Get the latest updates as we post them — right on your browser

. Last Updated: 07/27/2016

Transneft Seeks China Pipeline Deal

National pipeline monopoly Transneft is moving to squeeze Yukos out of a $1.7 billion project to build an oil pipeline from Siberia to China.

Some weeks after Yukos chief executive Mikhail Khodorkovsky trumpeted his firm's involvement in the pipeline, Transneft has started lobbying the authorities for the nomination as full-scale operator for the project, Transneft president Semyon Vainshtok said Wednesday.

His approach showed exquisite timing, coming as it did on the eve of President Boris Yeltsin's visit to China, which begins tomorrow.

"I offered that Transneft become the leader of this project," said Vainshtok. Transneft believes Yukos should not be the key player in the pipeline project.

Despite Transneft's actions, Yukos is determined to keep working on the project, the company said in a statement.

"The project for the pipeline's construction has been under development for about a year," the statement reads.

The Transneft initiative came as Yukos had been assiduously building up its links with Beijing. Yukos head Khodorkovsky had a highly productive trip to China last month.

During that visit, Yukos signed a contract with China's Sinopec to deliver 1 million metric tons of oil next year. In addition to closing a deal to supply the China National Petroleum Corp. with 500,000 metric tons of crude in 2000, Yukos opened negotiations with several entities on the possible export to China of oil products.

Yukos' latest agreements were achieved following the signing of a cooperation protocol between both countries in February. Yukos has identified possible supplies of 1 million tons of crude and 1 million tons of oil products to China under the terms of that pact.

The Russian oil major had been developing the feasibility study for the pipeline project in cooperation with Chinese partners, according to Khodorkovsky. Work on the feasibility study is due to finish early next year.

The 2,400 kilometer pipeline is planned to take three years to build at a cost to the Russian side of about $700 million. When completed it should be able to carry up to 20 million metric tons of crude a year, according to Yukos.

Transneft first drafted a blueprint for the project in 1996, and determined that the pipeline was economically unfeasible. Costs for oil transshipment from Angarsk, Siberia, to Beijing were set to reach $30 per metric ton of oil, said industry analysts. Transneft therefore shelved the project for several years.

Having accumulated $68 million for the construction of the Baltic Oil Pipeline System project, Transneft wants to drop a special tariff to fund the project until the government takes positive steps to get the project of the ground, officials said Wednesday.

"I will oppose the extension of the construction tariff [for the pipeline project] until the government decides to create a joint stock company for the project," Transneft president Semyon Vainshtok said.

The Federal Energy Commission earlier this year introduced a $1.43 per metric ton tariff on oil exports to fund the Baltic Oil Pipeline project.

Transneft is ready to begin construction next year, Vainshtok said.