September 24, 2008

Russian Govt May Make Decision on Baltic Pipeline System-2 Construction Soon – Sechin

MOSCOW. Sept 24 (Interfax) - The Russian government might make a decision on building the Baltic Pipeline System-2 in the near future, Russian Deputy Prime Minister Igor Sechin told journalists.

"I think this will happen in the near future. The work on this project is already under way. The prime minister has already made the decision on the construction in principle, but the technical aspects of the issue have yet to be finalized," he said.

The Russian Energy Ministry submitted to the government a draft decree on the start of the construction of the second phase of the BPS-2 oil pipeline in early September.

According to the ministry's estimates, construction on the oil pipeline could begin in the first quarter of 2009. The first phase of the oil pipeline with capacity of 30 million tonnes is expected to be launched in the fourth quarter of 2011, while the second phase would increase its capacity to 50 million tonnes.

The BPS-2 oil pipeline, which would run from Unecha to Velykie Luki to Primorsk, received the backing of Russia's political leadership following a row over oil between Russia and Belarus in early January 2007. Over a four-day period, Russia refused to ship oil to Europe on the Druzhba pipeline after Belarus demanded payment of a transit duty. But the two sides ultimately signed an agreement resolving the issue, and oil deliveries resumed in full.

The BPS-2 will link Unecha in the Bryansk region to the Gulf of Finland near St. Petersburg. Financing for the project was to have been agreed before the end of 2007 and pipeline operator Transneft (RTS: TRNF) had said that it was ready to begin construction as soon as the financing issue was resolved. The project came under review several times over the course of 2007. In particular, officials in Leningrad region proposed that pipeline branches be built to both Primorsk and Ust-Luga. A decision was made in May 2008 that the pipeline would terminate in Ust-Luga.

The cost of building the 1,016-kilometer BPS-2 oil pipeline (Unecha-Velykie Luki-Ust-Luga), including a branch line to the Kirishi oil refinery, is estimated at over 95 billion rubles, Transneft said in a project information memorandum for a new issue of obligations. The project was originally estimated to cost 78 billion rubles.

The first phase of BPS, built to transport crude oil from fields in Timan-Pechora and Western Siberia, as well as from Kazakhstan, began operating in December 2001 with 12 million tonnes of capacity. It now has capacity to ship 76.5 million tonnes a year. The first phase cost 67 billion rubles ($2.5 billion) to build.

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