Rising materials costs push ESPO price tag up

Construction costs for the multi-billion dollar East Siberia – Pacific Ocean pipeline are to rise again with completion of the ambitious project due in December 2009. Speaking to RT, Transneft President Nikolay Tokarev, said the project will ad

The project has been under construction for 2 years, the first stage is 70% complete and will be finished by December 2009.  It's an important project that enables Russia to diversify export routes with an eastward branch, together with the development of new oil fields.

The volume should reach 80 million tons of which 50 will go to Kazmino, 15 to China and 15 will go to refineries across Russia's regions. Up to 2012 we expect an increase of oil production in Russia of 60 million tons, with one part processed in Russia and another part exported to the east.

Tokarev also noted that rising materials costs and the significant rise in metals prices are adding to the cost of the project.

Primarily it's due to metal prices. We managed to buy all the supply we needed for the first stage of construction before the wild jump in prices. Metal prices will influence the second stage – pipe prices will increase by 100% by the end of the year and we'll have to alter our budget for the second stage of construction. In the first stage we expect financial factors to influence costs. Our credit contract with Sberbank means our credit costs can rise. We expect this. The growth will not be linear. It will be 1.5 to 2% on some of the money we have borrowed.