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Russia: Moscow Plans To Boost Oil Exports

Russia plans to increase oil exports by at least 25 percent this month amid reports that domestic supplies have risen too high. The situation seems to be a result of changing regulations, poor management, and corruption with potential consequences for world oil prices. Our correspondent Michael Lelyveld reports.

Boston, 2 February 2001 (RFE/RL) -- The Russian government has ordered a sudden boost in the country's oil exports this month, while it is offering to cooperate with OPEC, which has cut output to keep prices high.

Deputy Prime Minister Viktor Khristenko said Wednesday that exports will rise to as much as 12 million tons in February from about 9 million tons last month, Prime-Tass and the Reuters news agency reported. Khristenko said the sharp increase of at least 25 percent was designed "to unload the transport system and to keep the necessary balance of oil refining and oil products' reserves."

The surge in Russian exports comes as the Organization of Petroleum Exporting Countries is struggling to keep world oil prices from dropping during a worldwide economic downturn. In January, OPEC nations cut their production by 5 percent. Last year, Russia raised its oil output by nearly 6 percent and hiked exports 15 percent to take advantage of higher prices, thanks to OPEC.

But in this case, Russian export plans seem to be the result of poor management rather than another attempt to profit at OPEC's expense.

According to the business newspaper "Vedomosti", Russia's domestic market is now awash with oil, prompting fears among producers that prices will plunge.

The problem appears to have resulted from Khristenko's efforts to change Russia's system of controlling export quotas. In the past year, the government has tried to prevent fuel shortages and shield consumers from high prices. Russian oil companies that did not supply required amounts of fuel to the domestic market could be denied access to export pipelines.

The past practice of allowing additional export quotas to certain companies was also widely seen as corrupt. Last year, Khristenko proposed auctioning off a share of the quotas, an idea that Russian oil companies opposed.

But before the new system could be implemented, exports began to fall in the first month of this year. It appears that the lag in introducing the new system and the attempt to keep too much oil from getting into the domestic market led to the unexpected decline. Internal oil prices have reportedly dropped by over 40 percent since last summer to about half of world prices. Producers are now said to be stockpiling oil, creating pressure to get it out.

The episode appears to illustrate the trouble that the government has in controlling Russia's huge oil industry, which has grown skilful at dealing with regulatory schemes.

Last month, the Petroleum Argus newsletter reported that various Russian oil companies and Energy Ministry officials have found ways to beat both the export quota system and taxes by using swap deals with CIS countries, which can then export equal amounts of oil abroad.

One such deal reportedly involves Tyumen Oil, Ukraine, and the Kazakh pipeline operator Kaztransoil, allowing 1.5 million tons of oil to be shipped outside the CIS through Odessa, Petroleum Argus said.

The complicated deals are hard to stop because Russian export rules are also complex, creating plenty of loopholes and opportunities for corruption. The government's attempts to manage domestic prices and supplies can cloud matters further, because they interfere with the forces of supply and demand.

The effectiveness of the controls may be a serious issue not only for Russia but for OPEC, which has been having trouble fine-tuning its output to keep world oil prices within a stable band. Since Russia produces 6.4 million barrels of oil per day, the amount that it exports or uses domestically can affect the world price.

When the share of exports lurches dramatically from month to month, as it has since December, it can make OPEC's decisions harder to calibrate.

That may well be the reason behind Energy Minister Aleksandr Gavrin's statement on Tuesday that Russia is prepared to expand cooperation with OPEC by offering mechanisms for better monitoring of oil prices. The statement might as well have been an apology for the problems that Russia's changing regulations and export levels may be posing for OPEC.

So far, Russia seems to be a long way from real cooperation with OPEC, and it is uncertain that its new attempts to manage exports will be any more effective than they have been in the past.