EURASIAN OIL TRANSPORTATION CORRIDOR PROJECT IS A PART OF THE COMPLEX BUT NATURAL AND OBJECTIVE PROCESS, SAID ALEXANDER TODIYCHUK

Caspian Energy (C.E.): Gas conflict with Gazprom showed the intentions of Ukraine to strengthen its energy security. Your return to Ukrtransnafta is associated with the start of the Odessa-Brody oil pipeline’s turn to the European direction. In your opinion, whether the decision about reverse operation is more a political or an economic decision?

A. Todiychuk: The results of the pipeline’s operation during 18 months proved the economic expedience of the reverse direction. As we forecasted, TNK-BP and Transneft JSC are not capable of fulfilling their obligations to pump 9, 14 and even 18 million tons of oil a year. Their promises to the Government of Ukraine were overstated from the very beginning. In 2004 they pumped hardly over 1 million tons, in 2005 somewhat less than 6 million tons. The plan for 2006 provides around 5 million. Besides, in compliance with the concluded agreements, the reverse oil volumes were to become additional to already existing volumes transited through Ukraine. These promises also failed to come true. As a result, we obtained the converse effect as we introduced new capacities, borrowed credits on oil processing. But both volumes at transit routes and deliveries to petroleum refineries went down. In 2003 Ukrtransnafta pumped 56,6 million tons of oil, in 2004 - 55,3 million tons, in 2005 – less than 46,7 million tons, the plan for 2006 is about 43 million. Transneft just redistributed its oil flows through Ukraine. That is why the information that the Odessa-Brody pipeline receives some volumes now, whereas it used to be empty before, is not correct as these volumes were withdrawn from the Dnieper main oil pipelines. As for outlays, overall they considerable increased throughout the oil transportation system due to many reasons including introduction of new capacities.

In these conditions, the direct use of the Odessa-Brody oil pipeline turns to be urgent. The Eurasian Oil Transportation Corridor Project has already overstepped the Ukrainian frontiers. A number of countries as well as large petroleum companies that already concluded corresponding agreements expressed their intentions to develop the project. The European Union joined the financing of the project and granted 2 million euro to elaborate a business plan. The International Advisory Group will complete its elaboration in August-September 2006. The group has been working on the business plan for 6 months and already obtained quite optimistic results, which allow considering interests of suppliers, oil consumers and other potential partners.

You probably already know about this as the project is still actively discussed now. As soon as new or renewed oil contacts on direct oil supply are signed, we activate the mechanism of switching from the reverse operation to the direct one provided by the contract with TNK-BP. We offer Russia to pump oil which is currently transported in the reverse direction through Michurinsk and Kremenchug in order to save 3,5 USD on each ton.

C.E.: During the recent official visit to Warsaw, the Prime Minister of Ukraine, Y. Yekhanurov stated about readiness of Kiev to cancel a contract with TNK-BP Company. What do you think about  Ukraine marring relations with the Russian Federation by refusing from the reverse operation?

A. Todiychuk: As I have already said, despite non-fulfillment of promises from the side of the Russian companies, Ukrtransnafta intends to act maximally within the framework of the existing contracts and agreements. We offer the Russian side more profitable than the reverse conditions. Even more, we held in Moscow some presentations of our proposals to petroleum companies allowing creating new economically advantageous for all sides opportunities due to direct use of the Odessa-Brody oil pipeline including pumping of light Siberian oil through the Odessa-Brody oil pipeline to Tuapse. We met understanding of our Russian colleagues and hope the politicians will not interfere.

C.E.: Did you manage to restore trust of your potential partners in the pipeline?

A. Todiychuk: I do not make a secret, we face some difficulties as it is easier to lose the image than to create or even restore it. In less than a year we managed to prove to our supporters and opponents that the project is viable due to general efforts of the Ukrainian Government and the administration of Ukrtransnafta. We carried on numerous bilateral negotiations on the state level with oil companies and banking institutions in particular with Azerbaijan, Kazakhstan, Poland, Germany, Slovakia, Czechia, Croatia, Austria, USA, Russia and EU. Inclusion of the project in the strategic plans of the above-mentioned states, EU Green Paper, allocation of a grant on working out of a business plan, a number of agreements about joint participation in the project as well as the joint statement about switching to the stage of practical activity on implementation of the Brody-Plotsk pipeline project signed by the Prime Ministers of Ukraine and Poland on February 16 prove the firm credit of trust.

C.E.: Is it possible to speak of some preliminary results of the business plan of the project?

A. Todiychuk: Surely, as I have already mentioned, the first and very important conclusion drawn by the experts is the vitality of the project and competitiveness of tariffs and primary cost of oil delivered to petroleum refineries.

We managed to considerable reduce the project cost jointly with our Polish colleagues and international experts. The second is the opportunity to start already at the given stage negotiations with potential partners, which presented their first results to the Kazakhstan Petroleum Association on March 17 in Almaty.

C.E.: Earlier skeptics of the Odessa-Brody project’s implementation called allotment of land in Poland one of the problems. Is solution of this matter problematic?

