Watch Out, Pipes Are Closing
// Private pipelines in Russia will be legally banned
After a seven-year break, Russian State Duma will return on December 22 to discussing the law “About major pipeline transport”. The bill prohibits building those major pipelines in Russia in which the state’s share is less than in Gazprom, and oil pipelines controlled by the state in lesser degree than Transneft. The actual ban on private pipeline transport in Russia is to come into force in 2007.
The State Duma is ready to legally solve the question, the answer to which was never found by YUKOS ex-head Mikhail Khodorkovsky, who called for solving the issue concerning the opportunity to build private pipelines in Russia. The Duma will hold second reading of the bill “About major pipeline transport” on December 22. The bill allows to build main gas pipelines with no less than 50-percent state share, and oil pipelines with minimum 75-percent state’s participation.
The bill “About major pipeline transport” was introduced to the Duma by a group of deputies headed by Valery Yazev, current chairman of the Duma’s Energy Committee, in early 1999. The bill was then lobbied by Gazprom head Ram Vyakhirev. It was then passed by the Duma in the first reading, but it got caught in the red tape for six years. The Duma’s staff explained that the bill was “thoroughly worked on” all those years.
The Duma’s Energy Committee said yesterday that a working group of deputies, representatives of ministries and of oil-and-gas companies resumed adapting the bill in 2004. However, it was only yesterday that the Committee said the document is ready for the second reading (53 amendments were adopted, 3 were rejected, the contents of those amendments is not disclosed). Ratifying the bill in the second reading is scheduled for December 22.
According to the bill, the contents of which was disclosed by the Committee’s Deputy Head Irakly Aslamazov, the answer to the main question in pipeline transport is the following. Formally, private ownership of major pipelines is not prohibited. However, if the government considers a pipeline as major, then the state’s share in it should be no less than 50 percent plus 1 more share, and no less than 75 percent in oil and oil-product pipelines. Foreign companies and individuals may own not more than 20 percent in a major pipeline.
The conditions of 50- and 75-percent state participation in the “pipe” were added to the bill for the following reasons. The state controls over 50 percent of shares in Gazprom which owns the Unified Gas-Supply System, and 75 percent in oil pipeline monopoly Transneft. However, organizations with state participation of over 50 percent may represent the state in the “pipe” as well.
All acting major oil pipelines in Russia, except the KTK pipe (the state control over it was legally lifted), are owned by Transneft. Mikhail Khodorkovsky too wanted to know if it is possible to avoid Transneft. In 2002, YUKOS, LUKOIL, Sibneft (now – Gazprom Neft), TNK (now – TNK-BP), and Rosneft planned to build a private major oil pipeline from Western Siberia to Murmansk for supplying oil to the U.S.
At that time, the issue was under discussion in the government. Then Prime Minister Mikhail Kasyanov said it is legally allowed, but added that a private pipeline is out of place in Russia. He explained the principle of equal access of all oil companies to any pipe in Russia will not be broken. His successor Mikhail Fradkov was more precise in 2004: private pipelines cannot exist in Russia at all.
Access principles are important for oil companies. Thus, LUKOIL said yesterday that it would be reasonable if an investor of a pipeline project received a quota for pumping oil according to the invested funds. The bill now describes the principle of “access equality”. For oil pipelines, it works this way. The priority in Transneft’s pipe is given to companies that supply oil within international agreements. Afterwards, the level of access will depend on the length of agreements signed with Transneft, and only then on the applicant’s own oil extraction. It is easier with Gazprom: equal access, which will remain after Gazprom pumped its own gas, will be granted to all independent gas producers.
Private major pipelines in Russia do exist. It is Shell pipeline within Sakhalin-2 project, and TNK-BP in Kovykta deposit. The law does not order the nationalization of these pipelines, says The State Duma. Yet, every new major pipeline can be state-run only.
Ratifying the bill will be perceived negatively outside of Russia. The EU and the U.S. saw the absence of the ban on a private pipe in Russian laws as the chance for bargaining with the Kremlin. Now, the legal status of pipeline transport in Russia will become evident to all.
Dmitry Butrin, Vadim Visloguzov, Denis Rebrov
All the Article in Russian as of Dec. 14, 2006
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