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By John Helmer, Moscow

Monkeys throw their excrement at their enemies – this is well-known among zoologists. But it happens only when monkeys are caged, not in the wild. The reason for this is obvious — free-ranging monkeys instinctively run away from their shit as quickly as possible, to evade predators. But if they are in captivity, their shit is all they have handy against enemies who aren’t predatory. Shit-tossing is a kind of simian revenge.

Gennady Timchenko (left) is one of the most powerful businessmen in Russia. This is especially well-known in the oil and gas sector, because he owns Gunvor, the largest oil trader in Russia; Transoil, the largest rail transporter of oil in Russia; Stroitransgas, one of the largest pipeline construction companies in Russia; Novatek, the largest gas producer in Russia after Gazprom; and the new refined oil products terminal at Ust-Luga, on the Gulf of Finland – the largest petroleum shipping outlet in Russia, and one of the largest in the entire Baltic region.

So how can it happen that after more than three years of planning, dredging, port and rail construction work, the Ust-Luga terminal has turned out to be so shoddy, and repairs undertaken to date so faulty, that the opening of the terminal, as well as the new pipeline delivering petroleum products to the port, have been delayed into next year, a postponement for the umpteenth time since 2010? Is Timchenko not powerful enough to require discipline from his construction boss and his sub-contractors? Is someone throwing stuff to undermine Timchenko’s authority?

And here’s the question that subordinates these others: whatever has been causing the delays in starting Timchenko’s petroleum shipments from Ust-Luga, why was it necessary for Deputy Prime Minister Igor Sechin, the government overseer of both the oil and shipping sectors, to summon everyone involved in the terminal and its problems to his office last week, on November 25?

Timchenko has managed oil and petroleum terminals around the Baltic for many years, but in May of 2008, his Gunvor spokesman, Torbjorn Tornqvist, described the Ust-Luga terminal project, not only as the biggest of its kind for the export of Russian oil products, but also one of Timchenko’s first efforts at “investments in the infrastructure related to terminals, ports, and so on. We may invest in ships in the future, but we do not currently think it is the right thing to do. In terms of production, we are thinking of going [upstream?]. This is an ambition for the future. We are also going into pure derivatives trading. We created a desk for this where the traders have the freedom to go into this area on a small scale basis. The trades do not necessarily have to be oil-related but can correlate to currencies or other commodities, on a small scale. We are interested in that, but primarily we are an oil and energy trading company…we keep our eyes on shipping. You can talk about many things, not necessarily the timing, but it is true that we are interested in this area.”

Tornqvist didn’t want to say much about Ust-Luga, except that it was costing “multiples of millions of dollars” and that he and Timchenko viewed their business diversification from pure oil trading into transportation of oil a “type of progress”. For the Leningrad region too, the plan to ship petroleum from Ust-Luga allows the gradual phasing-out and shut-down of oil shipments from the port of St. Petersburg. This is a regional priority for environmental and cost reasons, as well as for vessel and berth draught – the old berths at St. Petersburg cannot accommodate tankers of the same super-size and deadweight as Ust-Luga has been designed to do.

So oil shipments from the St. Petersburg Oil Terminal (PNT) are falling. For the 10-month period to October 31, volume is down 3%, compared to 2010, to 13.5 million tonnes (260,000 barrels daily). In the month of October, the volume was down 25% compared to October 2010. On November 1, the state pipeline company Transneft announced it was closing down for good the 40-year old pipeline running between PNT and the Kirishi oil refinery, with which Timchenko has also been associated. The pipeline has been supplying 2.5 million tonnes of petroleum to the port for annual export. But it is now prone to accident and spill risk, and superseded by railcar transportation of oil, which Timchenko also controls.

Here is a recent Renaissance Capital illustration of the major ports currently handling the export of Russian oil, both crude and refined; note that NCSP stands for Novorossiysk, on the Black Sea; and PTP, Primorsk, a crude oil port on the Gulf of Finland 70 kilometres from Ust-Luga:

And here is Renaissance Capital’s tabulation of the new oil shipment capacity planned and being built at the moment:

Rosneftebunker and Neva Pipeline Company are both Timchenko operations, and share the same offices and personnel at Ust-Luga.

