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4 Jul, 2007 15:28

Transneft confronts CPC shareholders

The Caspian Pipeline Consortium is holding the second day of its annual shareholders meeting. Transneft is expected to make firm statements, after it failed to get shareholder support on key issues the day before.

Pipeline monopoly Transneft, which manages Russia's shares in the CPC, put forward initiatives to raise transit fees and lower interest rates of loans to the consortium.

On Tuesday, shareholders voted against all proposals made by Transneft.

If it fails to get support, the company has threatened the CPC with bankruptcy.

The CPC is the only private trunk pipeline in Russia. It connects oil deposits in Western Kazakhstan with the Russian Black Sea port of Novorossiysk. The pipeline which spreads 1580 km has a capacity of over 31 MLN tons per year.

In order to double it, the Russian government transferred its 24 % stake in the consortium to pipeline company Transneft last month. The company has pushed for changes on three different fronts: raising transit fees to $38 dollars per ton, lowering interests on loans to the pipeline and removing the unanimous vote on key issues.

But on the first day of their annual meeting, shareholders seemed more unanimously against than for the proposed changes.

“As long as CPC remains in its current state, as long as it generates that much money it generates today, the companies who built it, who provided the financial means to build it, receive interest and receive discount on a transfer terms. Otherwise what they would get is basically an income from operating the pipeline itself, which is not what they are after. They are after cheap transportation tariffs while receiving substantial interest premiums during the operation of the pipeline,” analyzed Artem Konchin, an oil and gas analyst from Aton Capital.

Transneft managed to get only LUKARCo, and independent Lukoil and BP enterprise. It owns slightly over 12 % in the consortium. A Lukarko spokesman suggested raising fees to $US 38 per ton for 12 months as a compromise.

Earlier today, sources close to LUKARCo informed that Transneft's proposals will help the companies expand production.

Chevron, with a 15 % stake, supported LUKARKO's suggestion, but Exxon Mobile, BG Group and ENI voted it down.

Kazakhstan, which owns 19 %, abstained from voting.

Transneft has threatened to initiate the bankruptcy of the Russian part of CPC. The government may also include the consortium in its list of monopolies.

This could help Transneft win the high-fee battle, but its debt will remain unresolved. The CPC debt to private creditors is significantly large, even taking into account tax claims of up to $US 500 MLN that the Russian Federal Tax service is expected to make in a new audit.