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Rosneft Oil Company

September 6, 2005

President Vladimir Putin sees the Tuapse oil terminal in operation

On September 6, President Vladimir Putin visited Rosneft-Tuapsenefteprodukt - the Tuapse oil terminal.

Mr. Putin arrived in Tuapse from Sochi on the presidential yacht Caucasus. He was greeted by Rosneft President Sergei Bogdanchikov.

Tuapsenefteprodukt is the main terminal for the export of oil products from the South of Russia. Every day, over 150 tons of oil products (up to 300 tons in summer) are sold at Tuapsenefteprodukt fuel stations. Under the integrated special development program, the enterprise is conducting major reconstruction and technical re-equipment projects and intends to reach an oil products transshipment level of 12 million tons a year by 2014. The reconstruction work is being conducted at the company’s expense.

The Tuapse Refinery has been honored with numerous different national and international awards, such as the Birmingham Torch, a gold medal from the French Industrial Development Association, the Russian National Olympus award, the Peter the Great award, etc.

Sergei Bogdanchikov reported to the President on prospects for increases in oil production. He stated that Rosneft plans to increase raw materials extraction by 7-8% each year. ‘The extraction volume totals 75 million tons this year, we will reach the level of 82 million tons in 2006, 104 million tons by 2010, and 128 million tons by 2015,’ he said. Mr. Bogdanchikov also noted that Rosneft’s total liquid hydrocarbons recoverable reserves are currently estimated at approximately 3.5 billion tons.

President Putin gave a positive evaluation to the company’s operation. He stressed that Rosneft’s capital had increased 15-fold in the period between 1998 and 2004. In his words: ‘That is a unique contribution to the national economy. The oil industry is one of the most effective and fast-developing industries of the Russian economy.’ ‘I am certain that prospects for the industry as a whole and your enterprise in particular are very good,’ Mr. Putin told Sergei Bogdanchikov.

The President congratulated Rosneft-Tuapsenefteprodukt’s staff on their dual celebration: the future 10-year anniversary of Rosneft, and Oil and Gas Industry Workers’ Day, celebrated on September 2.

Meanwhile, the head of Rosneft presented to the Russian President the projects involving the Tuapse oil complex’s development.

According to Sergei Bogdanchikov, Rosneft intends to invest 1.6 billion US dollars in its development, including 900 million US dollars on the construction of new processing units, 550 million US dollars on expansion of the pipeline system and increasing the amount of oil delivered to the port. Investments will also be made in expanding the oil terminal.

Over the next three years, the company will increase oil refining levels from 4 to 12 million tons, and the terminal’s capacity will increase from 10 to 17 million tons. Sergei Bogdanchikov stressed that the Tuapse Refinery’s efficiency was a result of its performing extraction, processing, transporting and export.

Sergei Bogdanchikov also told Mr. Putin that Rosneft is ready to finance the Russian part of the Bourgas-Alexandropolous pipeline construction project. He said that in 2002, several countries including Russia, Bulgaria and Greece had established a consortium and signed an international memorandum, and that the project would be implemented over the next 7-10 years.

‘The estimated cost of building 280 km. of pipeline totals 700-800 million US dollars,’ Sergei Bogdanchikov said. ‘Although the project was meant to be financed by the state, we are ready to invest in it at our own expense.’

Vladimir Putin asked Sergei Bogdanchikov about the challenges posed by the plan. Sergei Bogdanchikov said that the Bulgarian side had confirmed its readiness and that only some technical issues remained to be resolved with the Greek side.

The Rosneft President explained that implementing the project would solve the ‘Bosporus capacity’ problem. The Bosporus can currently let 86 million tons of oil through, although it has applied for 100 million,’ he said.

During his conversation with the Russian President, the head of Rosneft asked him to see that the issue of oil transportation rates was resolved. ‘It’s important for us that the rates policy issue is solved this year,’ Sergei Bogdanchikov stressed. Mr. Putin promised to discuss the issue with the Prime Minister.

According to the head of Rosneft, the rate for transporting oil to the North, South and West totals 20 US dollars per ton, but 40 US dollars per ton for delivery to the East. He also stressed that railway tariffs have increased some 7.5 times over the past 4-5 years, although traffic volumes have increased only threefold.

Sergei Bogdanchikov also said he had been waiting for the RF Ministry of Industry and Energy to allow an increase in the capacity of the Samara-Tuapse pipeline by 8 million tons.

The Ministry of Industry and Energy should coordinate and permit construction of the pipeline and let Rosneft deliver additional amounts of oil to Tuapse, he said.

