Rosneft reaches out to Mongolian border

Jul 03, 2007 02:00 AM

With a several-month delay, Rosneft has eventually signed a contract for supplying oil to China through Mongolia. If the contract’s conditions precedents are carried out before July 15th, the supplies will begin already since August 1. Thus, the export of Russia’s oil to China might grow up to 13 mm tons in 2008.
It is unknown yet who will operate the supplies. Rosneft decided not to buy transporting companies.

Rosneft head Sergei Bogdanchikov said, after the annual meeting of the company’s shareholders, that Rosneft has not yet finished the negotiations on supplying oil to UNIPEC, the trader of China’s Sinopec, through Naushki passage at Russia-Mongolia border.
“We have made progress in working with carriers, but we are not yet satisfied with all terms,” explained Bogdanchikov. However, another high-placed source in Rosneft said the contract with Sinopec has already been officially signed, which happened in June at the suit of the Chinese partner. The contract obligates Rosneft to supply 200,000 tons of oil monthly to China through Naushki. However, the terms have really not been finalized yet.

Rosneft began talks with Sinopec on supplying oil through Mongolian border in autumn 2006. Yet, the parties could not agree on the price, and decided to make up for the difference in offers by means of reduced tariffs on transporting the oil by Russian, Chinese, and Mongolian railways.
Rosneft repeatedly asked Russian Railways company to reduce tariffs. The demanded discount once exceeded 30 %, said a high-placed source in the railway monopoly. Eventually, the two companies agreed on a 22-% discount, which was ratified on May 18th. A source in Rosneft said that Chinese railways did not agree to make concessions, but in the end it was Sinopec who provided the equivalent increment for purchase prices, so the issue was settled.

Consequently, Rosneft obtained a $ 5 discount (out of desired $ 8) per 1 ton of oil. Ulan-Bator Railway (UBRW), a Russian-Mongolian company, has not yet coordinated the last $ 3 of the reduced tariff. UBRW board’s session is scheduled for July 5th. It is expected the discount will be eventually settled there.
Sources in Russian Railways and in Russia’s Transport Ministry believe that UBRW will make the decision in favour of Rosneft, because UBRW’s major revenues were coming from Yukos’ export supplies through Naushki (the supplies were stopped in autumn 2006).

Due to the absence of the final decision on discounts, the Rosneft-Sinopec contract was signed with a condition precedent: if the reduced tariff is settled before the 15th of a certain month, the supplies will begin since the 1st of the in August. So far, the contract lasts till the end of 2007, but it also stipulates a possibility to prolong it for 2008, with the same conditions. Thus, Rosneft plans to supply through Mongolia nearly 2.5 mm tons of oil annually.
With the 8.9 mm tons which the company is already supplying through Zabaikalsk-Manchuria border passage under a long-term contract with CNPC, Rosneft’s crude oil supplies to China will make up around 11.5 mm tpy. Meanwhile, the export of Russian oil might reach nearly 13 mm tons in 2007. It made up 10.3 mm tons in 2006.

Rosneft said it has not yet chosen a transporting company to operate the supplies. It might be Yukos-Transservis (YuTS) or Transoil. In early June, YuTS was to be sold at an auction for selling out Yukos property. However, the auction did not take place due to the excessive price. Rosneft did not take the opportunity to buy the operator. Bogdanchikov said, at the shareholders’ meeting, that Rosneft is not going to buy transport assets.
“Transporting is service. And we do not aim at developing the service non-relevant for the company,” he said. Moreover, a source in Rosneft explained that YuTS was overestimated: it was estimated together with the leased tank-cars, but they had not yet been paid for.

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