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. Last Updated: 07/27/2016

LUKoil Orders $71M in Rail Tankers

No. 1 oil company LUKoil and Uralvagonzavod, one of the country’s biggest tanker producers, have signed a $71 million contract to buy 4,000 rail tankers from 2001 to 2005.

Performance of the contract, signed Oct. 5, would see LUKoil as the biggest owner after the Railways Ministry of such vessels, which are used for the transportation of oil products.

Uralvagonzavod is capable of producing 4,000 tankers per year, said a representative of the factory. In 1999, however, only 1,500 were made due to "low orders," and this year even less have been produced. LUKoil says it has "extended a helping hand to the factory" — now it can plan production and start to pay off debts.

LUKoil uses its 4,500 tankers to transport 40 percent of its Permnefteorgsintez oil products and 60 percent from its Volgograd refinery, as well as 98 percent of its export deliveries. The new total of 8,500 tankers would enable LUKoil to deliver all of its oil independently.

LUKoil decided to establish its own supply of transport vessels for two reasons. First, transportation through its own vessels is 10 percent to 15 percent cheaper. Second, the Railways Ministry lacks the necessary tankers, and the situation is expected to get worse. According to the ministry’s statistics, it has some 70,000 vessels suitable for transporting oil, while 86 percent to 87 percent of those are damaged. In 1999, the Railways Ministry wrote off more than 2,000 tankers but only bought 450. It has made no purchases this year.

"This is the second month in a row when the ministry has written saying there won’t be any tankers available and that we should use our own," said deputy director of LUKoil-Trans Alexander Monakhov.

However, the Railways Ministry does not think the move was conditioned by a lack of tankers.

"When we are accused of not maintaining our containers, one should look to the list of carriages. We have plenty of tankers, which is why we don’t order more," said Valery Zudin, an assistant to Railways Minister Nikolai Aksyonenko.

By proposing companies use their own containers, the ministry is pursuing market relations, Zudin added.

No. 4 oil major Tyumen Oil Co. has a small number of cargo carriages, but has no plans to expand. No. 3 oil major Surgutneftegaz uses the services of a private transport company, while Sidanko has a limited number of tankers for local use.