New Year, new oil transit dispute with Belarus

Russia has suspended oil supplies to Belarusian refinery plants as the state petrochemical concern Belneftekhim and Russian oil companies have been unable to reach an agreement on the price of oil.

The dispute has been running since the Belarusian government has increased the fee for the transit of Russian oil to Europe through Belarusian territory to 12.5%.Russian companies have addressed the Russian government to impose a new formula for oil pricing, which increases the cost of oil for Belarusian refineries to $45 per tonne.At the end of 2010, Russia and Belarus signed an agreement for tax-free oil purchases by Belarusian refineries. Instead of taxes on crude oil, Belarus will pay tax on exports of oil products. Russian Prime Minister Vladimir Putin has doubts as to the equal benefits of the arrangement.“The agreement will bring loses to Russian oil companies of approximately $5.3 billion in 2011. That is actually a serious lost of profits. While our partner country will gain $3.9 billion,” Putin said.The Belarusian government recently amended transit tariffs of Russian crude through its territory. The move was explained as a response to changes in economic conditions, reported Igor Demin, spokesperson of Transneft.“Belarus explains a significant growth of tariff by the rise in price of electricity pushing transit tariffs up, as electricity expenses account for 53% of the total cost of transit,” he said. Transneft has approved the increase of tariffs for transit with Belarus from February 1 to 12.5%, said Demin“Initially it was expected that the tariff would be increased by 11.8% within the approved formula, however, Belarus proposed an increase of 12.5%. Transneft agreed on a proposed tariff increase,” Demin added.Both sides, while in talks, are compliant with the terms of the contract on Russian oil transit to Europe, but the Belarusian inter-country production reserves are soon depleted, said Marina Kostyuchenko, Belneftekhim’s press secretary “Belneftekhim's reserves are enough only until the end of January, however Russian oil is so far being shipped to Europe through Belarus as usual.”Konstantin Yuminov from Rye, Man & Gor Securities does not see any threat to European oil supplies, pointing out a political side of the dispute.“Belarus is without any doubt Russia’s core transit partner, as well as a Customs Union ally, but the agreement should be achieved at least assuming equal benefits and equal conditions. Russian crude and government support with the zero-tax regime are crucially important for Minsk, and the new pricing formula is a fair decision to prevent claims from European countries and establish balanced relations. The counterparts should come up with a compromise decision to prevent a supply shortfall in oil products from Belarus and a decrease in the supply from Russian oil companies such as Lukoil and Surgutneftegas, which have planned to ship about 1 million tonnes of oil,”  Yuminov believes.