With Italy’s recent national election, Japan’s monetary easing and the UK’s downgrade, the currency markets have seen some interesting movements, and growing numbers of private investors now have a route to market through retail platforms such as FinFX. Chief Business Development Officer Stan Klebaner outlines its tremendous growth since it began in 2010 with a focus on the underserved Nordic region, its ranges of products for both retail and institutional investors, and plans to expands its global footprint.
Year: 2013
Patricio Jottar on corporate governance | CCU | Video
CCU is a diversified beverage company, operating mainly in Chile, Argentina and Uruguay. It is the largest brewer in Chile, and the second largest in Argentina, but is also one of the most important companies in the soft drink, mineral water, wine, and liquor sectors. Patricio Jottar explains how he drove the business into these new areas, and the model of corporate governance adopted through all CCU’s operations.
World Finance: Since becoming CEO of CCU, how has the company developed?
Patricio Jottar: I took up office as CEO of CCU in 1998, and since then the company has developed significantly. This is a company that was already developing quickly before I was appointed CEO, and I am totally sure that when my tenure ends and I retire from CCU – there’s still a long time before that happens – the company will continue to develop.
It is a company that has excellent people, an excellent board of directors, an excellent controlling group, and a very strong corporate governance policy at the same time. But yes, the company has developed. Without going into detail on the numbers, volumes have more than doubled since I became CEO and the EBITDA in dollars has practically quadrupled, as has the company’s market cap.
World Finance: And half of that growth is organic growth, so how have you expanded your market share?
Patricio Jottar: Organic growth is the growth of per capita consumption of the categories in which we participated when I joined CCU. Taking the case of beer, which is at the core of our business. Per capita consumption at the time was around 25 or 26 litres, whereas today it has grown to 42 litres. This has involved a conscious effort to foster per capita consumption.
Per capita consumption of water was around 5 litres, whereas today it is around 20 litres. We are the leading operator in the water market.
At the time soft drinks also had a per capita consumption of less than 100 litres, whereas today it is around 120 litres. It has grown – not as significantly as beer and water – but by quite a large amount that has facilitated our growth.
We have accompanied this growth: maintaining our market positions, innovating, creating products with a high added value, which has allowed us to enjoy a very significant organic growth.
“We did not participate in the pisco market – we started our operations from zero, and today we enjoy a 55 percent share”
World Finance: And what about your inorganic growth? How has the company moved into new product lines, and new regions?
Patricio Jottar: In Chile there were a series of businesses and categories in which we did not participate, or only had a very marginal market share. Today, however, we are highly active and have assumed a leadership position.
First, the pisco business. Pisco is Chile’s main distillate. 50 percent of all distillates drunk in Chile are pisco. And we did not participate in this market – we started our operations from zero before acquiring the second largest operator on the market, and today we enjoy a 55 percent share of the market.
We followed launches from zero and then took responsibility for the distribution of Pernod Ricard products. In the liquor market as a whole, including pisco, today we have a 40 percent market share. It’s very interesting.
In the wine business, our San Pedro winery was up and running; the third largest winery in the country.
We completed a merger and took control of joint operations with the Tarapacá winery, which was the fifth largest winery in the country, and today we are the second largest wine distributor nationwide.
We have also acquired a controlling stake in Chile’s largest bottled water distributor, known globally as Home and Office Delivery.
Their activities are very interesting and significant to our inorganic growth in Chile.
In Argentina we purchased a brewery outfit, which allowed us to increase the size of our business, and start operating at a cross-category level. Initially we were just breweries, but now we have a stake in the wine business.
We are leaders in the cider business, we are involved in liquors, and we have a small involvement in alcohol-free products.
And finally, we have invested in production in a third country, Uruguary, and we are taking our first steps towards distribution in Paraguay.
“A CEO must be constantly concerned with maintaining a thriving, effervescent, informal organisation”
World Finance: Let’s talk about corporate governance. World Finance has recognised CCU for your achievements in this field; what is the CCU vision of corporate governance?
Patricio Jottar: All organisations worldwide have two components, two elements, that are closely related. But those two components, or those two… dimensions… bring life to the organisation. One is what I like to call the formal organisation, the other is the informal organisation.
The informal organisation is a series of relationships and activities that occur on a day-to-day basis inside the organisation, which are neither foreseen nor scheduled. In the informal organisation, there are things that are immeasurable, like the quality of people’s intentions.
