Unhappy Oil Chiefs Target Pipeline Boss

www.themoscowtimes.com, Jan. 13, 2003. Page 6 By Dmitry Zhdannikov Reuters

The powerful head of state pipeline monopoly Transneft, Semyon Vainshtok, is under mounting pressure from private oil companies, which believe he is not expanding capacity fast enough to match surging production.

Analysts said Friday that the position of Vainshtok, who turned Transneft into a power in the land from an obedient arm of private business after his appointment in 1999, was still safe due to Kremlin support and an impressive financial record.

Transneft's ability to further expand its massive pipeline system in 2003, when new export routes are needed as never before to ship booming output, could be decisive for Vainshtok's future.

"His position is still incredibly strong. He is one of the most effective managers in the business. His key task now is to quickly match demand from the oil firms for new export routes," said Steven Dashevsky from Aton brokerage.

"The demand for new routes is higher than ever. And if Transneft fails to build them quickly, forcing oil firms to curb output growth, Vainshtok could face problems," said Valery Nesterov from Troika Dialog.

Vainshtok, 55, a former employee of Russia's largest oil firm LUKoil, literally stormed the world's biggest pipeline firm in 1999, when after a battle between influential Kremlin groups he sent in police to throw out his predecessor. Despite having no experience in the pipeline business, Vainshtok managed in less than three years to build two major pipelines and a port at Primorsk.

These were the first oil infrastructure projects to be completed since the collapse of the Soviet Union.

Under Vainshtok, a previously timid Transneft started to flex its muscles. In 2001, the firm abruptly halted oil exports of LUKoil, after receiving a complaint backed by a court ruling from a shareholder with a tiny stake in LUKoil.

But private majors were willing to accommodate Vainshtok's behavior as long as he was building new routes.

"The situation is getting tougher for Vainshtok. ... The monopoly is not being flexible enough and is not expanding the system as quickly as they want," said Nesterov.

The first serious sign of discontent surfaced in late 2002, when the four biggest private oil majors took an unprecedented decision to join forces to build a huge Arctic export port at Murmansk on the Barents Sea. They invited Transneft but Vainshtok said he was not convinced by the plan and preferred a Pacific route.

This week five majors have asked the state to persuade Transneft to reopen a pipeline to the Latvian port of Ventspils and cut oil shipments from neighboring Kazakhstan. The move follows a call from OPEC for Russia to increase supplies together with the cartel to take the heat out of prices driven higher by fears of war in Iraq and a long-running oil strike in Venezuela.

"Oil firms do not want to tolerate losses anymore by seeing Transneft artificially cutting their exports," Nesterov said.

Transneft has slashed oil shipments to Ventspils to zero from around 350,000 bpd at the beginning of 2002, saying oil firms preferred other routes to reach world markets.

Market players say the move is instead designed to put pressure on the port's owners to sell Transneft a stake in the terminal, once the biggest outlet for Russia's crude on its way to northern Europe, at a bargain basement price.

Ventspils is the only easy option for Russia to quickly boost exports -- currently running at 4 million bpd. Other pipelines are pumping at capacity and Russia faces bottlenecks in its main oil ports with total output at a 10-year high of 8 million bpd.

"Oil firms are simply saying that in difficult years, such as 2003, Transneft should put their interests first," Vladislav Metnyov from TIB Bank said.

However, he added that power rested with the Kremlin, which has the last say on whether the monopoly takes more crude from Kazakhstan or cuts supplies to Latvia.

Nesterov said if the government decides to approve this year Transneft's plan to expand Primorsk and build a huge pipeline to the Pacific it would be the best proof yet it still is fully confident in Vainshtok.