tapping with offshoots had not exceeded 20% of total intrusions, in 2019 this indicator neared 80% (in 144 cases of 183 detected tie-ins). Of this amount 32 offshoots are longer than 1 km. These offshoots are equipped with measuring devices, pressure fluctuation smoothing systems, electromagnetic valves for stop valves remote control systems.”

- Has the amount of oil and petroleum products theft changed during this time? What trends prevail?

“We’ve had positive dynamics during the last decade. This is objective assessment.  The number of illegal tappings tend to decrease with each passing year. This is partly our merit because we’ve introduced rather stiff monitoring of the pipeline corridor: patrolling, mobile squads, operation divisions. We’ve prepared documents summarizing both the practice of illegal tapping and our detection experience. When new employees join our ranks, we teach them how to recognize the signs of illegal tapping and detect it.  What’s more, in some regions we’ve streamlined our joint effort with law enforcement bodies.

To the best of our ability we examine adjacent suspicious objects, industrial zones, standalone structures where storage tanks or some containers could be placed: whether there is an access road there or intense traffic of motor transport that could be used for transportation. In other words, there is an entire range of signs allowing to detect criminal activities related to the nearby oil pipeline. For instance, this kind of “petroleum business” is developed in the Leningrad region, where we have an export petroleum products pipeline. Although we did good enough work in recent years, nevertheless some problems persist as diesel fuel is on sale there.

And while the number of oil thefts is notably going down, despite some problem areas, such as Samara Region, the number of illegal tappings into petroleum products pipelines has grown, albeit insignificantly. The regions of concern are the Moscow area, Tula, Bryansk, Chelyabinsk where there’s no need to look for refining capacity or transport stolen volumes elsewhere.

During 11 months of this year the number of tappings has dropped by 64% as compared to a similar period of 2010 (512 in 2010 and 183 in 2019). We detected 289 illegal tappings into the Company’s trunk pipelines in 2018, down 25% year-on-year. This year the given trend persists. The total number of unlawful encroachments upon trunk pipelines has decreased by 4.8% for 11 months year-on-year.”

- What regions take the lead by the number of tappings and stolen volumes?

“However strange this may sound, this is Moscow Region where we’ve had 41 tappings this year out of the total 159 incidents, followed by Nizhny Novgorod Region (17), Chelyabinsk Region (16), Tula Region (9), Penza (8), Vladimir (7).

Criminal tapping in the Moscow Region is used to steal petroleum products rather than crude oil. This can be explained by the fact that the Moscow air hub located in the region is mainly supplied over the pipe. Fuel is delivered to Sheremetyevo, Vnukovo and Domodedovo airports over the ring petroleum products pipeline (the loop). The Moscow and Ryazan refineries are connected to this system, and there are also supplies via railway loading racks. Truck loading of gasoline is used at our several stations, such as Volodarskaya, Solnechnogorskaya and Nagornaya. There is a large turnover of petroleum products here. What’s more, there is a robust construction of cottage settlements and dachas in Moscow suburbs. Not all of them are connected to the gas supply system, having autonomous heat supply from boilers. It is petroleum products, including diluted aviation fuel, that are sold as stove fuel. That’s why Moscow Region is the leader here. But due to measures taken to tighten the security of the trunk pipelines, this year the transportation losses of aviation fuel have gone down by 60% as compared to 2017 when RUB 300 million worth losses were discovered.

Leningrad Region is probably ranked second in terms of losses. At this point I’d like to add some positive information: the number of illegal tappings is steadily going down because we managed to involve our law enforcement bodies in dealing with this problem. The administration of the Chief Directorate at the Ministry of the Interior helped us organise a specialised investigative group.  Although it is the Leningrad Region that provided us with some evidence, when almost all senior and junior staff of the Ministry of Interior’s entire unit was arrested. The number of tie-ins decreased from 52 in 2017 to 23 in 2018. As of 1 December 2019, 17 tappings have been spotted.

