Wednesday, March 23, 2005
POLITICAL MANEUVERS AROUND THE EASTERN PIPELINE
MOSCOW (Igor Tomberg, candidate of economics, leading researcher at the Center of Foreign Economic Studies, Institute of International Economic and Political Studies of the Russian Academy of Sciences) - On Monday, Gennady Fadeyev, head of Russian Railways (RZD), announced RZD plans to deliver Russian oil to Rajing, North Korea, which has a refinery. This again created an atmosphere of uncertainty over the final route of the Eastern Pipeline. Fadeyev's desire as a businessman to develop the profitable oil delivery business is understandable.
RZD has been negotiating the reconstruction of the eastern sector of the Trans-Korean Railroad and its linkup to the Trans-Siberian Railroad. The problem was outlined in August 2002, when Vladimir Putin and North Korean leader Kim Jong-il discussed the idea of linking up the South and North Korean railroads to create an uninterrupted railroad from the Far Eastern ports to western Europe.
The efforts of the RZD management in this area are understandable and justified. But the concept of oil delivery to Rajing by rail contradicts the concept of an oil pipeline to the Pacific coast in the pipe-tanker project. Oil companies are increasing production and have to use alternative delivery routes - by water and rail. LUKoil vice president Leonid Fedun said his company's spending on transportation topped $2 billion a year, exceeding production costs. In all, the country is losing $6-8 billion a year (direct budgetary losses are $3-4 billion) from the shortage of oil delivery routes, Fedun said.
Everything seems to point to the need to rapidly develop new oil export routes. Prime Minister Mikhail Fradkov signed the relevant instructions and the Chinese premier expressed readiness to use the new pipeline. But the project hit a hitch, and a constant problem at that: the environment.
According to Transneft plans, the pipeline should run from Taishet in the Irkutsk region to Skovorodino in the Amur region to Perevoznaya bay on the Pacific coast. Transneft president Semyon Vainshtok said the first stage provides for the construction of the pipe from Taishet to Skovorodino and or the oil terminal in Perevoznaya. Oil will be delivered from Skovorodino to Perevoznaya by rail. Vainshtok said the project would cost $11.5 billion.
What seems strange is the choice of Perevoznaya instead of the previously planned port of Nakhodka. In my opinion, this choice is the reason for a new brake on the project. Local environmentalists and officials have risen to protect the bay and Yuri Osipov, the president of the Russian Academy of Sciences, appealed to Dmitry Medvedev, the chief of the presidential staff.
On March 21, the press carried a statement from the Federal Service of Ecological, Technological and Nuclear Supervision (Rostekhnadzor), which instructed Transneft to justify the choice of Perevoznaya bay as the site for the oil terminal. "We share the concern of public and environmental organizations over the East Siberia-Pacific pipeline and believe that at the subsequent design stages Transneft should justify its choice of Perevoznaya Bay for building a port," said Andrei Malyshev, acting head of the service.
The situation with the choice of the bay looks like a spot of trickery, if not a detective story. An environmental organization, BROK, says that, despite repeated promises by members of the territorial administration to review the route in favor of Nakhodka, the final documents presented to the public name Perevoznaya as the only site for the oil terminal.
This freezing shallow bay on the Gulf of Amur is apparently too small and extremely dangerous to the giant 200,000-300,000-ton tankers, which will have to call at the port around the year. The crucial 10th volume of the project, which includes other routes and an alternative site for the terminal, with substantiated choices, cannot be found in Vladivostok. According to Transneft spokesmen, the volume had not been presented to the public because it contains confidential and strategic information. But environmentalists say that preventing a catastrophic oil spill and the death of valuable ecological systems and recreation resources of the South Maritime regions, which is stipulated in the project, means the documents should be completely open. In particular the reasons for making the choice should be made clear.
Transneft is trying to prove that the company has all the requisite technologies to ensure the environmental safety of the oil terminal. But it does not say how much this will cost. According to the company, the pipeline will cost $11.5 billion. Does it have this kind of money? It cannot expect to get private investment without offering access to the pipeline, and Japan's investment is under a question mark. Transneft's returns, though considerable ($1 billion in 2003 and possibly more in 2004), will not be enough to pay for the construction. So far, it can expect tax breaks and is lobbying for them.
Oil for the pipeline is always a problem in such projects, but it has been pushed into the background. While the project is being coordinated, we should assess the how much money is reliably available for the pipeline's construction. Is there enough money, or will spending have to be radically cut during construction? In such cases, environmental provisions are the first to suffer.
