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Oil Deliveries Dispute
April 29, 2011 15:15

It's been a long time since Russia and China couldn't agree on future gas supplies and have already fallen out due to the terms of existing contract for oil supplies. Russian side has accused China of violating the treaty and asks to return 100 million dollars of the debt. Otherwise, Moscow will take the matter to the international court.

Rosneft has been sending oil to China since 2004, when the state-owned company had acquired the Yukos units. China lent Rosneft 6 billion dollars as a credit for 48,4 million tons of oil. The contract has expired and Rosneft refused to renew it, saying the price was too low.

As a result, the parties have agreed on a new contract in 2009: China's Development Bank issued a loan for Russia of 25 billion dollars for the supply of 300 million tons of oil from Eastern Siberia at a discount price. From this sum Rosneft has received 15 billion dollars and Transneft has recieved 10 billion dollars.

By the summer 2010 Russia has completed the construction of Eastern Siberia — Pacifia Ocean pipeline, which now is able to supply to the northeastern part of China (to the oil-processing plants of PetroChina) 15 million tons annually.

All in all Transneft has spent on the construction of the Russian branch of pipeline from Skovorodino to the border with China about 430 million dollars. The pipeline from the border with Russia to Daqing (with the length about 1000 kilometers) has been built by China.

The deliveries via this pipeline began in January, 2011. In March, 2011 the Kommersant newspaper reported that China National Petroleum Corporation haven't payed the rest 38 million dollars to Rosneft for the oil supply in January. According to the newspaper, in late February the Chinese party had to pay to Rosneft for the delivery of raw materials about 555 million dollars under the contract signed in 2009, but payed only 517 million dollars. China supposedly did not like that Russia uses the common rate for the ESPO (from Irkutsk region to the Pacific termina in Kozino, it's about 1,815 rubles per ton), while the turn-off to China begins in the Amur region, which is situated in the middle of the ESPO.

Igor Dyomin, Transneft spokesman said: “We signed a contract with CNPC to value the oil at the market price with the use of market mechanisms. So Transneft uses the Petro-Argus prices to measure the oil cost at the Pacific Ocean. The Chinese side have agreed on that. Now they go back on their word, claiming that the pricing mechanism is unfair and pointing out the difference in oil prices between Skovorodino and Kozmino. The fact is that the oil price does not include extraction and transportation costs, but the market situation alone. Most East Siberian-Pacific Ocean pipeline oil is taken from the Vankor field. But there are other fields closer to Kozmino, and still the price is the same".

On April, 20, the scandal became public. Russia's Transneft accused China of underpayment under the contract and threatened China with the international court.

Mikhail Barkov, Transneft vice-president, has estimated losses from underpayment at 100 million dollars.

There is also a dispute over oil shipment volumes with CNPC, according to the Business Insider, "CNPC wants Transneft to increase oil shipments from 15 million to 30 million tonnes a year. The agreement we signed provides the yearly volume of 15 million tonnes for a period of 20 years, and we cannot revise the agreement soon. Right now CNPC is failing to pay about $20 million a month, and if we supply twice as much, their payment shortfall is likely to double. We have given them very good reasons for the prices, and all we hear is that the prices are "unfair".

Hong Lei, Chinese Foreign Ministry spokesman, said: "At present all operations are going smoothly, and oil supplies are stable. As for some concrete problems encountered during cooperation, we believe both sides can fully resolve this in a positive way via friendly negotiations and on a mutually beneficial, win-win basis."

This rate dispute on ESPO jeopardizes Chinese and Russian partnership in gas supplies.


Author: Ksenia Dzhalagonia

Tags: Russian oil Russian business Rosneft   

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