Am I doing my job exclusively in my own best interests, or do I worry about everyone else? These kinds of things fall within the boundaries of the informal organisation, and a CEO must be constantly concerned with maintaining a thriving, effervescent, informal organisation.
At the same time, companies have a formal organisation, and the formal organisation is comprised of a corporate framework that contains all good corporate governance standards on one hand, and all the management processes and operational processes on the other.
Our management processes are six processes that do not focus on operational matters. Instead they are processes – as their name suggests – that focus on the general management of the companies by means of which we manage the CCU corporation and the whole range of our businesses.
World Finance: Tell me more about those management processes.
Patricio Jottar: These processes are, number one: the strategic planning process; by means of which we permanently define our strategic priorities, both every three years and every year.
Secondly the preference model process, which is the process through which we manage the value of our brands.
In third place, the human resources process, which is the process through which we manage the talent within the company.
Fourthly, the productivity, quality and environmental process. As its name suggests, it is the process by means of which we manage these three dimensions of the company’s operations.
In fifth place, the operating budget process, that as its name suggests, allows us to generate operating budget indicators. Both in terms of growth, profitability and sustainability, and transforming this into a balance scorecard for the integrated management of the company in each of its six units.
And finally, the investment process, as its name suggests, allows us to manage all investments – in terms of capacity, the environment, technology, distribution, and in implementing CCU points of sale and each of its subsidiaries.
“We have a corporate governance framework that looks integrally at the business in all its aspects”
World Finance: And the corporate framework you mentioned?
Patricio Jottar: The corporate framework at CCU is based on a board of directors, the general management, and three unit groups that report to the general management body: the business strategic units, the corporate support units, and the strategic service units.
And so, the strategic business units are CCU’s subsidiaries in each of the business areas in which we participate. We have a beer subsidiary, a water subsidiary, a subsidiary for all other non-alcoholic products, a liquor subsidiary, a wine subsidiary in Chile… Each of these subsidiaries has a CEO and a board of directors.
Then we have the corporate support units, which serve two main purposes. Firstly, to deliver shared services throughout the different administrative functions among the different businesses, in accounting, human resources, supply, engineering; in legal areas, in technological areas, and so on.
And the second purpose is to perform certain activities that are distinctly corporate, such as financing, auditing, public relations.
And finally, the strategic service units – which are also shared service units, but which address a more operational side of the business, and not simply administration as mentioned previously.
All these units report to their Boards of Directors, they have service level agreements and are coordinated by the CEO.
Furthermore, the Board of Directors has a committee of directors that fulfil the obligations set out by law, primarily, analysing the financial statements and approving all related transactions, and an audit committee that fulfils the standards of the SEC, as the company is listed on the New York Stock Exchange.
So thus we have a corporate governance that looks integrally at the business in all its aspects.
World Finance: And finally, what does this recognition from World Finance mean to you?
Patricio Jottar: We are extremely proud, extremely recognised, and extremely motivated as a result of this award. We are proud given the quality of the institution that is giving the award. Recognised as we feel that we have made a systematic effort to implement world-class corporate governance.
And motivated as awards of this nature encourage us to keep working each and every day to do things better.
World Finance: Patricio Jottar, thank you very much for your time.
Patricio Jottar: Not at all, thank you. And we would like to repeat that we feel truly honoured, proud and happy to receive this award, which motivates and encourages us to make ever bigger efforts each day to improve our corporate governance.
