BELARUS NEWS AND ANALYSIS

DATE:

13/01/2007

Russia wants control of its oil exports after halt

By Dmitry Zhdannikov

MOSCOW, Jan 13 (Reuters) - Russia must find means under its own control to deliver oil exports after its reputation was damaged by a halt in pipeline supplies to Europe during a dispute with Belarus, the economy minister said on Saturday.

Russia restarted the flow through its main export pipeline on Thursday after Belarus dropped an oil transit duty it had imposed and agreed to return oil Moscow said had been taken illegally.

"The dispute has definitely damaged our reputation as a reliable supplier. On the other hand, it will help to increase the stability of our supplies over time," the minister, German Gref, told reporters.

"We have to think seriously if we want to maintain our image as a reliable suppler. We must create a system whereby supplies will depend only on us, not on the transit stage," Gref said. The three-day stoppage at the Druzhba (Friendship) pipeline rattled Europe, which receives a tenth of its oil via the route.

Belarus imposed its duty after Russia last year decided to charge it the full export rate of about $180 a tonne for crude oil, which it had previously received duty free as part of the formerly close relationship between the two countries.

Russia, which also had disputes with Minsk over gas, sugar and other issues, complained it was subsidising crude supplies to Belarus refineries that made big profits exporting products.

Late on Friday, Russia agreed to impose a lower duty, currently about $53 a tonne, on oil exports to Belarus.

"I can understand the position of the Europeans who say, 'Why should we be bothered? Please deal with the problem between yourselves'," Gref said.

"But we Russians have to deal with very specific partners. No civilised country has ever allowed such steps," he said, referring to the Belarussian transit duty.

Russian President Vladimir Putin and Semyon Vainshtok, CEO of pipeline monopoly Transneft (TRNF_p.RTS: Quote, Profile , Research), have said Russia should divert oil flows to other destinations such as the port of Primorsk or a new pipeline to China and the Pacific coast.

Javier Solana, the European Union's high representative for common foreign and security policy, welcomed the agreement.

"This is good news for both countries and for the European Union," Solana said.

"Nevertheless, the interruption of oil supplies, which affected several EU member states, points to the need for a better understanding between the European Union and Russia on the basic principles of a future energy partnership."

A government official close to the Minsk-Moscow talks, who declined to be named, said the new export duty on Belarus would earn Russia an extra $1.1 billion annually.

Russian officials have previously said the country was losing $3.6 billion a year due to tax-free oil exports to Belarus.

The official said the duty was based on Belarus paying a duty equivalent to 70 percent of Russia's fuel oil export duty to other destinations.

"This is a suitable distribution of the margin between the export of oil and oil products. It's a civilised means by which to settle the dispute," Andrei Kobyakov, deputy prime minister of Belarus, told reporters in Minsk. "It won't lead to any serious changes or shocks for the economy. There will be no loss to the budget or damage to those businesses involved in oil processing."

He added Belarussian companies could earn up to $1.5 billion a year exporting products refined from Russian oil.

As part of Friday's agreement, Russia has also demanded Belarus fully scrap all duties and taxes that do not correspond to World Trade Organisation standards.

The two sides signed a preliminary agreement stipulating that Belarus would discard around 40 decrees previously restricting trade with Russia.

"I think Russian companies will gain around $500 million from exports to the territory of Belarus," the official said.

During the dispute Russia also banned sugar imports from Belarus, which normally sells half its annual production of about 770,000 tonnes to Russia. Negotiations to end the sugar ban would take place in Moscow next week, the official said.

(Additional reporting by Andrei Makhovsky in Minsk)

Source:

http://today.reuters.com/news/articleinvesting.aspx?view=CN&storyID=2007-01-13T161722Z_01_L1359184_RTRIDST_0_RUSSIA-PIPELINE-UPDATE-1.XML&rpc=66&type=qcna