Samara Region is still one of the leaders in terms of illegal tapping, but there are some positive facts here too. During a recent couple of years, together with the local FSS directorate, we managed to catch several organised criminal groups red-handed and arrest their tapping equipment and small plants where they refined the stolen commodity. And while in 2017 there were 26 illegal tappings, in 2018 this number dropped to 23, whereas as of 1 December 2019 – 11.”

- Some time ago Dagestan was one of the leaders in terms of illegal tappings, but you succeeded in reversing the situation. Is it possible to harness the experience you gained there in other regions?

“Dagestan is surely a rather exotic region in the context of our Russian realities. For a long time, this republic had been a “leader” by the number of oil thefts from oil trunk pipelines in North Caucasus. In 2003-2012 we discovered 852 cases of illegal tapping in this district, including 506 in the territory of Dagestan.  One could make a point that the Company had for several years stood on the verge of losing the transport potential of the oil trunk pipeline in the republic.

We joined hands with law enforcement bodies to address this problem and sorted out that mess. Only complex measures could straighten out that situation. We improved the organisational-staff structure of our security units, their outfit, along with performing technical upgrading of the line part of oil trunk pipelines, systematically enhancing our engagement with law enforcement, oversight and regulatory bodies of Dagestan national and local governance authorities. We deployed a representative office of Chernomortransneft in the city of Kaspiysk. The work done brought forth its fruit. Thus, both this and last year only one criminal tapping has been found in Dagestan.

In this respect this is not the most challenging region for us now. But its experience can hardly be applied to other regions. For instance, in Moscow Region they steal a ready-to-sell product. In Samara Region, the effort of the local FSS Directorate needs to be resolutely backed by local authorities and other law enforcement bodies. Furthermore, very few perpetrators are tried in court and thieves feel their impunity. Hence the high recidivism in the criminal turnover of oil and petroleum products.

In Dagestan the situation was different. There were anecdotal cases, when tie-ins would be donated as a wedding gift. If there was a shed above the oil pipeline, illegal tapping was to be expected. There was a multitude of miniature oil refineries in the region, especially in the years of the Chechen conflict, when the situation was unstable. Starting in 2010, we began fighting oil thefts, joining hands with the central staff of the FSS and Ministry of the Interior. A group of operatives was then sent on a mission to Dagestan. To begin with, we struck mini refineries, i.e. used economic means, removing the consumer market: in the lack of demand there would be no supply. Dagestan has a lot of vacant space, whereas Samara Region is saturated with various oil depots, loading racks and dead-end tracks. There it was necessary to involve the entire law enforcement system. Both Rostekhnadzor and tax authorities. We should have joined hands, addressing those issues all together.”

- It is in Samara that you faced a force majeure with the Druzhba oil pipeline, which exposed weaknesses in the Company’s security and safety system. Why do think this situation became possible?

“No one is immune to a situation where a certain employee might collude with criminals, disregarding his or her direct functional duties.  There were no security personnel there; the decision was made by those who receives a product, inspects it and gives the command to let it into the system. Were there any flaws of the Security Division there?  Yes, there were. Perhaps we did not pay due attention to some things, being careless. True, there were rather many administrators and employees who could have influenced the given situation in case of professional attitudes. Yet this was not the case; that’s why many of them were fired and some are on remand. We did not find our security personnel guilty and yet we fired a mid-tier manager who thought that was a minor problem and did not report it to the top managers. Whereas there was a criminal group scheming there.”

- Did your Security Division promptly respond to the situation, to avoid aggravation of the force majeure consequences?

