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Oil Pipeline Compromise Likely
China is willing to finalize plans for a long-awaited oil pipeline from Russia's east Siberian reserves, despite chaos inside the Kremlin and recent disputes over the US$1.7 billion project.

China may agree to Russia's new plan to connect an extra pipeline to Japan to the Sino-Russia line, as long as it guarantees adequate supplies for China, a Chinese official told China Daily.

This is the first time China has aired its opinion on the dispute which erupted when Russian companies suggested late last year scrapping the Angarsk-China Daqing plan and laying a much longer pipeline to Japan. In early February, a new compromise proposal was put forward, which would build the 2,400-kilometer line to China first. Later links would be added from the Siberian City of Chita to Russia's port of Nakhodka to supply Japan, South Korea and even the United States. The ambitious plan involves an investment of more than US$5 billion.

The official, who asked not to be identified, said: "We are not against the (new) proposal .... Should they guarantee our supply as we have agreed, the addition of other pipelines is totally their (Russia's) business."

The pipeline was originally designed to deliver 20 million tons of oil annually from Angarsk to Daqing from 2005. The amount will rise to 30 million tons by 2010.

The official was upbeat about the future of the project, calling it the most important deal between the two neighbors for at least two decades.

"Personally, I believe we can make it. Both China and Russia have done a lot of work since 1994," the official said. "But it now depends on Russia's plans, as well as negotiations between the Chinese and Russian governments."

The Russian Government is due to decide the issue at a cabinet meeting on March 13.

China hopes the Angarsk-Daqing pipeline will ease its oil shortages and reduce its heavy reliance on imports from the Middle East.

The compromise plan seems to be the most favored option, with Russia's Ministry of Energy describing it as in the "national interest."

An executive from Yukos, the Russian oil company backing the project, said in an e-mail to China Daily: "The Russian Government agreed that the Angarsk-Daqing pipeline is the correct first step in the Eastern Pipeline strategy, although the government policy is to eventually have a pipeline to the Pacific ... The completion of the line to Daqing is characterized as a spur."

The project has taken unexpected turns since it was agreed upon by China and Russia in 2001.

Analysts said Russia has hesitated over the project because it wants to expand the market for its oil beyond China and because of energy-starved Japan's enthusiasm for the new supply source.

Moreover, Russians are split on whether China should gain access to its rich oil reserves, they said.

Han Lihua, an expert on Sino-Russian relations with the University of International Business and Economics, said: "If the project fails, it would cast a deep shadow on bilateral trade between the two nations."

An industry official said the Daqing plan is much more advanced, mature and less risky than the Japan pipeline.

"The potential users have been settled, the feasibility study has been approved, and the prices have been fixed," said the official.

"As for the Japanese option, it is nothing but a mere proposal put forward a month ago."

Analysts said the Angarsk-Daqing line will go through anyway, although the timing is still uncertain.

(China Daily March 3, 2003)

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