Decree Prompts Pipeline Battle

Russian oil exporters, accustomed to battles with bureaucracy, face a new struggle for limited space in pipelines controlled by an all-powerful state monopoly. A presidential decree last month abolishing export quotas and licenses from July 1 has effectively given pipeline operator Transneft absolute power over who exports what. The decree has also raised the prospect of "David and Goliath" struggles for pipeline space between giant state-controlled producers and small joint ventures with foreign companies, not to mention corruption opportunities. "After the abolition of export quotas, the center for decision-making on exports has moved away from government offices to the side of the pipeline," Deputy Prime Minister Alexander Shokhin told a recent news conference. Shokhin said Yeltsin's May 23 decree, which looks set to trigger a series of tax and other reforms, was aimed at stimulating oil exports. "There should be more oil going into the pipelines and additional volumes going to oil export terminals," he said. Russia, the world's third biggest oil producer after Saudi Arabia and the United States, exported 80 million tons of crude outside the former Soviet Union last year. Officials expect this year's exports to be up to 85 million tons. A new law on oil and gas, passed by the lower chamber of parliament on a first reading last week, offers assurances of equal rights to pipelines for Russian and foreign companies. But it does not say how fair access will be guaranteed. Joint ventures have experienced difficulties in the past obtaining pipeline space and were even excluded for a while last year until they met new bureaucratic requirements. Shokhin said the government wanted to guarantee pipeline access to enterprises that have concluded long-term contracts, including intergovernmental agreements. Some international lending agencies such as the U.S. Eximbank, as well as the Japanese company Mitsui, have extended big loans to the Russian energy sector on the basis of export quotas serving as guarantees of repayment. The government or Transneft may now have to provide alternative guarantees of access to export markets for companies receiving such loans. "The quota system gave some stability to the expectation that you are going to get the exports," said Mike Kubena, tax manager with Price Waterhouse consultants in Moscow. "How is Transneft going to manage the system now?" he asked. "What will happen to joint ventures and production associations that are not in a convenient location to put oil into the pipeline system?" Shokhin said the quantity of oil to be exported could pose problems. "It is clear that many oil production enterprises want to solve their internal problems, problems linked to non-payments (by domestic and CIS consumers), by increasing exports," he said. But he expected the bottlenecks in export routes to help channel more crude to refineries in the Commonwealth of Independent States, which have been working below capacity.