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Slovakia key to Russian oil export rise

WITH THE entry of Russia's number-two oil producer into Slovak pipeline operator Transpetrol, Slovakia is set to become a key link in the distribution chain of Russia's expanding oil industry.
On April 29, Yukos Oil formally took control of a 49 per cent stake in Transpetrol that it had secured in a tender last December. The stake, which it won over Slovak refinery Slovnaft, gives the Russian oil extractor access to western and southern European markets, as well as a sea route to North America - markets the company says it needs as its production increases.
"The question for us is not how much we can extract, but how much we can sell," said Yukos vice-president for research and development Ray Leonard, adding that the company plans both westward and eastern expansion.


YUKOS officials plan further expansion through Slovakia.
photo: TASR

WITH THE entry of Russia's number-two oil producer into Slovak pipeline operator Transpetrol, Slovakia is set to become a key link in the distribution chain of Russia's expanding oil industry.

On April 29, Yukos Oil formally took control of a 49 per cent stake in Transpetrol that it had secured in a tender last December. The stake, which it won over Slovak refinery Slovnaft, gives the Russian oil extractor access to western and southern European markets, as well as a sea route to North America - markets the company says it needs as its production increases.

"The question for us is not how much we can extract, but how much we can sell," said Yukos vice-president for research and development Ray Leonard, adding that the company plans both westward and eastern expansion.

With Yukos' oil production growing at an annual rate of over 20 per cent and reserves estimated at 12 billion barrels, the company aims to use Slovakia's 430 kilometre Družba pipeline, as well as its 8.5 kilometre connection to the Balkan Adria pipeline, to reach the Croatian port of Omišajľ, one of only two ports Yukos has access to where it is possible to load supertankers for oil shipment to North America.

Although the plan requires reversing the current south-to-north flow of the Adria pipeline, Leonard is confident that pipeline operators in Hungary and Croatia will back the plan.

"We have not reached agreement yet, since there are those who benefit from the current situation. We need to find a solution that would enable them to benefit from the alternative that we suggest," said Leonard.

Besides southern Europe and eventually North America, Transpetrol also gives Yukos access to Austria, Germany and Czech Republic, though negotiations in this area are only beginning.

Slovnaft, which lost in the Transpetrol tender, does not buy oil from Yukos, and instead selects its supplier by tender from over 20 Russian companies.

In addition, following management changes made at a special meeting of Transpetrol's shareholders on April 29, Slovnaft lost its seat on the company's nine-member board of trustees.

However, Hungarian oil and gas company MOL, which owns a 36.2 per cent stake in Slovnaft, is partnered with Yukos in a western Siberian oil field, and Yukos provides around 80 per cent of Hungary's oil needs.

When asked why Slovakia's refinery does not buy oil from Yukos, Slovnaft director Vratko Kaššovic said: "The roots of close cooperation between MOL and Yukos can be found in the past, when each [Soviet satellite] state was assigned a coordinator of oil supplies from the Russian side. For instance, the Czech Republic had LukOil, Slovakia had Slavnefť and Hungary Yukos.

"Obviously, it's always been better to build on existing partnerships than to tear down the relationships and start again," he added.

Shortly before the special Transpetrol shareholders' meeting, Slovnaft spokesperson Ľubomír Žitňan said that cooperation with Yukos may come out of the deal.

"We expect that after the Transpetrol transaction is completed, the suggested meeting with Yukos will take place, at which some co-operation projects will be discussed," he said.

However, added Žitňan: "We will buy oil from the supplier that offers the most economical conditions."

Although no agreement between Yukos and Slovnaft has yet been announced, a deal is expected soon, and Yukos officials are confident of future cooperation.

According to Yukos vice-president for oil processing and marketing Michail Brudno: "Yukos' role is to sell oil under the most convenient conditions for itself, and to minimise extraction costs. Slovnaft, for its part, tries to purchase oil as cheaply as possible, and then sell it in the form of processed goods.

"These are, however, not irreconcilable differences - we only have to look for room for an agreement," said Brudno.

Slovnaft had complained to the Anti-Monopoly Office (PMÚ) about the Transpetrol tender deal, saying that Yukos, as an oil supplier that also controls pipeline distribution, could offer its own oil advantageously to the detriment of other oil sources from Russia and the Caspian region.

Although the PMÚ had until May 18 to return a decision, the office green-lighted the deal at the end of April, allowing the special shareholder meeting as the final condition on a January contract between Yukos, the Economy Ministry and the FNM privatisation agency.

In answer to Slovnaft's concerns, Yukos' Brudno said: "Everything depends on consumer demand and on Transpetrol's transit capacities. We do not intend to regulate access to the oil pipeline."

Transpetrol reported pre-tax profits of Sk609 million ($13.2 million) last year, a nearly three-fold increase over 2000. However, with nearly 50 per cent of the pipelines' capacity free, there is plenty of room for growth.

According to Ján Tóth, senior economist at ING bank in Bratislava, "the cooperation is good because Yukos is a very strong company and is interested in transporting, most of all, through Slovakia. The transit system until now has not been used anywhere near its capacity."

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