Pipeliners

05.05.2005 Kommersant - by Irina Rybalchenko - Kommersant has learned that OAO AK Transneft is preparing a proposal to increase oil transport rates through main pipelines. If the Federal Tariff Service (FST) accepts Transneft's proposal, this will already be the second rate increase in 2005. Transneft's plans are apparently connected with the start of construction of the Eastern Oil Pipeline - the higher the rates, the more internal funds the company will have for project implementation. However, it is not inconceivable that the pumping rate through it will also increase in the first phase, and this could threaten the entire project. As they told Kommersant at the FST, Transneft's plans to increase oil transport rates through main pipelines are still only at the level of talks; therefore, the tariff service did not specify the amount of the increase under discussion. Recall that in an interview with Kommersant last week, Transneft President Semen Vainshtok said that the company would aim for rate increases only within the limits of inflation. The federal budget for 2005 plans for inflation of 7.5 - 8.5 percent, but according to recent forecasts, inflation rates will be closer to 10 percent. "This value will suit Transneft perfectly," they said at the FST. However, we recall that the matter concerns the second increase in a year - by a decision of the FST, oil transport rates through the Transneft system have already increased an average of 11.2 percent in Russia as of January 1, 2005.
Transneft is probably seeking a rate increase in order to minimize the amount of borrowed funds needed to build the Eastern Siberia-Pacific Ocean oil pipeline (Eastern Oil Pipeline). Recall that the project will be implemented in phases. The first phase is construction of the section from Taishet to Skovorodino, with simultaneous construction of an oil terminal at Nakhodka, to which oil from Skovorodino will be delivered by rail. The second phase is construction of the Skovorodino-Perevoznaya section, which will begin when oil companies start commercial production of the Eastern Siberian fields.
According to Vainshtok, "an oil company should be indifferent to how oil is exported, whether by rail and pipeline or just by pipeline" [see Kommersant of April 29]. Therefore, Transneft is proposing to fix pipeline transport rates to Skovorodino at $49.90 for deliveries to China and same total rate to Skovorodino via pipeline plus Skovorodino to Perevoznaya by rail. "The two monopolies must offer oil companies equal terms," they agreed at FST. However, at OAO Russian Railways, they think that the railways will not be able to recoup their investments at this rate.
As they explained to Kommersant at Russian Railways, a branch line will now have to be extended from Skovorodino to Perevoznaya Bay (Skovorodino-Kedrovy siding), which is nearly 2000 km along the Trans-Siberian. In order to be able to transport up to 30 million metric tons of oil per year in tank cars (as proposed for the first phase of construction), the section of the Trans-Siberian main line will have to be reinforced. Last year, about 15 million metric tons of oil were transported along the Trans-Siberian from Angarsk to China and to Far Eastern refineries; this year, it is planned to increase shipment volumes to 19 million metric tons of oil. It will also be necessary to expand the locomotive fleet. According to Russian Railways' information, this could cost as much as $50 million. "These investments must be recouped in full in order to extend the pipeline to Perevoznaya," they note at Russian Railways.
According to the company's calculations, the proposed total rate of $49.90 per metric ton assumes that Russian Railways' share in only $18 per metric ton. "This is clearly not enough, since the present rate with without any extra investment charges along the Skovorodino-Kedrovy siding branch is $34 per metric ton," Kommersant's source from Russian Railways contended. "The rate will be formulated objectively, so we can't give any guarantees that the rail-pipeline through rate will be $49.90 per metric ton.
Vainshtok, however, is confident that he will be able to find a compromise with the railways and avoid a rate increase for transporting oil through the Eastern Oil Pipeline. Otherwise, the entire project will be threatened, since oil companies are unlikely to agree to such conditions to switch from the westerly direction to the easterly.