Ukraine may become most acceptable way for transport of Kazakh oil

Jul 12, 2004 02:00 AM

by Aybat Zharikbaev

Konstantin Grischenko, foreign minister of Ukraine, observed in the capital of China a few days ago that "the transit through Ukraine may become the most acceptable way for the transportation of Kazakh oil".
The minister said that at the present moment mutually beneficial relations between Ukraine and Kazakhstan were based on partnership for the creation of Common Economic Space and the countries had "a whole number of ideas and concrete projects in the oil & gas area in view of a more concrete approach to the economic co-operation."

A long term and long expected agreement with Russia on the transit of oil, which the republic's authorities plan to conclude, is not less important for Ukraine. This term was agreed upon by the protocol signed at the 10th session of the joint Ukrainian-Russian commission for co-operation that took place on July 2 in Moscow, where the prime minister Victor Yanukovich also reached agreement on the conditions of Russian gas transportation for2005.
An appropriate protocol is approved on the level of governments each year, in addition to an agreement on measures to provide the transit of Russian gas through the territory of Ukraine as of October 4, 2001. As per the agreement, 112 bn cm of gas will be transported next year through Ukraine to Europe, moreover the Russian party has undertaken a commitment to pay to Ukraine for the transit services partially with money, and also by supplying 23 bn cm of gas to Ukraine at a $ 50 price for 1000 cm of gas.

A quite urgent issue of conditions for a transfer to the exemption of oil and gas VAT according to the receiving country principle has not been resolved at the negotiations. According to the Russian premier Mikhail Fradkov, "another attempt" to settle the problem "will be made in the nearest future."
In the end of the last June, after a meeting of the High Level Group, the Ukrainian vice premier Nikolai Azarov expressed a certainty that Russia would stop to exempt the value added tax for oil as from January 1, and for natural gas delivered to the republic -- as from January 1, 2006: "Russia will certainly do it. Let's say that a political and economic decision has been made about it. Now the problem is the term when this decision is going to be implemented. After my last negotiations I have had an impression that Russians were going to agree about the terms about which we were speaking."

It is well-known that Ukrainians view the abolition of VAT as one of conditions for creating a free trade regime in the CES and a vitally important measure for stabilization of the domestic market of oil products. Victor Yanukovich observed more than once: "The Russian VAT in the oil price for Ukraine is 12 %, and, in the case that it is abolished, oil and, correspondingly, oil products from Ukraine will get cheaper."
M. Fradkov responding to a question from journalists about the reasons for a new delay of the conclusion of the agreement on transit of Russian oil through the territory of Ukraine after his negotiations with V. Yanukovich, explained that a big work had already been done on definition of balance sheets, studies of routes, oil volumes, finding suppliers and consumers, but, that "several details" had yet to be specified before signing.

From another point of view, the delay in the conclusion of agreements is to some extent related with the Odessa-Brody pipeline. Ukrainian media, with reference to sources in the government delegation, said that, in particular, Russians insisted on a reverse of the pipeline in the negotiations, and that drafts document prepared at a session of the commission provided the beginning of Russian oil transportation through the pipe towards Odessa since next October.
But Fradkov stressed: there is "no direct connection there."
"By the way,” he noted, “we agreed to get clear about the Odessa-Brody pipeline on the technical level: how to load it, in what volumes, and it means that we regard this issue in such a profound manner that only technical details remain, which economic operators will clarify."

The agreement on transit, of course, cannot be limited only to the reverse pumping problem, but the latter was one of the main problems because of which the document was not inked last year. In July, 2003, at the ninth session of the commission in Yalta, Mikhail Kasyanov postponed further discussions on it until the situation on the reverse is clarified stating directly that the agreement will be prepared "after the solution of an issue about a possibility of using Odessa-Brody pipeline in the reverse regime."
Moreover, the head of Russian government virtually expressed a certainty then that the reverse would eventually be implemented, when he said: "We expect that maybe after one month this issue of using the readymade, but not operating Brody-Odessa pipeline will be resolved completely. As soon as this subject is reviewed... the agreement will be ready for inking."

Now, after the commission meeting in Moscow, the parties ordered Naftogaz Ukraine NJSC and Transneft JSC “to study issues of the optimal usage of the Odessa-Brody pipeline."
A few days before this, the cabinet of the republic by order No. 831 introduced changes in the historical February order No. 114 "On measures to increase efficiency of the trunk pipeline system", cancelling from its text the formulation that the oil is transported "towards Odessa and Brody", thus permitting to use the pipeline in both directions.

The supervisory board of Ukrtransnafta gave a right to conclude contracts with the BP on filling and commissioning the pipeline towards Odessa to the board of directors. For this purpose the council approved signing of a credit agreement on filling of the pipe and annual transportation of up to 9 mm tons of crude.
The credit in the form of technological oil grade Urals costing $ 108 mm (last year this oil was offered for $ 90 mm) is granted to Ukrainians for the annual 8 %. The repayment scheme is the following: during the first day Ukrtransnafta will have to pay only interest, then the company is obliged to return the money at the expense of funds received from the transportation of Russian oil.

The top management of Ukrtransnafta observes that the transit of the Urals does not exclude further pumping of light oil: "We have a right to abstain from supplies of Russian oil and start pumping the Caspian oil", but in this case the company will have to pay in advance.
According to an observation of V. Yanukovich, which he made a little earlier, "if the oil pipeline operations will temporarily go in reverse direction -- it doesn't mean that the strategic direction of the oil pipeline operations is changing, by no means."
At the same time the pipeline -- according to the premier -- will be able to get contracts for the European transit only when its continuation on the territory of Poland is completed: "The strategic direction of the ‘Odessa-Brody-Gdansk’ pipeline remains, but it should be completed."

Mass media distributed information, according to which Baltic Petroleum that sells oil produced by TengizChevrOil sent a letter signed by its president Johan Eklund to Andrei Kluyev, vice premier of Ukraine. The letter says that Baltic Petroleum would be interested "to participate in the process of developing Odessa-Brody oil transportation as a unique corridor ready for operations that unites the Caspian region and its producers with the European consumers."
On these grounds the company is ready to conclude an agreement on oil transportation via the pipeline as from next September for 5 to 7 mm tons of oil to Europe. So far this information has not been confirmed, because the president of Baltic Petroleum offered to A. Kluyev to discuss prospects of co-operation "at a personal meeting" and the vice premier is "currently on the leave."

Kazakhstani authorities, as well as producing companies don't make any comments on this news. It is difficult to say how much truth is in it, because not long ago Amangeldy Zhumabayev, ambassador of RK to Ukraine, following the minister of energy Shkolnik who had said that "Kazakhstan won't have vacant volumes for filling the pipeline" and that "any other statements on this subject are bluff", stated the following: "Today all volumes of oil production by Kazakhstani companies have been specified in agreements with partners. As per these agreements the companies have certain commitments, which they cannot fail to implement."

Source: Gazeta.KZ
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