Exchanges & Brokers Awards 2013
Best Advisory Broker, Western Europe
Hartmann Capital
Best Discretionary Broker, Western Europe
Deutsche Bank AG
Best Online Broker, Western Europe
DIF Broker
Best Execution Broker, Western Europe
Barclays Stockbrokers
Best Sustainable Stock Exchange, Western Europe
Frankfurt Stock Exchange
Best Binary Options Trading Provider, Western Europe
Optionow
Best Tangible Asset Broker, Western Europe
IPINglobal
Best Commodities Broker, Western Europe
Sucden Financial
Best CFD Trading Broker, Western Europe
IG Index
Best High Frequency Trading Company, Western Europe
List Group
Best Fixed Income Desks, Western Europe
Smith & Williamson
Best Electric Bond Trading Marketplace, Western Europe
icubic
Best Customer Service Provider, Western Europe
Credit Suisse
Best Education Provider, Western Europe
Learn to Trade | Watch the award presentation
Best Advisory Broker, Eastern Europe
Nettrader
Best Discretionary Broker, Eastern Europe
Erste Securities Polska S.A
Best Online Broker, Eastern Europe
HotForex
Best Execution Broker, Eastern Europe
RoboForex
Best Sustainable Stock Exchange, Eastern Europe
Prague Stock Exchange
Best Trading Technology Company, Eastern Europe
ProQuote
Best Tangible Asset Broker, Eastern Europe
NTC International
Best Commodities Broker, Eastern Europe
Dom Maklerski
Best High Frequency Trading Company, Eastern Europe
AlgoSpan
Best Electronic Bond Trading Marketplace, Eastern Europe
MTS Bondvision
Best Customer Service Provider, Eastern Europe
Nettrader
Best New Broker, Eastern Europe
BRE Forex
Best Education Provider, Eastern Europe
XTB Online Trading
Best Advisory Broker, North America
Saratoga Capital
Best Discretionary Broker, North America
Goldman Sachs
Best Online Broker, North America
Charles Schwab
Best Execution Broker, North America
Newedge
Best Sustainable Stock Exchange, North America
Nasdaq
Best Trading Technology Company, North America
Actuate
Best Tangible Asset Broker, North America
Belgrave Group
Best Commodities Broker, North America
GFI Group
Best CFD Trading Broker, North America
Interactive Brokers
Best High Frequency Trading Company, North America
Solarflare
Best Electronic Bond Trading Marketplace, North America
Goldman Sachs
Best New Broker, North America
Virtual Brokers
Best Advisory Broker, Latin America
BES Securities
Best Discretionary Broker, Latin America
Vector Casa de Bolsa
Best Online Broker, Latin America
LiteForex
Best Execution Broker, Latin America
CI Casa de Bolsa
Best Sustainable Stock Exchange, Latin America
Bolsa de Santiago
Best Trading Technology Company, Latin America
Orc Software
Best Binary Options Trading Provider, Latin America
TraderXP
Best Tangible Asset Broker, Latin America
Green Land Securities
Best Commodities Broker, Latin America
Iberica
Best High Frequency Trading Company, Latin America
Link Investimentos
Best Electronic Bond Trading Marketplace, Latin America
Cetip
Best Customer Service Provider, Latin America
Vector Casa de Bolsa
Best New Broker, Latin America
GF Group
Best Education Provider, Latin America
Equipe Trader
Best Advisory Broker, Asia
Edelweiss
Best Discretionary Broker, Asia
UBS Securities China
Best Online Broker, Asia
HotForex
Best Execution Broker, Asia
Phillip Securities
Best Sustainable Stock Exchange, Asia
Shanghai Stock Exchange
Best Trading Technology Company, Asia
Tora
Best Tangible Asset Broker, Asia
Axiom
Best Commodities Broker, Asia
Hedge Equities
Best CFD Trading Broker, Asia
IronFX
Best High Frequency Trading Company, Asia
Corvil
Best Electronic Bond Trading Marketplace, Asia
MarketAxess
Best Customer Service Provider, Asia
IronFX
Best New Broker, Asia
Blackwell Global Investments
Best Advisory Broker, Middle East
KAMCO
Best Discretionary Broker, Middle East
Arqaam Securities
Best Online Broker, Middle East
RFXT
Best Execution Broker, Middle East
SGN Brokerage
