Oil Dispute Threatens World Bank Loan

The World Bank believes the Russian government is planning to undermine a pledge to scrap export quotas on oil, and has warned that such a move could jeopardize a $600 million loan, a senior bank official said Thursday.


In a letter to Prime Minister Viktor Chernomyrdin, World Bank President Lewis Preston said that an alleged plan to introduce minimum amounts for domestic oil sales would contradict the government's previous commitment to scrap all export quotas and licenses and threaten the $600 million loan, said Ardy Stoutjesdijk, director of the bank's Moscow office.


Stoutjesdijk said in a telephone interview that the bank had learned unofficially that the government is likely to approve the introduction of domestic sales quotas as a precondition to receiving export permits.


Oleg Grigoryev, head of the foreign trade regulation department in the government, said Thursday documents concerning oil export rules were still being prepared, but refused to release any details.


If implemented, the domestic sales plan would effectively nullify President Boris Yeltsin's decree abolishing all oil export quotas from Jan. 1.


The International Monetary Fund also has complained about the plan, saying the new system would amount to another way of imposing oil export restrictions, according to the Wall Street Journal.


IMF officials are currently holding talks in Moscow on a standby loan of more than $6 billion for Russia's economic reform.


The loan, which would be the largest in IMF history, would cover about 25 percent of the budget deficit and is crucial to government efforts to control inflation.


Stoutjesdijk said the government appears to be moving "in the opposite direction to a previous agreement with us," referring to an October memorandum between the government and the World Bank.


"Of course, we understand the government fears that if oil exports are freed domestic prices will triple overnight, but we believe that is not what would happen," Stoutjesdijk said.


Opponents of the removal of quotas in the Russian government have argued that the measure would lead to reduced domestic supplies and explode domestic prices, currently at about 145,000 rubles ($42.80) per ton, to world levels of $110 to $115 a ton.


But Western economists have responded that exports would be held down by the country's limited transportation capacity. "There would be restraints in the amount of oil that could be exported because the pipeline capacity is limited," Stoutjesdijk said. "The prices would grow to some extent, but not so much."


However, officials at the state oil transport monopoly Transneft said its shipping potential allows for a considerable increase from current annual exports of about 90 million tons a year, about one third of total output.


"It is true that sea transportation is used to the maximum, but the pipelines could carry about 50 percent more than the current quantities," a Transneft official, who declined to be named, said in a telephone interview.


Transneft's vice president, Yury Sipovsky, said exports are more likely to be restricted by limited foreign demand rather than transportation capacity.


The World Bank view is also shared by reformist members of the cabinet, including Deputy Prime Minister Anatoly Chubais and Economics Minister Yevgeny Yasin, but the bank says they are losing the dispute.