The decision of the National Security and Defense Council (NSDC) of Ukraine to return to state ownership of a part of the main oil product pipeline Samara-Western Direction will lead to a halt in supplies along it, but will not cause a deficit and a significant increase in prices for diesel fuel, A-95 Consulting Group said.
“We see no prerequisites for resource tension in the market. In the past three years, the loading of the oil product pipeline has decreased, the main reason was the introduction in the summer of 2019 of a special duty of 3.75% [now 4%] on pipeline supplies of Russian diesel fuel. As a result, if in 2018 imports through Prykarpatzakhidtrans amounted to 1.98 million tonnes [30.5%], then in 2019 it was 1.23 million tonnes [17.76%], and in 2020 – some 635,000 tonnes [8.57%],” the group said in a statement.
According to A-95 Group Director Serhiy Kuyun, the Ukrainian market is diversified to the maximum, and it will not be difficult to replace the 50,000 tonnes of pipeline supplies per month.
“This will happen both due to reorientation of pipeline volumes for shipment by railway, and due to reserves of domestic oil refining and imports by sea,” he said.
Kuyun, in particular, assumes that at least 20,000-30,000 tonnes can additionally be delivered to Ukraine from the Belarusian terminal in Gomel, where Russian diesel fuel is transshipped form the pipeline Samara-Western Direction to the railway transport. Also, from March, an increase in imports of Russian diesel fuel by railway across the eastern border is expected. A large margin of capacity for transshipping from the sea remains at the Ukrainian ports: they are used by less than 30%. We can also count on a slight increase in supplies from Belarus.
“The greatest potential has Ukrainian oil refineries, which are loaded with raw materials by less than 30%. The main reason is the disproportion in excise taxes on motor fuels. It stimulates the consumption of diesel fuel and liquefied gas, which Ukraine is forced to import by 70-80%. A solution to this problem could give an incentive to increase oil refining and, as a result, reduce import dependence on all fuel types,” Kuyun said.
A-95 Consulting Group does not exclude an insignificant (within 1-1.5%) increase in wholesale prices for diesel fuel in the central and western regions, where pipeline diesel fuel was mainly distributed.
As reported, Prykarpatzakhidtrans operates a section of the Samara-Western Direction oil product pipeline with a length of about 1,100 km, intended for pumping diesel fuel from Russia and Belarus, both for the internal needs of Ukraine and for transit to Europe, in particular, to Hungary. The design capacity of the pipeline is 3.5 million tonnes per year.
The Ukrainian section of the Samara-Western Direction oil product pipeline belongs to Prykarpatzakhidtrans LLC (Rivne). Until 2016, the company was a structural subdivision of Russia’s Transneft subsidiary Transnefteprodukt. In February 2016, Transneft sold Prykarpatzakhidtrans to the Swiss International Trading Partners AG. In March 2019, the Antimonopoly Committee of Ukraine (AMCU) allowed the unitary enterprise Oil Bitumen Plant, owned by the large private Belarusian oil trader Interservice, to acquire control over Prykarpatzakhidtrans.
At present, Prykarpatzakhidtrans with a charter capital of UAH 105.563 million belongs to the Oil Bitumen Plant (51%), International Trading Partners (48%) and Anatoliy Shefer (1%).
The pipeline was built during the Soviet era and after the proclamation of Ukraine’s independence was to become the property of the state on the basis of succession, as a main pipeline. At the same time, Russian Transnefteprodukt did not transfer this pipeline to the ownership of Ukraine. In 2011, the Economic Court of Rivne region recognized the Ukraines’s ownership of a part of the pipeline passing through the territory of Ukraine, and the Economic Court of Appeal and Supreme Economic Court in 2014-2015 upheld this decision.
However, in 2015, the Economic Court of Rivne region canceled the decision due to allegedly newly discovered circumstances. Later, in 2017, the same court ruled that the ownership of a part of the oil product pipeline belonged to Prykarpatzakhidtrans LLC. It was based on the conclusion of the forensic engineering and technical expertise of the experts of the Ukrainian Research and Design Institute of Nitrogen Industry and Organic Synthesis Products that this pipeline was not a main pipeline. The NABU considers such a conclusion to be deliberately false, therefore, together with the SBU in February 2021, it announced suspicions to the experts.
President of Ukraine Volodymyr Zelensky, by decree of February 19, 2021, put into effect the NSDC decision on taking measures to protect the property interests of the state, which, among other things, instructed the Cabinet of Ministers to determine the central executive body responsible for the preservation and operation of a part of the oil product pipeline passing through the territory of Ukraine.
According to NSDC Secretary Oleksiy Danilov, “an instruction has been given to all relevant bodies: to return the property of the Ukrainian people in a legal way and to find out why the state property ended up in private hands.”