Russians initially tag ESPO spur at $280 million

Construction of a 67-km pipeline spur from Russia's ESPO oil pipeline from Skovorodino in the Amur region to the border with China will cost an estimated 10 billion rubles ($280.3 million).

Eric Watkins
OGJ Oil Diplomacy Editor

LOS ANGELES, Feb. 27 -- Construction of a 67-km pipeline spur from Russia's East Siberia-Pacific Ocean (ESPO) oil pipeline from Skovorodino in the Amur region to the border with China will cost an estimated 10 billion rubles ($280.3 million).

"This is a preliminary cost of the work to build an underwater section across the Amur River," said Alexei Sapsei, director general of the ESPO's management center.

"The [full] cost of the project will be known when the feasibility study is ready," Sapsei said, adding that Russia and China will build their respective stretches "separately and simultaneously."

The 10 billion ruble figure is considerably lower than announced earlier this month by an executive of Russia's state-owned pipeline monopoly OAO Transneft, which will bear responsibility for constructing the spur.

According to bilateral agreements signed last autumn, Russia will provide China with 15 million tonnes/year of oil for 20 years via the pipeline spur which will carry crude from deposits in Western and Eastern Siberia.

In connection with the spur, Russia and China are expected to negotiate an intergovernmental agreement on cooperation in the fuel and energy sector before the end of March, according to Russia's Deputy Prime Minister Igor Sechin.

"Our task at this stage is to finalize an intergovernmental agreement and to report on the implementation of this project [the spur] before the end of March," Sechin told members of the cabinet, including Prime Minister Vladimir Putin.

Loans from China
Sechin said he had visited Beijing recently to attend a meeting of the intergovernmental commission for trade and economic cooperation.

He said contracts were signed for the delivery of oil to China, to build transport infrastructure, and to attract Chinese loans for the work. Loans totaling $25 billion, intended for 20 years, will cover the shipments of oil from Russia to China over that time.

Sechin said that the loans will go to OAO Rosneft and OAO Transneft to ship oil and to lay pipelines. He added: "The price formula for oil is market-based," and "the interest on the credit suits our companies, too."

Transneft Vice-Pres. Mikhail Barkov had said his company would receive $10 billion, which would primarily be invested in the construction of the spur (OGJ Online, Feb. 17, 2009). The remaining $15 billion will go to Rosneft.

Last November, talks between the two sides stalled due to disagreements over interest rates and state guarantees. The Chinese wanted to adopt a floating interest rate on the loans based on the London Interbank Offered Rate, while the Russians wanted to keep a fixed 7% rate (OGJ Online, Feb. 17, 2009).

Contact Eric Watkins at hippalus@yahoo.com.

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