At the start of November, it was disclosed in the Russian press that the two companies had been held responsible for 23 itemized safety and construction standard violations in the building of the new oil loading complex. The government’s ecological, technological and nuclear inspection agency Rostekhnadzor (RTN) sent Sechin a report on the problems, which promptly leaked.

This publicity revealed that the first tanker loadings at Ust-Luga had been postponed from a scheduled start this month, and Rosneftebunker and Neva Pipeline penalized with fines.

Among the violations and problems identified by RTN there is seafloor subsidence under the new berths; weakening of the foundations and pile supports for the new berths; structural cracks in concrete platforms and jetties; faulty construction of the railroad trestles that enable railcars carrying oil to discharge their cargo; and improper storage fields for petroleum in barrels.

Primorsk – operational
Ust-Luga – under construction, delayed

A spokesman for the Timchenko companies, Anton Kurevin, has told Fairplay that RTN had held an inspection and found violations; but he then added he could say no more. Letters from RTN to Sechin have been released, estimating that the additional construction work will take at least 90 days. But industry sources believe the sub-surface faults make take longer to remedy.

The spokesman for Rosneftebunker and Neva Pipeline was asked to explain why so many violations and so serious faults can have been found, and how they happened. He did not reply. The main port administration at Ust-Luga said the problems are all Rosneftebunker’s, not theirs, and also refused to discuss what is going on.

Transneft has announced that it is going ahead with the launch of its new pipeline to the Ust-Luga terminal, but it acknowledges that the construction problems are delaying the arrival and loading of tankers. “If you are specifically interested in the situation with the construction of the terminal, dredging at berths 4 and 5 is completed. The reconstruction of the upper and lower berth buildings is also completed. However, the commission has not considered the measures taken sufficient to launch the terminal. The number of discrepancies of the sheet pile wall is above the average. In addition, nearby terminals face similar problems, too. In this regard, it was decided to conduct additional comprehensive studies of the soil. The results of this study will provide conclusions of the facility’s correspondence to the industrial safety requirements and influence the further decisions on the possibility of launching the facility. The company will keep up close cooperation with all project participants.” It is unclear whether Transneft intends to test its pipeline this month by loading a tanker for a test run at a berth near the Timchenko terminal.

Alexei Bezborodov, a leading maritime industry analyst in Moscow, said the construction schedule has been plagued with problems from the start. The costs of building, rebuilding, and repairs have already overshot the budgeted outlays of $200 million, and may double that amount by the time the complex is finally ready for commissioning. Additional capital expenditure has come from the state budget for dredging the waterways to allow large tankers to move in and out; from Transneft for an extension of the Baltic Pipeline system-2; and from the Russian Railways. Altogether, Bezborodov claims, the project cost is at the billion-dollar level. “There has been an inability to control the activities within the company,” he says of Rosneftebunker and Neva Pipeline.

The government agencies involved in the Ust-Luga project regard the site problems, as well as Sechin’s close involvement, as especially sensitive, and potentially dangerous if they say too much. A spokesman for RTN claimed this week that his agency inspects and assesses only finished constructions, not work in progress. But the letter to Sechin by RTN chief N.G. Kutin proves otherwise.

The RTN spokesman, Yulia Neposedova, was asked to explain the mass of construction faults and failures in such an expensive, strategically important export project. She did not respond.

A source close to Ust-Luga’s oil operations says he believes Timchenko’s companies attempted to build their loading facilities on the cheap, and ignored warnings of what would happen. “In the early 1990s there was expert geological research concluding that Ust-Luga was not suitable as a port for large-draught vessels because of the unstable seafloor. Unless very substantial dredging were to be carried out, and the soil moved, Ust-Luga was not considered for a new port. Instead, the preferred sites were Batareinaya and Primorsk. The Batareinaya option [50 kilometres to the northeast] was based on military plans and thorough research had been carried out on it in the Soviet period.” The source says that Timchenko tried to avoid heavy spending and accelerated his Ust-Luga plan despite the warnings. “I suspect that now he wants to get out of it,” the source added.

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