How long have we been hearing about Russia’s East Siberia-Pacific Ocean (ESPO) pipeline project? The debate has been interminable. Even as far back as 2005, Russian officials were fuming about lack of progress.
That’s when Russian Prime Minister Mikhail Fradkov, in an effort to speed implementation of the project, directed relevant ministries and departments to prepare a detailed proposal by Nov. 10 of that year.
Fradkov had signed a resolution on Dec. 31, 2004, to construct the pipeline, with state-run OAO Transneft as its designer and builder.
Stages planned
The first stage of the project called for a 2,400-km oil pipeline from Taishet to Skovorodino, near the border with China, along with a rail oil terminal on Perevoznaya Bay. The second stage involved construction of pipeline from Skovorodino on to Nakhodkha on the Pacific Coast.
Back in August 2005, Boris Govorin, governor of the Irkutsk Region, even said Russia would soon begin construction of the first phase of the pipeline from Taishet (OGJ Online, Aug. 10, 2005).
Later that year, though, Fradkov seems to have lost patience. “The setting up of the Eastern Siberia-Pacific Ocean pipeline system has dragged out without good reason,” he said. “One of the priority projects for the country’s economic development is practically not being implemented.”
Where are we now? It’s 2008, and on Apr. 16 government sources said Russia’s Federal Tariff Service (FTS) would have to approve the highest possible tariff for pumping oil along the ESPO line due to the “apparent unprofitability” of the project.
Unprofitable project?
Huh? Can anyone imagine that the line would be unprofitable in these days of rising prices around the globe? Well, believe it or not, the Russians are actually suggesting that no tariff proposed by Transneft or the tariff service will cover the expenses because delivery volumes will be limited.
“Given the estimates produced by Transneft any figure will be unprofitable in relation to this project. If all current expenses are divided by the volumes, the figure may come to $1,000 for a tonne; therefore, FTS will have to set the highest possible rate,” a government source said.
Significantly, those rates coincide with the latest round of discussions between the Russians and Chinese regarding the ESPO project. The two sides Apr. 15 decided to develop project documentation for the construction of a pipeline spur from the main ESPO line to China.
“For now, all project work has practically been concluded,” said Russia’s Deputy Industry and Energy Minister Andrei Dementyev. “If China agrees with Russian partners on supplies and on the volume of oil, then they will make a decision on the beginning of construction of this branch,” said Dementyev. “Neither Transneft nor China seeks to build the pipeline so that it should be idle.”
Practically concluded? It’s just the small matter of a large financial guarantee that is stopping the work.