Best Sustainable Stock Exchange, Middle East
Tadawul
Best Trading Technology Company, Middle East
TradeNet
Best Binary Options Trading Provider, Middle East
24 Option
Best Tangible Asset Broker, Middle East
Gold AE
Best Commodities Broker, Middle East
Gold AE
Best CFD Trading Broker, Middle East
AM Financials
Best High Frequency Trading Company, Middle East
Mubasher Financial Services
Best Electronic Bond Trading Marketplace, Middle East
Tadawul
Best Customer Service Provider, Middle East
Arqaam Securities
Best Education Provider, Middle East
Sigma Securitie
Best Advisory Broker, Australasia
Morgan Stanley
Best Discretionary Broker, Australasia
HSBC Australia
Best Execution Broker, Australasia
Morrison Securities
Best Sustainable Stock Exchange, Australasia
Australian Securities Exchange
Best Trading Technology Company, Australasia
Orc Software
Best Binary Options Trading Provider, Australasia
Anyoption
Best Commodities Broker, Australasia
Alpha Broking
Best CFD Trading Broker, Australasia
AvaFX
Best High Frequency Trading Company, Australasia
Tibra Capital
Best Customer Service Provider, Australasia
Blackwell Global Investments
Best New Broker, Australasia
ThinkForex
Best Education Provider, Australasia
Knowledge To Action | Greg Secker accepts the award for Knowledge to Action
Best Online Broker, Australasia
FXTG
Best Advisory Broker, Africa
Credit Suisse Standard Securities
Best Discretionary Broker, Africa
Citadel
Best Online Broker, Africa
Ghana FX
Best Sustainable Stock Exchange, Africa
Ghana Stock Exchange
Best Trading Technology Company, Africa
SAP
Best Binary Options trading Provider, Africa
GT247
Best Tangible Asset Broker, Africa
Broll Ghana
Best Commodities Broker, Africa
MIH Commodities
Best CFD Trading Broker, Africa
GCI Financial
Best Electronic Bond Trading Marketplace, Africa
JSE
Best Customer Service Provider, Africa
Investec
Best New Broker, Africa
BK Securities
Best Education Provider, Africa
Learn to Trade | Watch the award presentation
James Campbell, Ian Bendall | Bermuda Hospitals, Davis LLP
With only one acute hospital on its shores, Bermuda’s healthcare has not always been at the forefront of government priorities. However, the country is now financially able to broaden its primary infrastructure, and the redevelopment of King Edward VII Memorial hospital is its largest ever public infrastructure project. James Campbell and Ian Bendall discuss the unique level of government support for the redevelopment, and the innovative solutions found in response to the project’s challenges.
Corporate Governance Awards 2013
Best Corporate Governance, Argentina
YPF
Best Corporate Governance, Australia
National Australia Bank
Best Corporate Governance, Bahrain
Batelco
Best Corporate Governance, Brazil
Gol Linhas Aéreas Inteligentes
Best Corporate Governance, Belgium
Anheuser-Busch InBev
Best Corporate Governance, Canada
Royal Bank of Canada
Best Corporate Governance, Chile
CCU | Felipe Arancibia accepts the award for CCU
Best Corporate Governance, China
COSCO
Best Corporate Governance, Colombia
Protección
Best Corporate Governance, Czech Republic
CˇEZ Group
Best Corporate Governance, Denmark
DONG Energy
Best Corporate Governance, Egypt
Orascom Construction Industries
Best Corporate Governance, Finland
Kesko Corporation
Best Corporate Governance, France
GDF Suez
Best Corporate Governance, Germany
Continental AG
Best Corporate Governance, Hong Kong
Shui On Construction & Materials Ltd
Best Corporate Governance, India
Mindtree |Krishnakumar Natarajan accepts the award for Mindtree
Best Corporate Governance, Indonesia
PT ABM Investama Tbk
Best Corporate Governance, Israel
Teva Pharmaceuticals
Best Corporate Governance, Italy
Pirelli
Best Corporate Governance, Kenya
Safaricom
Best Corporate Governance, Kuwait
The Commercial Real Estate Co (Al Tijaria)
Best Corporate Governance, Lebanon
Bank Audi sal