“It was the first to get involved. As soon as we localised the place where oil contamination could take place, we immediately figured out with our functional business units – Commodity and Operation Divisions – who could be the culprit and applied to the law enforcement authorities. Even before our Company lodged an official application, we had involved law enforcement bodies already at the initial stage, using the engagement format that we had developed for our daily interaction. As a corporate security division, we have no right to enter any private facility without law enforcement officials. It took us literally 3 days to take all necessary measures: on 21 April 2019 we received early signals about “contaminated” oil detected on the 19th of April, and on 24 April 2019 we already entered the facilities localised as potential contaminators. It took serious analytic and operative effort. Using the channel of our interaction with law enforcement bodies which assigned their employees to address the issue, we could enter the facilities, and the general picture became clearer. We moved rather fast, despite the discontent of our management who thought the process was too slow: it took the law enforcement officials a week to collect sufficient evidence and file a criminal case.”

- What measures were taken to preclude another situation similar to the one that took place at Druzhba?

“First and foremost, we keep changing regulations not only at the Security Division, but at the Company at large, making them stricter. If this was possible here, we do not rule out a similar incident in other places. Therefore, we engaged the Security Division, ordering them to stiffen their inspections and search for early signs of something like that. We were involved in developing these regulations and we are still supporting the investigation with our capabilities and information available.

Samaratransneft Terminal, with Oil Transshipment being part of it until recently, is presented as a solid production structure. Whereas in fact this is a regular illegal mini refinery, looking nice (everything is rather neat there indeed). Yet we inspected that facility and saw that very little had been done there to assure advanced petroleum refinement. They have a lot of tar oil in the yield. What shall be done with that residue? So they looked for different solutions.”

- Do you plan to change contracts for services in 2020 by entering new terms and taking into account the aftermaths of the force majeure situation at Druzhba?

“Yes, this is what respective divisions of Transneft are busy doing now. The terms of inspecting our counterparties are getting stiffer and we are now more careful in how we inspect so-called “mini” license holders.

Most often VINCs operate in high-yielding production sites, but wherever fields are depleted, they sell or lease them to these “little ones” who try to extract the remaining oil, often in short supply. Some use criminal extraction methods, sucking crude out of pipes at production sites – oilfield pipes are guarded differently from ours. “Extracting” crude in this way, they sell it then to so-called integrators or consolidators – those having a license. Only license holders or real producers can feed crude to our system. And it so happened that the companies that delivered to us consolidated crude they would collect via Oil Transshipment Co. had produced the meager 150 tonnes while delivering dozens of thousands of tonnes to us. From now on we’ll double check the origin of crude, applying stricter criteria. True, some may not like it, but there’s no other way if we want to avoid such incidents in the future.”

- In other words, you’ll stipulate minimum delivery volumes in your contracts, right?

“No, it’s not about minimum delivery volumes. We’ll check the correspondence between the volumes produced and delivered. In order to understand what crude oil they extract. But if a person has criminal intentions and a criminal way of thinking, they may look for other solutions. We’ll certainly need stiffer receipt control: that’s why we asked the government and Energy Ministry to hand over to us operational control over crude oil reception points. Before that it was the owners of delivery points who were responsible for the quality of crude oil delivered.  They collect crude from their license blocks, bringing it to saleable conditions that it would comply with Transneft’s technical specifications and delivering it thereafter. There existing a certain control system on our side, but in that particular case it failed, because our employees were bribed. This is a clarion call for us to adjust our recruitment and employment policies, to be more careful in our hiring practices.”

- Are pipelines secured from thefts? And did the situation with chlorine fall under the insurance policy – in this case the matter regards thefts?

“From thefts – hardly, but from environmental, man-caused disasters, and fires – for sure. Actually, it is impossible to safeguard against all emergencies or against all kind of impurities that may enter the oil transported, by accident.”

- Do you take into account the cost of repair, environmental management activities and losses from failed deliveries in your estimation of theft damage?

“We try to take everything into account – tapping elimination costs, environmental damage, losses from equipment downtime and pumping cessation during the emergency and remedial operations – but do not always make allowance for these circumstances. Moreover, it is Transneft that is most often found guilty for the negative consequences of criminal tapping. Next year a new version of the loss calculation methodology will be adopted, to apply to the investigation of criminal cases opened up in the wake of oil and petroleum products theft or damage of an oil trunk pipeline’s facility caused by illegal tapping; the new methodology takes legislative changes into account, including in the tax law, criminal and procedural laws.”

