Russia's Lukoil and Tatneft have agreed to spend as much as $150 million to build an oil terminal at the Baltic Sea port of Kaliningrad.
The terminal will be export oriented and handle crude oil and refined products.
Kaliningrad's oil wells, operated by Lukoil through its subsidiary Kalmorneftgas, produce only 20,000 b/d of oil. That production is transported via rail car into Kaliningrad port for export.
So it is expected that the new oil terminal will handle crude and products flowing in from other regions through a new pipeline built with funds separate from the $150 million earmarked for the oil terminal.
Lukoil is the giant integrated Russian oil conglomerate favored by the Russian government. Tatneft is the state owned oil firm of the Tatar republic.
EXPORT CONCERNS
Chief oil export agency Rosneftexport and a number of other government owned and private Russian oil exporters have become increasingly uncomfortable with the problems they face with continued dependence on the oil terminal located at the Latvian port of Ventspils,
What was once the main point of exit for Russian crude into European markets will be replaced by Kaliningrad if and when the terminal is built.
Russia's increasingly nationalist minded exporters need a Baltic port of exit, and Kaliningrad is getting greater attention as the site of choice, although the exact site has not been determined.
Indicators suggest that it will be either right alongside or inside the Russian navy's sophisticated deepwater port, Baltisk, which features an average draft of 12 m and houses the sizable Baltic fleet. The fleet is being partly converted for commercial use by the Russian navy in an effort led by a Kaliningrad based joint stock company, Rosbaltport, whose shareholders are a group of Russian firms. The primary mover behind this commercial port development activity is Gazoil, Gazprom's Kaliningrad subsidiary.
KALININGRAD BACKGROUND
Kaliningrad is best known as the heavily militarized home base of the Baltic fleet. After breakup of the former Soviet Union, Kaliningrad found it had become a unique Russian oblast: It shares no borders with Russia and is simply a Russian enclave lying between Poland and Lithuania.
Geographic peculiarities were not the only factor that led Lukoil and Tatneft to pick this rather obscure oblast over other possible siting candidates. That involves larger economic and political issues.
Across Europe a debate is brewing on whether Kaliningrad is the future primary gateway for commercial traffic of all types into and out of Russia.
Whatever stance is taken, it is clear that Russia's loss of port access in Latvia, Lithuania, Estonia, and Ukraine make Kaliningrad's position for Russian exporters vitally strategic.
Since first reopening to the world in September 1991 after 45 years of closed status, Kaliningrad has seen many changes. The watershed event of the last few years was the Mar. 4, 1994, presidential decree granting a 10 year period for Kaliningrad's duty free zone for all incoming equipment and goods. Breaking free of the Soviet system for handling Kaliningrad's affairs through establishment of a free economic zone (FEZ) was a big step.
KALININGRAD POLITICS
On Dec. 11, 1993, the day before nationwide critical parliamentary and constitutional voting, Yeltsin signed a strongly worded decree that provided for a set of liberalized new FEZ regulations, attractive tax holiday and duty waivers for foreign investors, and the vesting of significant economic powers with Kaliningrad Gov Yuri S. Matochkin.
Since his appointment to that position in late 1991 Matochkin has worked with Yeltsin to overcome the harsh economic circumstances arising from the physical separation of Kaliningrad from the rest of Russia.
Although a part of Russia, Kaliningrad is often referred to as the "fourth Baltic state." Physically separated from Russia, it serves as a key link to Lithuania on the north and east and to Poland on the south. It is bordered on the west by the Baltic Sea and now serves, along with Novorosiisk, as Russia's only ice free year round warm water port.
Kaliningrad is well equipped to serve as the gateway into and out of the Russian heartland. With a well established structure of roads, rail lines, ports, airports, and other municipal services, Kaliningrad has the potential to offer some of the most attractive foreign investments available in Russia.
KALININGRAD FEZ
Kaliningrad is the only FEZ in Russia with complete control of its borders, which makes possible special customs and tax policies advantageous to foreign investors. No other FEZ stands as a Russian enclave surrounded by other countries. The FEZ legislation provides key benefits for non-Russian investors, traders, and producers, including:
- A 5 year tax holiday for firms with at least 30% foreign investment.
- A subsequent 5 year negotiated tax rate with a maximum rate of 16%.
- Full rights to repatriation of foreign capital.
- Customs duty exemptions for goods with at least 30% local value.
- Liberal rules regarding labor contracts, retail trade in hard currency, and banking rights.
Kaliningrad is implementing a system allowing businesses to register for the program with a single permit rather than a series of local, oblast, and Russian certifications. Further local control is granted to approve all investments of less than $50 million in foreign capital.
OIL SECTOR WOES
Privatization is viewed as the cure to problems in Kaliningrad's oil sector.
With this new authority, Matochkin acted quickly to address the situation within Kaliningrad's beleaguered oil sector, where more than 50% of all wells are idle and 243 wells produce only 20,000 b/d.
Matochkin blamed the situation on Kalmorneftegas, the state owned production association responsible for the region's oil production and transportation since the territory was taken from the Germans in 1945.
Its missteps bad led many to call for the action Matochkin finally took in January 1994; revoking Kalmorneftegas' rights to develop Kaliningrad's oil and transferring those rights to Lukoil.
Some in Yeltsin's cabinet have voiced concern over the growing usurpation by private oil firms of the role of their state owned competitors. Lukoil Pres. Vladislav Bazhenov has been quoted in the Moscow press as saying his firm is in a much better position to provide support for Russia's economic modernization than the older and less adaptable state owned production associations such as Kalmorneftegas.
Industry officials speculated Matochkin's move was spurred only in part by the inability of Kalmorneftegas to improve productivity and solve the oblast's oil sector problems.
A second probable reason was the willingness of Lukoil to trade crude for refined products, of which there has been a shortfall in Kaliningrad for several years.
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