Vladimir Putin chaired a meeting on the creation of a second Baltic pipeline system
Vladimir Putin's opening remarks at a meeting on the creation of a second Baltic pipeline system.
Good afternoon,
I have just come from Primorsk, where we opened a new petrochemicals transportation complex. The final result could hit 24 million metric tons. As I mentioned earlier, if this happens, we will shift all the light petrochemicals transportation from the Baltic states to our ports. This will stimulate the development of deep oil conversion and create new jobs. The Governor has reported that it has generated an additional money inflow into the budget. Developing infrastructure is critical and we have reiterated recently that developing the country's infrastructure is among our key priorities.
Today we will discuss the pipeline development prospects, and, first of all, the possible ways to increase the security of oil deliveries to our customers and to cut some of the transit risks.
I'd like to stress that Russia will continue to honour in full its commitments to customers, including those in Europe. But we also have to adequately respond to our partners increased requirements, especially in terms of hydrocarbon pumping tariffs, or performing unsanctioned siphoning.
In this situation, we must protect our national interests and provide for absolute fulfillment of the agreements and contracts we have, remaining a guarantor of European energy security and resolving our own economic problems. To do this, we need to develop our own infrastructure, including the part that is needed for exports.
As you know, a significant part of the energy resources supplied to our foreign partners through sea ports in the Baltic, including Kaliningrad, represents the bulk of our exports capacities, with around 110 million metric tons of oil being transferred across this area annually. Forecasts predict a further increase in this figure for the next few years.
In 2007, the Baltic pipeline system reached its full capacity, with around 74 million metric tons passing through it within the first year. This allowed us to increase the export capacity and meet the growing demand of our foreign partners.
The next step in developing the pipelines in Russia's North-West could be the construction of a new oil pipeline with an end hub in the Baltic.
During exploration, six possible routes were considered for the pipeline, including one ending in Primorsk and one in Ust-Luga.
Cost estimates by Transneft proved that the route between Unecha and Ust-Luga is most attractive. It would also have a branch leading to the Kirishi oil refinery, which is going to boost its production capacity.
Now we must evaluate all the economic and technological factors, discuss the resource base for the pipeline and resolve taxation issues to encourage exploration and hydrocarbon production.
The new oil pipeline is designed to boost oil exports and diversify delivery routes. It will improve the energy security of this country and our European partners, increasing Russia's general economic potential.
The planned routes have an obvious advantage of creating new jobs and taxable bases for the regions to be crossed by the pipelines.
(Addressing Leningrad Region's Governor) Mr Serdyukov, what is the budget increment generated by the petrochemicals transfer? You mentioned it is 1.5 billion roubles, didn't you?
Valery Serdyukov: Mr Prime Minister, the total income is over 1.5 billion roubles from direct taxes. We also have income from wages and salaries and small businesses, altogether forming a powerful complex.
Vladimir Putin: I see. Here, if we hit the mark of 50 million metric tons, it will also be nearing 1.5 billion roubles as well.
I would like to draw your attention to another key point. The pipeline and hub export capacity is related to the predicted increase in oil production, as I have already said. To encourage production, a number of tax preferences should be made.
First, we must cut the natural resources production tax. The draft bill has been reviewed already, and we need to submit it to Parliament as soon as possible.
Second, we need to establish tax holidays for companies engaged in exploration and development of new fields. Seven years would be a desirable term for such holidays. This practice is common for a number of regions. Besides the Far East, this could be applied to the Timano-Pechora region, the Yamal Peninsula and the continental shelf.
Third, we need to change the management scheme for the worked-out fields. The number of low debit wells keeps growing; therefore, we need to support the companies developing these fields.
Fourth, we must improve the order of field depreciation.
Fifth, we should introduce a new system of tariffs and duties for petrochemicals. I mean, the higher the petrochemicals quality and the level of processing, the lower the excise taxes should be.
I expect that after thorough consideration, we should be able to find a concerted and viable solution.
These are the main issues I would like to discuss with you today. Now I yield the floor to Igor Levitin, the Minister of Transport.
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Vladimir Putin'a answers to journalists' questions after the meeting:
Q.: Mr Prime Minister, has any decision on the Baltic pipeline system-2 (BPS-2) been made? Where will it have its end point? Has the issue of pipeline occupancy been discussed today? Will there be any problems with that?
Vladimir Putin: We have discussed a number of issues today. The first one was the master plan for the development of the Ust-Luga port until 2012. We have approved it.
The port development includes the construction of the BPS-2 along the route of the Ust-Luga port. We expect the transportation volume to be between 130 and 131 million metric tons in Ust-Luga and 120 million metric tons in Primorsk. We plan to reach these figures in a few years, and this is going to be a large complex, probably the largest in Russia.
As for the BPS-2, we have considered a few possible routes, which could end either in Primorsk or Ust-Luga. Today we have accepted the proposal from the Transport Ministry and Transneft to pick Ust-Luga for the end point.
Now to the resource base and the pipeline occupancy. It is a serious matter, we have studied it thoroughly. We have based our judgment on the production growth diagram submitted to Transneft by Russian oil companies, predicting additional more than 67 million metric tons by 2015. To provide occupancy of the BPS-2 pipeline, we will need 30 million metric tons of crude and between 18 and 20 million metric tons of petrochemicals.
We assume that the production growth by 2015 predicted by oil companies and the forthcoming cut in the natural resources production tax will allow Russian oil producers to boost funding for the expansion of exploration and production.
Besides that, the Government has prepared a plan to involve federal agencies, including the Natural Resources and Ecology Ministry, in resolving geological prospecting problems. Provisions for appropriate funds have been made.
All this leads us to believe that there will be no problems with the pipeline's occupancy. We also think our foreign partners could use this route to transport crude oil and petrochemicals. We expect them to do it.
Q.: Some of the Baltic states have voiced concern about the possible environmental effects of the BPS-2. Do you take it into account? Does the project pose any environmental hazards?
Vladimir Putin: While implementing our projects, we always study the environmental issues very closely and fully honour requirements by the environmental watchdogs and perform ecological assessment.
Today we paid a lot of attention to this issue. We have drawn up a task for the Ministry of Natural Resources and Ecology to assess this project. Meanwhile, the Leningrad Region Governor reports that preliminary work has been done. I reiterate, preliminary expert services. Experts say, the route that we have selected is an optimal choice from the environmental point of view. Let us keep in mind that the route we have considered and approved today, will be implemented with minimal risks for the region. One of the route's advantages is that, having an outlet in Ust-Luga, we will not have to lay any additional pipes under the Neva River.
Q.: Mr Prime Minister, will the BPS-2 be a purely Russian project or international cooperation is also possible?
Vladimir Putin: It will be a Russian project, but we don't rule out the possibility of cooperating with foreign companies. I have discussed this with the President of Kazakhstan, Nursultan Nazarbayev. Our Kazakh partners have expressed interest in the project. I cannot say yet, whether they will participate. It's up to them. But we think our foreign partners could be directly involved in the crude and petrochemicals terminal as shareholders.
Q.: Mr Prime Minister, will you be watching the UEFA football match featuring FC Zenit tonight?
Vladimir Putin: I sure will. We made an appointment with Mr Zorkin, Chairman of the Constitutional Court. We will visit the court, and then we will watch this match. Sure, I hope for Zenith's victory.