Best Corporate Governance, Malaysia
Axiata Group
Best Corporate Governance, Myanmar
KBZ Group of Companies
Best Corporate Governance, Mexico
Controladora Comercial Mexicana (CCM)
Best Corporate Governance, Netherlands
Royal Philips Electronics
Best Corporate Governance, Nigeria
First Bank of Nigeria
Best Corporate Governance, Oman
Oman LNG | Harib Al Kitani accepts the award for Oman LNG
Best Corporate Governance, Peru
Ferreyros
Best Corporate Governance, Philippines
Metro Pacific Investments
Best Corporate Governance, Poland
KGHM Polska Miedz
Best Corporate Governance, Portugal
Inapa
Best Corporate Governance, Russia
Bank Vozrozhdenie | Andrey Shalimov accepts the award for Bank Vozrozhdenie
Best Corporate Governance, Saudi Arabia
Dar Al-Arkan Real Estate Development Company
Best Corporate Governance, Singapore
Olam International
Best Corporate Governance, Spain
Abengoa
Best Corporate Governance, Sri Lanka
Environmental Resources Investment
Best Corporate Governance, Sweden
Cybercom
Best Corporate Governance, South Africa
Woolworth Holdings
Best Corporate Governance, South Korea
Samsung
Best Corporate Governance, Spain
Abengoa
Best Corporate Governance, Taiwan
Tatung Company | President W Y Lin accepts the award for Tatung
Best Corporate Governance, Thailand
ThaiBev
Best Corporate Governance, Turkey
Vestel Elektronik
Best Corporate Governance, UAE
Abu Dhabi Commercial Bank
Best Corporate Governance, Ukraine
Mriya Agro Holding
Best Corporate Governance, UK
GlaxoSmithKline
Best Corporate Governance, US
AECOM
Global Pension Fund Awards 2013
Best Pension Fund, Austria
Valida
Best Pension Fund, Belgium
Unilever Benelux
Best Pension Fund, Brazil
HSBC Fundo de Pensão | Mark Hussein accepts the award for HSBC Seguros
Best Pension Fund, Canada
British Columbia Municipal Pension Fund
Best Pension Fund, Caribbean
Scotiabank
Best Pension Fund, Chile
AFP Capital
Best Pension Fund, Colombia
Porvenir
Best Pension Fund, Croatia
PBZ Croatia Osiguranje
Best Pension Fund, Czech Republic
Penzijni Fond Komercni Banky
Best Pension Fund, Denmark
PenSam Group
Best Pension Fund, France
EDF
Best Pension Fund, Finland
Keva
Best Pension Fund, Germany
Ärzteversorgung Westfalen-Lippe | Andreas Kretschmner accepts the award for Ärzteversorgung Westfalen-Lippe
Best Pension Fund, India
Tata AIA Life Insurance Company | Saravana Kumar accepts the award for Tata AIA Life Insurance Company
Best Pension Fund, Italy
Fondo di Previdenza “Mario Negri” | Alessandro Baldi accepts the award for Mario Negri Pension Fund
Best Pension Fund, Mexico
Invercap Afore
Best Pension Fund, Netherlands
ING
Best Pension Fund, Norway
Statoil Pensjonskasse
Best Pension Fund, Peru
Prima AFP
Best Pension Fund, Poland
Bankowy
Best Pension Fund, Portugal
Unibetao
Best Pension Fund, Russia
Norilsk Nickel NPF
Best Pension Fund, South Africa
Sentinel & MEPF
Best Pension Fund, Spain
Banco Popular
Best Pension Fund, Sri Lanka
AVIVA NDB
Best Pension Fund, Sweden
Apoteket Pensionsstiftelse
Best Pension Fund, Turkey
Yapi Kredi
Best Pension Fund, UAE
Abu Dhabi Investment Authority
Best Pension Fund, Uruguay
Integracion AFAP
Best Pension Fund, US
3M
Islamic Finance Awards 2013
Best Islamic Bank, Afghanistan
Afghan United Bank
Best Islamic Bank, Algeria
Al Salam Bank Algeria
Best Islamic Bank, Albania
United Bank of Albania
Best Islamic Bank, Azerbaijan
Kauthar Bank
Best Islamic Bank, Bahrain
Al Baraka Islamic Bank
Best Islamic Bank, Bangladesh
EXIM Bank
Best Islamic Bank, Bosnia & Herzegovina
Bosna Bank International
Best Islamic Bank, Brunei
Bank Islam Brunei Darussalam
Best Islamic Bank, Djibouti
Salaam African Bank
Best Islamic Bank, Egypt
Al Baraka Bank Egypt
Best Islamic Bank, Gambia
Arab Gambian Islamic Bank
Best Islamic Bank, Guinea
Banque Islamique de Guinée
Best Islamic Bank, Indonesia
Bank Muamalat Indonesia
Best Islamic Bank, Jordan