The RZD management is playing on the favorable transport situation in the region, though these efforts make one wonder how long railroads will remain the only way to deliver Russian oil to Asia Pacific countries. Rail transit is acceptable as a forced but temporary measure. But proceeding from limits on the volume of deliveries and transport fees, pipelines appear to be a much cheaper method. In other words, the diversification of markets for Russian oil will remain an impossible dream without the Eastern Pipeline.
RZD has been negotiating the reconstruction of the eastern sector of the Trans-Korean Railroad and its linkup to the Trans-Siberian Railroad. The problem was outlined in August 2002, when Vladimir Putin and North Korean leader Kim Jong-il discussed the idea of linking up the South and North Korean railroads to create an uninterrupted railroad from the Far Eastern ports to western Europe.
The efforts of the RZD management in this area are understandable and justified. But the concept of oil delivery to Rajing by rail contradicts the concept of an oil pipeline to the Pacific coast in the pipe-tanker project. Oil companies are increasing production and have to use alternative delivery routes - by water and rail. LUKoil vice president Leonid Fedun said his company's spending on transportation topped $2 billion a year, exceeding production costs. In all, the country is losing $6-8 billion a year (direct budgetary losses are $3-4 billion) from the shortage of oil delivery routes, Fedun said.
Everything seems to point to the need to rapidly develop new oil export routes. Prime Minister Mikhail Fradkov signed the relevant instructions and the Chinese premier expressed readiness to use the new pipeline. But the project hit a hitch, and a constant problem at that: the environment.
According to Transneft plans, the pipeline should run from Taishet in the Irkutsk region to Skovorodino in the Amur region to Perevoznaya bay on the Pacific coast. Transneft president Semyon Vainshtok said the first stage provides for the construction of the pipe from Taishet to Skovorodino and or the oil terminal in Perevoznaya. Oil will be delivered from Skovorodino to Perevoznaya by rail. Vainshtok said the project would cost $11.5 billion.
What seems strange is the choice of Perevoznaya instead of the previously planned port of Nakhodka. In my opinion, this choice is the reason for a new brake on the project. Local environmentalists and officials have risen to protect the bay and Yuri Osipov, the president of the Russian Academy of Sciences, appealed to Dmitry Medvedev, the chief of the presidential staff.
On March 21, the press carried a statement from the Federal Service of Ecological, Technological and Nuclear Supervision (Rostekhnadzor), which instructed Transneft to justify the choice of Perevoznaya bay as the site for the oil terminal. "We share the concern of public and environmental organizations over the East Siberia-Pacific pipeline and believe that at the subsequent design stages Transneft should justify its choice of Perevoznaya Bay for building a port," said Andrei Malyshev, acting head of the service.
The situation with the choice of the bay looks like a spot of trickery, if not a detective story. An environmental organization, BROK, says that, despite repeated promises by members of the territorial administration to review the route in favor of Nakhodka, the final documents presented to the public name Perevoznaya as the only site for the oil terminal.
This freezing shallow bay on the Gulf of Amur is apparently too small and extremely dangerous to the giant 200,000-300,000-ton tankers, which will have to call at the port around the year. The crucial 10th volume of the project, which includes other routes and an alternative site for the terminal, with substantiated choices, cannot be found in Vladivostok. According to Transneft spokesmen, the volume had not been presented to the public because it contains confidential and strategic information. But environmentalists say that preventing a catastrophic oil spill and the death of valuable ecological systems and recreation resources of the South Maritime regions, which is stipulated in the project, means the documents should be completely open. In particular the reasons for making the choice should be made clear.
Transneft is trying to prove that the company has all the requisite technologies to ensure the environmental safety of the oil terminal. But it does not say how much this will cost. According to the company, the pipeline will cost $11.5 billion. Does it have this kind of money? It cannot expect to get private investment without offering access to the pipeline, and Japan's investment is under a question mark. Transneft's returns, though considerable ($1 billion in 2003 and possibly more in 2004), will not be enough to pay for the construction. So far, it can expect tax breaks and is lobbying for them.
Oil for the pipeline is always a problem in such projects, but it has been pushed into the background. While the project is being coordinated, we should assess the how much money is reliably available for the pipeline's construction. Is there enough money, or will spending have to be radically cut during construction? In such cases, environmental provisions are the first to suffer.
The RZD management is playing on the favorable transport situation in the region, though these efforts make one wonder how long railroads will remain the only way to deliver Russian oil to Asia Pacific countries. Rail transit is acceptable as a forced but temporary measure. But proceeding from limits on the volume of deliveries and transport fees, pipelines appear to be a much cheaper method. In other words, the diversification of markets for Russian oil will remain an impossible dream without the Eastern Pipeline.
# posted by Deval : 7:17 AM
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