19-09-00 Sergei Grigoryev, the vice president of Transneft, announced earlier this month that his company had decided to dissolve the company set up to carry out the Baltic Pipeline System (BPS) project. That company, also known as BPS, had been set up as a fully-owned subsidiary of the Upper Volga Pipeline (VMN) company, which is itself a fully-owned subsidiary of Transneft, Grigoryev noted.
Now, he said, VMN will absorb and liquidate BPS and establish a special department for the oil transport project. That department will in turn be dissolved once Transneft sets up a special subsidiary to handle the BPS project, Grigoryev stated.
He did not offer any explanation for the decision to dismantle the BPS company. However, Russian press sources offered two possible explanations. They said the move might have been prompted by the government's allegations that Transneft has misused the proceeds of a special tariff introduced to fund the BPS project. Moscow has reportedly lost $ 2 mm as a result of Transneft's mistakes, they said.
The press sources also noted that Leningrad regional officials believe that organised criminal elements were interested in gaining an interest in the BPS project. The BPS company may have been liquidated in order to prevent criminals from taking over the project, they said.

The Russian government began planning the BPS project several years ago and in 1996 signed an agreement with domestic and foreign partners on building the line. The deal was signed by Transneft, two Russian companies (KomiTEK, now owned by LUKoil, and Rosneft), the Russian-Belarussian company Slavneft and five foreign firms (British Gas, Conoco and Williams of the United States, Neste of Finland and Total of France). Earlier this year, however, the project was turned over to Transneft.
The BPS project will be carried out in two stages. Work on the first stage of the BPS began on March 31 with the construction of new pipeline from Kharyaga to Kirishi (via Usinsk, Ukhta and Yaroslavl) and from Kirishi to Primorsk. These pipelines will be able to carry 12 mm tpy of crude oil.
Some 450 km of new pipe will have to be laid along the route from Kharyaga to Primorsk and another 175 km of existing pipe restored. This stage of the project will cost around $ 460 mm and is due to be completed in 18 months. These pipelines will complement several of the lines already in place.
Transneft has already agreed to let some existing pipelines -- the Usinsk-Ukhta-Yaroslavl-Kirishi line as well as new lines from Kharyaga to Usinsk and from Kirishi to the Gulf of Finland -- serve as part of the BPS. The second stage will entail expanding the capacity of the whole 2,700 km network of pipelines from 12 mm tpy to 30 mm tpy. This is expected to cost $ 2 bn. Transneft has said it expects the BPS partners to complete the first phase by the end of 2000. It has not said when the second phase might be finished.

Plans for the BPS were drawn up with the goal of providing a new export route for oil extracted in the Russian Far North, but Transneft managers believe the network could reach even further. Transneft has said that BPS pipelines could be used to transport oil from western Siberia and the Ural-Volga region as well as the Timan-Pechora basin.
The network could even be connected to other pipes and carry oil from Kazakhstan and other CIS countries, it said. Oil producers in both Russia and Kazakhstan have already committed to exporting some of their output through the system.