Jordan Islamic Bank | Musa Shihadeh accepts the award for Jordan Islamic Bank
Best Islamic Bank, Kazakhstan
Al Hilal Islamic Bank
Best Islamic Bank, Kenya
First Community Bank
Best Islamic Bank, Kuwait
Boubyan Bank
Best Islamic Bank, Kyrgyzstan
Eco Islamic Bank
Best Islamic Bank, Lebanon
Al Baraka Bank
Best Islamic Bank, Malaysia
Bank Rakyat
Best Islamic Bank, Maldives
Maldives Islamic Bank
Best Islamic Bank, Mauritania
Banque Al Wava Mauritanienne Islamique
Best Islamic Bank, Mauritius
Century Banking Corporation
Best Islamic Bank, Niger
Banque Islamique du Niger
Best Islamic Bank, Nigeria
Jaiz Bank
Best Islamic Bank, Oman
Bank Nizwa
Best Islamic Bank, Pakistan
Burj Bank
Best Islamic Bank, Philippines
Al-Amanah Islamic Investment Bank
Best Islamic Bank, Qatar
Qatar Islamic Bank
Best Islamic Bank, Saudi Arabia
Bank AlJazira
Best Islamic Bank, Senegal
Banque Islamique du Sénégal
Best Islamic Bank, Singapore
The Islamic Bank of Asia
Best Islamic Bank, South Africa
Al Baraka Islamic Bank
Best Islamic Bank, Sri Lanka
Amana Bank
Best Islamic Bank, Sudan
Bank of Khartoum
Best Islamic Bank, Switzerland
Faisal Private Bank
Best Islamic Bank, Tanzania
Amana Bank Tanzania
Best Islamic Bank, Thailand
The Islamic Bank of Thailand
Best Islamic Bank, Tunisia
Al Baraka Bank Tunisia
Best Islamic Bank, Turkey
Türkiye Finans Katılım Bankası | Derya Gurerk accepts the award for Türkiye Finans Katılım Bankası
Best Islamic Bank, UAE
Emirates Islamic Bank | Wael Ibrahaim accepts the award for Emirates Islamic Bank
Best Islamic Bank, UK
Bank of London and the Middle East
Best Islamic Bank, USA
American Finance House LARIBA
Best Islamic Bank, Yemen
Tadhamon International Islamic Bank
Islamic Banker of the Year
Adnan Ahmed Yousif, Al Baraka Bank
Business Leadership & Outstanding Contribution to Islamic Finance
H.E. Mr Musa Shihadeh, Jordan Islamic Bank
Best Asset Management Company
Alkhabeer Capital
Best Fund Management Company
The Investor for Securities Company
Best Private Wealth Management Company
Bayt Al Mal Investment Company
Best Islamic Finance Advisory Firm
Muthanna Investment Company
Best Sukuk Deal
Qatar Islamic Bank
Best New Islamic Fund
Sidra Ancile Global Structured Trade Investment Fund
Best Takaful Provider
Takaful Malaysia
Best Retakaful Provider
ACR ReTakaful
Best Finance Training Institution
Islamic Banking and Finance Institute Malaysia
Doron Cohen on social trading in forex | Leverate | Video
Foreign exchange is the most traded asset class in the world, which means growing opportunities for brokers and a demand for software solutions to match them. At the forefront of this is Leverate, one of the largest providers of technology to retail forex brokers. Co-CEO Doron Cohen explains how it has championed innovation above all else, and the “paradigmatic shift” in the industry towards social trading, where traders will thrive in large communities with transparent access to data.
Yuriy Rubin on oil drilling | Irkutsk Oil Company | Video
Irkutsk Oil Company has enjoyed great success recently, with a growth rate of 65 percent for the last five years, and 2.3m tonnes of liquids produced in 2012, double that of the previous year. Chief Financial Officer Yuriy Rubin outlines some of the key details of its expansion, with the acquisition of licenses in east Siberia and new plans for the highly productive Yaraktinsky field, and how this has gone hand-in-hand with a commitment to increasing efficiency and reducing waste.
World Finance: Tell us more about this expansion: what have you achieved?
Yuriy Rubin: Irkutsk Oil Company is 12 years old as of last November, and we have achieved significant growth. For instance in 2001 we produced just 30,000 tonnes of oil. Today we need just three or four days to achieve this amount of production.
As of last year we produced 2.3m tonnes of liquids, and almost doubled our production of the previous year.
