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. Last Updated: 07/27/2016

Work to Begin on Oil Terminal

ST. PETERSBURG -- Work on the long-planned oil terminal in the Leningrad region town of Primorsk will begin by the end of March, officials from Transneft said Monday.

The construction of the Baltic Pipeline System, of which the Primorsk facility will be an integral part, will begin in late March or early April, Sergei Grigoryev, vice president of pipeline monopoly Transneft, said in a telephone interview.

The first part of the pipeline and the Primorsk terminal should be functional 18 months after construction starts, Grigoryev said.

State-owned Transneft has been pushing the new pipeline system for several years, selling it as a means of keeping inside of Russia revenues that are being paid to foreign ports, primarily Baltic state ports.

The first stage of the project involves building a 2,400-kilometer pipeline stretching from the oilfields of northern Russia, western Siberia and possibly Kazakhstan to Primorsk on the Baltic Sea at a projected cost of $460 million. The initial annual volume is projected at 12 million metric tons, rising to 18 million tons in the second stage.

After introduction, the new system will lower transportation costs for oil companies by $3 to $4 per ton shipped, according to Fuel and Energy Ministry statistics.

The project was to have gone ahead earlier, but was put on hold in mid-1999. It received a fresh push after the government signaled approval of the scheme Feb 10.

Construction is to be financed by Transneft as well as through loans, Deputy Prime Minister Viktor Khristenko said recently.

Transneft has already raised $103 million for the BPS through a tariff of $1.43 per metric ton imposed last year on oil exported through Transneft's pipes. The company expects to garner another $130 million from the same source in 2000.

The oil companies who paid these fees are to receive stakes in the system's ownership.

While the project itself has definitely been approved by the Russian government, the conditions for raising capital and the ultimate nature of the pipeline's ownership are less clear.

"We have not seen the governmental decree," said Grigoryev, adding that the state's share in the financing project is less certain. If Transneft maintains a 50 percent plus one share stake, Grigoryev says it will be easier for Transneft to attract further investment, while a 75 percent state stake in Transneft would make the project less attractive for investors.

"If Transneft retains a 75 percent stake, then the [oil] companies will have already paid off their 25 percent part through the tariffs," he said.

Part of Transneft's contribution to the system will be the existing pipeline between Yaroslavl and Kirishi, he added.

While St. Petersburg's port presently serves as an outlet for oil leaving Russia, it cannot handle the full volume of oil exports and Transneft is still dependent on outlets in the Baltic states and Ukraine.

The Leningrad region - an area that does not include the city of St. Petersburg - will also benefit from the BPS. Projected yearly revenues for the Primorsk port are $600 million, providing a source of tax income for the oblast budget, said Yury Chizhkov, head of the regional projects department of the Leningrad region government.

Some 1,000 jobs will be available during construction works and the port will then require some 2,000 employees when up and running, he added.