- NCSP has become a full-fledged member of Transneft Group. Did the Company have to change a lot in terms of safety control procedures?

“No.  As for the Security Division, our involvement is minimal. Novorossiysk Port had its own Security Division. Moreover, because it’s a very serious infrastructural facility, the port had long been under the radar of the local law enforcement system; in Novorossiysk they have an FSS division, Prosecutor’s Office, traffic authorities and suchlike.

Yes, things are reduced to order there in a way, but not in terms of security, but rather in terms of greater transparency of all processes. This what the administration is doing now.  We do not expect any proposals to get involved in these processes. For now, there are most likely no reasons for our involvement. This is not yet a facility for us to care about.”

- Are you concerned over the oil transshipment situation in Makhachkala?

“In the final analysis this comes down to the relationship between business units. They sign contracts between themselves, specifying certain terms. This is why it is local law enforcement bodies that are probably in charge of this facility’s security. What’s more, Dagnefteproduct probably has its own Security Division.

As a company, Transneft wants to make sure the crude oil they feed to our system complies with all necessary technical parameters. We had serious problems with oil flooding last year and in the year before last. They believe it’s because of rains. They can be right, but we think that in case of theft something needs to be substituted. In the last year but one there were several cases, when we stopped the intake of crude because of flooding, but this year there have been only four cases.

For Dagestan Dagnefteproduct is a major budget revenue generating enterprise. And when it does not work, when Makhachkala Port does not work, they bring no profit and become a burden. We told them straight off: sort out your mess and we’ll use your infrastructure again. If other decisions are made to this effect on a certain level and if Transneft is commissioned to deal with this issue, we’ll be forced to enter with our own understanding of security systems. But as long as this decision has not been made yet, it’s not our business.

Once upon a time Dagnefteproduct was the largest national oil depot. In the wartime all fuel supply was carried out via Dagnefteproduct. The Baku crude oil was transported by sea and then by railway. The business was denationalised with the advent of the freedom of speech. At some point we thought of buying some land in order to take this business under control, but we were asked a price comparable to the value of entire Dagnefteproduct and we gave up this idea.”

- How do you assess the level of anti-terror security of Transneft’s non-linear infrastructure?

“Here there is a robust security system under control of national structures, because our facilities fall under the category of extremely hazardous production facilities. As per the information we receive from our colleagues, these facilities often become the targets for terrorists. We were repeatedly alerted by law enforcement bodies that a group has penetrated our country – e.g. from Ukraine – with the mission of launching a terrorist attack on fuel and energy facilities. We then switch to a beefed-up security regime.

On the other hand, we operate within a certain national legislative framework which prescribes a system of anti-terror security to be installed at this or that facility. And there is an institute of facility categorisation: high-risk facilities require a certain class of systems, structures and outfit. For medium-risk facilities – other security arrangements are required. Most of our facilities fall under the low-risk category. All categories imply the implementation of certain security arrangements. Our Company takes measures to augment engineering means of protection, security equipment and anti-terror security provisions. At the present time the outfit of categorised facilities of oil trunk pipelines complies with Russian regulatory requirements by 95%; as for petroleum products pipelines, the compliance factor is 75%.

This requires bulky spending: on CCTV systems and anti-ram barriers, remote detection systems, antiburrowing devices and suchlike. Therefore, coming up with a realistic assessment of possible terrorist attacks, we harmonise our vision with that of supervisory structures, local counter-terrorism commissions, and we’ll keep implementing these measures till 2025. This year we’ve passed the Russian Guard’s inspection. By and large, our effort was duly appreciated.”

- How did the Company respond to information about drones hitting petroleum facilities in Saudi Arabia? Did you just take note, or did you take extra measures to enhance the security of your facilities?