Currently we utilise approximately 13 rigs, and maybe even five years ago we had just three rigs: a significant increase. That allows us to expand geographically, we recently acquired fuel licences in the northern part of east Siberia, in Yarakta, and currently we have 21 licence areas, covering total territory similar to Belgium or Netherlands: about 40,000 sq km.
World Finance: You’re also using more efficient extraction methods, tell us more about that.
Yuriy Rubin: We gained a lot of experience in east Siberia, through significant operations. Irkutsk company was the first company ever to start commercial drilling in east Siberia. And we gained significant experience, and most of that came through selecting the right drilling bits for different horizons, for different layers: we selected the best optimal method.
And we signifcantly increased the speed of drilling. In 2005, we drilled a speed of about 2-3 metres per hour, and currently it’s 5-7 metres per hour. Almost a two-fold increase.
Second, we start introducing different advanced techniques. For instance, horizontal drilling, fracturing, and geosteering.
Irkutsk Oil Company was very happy to meet the EBRD’s very strict environmental standards, and that really helped to grow the company
World Finance: And you’re working with the European Bank for Reconstruction and Development to reduce waste through flaring gas: tell us more about that.
Yuriy Rubin: Our partnership with EBRD started in 2008, when the European Bank for Reconstruction and Development became a shareholder of Irkutsk Oil Company. They were directed with our desire to diminish greenhouse effect through re-injection of EPG. And that was a very good match, because our company required funds for this programme, and EBRD saw that their real action would reduce EPG. Since that time we built some gas-gathering pipelines, and tested reinjection of gas, and hopefully within the next year or two we can attain a 90-95 percent reduction in EPG flaring.
We would like to thank EBRD for all their continued support; it’s not only financial support, we have a lot of input from the EBRD, we’re also really happy that they back us up us in many of our works. Also, Irkutsk Oil Company was very happy to meet the EBRD’s very strict environmental standards, and that really helped to grow the company and go to the next level, I would say.
World Finance: You spoke recently about your plans for the Yaraktinsky field, how far have they come, and what’s next?
Yuriy Rubin: The Yaraktinsky field is responsible for about 90 percent of the current company’s production, so we were very lucky. That field is very good producer, and most of the wells have a good production rate. Also, like I mentioned before, the Yaraktinsky field allows us to test our gas injection, and see how this area accepts this gas, and what happens in the formation. We do plan to continue our drilling programme at the Yaraktinsky field, because we see this field as having high potential. It keeps surprising us, and we believe that within the next 5-6 years we can reach 3m tonnes total for the Yaraktinsky field.
World Finance: So finally is this double-digit growth sustainable, and what’s your five year plan?
Yuriy Rubin: As I mentioned, Irkutsk Oil Company has grown at a rate of about 65 percent for the last five years. Of course, we were in the very beginning of the so-called S-curve, which as you know is impossible to attain for a long period of time. We really hope for the next 5-6 years we could still keep a growth rate of approximately 10-20 percent, and that would still require significant investments from the company.
We plan to invest about $1.5bn for the next 5-6 years, and most of that would be invested in our development programme, but a portion of that would be invested in exploration. So, we believe that exploration will be successful, and we could still surprise our shareholders and our partners with our continued growth for many years to come
World Finance: Yuriy, thank you.
Yuriy Rubin: Thank you so much.
Andrey Shalimov on community banking | Vozrozhdenie
The Russian banking sector in its present form is just 20 years old and, with much of it controlled by European banks, it has felt the strain since the 2008 crisis. Analysts are expecting a decrease in its capital this year and a worsening quality of consumer loans. Andrey Shalimov discusses how Vozrozhdenie Bank has attained a stronghold in the sector through a commitment to good corporate governance and positioning itself as a community bank.
Krishnakumar Natarajan, Rostow Ravanan, Tridip Saha | Mindtree
India’s equity market is still very young but growing fast, which makes good governance and best-in-class practices especially important to inspire the market’s confidence. Krishnakumar Natarajan, Rostow Ravanan and Tridip Saha of technology solutions company Mindtree discuss the way corporate governance legislation is evolving, how effective adoption of technology can improve governance models, and its plans to develop its knowledge and expertise in local markets.
Making sausages
Many European consumers were reminded of this fact – and not just for sausages – by the recent horsemeat scandal, which started in the UK when the Food Standards Agency discovered that some products such as frozen lasagnes and hamburgers were more horse than beef.
