Transneft On Track For China Pipeline

Oil pipeline monopoly Transneft says it is sticking to plans to launch a major oil route to China this year even though contractor problems caused by the global financial crisis pose a threat.

Transneft President Nikolai Tokarev said Tuesday that the company aims to launch the 2,700-kilometer oil pipeline to the Chinese border at the end of 2009, already a year late after the initial plan changed in 2007.

"We are on track to launch it on Dec. 25 ... even though we are feeling the cold breath of the crisis," Tokarev told a briefing.

"We depend on thousands of contractors ... and we are hearing increasingly often about enterprises halting production or going bankrupt. It affects the schedule. ... It may have an impact," he added.

The cost of building the first phase of the pipeline has risen 21 percent to 390 billion rubles ($12.5 billion) because of inflation, Tokarev said, Interfax reported.

Tokarev said 83 percent of the pipes have been laid for the 600,000-barrels-per-day route running from fresh oil fields in eastern Siberia to energy-hungry Asian markets. The link will be Russia's first oil pipeline to Asia.

Other pipeline infrastructure, such as terminals and pumping stations, is 65 percent ready, Tokarev said.

The project will let Russia, the world's second-largest oil exporter, diversify its oil flows away from Europe and develop eastern Siberia into its new oil production region to replace western Siberia, where output from older fields is dropping.

Tokarev asked the government to delay the launch of the Kremlin-backed project soon after he took over the company in October 2007. He said contractors hired by Transneft's previous management had fallen seriously behind schedule.

Tokarev said that Transneft generally feels safe despite the crisis and sees no job cuts in the near term.

"Despite all the turbulence of the recent past we are not considering cutting jobs or tightening operations and will not consider it in the near future. Moreover, we raised salaries by 10 percent from Jan. 1 because everyone has deserved it," Tokarev said.

He said Transneft is confident that it has enough funds this year to cover new projects and maintain its existing pipeline system.

It is planning to cover around a quarter of its 217 billion ruble investment program for this year using its own funds, raised from the shipping fee it charges oil companies for transporting crude.

It will borrow the rest, including placements of ruble bonds worth 135 billion rubles for three to 12 years through closed subscription to state-controlled banks.

Transneft is also in talks with China on a possible $10 billion loan in exchange for securing oil supplies for 20 years.

Tokarev said that according to preliminary data, Transneft expected its net profit to rise to more than 70 billion rubles ($2.29 billion) in 2008, up from 64.7 billion in the previous year.v