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Digital Transformation Has Direct Economic Effects

Date of publication: 16 December 2021

Vice President of the pipeline monopoly Andrey Badalov

The digitization process has become an integral part of any major company's business. Transneft, the operator of Russia's oil pipeline system, has recently prepared a strategy in this area. Vice President of the pipeline monopoly Andrey Badalov told Kommersant about what the Company will get from going digital, how much it will cost, and whether import substitution is possible here.

— What can you say about the digital transformation of Transneft and how is it different from the previous stages of the Company’s IT development?

“Digital transformation is a broad concept: a path to the results that will enhance business capabilities, making business even more efficient.  This is a comprehensive process and this is how it is different from the previous development stages. Digital transformation brings together all areas of the Company's activities, both core and ancillary or non-core, to ensure streamlining of processes aimed at enhancing the sustainability, reliability and safety of the Company's operations.

Simply put, the entire Transneft system will be able to respond in an optimal way to any impact on the system at each management level. Well, for example, at node No. XXX one of the oil producers starts delivering a product with increased water encroachment for internal reasons. The delivery is stopped, but neither consumer nor producer suffer losses, as the entire system takes this contingency into account in the transportation calculations. Similarly, real-time recalculation takes place in the event of the consumer running into an emergency: from an unscheduled repair at the refinery to a prolonged storm in the port. Optimization goes hand in hand with any action related to each worker's effort.”

— Does this mean computers will soon replace pipeliners at the Company?

“Of course, not. I’ll try to explain it using another analogy. Just 100 years ago, the vast majority of peasants in Russia were not skilled in operating machinery. Yet the industrialization of agriculture forced them to master new machines that make labour more efficient. This doesn’t mean, however, that the entire peasantry instantly became manufacturers. That transition helped release their time and strength to tackle new challenges in their trade. In our case, a pipeliner's working day will start with activation of a personal display, not necessarily a desktop computer — this can also be a portable tablet or even a digital bracelet, which create a new environment to unlock each specialist's potential.

Digital transformation stems from business and production, from the awareness of its challenges. The goal of digital transformation is not to replace humans, but to enable their development, to create a new quality for the benefit of the Company and the nation.

I’d mention one important peculiarity of organising Transneft's digital transformation. The IT and business staff — analysts, data specialists and functional developers - are integrated into the structure of the Digital Transformation unit as a single team. This notably cuts the time for reaching a specific result.”

— Will the number of IT business units increase as part of the said transformation?

“True, but there’s also a simultaneous process of IT specialists flowing into oil pipeline operation sections and vice versa. My first deputy, for example, pursued his entire previous career as an oil trunk pipeline operation engineer. Yet now his production expertise is being used to set quality targets for the IT staff. In this way, digital transformation is changing the profile and challenges faced by different professionals, flexibly pooling them together into real and virtual teams to address complex problems. Thus, the electronic document management system (EDMS) has long been at work in our Company. Our veterans recall, they first distrusted the replacement of a personal signature on a memo with a keystroke on the computer, but now no one can imagine working without the EDMS. And you don't need to hire special staff to do this.”

— To what extent is Transneft ready for digital transformation? Are there any obstacles to this business restructuring?

“Talking about the technological IT base, a lot has been done in the Company. Yet something is missing in the operations of large enterprises on the national level: the integration of information systems, a single information space. That is our top priority, since this is one of the most important factors in digital transformation.

Today, we are working on a universal platform solution to meet import substitution requirements and to enable a unified architecture as well as the integration of all functional solutions for operational staff, builders, financiers and specialists in other areas. This will be some sort of unification or a universal approach. This unification of the development tool should make it possible to create specific digital solutions for Transneft subsidiaries and business units on short notice. We are also looking at the experience of Gostech and other large platform solutions in this regard.

Within Transneft Technologies as a Transneft subsidiary, we are creating a powerful production base for the development of an advanced domestic traffic and process control system. The testing of our own digital software platform for industrial automation, Transneft-SCADA, is scheduled for 2022, with pilot implementation slated for 2023-2024, to be followed by replication in all Transneft subsidiaries. The Company pays particular attention to the development of specialized technology software for its own use. Thus until 2024, in-house software development costs will account for around 25% of the Company's total software and related work (services) costs. We are ready to become a centre of competence in this area for other national industrial companies as well.

— What results do you expect from the Company’s digitization?

“Today the Big Data and their management tools are an integral part of our operations. One of the digital transformation goals is establishing the control of this flow so that we could get credible and relevant data at any time.

Creating robotic systems will relieve professionals of most routine tasks. All those methods will make it easier for people to work and, more importantly, will enhance creativity in their activities. They'll spare workers from routine operations so that they could engage in creative development in the area of their specialization and will benefit the Company as a whole. And this will surely allow our employees to pursue their careers without changing the place of residence.

The Company’s experience and the expertise of its employees is Transneft’s intellectual capital which should not be restricted by administrative barriers. Digital transformation will ensure the digital storage of this knowledge, whereas an integrated information space will take care of fast and high-quality data exchange.”

— Digitization is costly, though. How profitable is this work for the Company and how does it benefit production per se?

“Digital transformation brings direct economic effects. But what counts, along with lower costs, is an increase in the reliability and safety of production processes. The result can be either quick or deferred, and understanding that things will not change in an instant, but in the process of hard and long work, is another step on the road to success. With digital technology, we are optimizing the stages of production activity, ensuring a completely new quality of work for the Company.

In view of the Company’s commitment to digitization, the total cost of purchasing software and related work (services) will markedly increase too. Costs are planned to be doubled from RUB 13.5bn over the 2019-2021 period to RUB 27bn in 2022-2024.

And we are talking about domestic developments. Foreign software will only be purchased to upgrade and maintain the existing programmes, gradually transferring them to domestic platforms.”

— How has this process been affected by the COVID-19 pandemic?

“As the saying goes, this was a blessing in disguise. The epidemic has accelerated digitization (especially at the mental level) by forcing business units into the lockdown and remote operation mode. This occurred on a very tight timeline, more reminiscent of mobilization. This is why ready-made solutions used all over the world were taken, as it wasn't possible to wait for domestic developments to be introduced. But now, after almost two years, import substitution solutions are also ready.”

— Is important substitution viable in IT?

“Import substitution is promising anywhere. The import substitution programme was decreed by the national leadership not only to boost domestic technology, but also to address external challenges difficulties, such as the possible sanctions imposed by foreign states.

Transneft has done a lot in terms of import substitution directly at production facilities. Entire companies have been set up to manufacture machinery and equipment for the Company. Unique developments in simulation systems are underway. Now the task is to develop import substitution in the IT sphere - both software and IT hardware like servers and data storage systems. This challenge can be met only by way of close cooperation between software and hardware developers.

For example, almost the entire information security system has been realized by national companies on the basis of domestic developments. The total outlay on the introduction of domestic software will exceed 70% in 2022-2024. In 2021 alone, the Company has purchased domestic software worth ca. RUB 3 billion. A major contract is planned with a domestic manufacturer of control systems to create a corporate integrated IT-based control system for Transneft and its subsidiaries.”

— How is Transneft interacting with government agencies and other companies in the area of digital transformation?

“Digital transformation is an end-to-end process, as it is impossible to carry out digital transformation in a single company, even a large one like Transneft, without certain ministries, agencies and partner companies backing its effort. This is necessary to create a single information space, for data analysis and processing and making essential decisions. Today, we are effectively engaged in this process, interacting both with the government, represented by the Ministry of Energy and the Ministry of Digital Development, Communications & Mass Media, and with similar companies from the oil and gas industry, such as Gazprom Neft.

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