For a nation which loves horses, this came as something of a shock. Of course, the scandal posed a risk more to cultural prejudices than to the health of the population. However it is a reminder that modern supply chains offer society a high level of efficiency, with the drawback that we often have little clue what is going into the things we consume.
Such supply chains are often tortuosly complex: here it involved a French-owned factory in Luxembourg, another French company called Spanghero, a Cypriot trader, another trader in the Netherlands, and finally an abattoir in Romania. (The Romanians have since denied that the mislabelling originated with them.)
In earlier, simpler times, people would often obtain their mince by going to the butchers and asking for a specific piece of meat to be ground up. It would have been difficult to end up by accident with a piece of a different animal species from an Eastern European abbatoir. But today, rather than relying on our own eyes, we have to trust a hugely complex international supply chain. We believe (or accept) that the label on a product is accurate, and the contents have not been changed or substituted at any point in the chain, through error or fraud.
The processing and packaging also meant that the end purchaser had little idea what went into it, which left the system open to abuse
Food has all sorts of powerful cultural and emotional resonances, which is why the horse scandal got so much press. However the same kind of meat-mixing also occurs in other areas, such as financial products. Consider for example the changes in the U.S. mortgage industry which helped kick-off the financial crisis.
In earlier, simpler times (like the 1980s), mortgages were traditionally a straightforward bond between the home owner and a financial institution. A disadvantage of this arrangement was that the bonds were hard to trade, so banks had to keep the low-yielding liabilities on their books for a fixed term. To address this problem, in the 1990s they turned increasingly to methods such as collateralised debt obligations (CDOs).
CDOs consist of bundles of mortgages, which can then be divided into tranches of varying quality, and sold as separate instruments. On the surface, they offered a neat way to take a group of individual mortgages with different default risks and payment schedules, and homogenise them into an easily-traded, plastic-wrapped product with a tailored degree of risk.
The mortgage “supply chain” became increasingly complex and specialised. A broker would sell mortgages to home-owners. These mortages were then compiled by a mortgage bank; an investment bank would transform them into an investment product; another firm would be responsible for managing payment collection; and a rating agency would stamp the whole thing as grade A prime beef.
As with the food supply chain, this complexity led to some cost efficiencies, but also had the effect of severing the connection between mortgage supplier and home owner, so their interests were no longer aligned. The processing and packaging also meant that the end purchaser had little idea what went into it, which left the system open to abuse. The result was far more toxic than any equine lasagne.
Financial sausages
The people in charge of labelling this financial equivalent of mystery meat were the rating agencies such as Standard and Poor’s. The labelling acted as a reassurance that the product was safe. Unfortunately, these institutions didn’t do a very good job. The products again often turned out to contain more horse than beef.
Part of the problem was the mathematical models that were being used. These were based on historical records of volatility. Since the US housing market had been growing steadily for decades, it is no surprise that they underestimated the risk of default.
The rating agencies also had a blatant conflict of interest. In order for instruments such as CDOs to be attractive to investors, they needed to have a high rating, preferably triple-A. When the housing market started to tank in early 2007 (if not before), these ratings should have been adjusted down; but this would not have pleased clients such as major banks. So while the agencies were in theory objective and independent, they actually had a stake in keeping the ratings high in order to allow their clients to get the bonds off their books.
According to a recent US civil complaint against S&P, internal S&P documents show that the company regularly tweaked their models to give the right (ie triple-A) answers – which was nice for their clients, but less so for the purchaser. As Tony West from the US Justice Department put it, “It’s sort of like buying sausage from your favorite butcher, and he assures you the sausage was made fresh that morning and is safe. What he doesn’t tell you is that it was made with meat he knows is rotten and plans to throw out later that night.”
Globalisation in industries such as finance or food has been hugely beneficial in many respects. It is indeed a miracle that human beings spread over many different countries can conspire to make single products in such an efficient manner. But complex systems theory teaches us that efficiency often comes at the expense of robustness. A system which is highly efficient, and minimally regulated, may also be sensitive to small perturbations, or vulnerable to contagion. For this reason, many biological systems, such as those found in the human body, are far from paragons of efficiency. The regulatory bodies which provide a dgeree of oversight might make products more expensive – but as we are learning at the supermarket, you get what you pay for. And sometimes, it really is better to buy local.
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