MOSCOW. (Marina Pustilnik, RIA Novosti commentator.) Russian oil companies' plans to export record levels of oil to China may have to be seriously rethought, as terminals in western Siberia will struggle to cope with the Russian-Chinese contracts.
Indeed, plans to increase the capacity of oil loading terminals are still being only discussed, so it seems the situation is likely to remain up in the air for some time to come.
Under the agreements signed by President Putin and his Chinese counterpart, Hu Jintao, on October 14, 2004, China should receive from Russia at least 10 million tons of oil by rail this year.
Russian Railways (RZD) has already announced that in 2005 1.4 billion rubles ($50 million) will be invested in modernizing the Trans-Siberian Railroad, the only mainline running in the eastern direction. The total cost of the project is estimated at 5.8 billion rubles ($209 million), but, unlike RZD, experts say this will be not enough to solve a "congestion" problem on the tracks that will arise with deliveries to China. The problem is that oil terminals, which are not under RZD jurisdiction, present a far greater problem than modernizing branch lines.
The terminal owners admit that the present facilities are not enough for loading the required 10 million tons of oil for China. Unfortunately, the figure should rise to 15 million tons next year. The oil companies are in no hurry to spend money on new equipment, and RZD says it is not going to invest in a project which formally it does not have to finance.
It would seem natural that oil producers should build and service their oil loading terminals themselves. The press secretary of state-run Rosneft, which will evidently completely replace Yukos in oil exports to China in the long-term, has admitted that the company is studying funding the construction of new oil-loading capacities.
But, on the one hand, after acquiring Yuganskneftegaz, once the main production asset of Yukos, Rosneft is deeply in debt and may soon face the prospect of a default. The state company is not expected to find "free" money for financing the construction and modernization of oil terminals. On the other hand, the Russian side (in this case Rosneft) received $6 billion from the Chinese as payment for future oil supplies, and there is hope that at least some of this money would be spent on the required construction.
The vice president of the state-run Transneft oil-pipeline monopoly shares this view. In an interview with an Internet newspaper, Gazeta.ru, he said his company had nothing against building new oil terminals, but was not planning to construct anything itself. He said spending on building oil loading stations and other technical facilities should be included in the tariffs of the oil companies, and construction should be financed through investments.
But the contracts with China have been signed for many years to come, and it is in Russia's interests to honor them in full. Though oil exports to Europe and the U.S. may seem more attractive to many in terms of political influence, the same is true about Russia's relations with its southeastern neighbor, whose oil demand has been growing with every passing day. China already accounts for 8% of global oil consumption. Moreover, oil deliveries to China from both eastern and western Siberia are more convenient for Russia at least because transit distances are cut. It would be strange for Russian oil companies and the government to lose the contacts with China. However, indecision in building the new oil-loading capacities may frustrate oil supplies and incur the dissatisfaction of the Chinese contractors.
In general, an unwillingness to invest long-term is typical of Russian oil companies, and very few of them put sufficient funds even into geological survey work and replenishing their fuel reserves. The construction of the oil-loading terminals falls into the same category of long-term investment. Today, the oil companies seem to think that investing in construction means excessive spending, particularly considering that the Russian authorities plan to build an oil pipeline going east, which will make oil-loading terminals unnecessary. However, the construction of that pipe-line might take too long and then large terminals may be needed urgently.
The government should understand the importance of carrying out the Chinese contracts on time. If the government does not wish to finance the construction of oil terminals, it may at least provide loans for such construction, for example, to Rosneft and convince the company's management that the construction is essential, all the more so, given that the board of directors is chaired by a presidential deputy chief of staff.