Another key question for the Ministry of Transportation posed by Sergei Bogdanchikov is the issue of who owns hydraulic engineering units. They are currently owned by the state, but the head of Rosneft noted that ‘in the event that more are built, Rosneft would like to list them on its own balance-sheet’. However, Mr. Bogdanchikov noted that the Ministry of Transportation is opposed to such ownership.

He suggested that Rosneft might build the units and then transfer them to the state balance-sheet. ‘A decision on leasing relations is nonetheless obligatory,’ Sergei Bogdanchikov stressed, and added that the rent should not be too high. He also spoke of the possibility of building hydraulic engineering units through an investment fund.

Historical reference note

Rosneft-Tuapsenefteprodukt (the former ‘oil products shipment terminal’) was commissioned in 1928 to supply the national economy of Southern Russia with oil products, to export them and to receive oil for the local oil refinery by railroad. The storage plant capacity totaled 154,000 cubic meters (28 tanks). 18 different sorts of oil were exported to 11 countries through the plant. Transshipment volumes totaled 1.8-2 million tons a year.

During the Second World War, the enterprise supplied oil products to military units and the Black Sea navy. The postwar period saw a sharp rise in demand for the export of oil products, and in 1953 the Ministry of the Oil Industry took the decision to expand and partially rebuild the plant. This was done during the period between 1958 and 1967.

Following reconstruction, the enterprise had 69 tanks for storing oil products, with a total capacity of 234,000 cubic meters. The annual transshipment volume totaled 14 million tons of oil in 1967, including 10 million tons for export. Three fuel stations were built, and one station was reconstructed.

In the 1970s and 1980s, more fuel stations and service stations were built in the town and in the region, the range of services offered at the stations was expanded, and units continued to sell packed oil products.

During the 30 years of the enterprise’s operation, none of its facilities were renewed, and most of them (tanks, pipelines, oil loading racks, pump stations) fell into disrepair. A number of tanks were taken out of operation and removed.

Decree of the RF Council of Ministers No. 219 dated March 14, 1993, on the Building and Reconstruction of Oil Transshipment Terminals, ordered the enterprise’s complete reconstruction and the attainment of transshipment levels of 12 million tons a year, including 8 million tons for export, as well as an increase in the plant capacity up to 365,000 cubic meters.

Rosneft-Tuapsenefteprodukt is a transshipment terminal and conducts transshipment of oil products from railroad wagons and the local refinery to tankers in the port and to rail tank wagons; it also bunkers oil loading vessels and sells oil products to customers through its chain of fuel stations.

The enterprise currently occupies an area of 45 hectares in Tuapse.

The capacity of the storage plant is over 340,000 cubic meters, and transshipment volumes total 10.2 million tons a year. The enterprise is a Category I oil tank farm. Its storage plants have tanks with a capacity of between 3,000 and 20,000 tons.

The enterprise has nine fuel stations and two gasoline filling complexes, Agoy and Novomikhailovsky.

To provide for additional deliveries of oil products, Rosneft-Nefteprodukt is building Sea Terminal No. 1A in the port of Tuapse - one of the top-priority parts of the reconstruction plan.

The terminal will be capable of servicing vessels of over 100,000 tons deadweight, as in terms of economic and environmental expediency, additional deliveries can only be conducted using heavy-tonnage vessels capable of carrying 100,000-150,000 tons. The launch of the landing dock will allow an increase in the terminal’s throughput efficiency of up to 17 million tons of oil products a year. In addition, in 2005-2006 Rosneft plans to build facilities for the transshipment of heating oil in the volume of 2 million tons from the railroad wagons to tankers.

Once reconstruction is complete, the terminal will be a modern hi-tech complex, providing a complete range of services to heavy-tonnage vessels.

Construction of the sea transshipment terminal complex is valued at approximately 220 million US dollars. Construction of Sea Terminal No. 1A is estimated at around 80 million US dollars. The building work is scheduled for 2006-2008.

An additional advantage of the project is the terminal’s convenient location near to fuel and energy markets, on a navigable section of coast capable of year-round operation. The terminal is also located not far from deep water streams, in an area close to railways and highways connecting the terminal both with shippers, and the areas where service personnel live.

Rosneft-Tuapsenefteprodukt plans to increase its turnover from 10.2 million tons in 2004 to 10.3 million tons in 2005. Sales of oil products purchased from Rosneft will increase to 130,000 tons. Fuel station sales will total 56,500 tons this year.

Operating results over the first half of 2005 show that the company is achieving its objectives. In particular, the enterprise sold 5.2 million tons between January and June, 4% higher than its target figure.




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