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. Last Updated: 07/27/2016

Baltic Pipeline Approved, But Finances in Doubt

The government has given the official go-ahead to the construction of Baltic Pipeline System but the financing for the ambitious project is yet to be resolved.

"This is a matter of Russia's national transportation security," Interfax reported acting President Vladimir Putin as telling the Cabinet on Thursday.

After receiving the government's approval, the project is now to move into construction stage, three years after the initial decision to build the pipeline.

The BPS is designed to link deposits in western Siberia and the northern Timan Pechora region with a new port at Primorsk on the Gulf of Finland, giving Russian oil direct access to the Baltic Sea for the first time since the Soviet Union broke up in 1991. The port itself is also yet to be built.

According to the government plan, the first stage of the project is to be completed in 2001, and will provide facilities to ship 12 billion metric tons of oil. However, analysts doubted the plan approved by the government can be implemented in the given time frame.

The first stage will cost $460 million, a government statement said.

To raise this money the government levied $1.43 per ton of oil exported in 1999, but missed its $100 million target. Transneft collected $89.19 million in 1999. Oil companies still owe over $9 million in BPS fees.

To increase the sum the government will renew the fee in March, hoping to get another $130 million this year.

However, while there is little doubt Russian oil exporters will be able to foot their part of the bill, Transneft's own capacity to fund investment is in question, analysts said. Under the government's plan for the pipeline, Transneft was to find at least another $230 million.

In order to come up with that kind of money Transneft could take a loan, or offer some of its 100 percent stock in the project to Russian oil majors, especially LUKoil and Yukos.

Stephen O'Sullivan, an oil analyst with United Financial Group, said both options seemed plausible.

O'Sullivan, however, noted it would be difficult for Transneft to loan on the international market, given Russia's current external debt situation.

Offering stakes could also be tortuous because each company will push its own agenda; making a deal they all accept would take time, O'Sullivan said.