Tokyo threatens to withdraw from Siberian pipeline financing

Apr 29, 2005 02:00 AM

Tokyo will withdraw its offer to help finance an $ 11.5 bn oil pipeline from Siberia to Russia's Pacific coast if Moscow pursues a plan to build a spur to China first, Japan's trade minister said.
After years of wrangling with Japan and China, Russia announced last December that it would build a 4,100 km pipeline to Perevoznaya on the Pacific coast, from where oil could be exported by ship to several countries, including Japan.

The decision was considered a coup for Tokyo, which had wooed Moscow with offers to help finance the project and extend technical co-operation. But Shoichi Nakagawa, Japan's trade minister, said that Moscow had raised the possibility of building the pipeline in two stages, and running a spur from Skovorodino in eastern Siberia to China.
Viktor Khristenko, Russia's energy minister, signed an order calling for the first $ 6.5 bn (£ 3.4 bn, EUR 5 bn) phase of the pipeline to be laid from Taishet in Irkutsk region to Skovorodino in Amursk region by late 2008.

At Skovorodino, oil will be transferred to railcars for the 2,000 km journey to the Pacific. Work on a pipeline to the sea will begin during the second phase of the project. Mr Khristenko's order left tantalisingly open the politically charged question of whether China or Japan would be the first beneficiaries of oil delivered via the new pipeline.
Skovorodino is just 69 km from the border with China, which, like Japan, is eager to reduce dependence on OPEC oil. Transneft, Russia's state pipeline monopoly, did not rule out the possibility that China might be allowed to tap the East Siberian line by building a spur to Skovorodino.

"We are building a pipeline across our own territory. No one will decide for us who gets oil through it first," said Sergei Grigoriyev, the vice-president of Transneft.
"If the pipeline stops half- way, then there's a big risk that the oil will never reach Japan," said Mr Nakagawa, whose ministry is in charge of Japan's energy policy. "The point I made [to Russia] is we wouldnot be able to provide taxpayers' money for such a risky project."
Mr Grigoriyev said: "Transneft does not need Japanese loans. Lots of other creditors are offering us money."

International banks are likely to back pipeline projects that will allow growth in oil exports the main driver behind Russia's impressive economic growth. Transneft would have no problem raising finance for the East Siberian line, said Cyrus Ardalan, vice-chairman of Barclays Capital.
He added: "Transneft's size, state ownership and strategic role in the Russian economy combine to make it an attractive counterpart."

Barclays Capital led a syndicate of 19 foreign banks that recently lent Transneft $ 250 mm to help finance the expansion of Russia's cramped oil export system. Three Japanese lenders were included in the syndicate. Interest rates of 1.15 % above Libor were a record low for an unsecured corporate loan to Russia. Transneft rarely borrows on international markets.
The fact that the loan was oversubscribed indicated that banks were eager to build a credit history with the company in anticipation of bigger opportunities when the East Siberian project took off, bankers said.

Source: The Financial Times
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