Nefteorgsyntez, a major refinery in the Donbass region, ceased operating Friday after its suppliers in the Tyumen region began charging world prices for their crude oil - about 24, 000 rubles ($7, 770) a ton.
The refinery, which employs 4, 000 workers and supplies the Donbass region with various fuels, was already operating at a third of its capacity when it closed. Tyumen, in western Siberia, used to account for 70 percent of Russia's oil production.
But Russia's overall oil output this year is expected to total only 7. 9 million barrels - down from over 9 million barrels in 1991 - because of widespread smuggling in regions like Tyumen and a dramatic slump in production.
According to a Reuters report, the region's oil producers - who have been pressing the Yeltsin government to free oil prices - have also called for a plan to halt declining production by attracting foreign investment, while-maintaining a 20 percent share of production allocated to them last year.
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