Pipeliners

16 April 2007 Upstream OnLine - Russian President Vladimir Putin has signed a decree to merge oil product pipeline monopoly Transnefteprodukt with crude oil pipeline monopoly Transneft, the Kremlin said today. The statement said Russia would keep at least 75% in the merged company, which would be created within the next five months. Transneft would issue new ordinary shares to take over Transnefteprodukt, the statement added. The idea of merging the two monopolies emerged last year, and analysts have said it is part of a broader strategy by the Kremlin to enhance control over the strategic energy sector by creating mighty state giants. Russian media have reported that Transneft might need to issue new preferred shares, but the statement made no mention of it. Tit is not known whether Transneft's current head Semyon Vainshtok would lead the combined company. "TNP is a very profitable business and, considering the advantageous economics of oil refining in Russia, demand for inexpensive pipeline transportation of refined products is likely to increase going forward," Aton brokerage said in a recent research. Analysts at Alfa Bank have said merging the pipeline infrastructure would bring little in the way of synergies, while a combination of the companies' sea port terminals could be positive. Transneft is already the world's largest oil pipeline system and supplies much of Europe with crude. TNP runs 19,000 kilometres of oil product pipelines with total annual transportation capacity of 30 million tonnes of light products, one-third of all Russian light product shipments. The remaining two-thirds of Russia's light products and almost all its fuel oil are delivered by rail. Transneft wants to build an $11 billion, 600,000 barrel per day pipeline to China by the end of this decade, while TNP's key project is a $1 billion gasoil pipeline to the Baltic port of Primorsk, where Transneft already has a big terminal. Industry experts have valued TNP at around $1.5 billion. The state fully controls TNP. The state also controls Transneft's entire ordinary stock, which represents 75% of the company's charter capital, while private investors control all of its preferred stock, which represents 25% of the charter capital. Transneft would need to issue new preferred shares as well as ordinary stock if it wishes to keep the 75/25 proportion.