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Tuesday, May 24, 2005

International Bank Syndicate May Finance Russia-Japan Pipeline Project

Photo from www.imagebank.com24.05.2005 13:20 MSK MosNews - Russia's oil pipeline monopoly Transneft is in advanced talks on a loan syndicate to fund the $6.5 billion construction of the first phase of a major eastward oil export pipeline, the company's CEO Simon Vainshtok said in an interview published by Vedomosti business daily on Tuesday, May 24. Financing for the link that is set to connect oil fields in East Siberia with the Pacific Ocean port of Nakhodka and which could have a capacity of 80 million tons a year (1.6 million barrels per day), would be raised from an international bank syndicate, Vainshtok said. He did not elaborate on the size of the loan. "We are well advanced in these talks," Transneft's official told the paper. "It's a syndicate of Western banks, but there are Russian banks too." The first stage of the proposed 4,200 km (2,625 mile) pipeline, whose construction was approved by the government last December, would run from the Irkutsk region of Siberia to Skovorodino in the Amur region, or midway to the Pacific. Oil would be then taken by rail to China and the Pacific coast, primarily to serve the Japanese market, while two pipeline extensions are completed in the project's second phase. Vainshtok estimated total costs of the eastward pipeline, critical for Russia to diversify away from European markets and secure access to booming Asian markets, at $11.5 billion. "We think that $6.5 billion to get to Skovorodino will be enough," he said. The official also said that Phase 1 of the eastern-bound pipeline would have a capacity of 80 million tons a year and take around 26 months to complete. Thirty million tons of oil would be annually channeled to China, while the remaining 50 million (1 million barrels per day) — to the Pacific coast. China and Japan have competed to become the pipeline's exclusive destination, but Vainshtok said he had been left cold by a take-it-or-leave it offer of funding from Japan which would be made only if the pipeline skirts China. "Japanese investors must give us a better offer than the others," said Vainshtok. "We say that financing Transneft is a privilege. For our company, without any state guarantees ... or preconditions attracting $6-$7 billion for 15-20 years does not pose any problems." Vainshtok said no formal government decision had yet been taken on building the Chinese pipeline branch, but said he expected it to be approved. Transneft plans simultaneously to build a $2.2 billion pipeline linking oil fields in Western Siberia with a proposed terminal at Indiga on the Barents Sea, Vainshtok said. The Indiga project is competing with a rival proposal from oil major Lukoil to build its own Barents Sea terminal at Varandei. He also said that the capacity of Transneft's Baltic export pipeline would be raised to 60 million tons a year in the first half of 2005 from the 52 million tons it services now.

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