“It’s not the first year that Transneft has been studying the opportunities of using drones for the purpose of compromising the security of the system’s facilities. Our specialists take part in numerous events organised by both drone manufacturers and anti-drone equipment manufacturers. We develop mission requirements and carry out field tests of products and systems meant to suppress control signals, data transmission and drone navigation.

We also use drones and quadrotors, albeit for other purposes: to detect signs of unlawful activities against our facilities. We don’t use any special anti-drone security arrangements for one simple reason. These activities are strictly regulated. In accordance with the law only certain public authorities from the so-called national security cabinet have the right of countering the drone-borne threats: FSS, Federal Guard Service, and Russian Guard. If we are granted a license to these activities, we’ll quickly get adjusted to the new reality.”

- In recent years the risks of cyber threats have increased exponentially. Does the Company have any examples of critical information system malfunction?

“I am in charge of the Information Security Directorate. At the present time this is a rather powerful structure. We repeatedly see attempts to cyber attacks on our resources.  So far we’ve been successful in rebuffing them. In 2017 a comprehensive programme of countering cyber threats was approved by the Company; a computer security centre has also been operating at Transneft. We constantly improve our security system via interaction with the State System of Computer Attack Detection and Prevention (GosSOPCA). It’s rather difficult to forestall and forecast the way others might use to penetrate our systems. But we have contractual relations with special structures which test our vigilance by launching fake cyber attacks.

Furthermore, we interact with Russian manufacturers of information protection systems on matters of introducing domestic safety devices, including adjustments to meet Transneft requirements. We’ve signed partnership agreements with oil companies about mutual alerting in case of the high threat of computer attacks and about the joint response to the rise of information security threats.”

- It’s not a secret that companies traditionally staff their security divisions with former military or security officers. Do you stick to the same principle as you recruit your employees, or do you rather look for them in IT firms?”

“They are information security experts. At the present time many higher technical schools have already set apart information security specialisation as a segment in its own right, which allows us to find top-level specialists having requisite knowledge and experience in respective profiles.

Now we focus on economic security, especially when financial discipline is compromised, and elements of fraud are apparent. Therefore, we try to hire experienced financiers. In other words, the Security Division should not only be staffed with ex-KGB and police officers, but also with experts in information security, IT and technology.”

- Is checking the financial-economic standing of your counterparties in terms of solvency risks also within your competence? How do you exercise this control?

“Our security units use open information sources to monitor the financial standing of our counterparties – e.g. data from official resources of the Federal Tax Authority, arbitration courts, databases of specialised organisations, such as the databases of credit reference bureaus, as well as their own analytic developments.

Yet the Company’s employees are to duly approach their work with external contractors to evade tempting offers or graft. But we do not rule out the latter as a tool used by counterparties to get access to our Company’s operations; that’s why we also test our personnel using a lie detector. Pursuant to the national legislation, the lie detector’s data cannot serve as the basis for any legal consequences. But the whole thing comes down to using an integrated approach. Either we get initial data and have them confirmed on a lie detector, or the lie detector gives us grounds for having a closer look at a particular person and checking if he or she played any part in dealings with any unconscientious contractor or supplier.”

- From security perspectives Evolution Tower is a more vulnerable facility as compared to your old office on Polyanka, true?

“Surely the security systems of the old office and the new office are radically different in that the new one has more space for penetration with malicious intents: full glazing, more entrances. As for the Evolution Tower, we began studying these issues as early as at the design and construction stages. Later corrections were entered into security systems developed, to take into account the uniqueness of this facility located in the territory of Moscow City.

This building is truly unique. In its inauguration Moscow Vice Mayor Marat Khusnullin mentioned that our building was gradually evolving into one of Moscow’s token buildings along with St. Basil’s Cathedral and the Kremlin. It enhances the prestige of the Company and the nation. We like it here.

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