Naftan to Secure Druzhba Deliveries

Belarus said it will probably make private its biggest Naftan refinery, which has been long eyed by the Russian companies. More likely than not, this move of Minsk is aimed at softening Moscow attitude towards crude deliveries to Belarus.

President Vladimir Putin officially confirmed yesterday that Russia may cut down crude deliveries to Belarus. "We cannot secure general standards both for import and export customs duties," Putin explained in the live air during a televised question and answer session in Moscow October 25, 2006. He said the restrictions would be imposed, should no agreement be ultimately attained.

The essence of the problem is like this. Pursuant to the Treaty on the Customs Union concluded by Russia and Belarus, no export duties are paid when shipping the crude to the latter. So, benefiting from this provision coupled with the very low duty on petroleum export from Belarus, the oil companies of Russia tend to process crude on refineries of that country and export it in the next move. The budget of Russia gets nothing as a result.

Just in a few hours after Putin's warning, Belarus' Economy Minister Nikolay Zaichenko made a crucial statement in Minsk, the capital of Belarus. The majority stake in Naftan (Novopolotsky refinery; 2005 output of over 9 million tons of crude), the minister said, could be sold to a foreign investor.

Belarus has been attempting to dispose of Naftan for a decade already. But though not new in essence, this time, Zaichenko has voiced his proposal in completely different environment. On the one hand, selling Naftan is not so profitable now because of the growth in refining efficiency and because of its rebuilding up to the annual capacity of 12 million tons. On the other hand, Russia has shown in practice that it toughened the standing on energy issues. Shipment of Russia's crude via Druzhba pipeline to refineries of Belarus was curtailed by 30 percent this quarter.

Moreover, Gazprom that hiked the gas price for Belarus to $200/1,000 cu meters said it may accept its energy and petrochemical assets in settlement for some portion of deliveries.