Two counters for “Friendship” – Newspaper Kommersant No. 51 (7496) dated 03/25/2023

Ukraine for the second time since the beginning of the year, this time twice, wants to increase the cost of transit of Russian oil, which goes through its territory via the Druzhba pipeline in the direction of Slovakia, Hungary and the Czech Republic. Even despite the increase in costs, raw materials from the Russian Federation remain more profitable for consumers in Eastern Europe than alternative purchases within the European Union, experts believe.

The Ukrainian pipeline operator Ukrtransnafta intends to increase the tariff for the transit of Russian oil through the Druzhba main oil pipeline through Ukraine from April 1, Argus reported, citing market participants. These data are confirmed by Kommersant’s sources, noting that we are talking about doubling the rate, to €27.2 per ton. The growth of the tariff in Kyiv is explained by the costs of restoring the oil transportation infrastructure, which was destroyed during the hostilities.

At the moment, there is no final decision on this issue, negotiations are ongoing. Transneft, which traditionally pays for the pumping of oil exported from the Russian Federation through Druzhba, told Kommersant that the company is aware of Ukraine’s intention to change tariffs, but what parameters of the increase are in question and from what moment the tariff is planned raise, they don’t know. This issue, sources explain to Kommersant, the Ukrainian side must first coordinate with the recipients – Hungary and Slovakia.

According to Argus, the delivery schedule for the southern branch of Druzhba in the second quarter provides for an increase in oil shipments by almost 30%, to 321 thousand barrels per day (about 4 million tons in three months). The head of Transneft, Nikolai Tokarev, confirmed that by the end of the year, deliveries in this direction are expected at the last year’s level of 12 million tons.

If the increase in the transit rate is approved, it will be the second since the beginning of the year. Earlier, the tariff increased by 18.3% to €13.6 per ton. Last year, Ukraine also achieved an increase in the cost of pumping from April 1. Then the indexation was almost 28% (up to €11.50 per ton). Kommersant’s sources link Kyiv’s attempt to raise the rate with the political situation around Hungary, which does not intend to stop buying Russian oil. Earlier, the tariff for the country was also raised along another raw material route – the Adria oil pipeline with a capacity of 11.5 million tons of oil, which connects the port of Omišalj in Croatia with Hungarian oil refining capacities.

At the same time, according to Kommersant’s sources, the option of transferring payments for transit directly to the recipient countries was discussed in order to exclude Transneft from the financial scheme. This question arose after, due to difficulties with settlements with Russia against the backdrop of the imposition of sanctions, pumping through the southern corridor of Druzhba stopped for almost a week in August last year. Then Hungary, Slovakia and the Czech Republic had to negotiate with Ukraine on the transfer of funds for transit. But, Kommersant’s interlocutors note, the direct payment option has not yet been approved and, perhaps, will never be agreed upon.

In addition to increasing shipments along the southern branch of Druzhba from April 1, according to Kommersant’s sources, Russian oil supplies may also be increased along the northern direction of this pipeline due to the resumption of pumping in the direction of Poland. The national concern PKN Orlen has a contract with Tatneft for 200 thousand tons per month, but at the end of February, Transneft stopped pumping Russian oil to Polish refineries, as these shipments were excluded from the export schedule approved by the Ministry of Energy. In addition, the transport company did not receive route instructions from Tatneft. Kommersant’s sources familiar with the situation claim that PKN Orlen submitted an application for the volumes stipulated by the contract for April and they can be included in the pumping plans for the second quarter. Igor Demin, a representative of Transneft, told Kommersant that so far the company has not received either a schedule approved by the ministry or route instructions from the shipper. The Ministry of Energy does not comment on the situation.

Igor Yushkov, an expert at the Financial University under the Government of the Russian Federation, does not consider the possible increase in the transit tariff proposed by Ukraine to be critical for consumers. In his opinion, to a greater extent, Kyiv’s intention is not caused by political reasons, but by the need for additional funds. He recalls that the tariff increase will be fully borne by buyers, since the cost of pumping is included in the price of oil. That is, despite the fact that Transneft formally pays for transit, the shipper compensates the company for this money, which, in turn, receives it from consumers. Mr. Yushkov believes that even after the rise in price, the pipeline route from Russia will remain profitable for Hungary, Slovakia and the Czech Republic, since alternative supply options require significant investments in infrastructure development.

Olga Mordyushenko