Transneft investment program to be 1.99 trln rubles to 2020, including ESPO expansion
MOSCOW. Feb 18 (Interfax) - Transneft's investment program to 2020 will be 1.99 trillion rubles, taking the Eastern Siberia-Pacific Ocean (ESPO) pipeline's expansion into account, the oil pipeline operator's CEO, Nikolai Tokarev, told reporters following a government meeting devoted to the program.
This is a preliminary figure as "some projects have not passed through Glavgosexpertiza [the state appraisals body], which will draw a line under cost projections," Tokarev said.
The figure does include new construction, capital repairs, renovation, modernization and the expansion of the ESPO pipeline system to 80 million tonnes, he said.
He said the government at the meeting approved the main aspects of the program at the meeting.
"Transneft's proposals were virtually all accepted - we'll be expanding ESPO to 80 million tonnes by 2020, as recommended by our shareholder, the state," he said.
"The sources of funding will be borrowed and our own funds, and tariff adjustment and dividend strategy. We should, with all these four components together, ensure financing for these expedited plans," Tokarev said.
Energy Minister Alexander Novak told reporters that 663 billion rubles of the Transneft investment would go on the construction of new facilities ad the remaining 1.35 trillion rubles on renovating existing oil and petroleum product pipelines.
Novak said that other key products to have been approved at the meeting besides the ESPO expansion included the construction of the Zapolarye - Purpe and Kuyumba - Taishet pipelines, the expansion of the Sever (North) product pipeline from 8.6 million to 15 million tonnes and construction of the 6 million tpy Yug (South) pipeline.
Novak said a share issue by Transneft in favor of Rosneft was not being considered as a source of funding for the ESPO expansion.
"This is not being discussed. The investment program that exists, sources 172 billion rubles in tariffs needed to build and expand ESPO," and that will be enough, he said.
Novak also said Transneft had not asked for any National Welfare Fund (NWF) money and would expand ESPO with its own and borrowed funds.
Transneft's investment program should contain enough funds to expand ESPO to 80 million tonnes by 2020 if tariff indexation is moderate, Deputy Prime Minister Arkady Dvorkovich said last week.
"Buy our calculations, funds will suffice if tariff indexation is very moderate," he said, adding that zero indexation was envisaged for this year and that indexation in the years that follow will be "in line with or a little lower than inflation." He said the reducing coefficient that would be applied to inflation in this case was not yet known and was still being discussed.
Dvorkovich said the Russian oil pipeline's investment program to 2020 would be discussed at a meeting with the Russian prime minister "in the next few days."
Designs for the ESPO expansion should be carried out this year, he said. "Transneft has the money for this," he said.
As a result of the government's decision to freeze tariffs on natural monopoly services in 2014, Transneft's board of directors revised its 2014-2018 investment program, cutting it from 500 billion rubles to 458 billion rubles. Spending used to expand the ESPO pipeline, which is valued at 170 billion rubles, was not included.
Nearly all Russian oil companies are keen to reap the benefits of the highly profitable eastern export route, prompting the Energy Ministry to push for ESPO to be augmented to 80 million tonnes as early as 2020, not 2030, as planned. But Transneft has cautioned that plans to freeze the tariff for a year combined with higher property tax would force it to revise and possibly scale down investment in the medium term, which will take its toll on this project, among others.
One solution that Transneft suggested to fund the ESPO expansion was to build an additional investment component into the tariffs to pump oil in an easterly direction, charging $10 on each tonne shipped abroad via the port of Kozmino. This route would not lose its appeal even at a higher tariff as the oil companies receive a premium of $25-$30 a tonne on average, and sometimes as much as $40-$50.
Transneft, which company chief Nikolai Tokarev has said is weighed down by a lot of debt, would not object if the sovereign wealth funds, in particular the National Welfare Fund, were tapped to fund the ESPO expansion, but it has not yet received a response to that initiative.
Transneft will have to launch the ESPO expansion program in 2014 if the pipeline is to carry the 80 million tonnes that the oil companies have requested from 2020.
The Russian government's fuel and energy commission will review Transneft's investment program by the end of February, but there is still disagreement over how much should be spent on eastern projects, tariff regulation and dividend policy, Deputy Prime Minister Dvorkovich said in the middle of January.