A. Todiychuk: To date we have already worked out variants of the oil pipeline’s route through the territory of Poland. Now we deal with detailed elaboration of the optimal variant. Poland is known for large amount of small bowels users, but our Polish colleagues have experience and today the pipelines and roads are being constructed throughout the country.

C.E.: It means that there are several variants of the pipeline’s construction at the territory of Poland?

A. Todiychuk: Three variants are the most optimal. We have chosen the best of them. The best variant is the most direct, comfortable and shortest for construction and operation. But it is not always possible to lay a direct route. Experts confirmed that there are no specific technical problems either at the Ukrainian section of the route or the Polish one. The Polish section is 4 times longer (over 400 km, the length of the Ukrainian section is 103 km). We chose optimal routes to bypass reserves, water inlets, other especially important territories, settlements and industrial facilities with the view to maximally extend the route while solving these matters.

C.E.: Implementation of the Odessa-Brody project provides development of other oil transportation projects. As for you, how can the map of pipelines in Europe change?

A. Todiychuk: The changes will surely take place due to changes of the EU architecture, energy strategies of the European countries, volumes of production, freight flows, prices and conditions of work at the oil market. The volumes of oil production are expected to get stabilized due to considerable growth of internal consumption and reorientation of a part of oil to new markets such as China, Far East and other directions. It will surely influence the loading of the European transport infrastructure. The Eurasian Oil Transportation Corridor Project is a part of complex, but natural and objective process.

Opinions:

The statement of Semen Weinstock, the President of Transneft made in London on April 19, 2004: At present the Russian Federation is not any more interested in the reverse operation of the Odessa-Brody oil pipeline (…) Why do we need Odessa-Brody? In order to expand the BTC capacity up to 42 million tons without problems... We need a 18-month delay," said Weinstock "Now we do not need reverse operation," he added.

Opinions:

Vyacheslav Deputatov, the Deputy Vice-President of TNK-BP Ukraine: "We are ready to switch to Dnieper main oil pipelines. The point is that whether Ukrtransnafta and Russian Transneft will be ready to work with TNK as the operator of the Dnieper main oil pipelines. As far as I know, there is an approved operator, which has contractual relations with Moscow and Ukraine. This is Lancaster Ltd. The contractual relations with this company were signed both by Moscow Transneft and Ukrtransnafta

Opinions:

The Extraordinary and Plenipotentiary Ambassador of Azerbaijan to Ukraine, Talyat Aliyev

Official Baku used to stand many times and keeps on standing for diversification of its hydrocarbon supplies. Against this background the Odessa-Brody oil pipeline is viewed by us as very attractive first of all due to economic expedience. In my opinion, the State Oil Company of Azerbaijan (SOCAR) and Ukrainian Neftegaz have much to deal with. Thus, we currently carry out serious marketing work and are quite capable to reach unanimity of views. (..) I would like to note that four international consortiums work both in Azerbaijan and Kazakhstan. They are very interested in transporting some volumes of their oil through the Baku-Tbilisi-Ceyhan oil pipeline. That is why the volumes of the Caspian oil transported through Azerbaijan significantly grow, thus creating favourable conditions for the Odessa-Brody oil pipeline after its extension to Gdansk.

Opinions:

The representative of the European Commission’s General Directoratefor transportation and energy, Fauzi Bensars

"The Odessa-Brody project took on a new turn. The European Investment Bank and the European Bank for Reconstruction and Development have confirmed their financial guarantees on reserved funds to be used on implementation of the given project. Elaboration of the business plan and implementation of the project will be fulfilled on the European level. Besides, the program of its implementation will meet the European and world standards".

Anna Skavronska-Luchinska (the envoy of the Polish Embassy to Ukraine): "The project is very important for Poland as we are interested in oil supply diversification very mush. Up to now we depend upon Russia, it is also a requirement of EU

The Managing Director of the national oil-and-gas company KazMunayGaz, Kairgeldy Kabyldin:

Kazakhstan is ready to compete with the Russian oil companies in the matters related to hydrocarbon deliveries to the European market through the Ukrainian system Odessa-Brody being a link of the Eurasian Oil Transportation Corridor (EAOTC). It is a new market, let us compete whose oil will be transported there –  Russian or Caspian.

Kazakhstan views the Odessa-Brody system primarily as a bypass.

The second argument in favour of this project is preserving the quality of the Caspian oil in the process of transportation unlike the system of the Russian Company Transneft that lacks of the quality bank

Reference:

The International Advisory Company, which works out the business plan in compliance with all banking standards, was established in August 2005 owing to 2 million euro granted by the European Union  in 2003. The consortium includes: the leading company – Swedish-Finnish group SWECO PIC, German ILF GmbH and Greek Kantor

Opinions:

Cezary Lewandowski, the Board Member, the Director on the matters on projects implementation of the Polish-Ukrainian Sarmatiya. "The representatives of the Consortium have already held consultations with the Polish companies PKN Orlen and Lotos, which showed preliminary interest in the project’s implementation. Among the potential partners are ChevronTexaco and ConocoPhillips as well as Kazakh KazMunayGaz

Opinions:

The Prime Minister of Poland, Kazimiertz Marcinkiewicz "Those who want can do. As for the matter related to allotment of land, it can be solved at there is a corresponding law in Poland."