Russian oil pipeline operator Transneft President Semyon Vainshtok resigned earlier this month from his post in order to run Russia’s Sochi Winter Olympics State Corporation, demonstrating once again the enormous faith Putin has in the man who served as one of the chief architects of Russia’s energy empire.
Streamlining Russia’s pipelines
The announcement of Vainshtok’s departure from the pipeline business came during the big September 1-2 oil industry annual holiday and on September 11 he took over at the Russian state corporation established to organise the 2014 Winter Olympics with a brief to bring the kind of professionalism that marked his reign at Transneft.
The news came as a shock to everyone who had worked with Vainshtok over the past eight years and watched him transform the industry into a major international relations issue. When first appointed to run Russia’s oil pipeline monopoly Transneft in summer 1999 Vainshtok was a relatively unknown quantity whose biggest role to date had been as the former head of Russia’s giant Lukoil subsidiary Lukoil Western Siberia.
When he took over at the helm of the giant pipeline network he was expected to lobby heavily for the interests of his previous employer Lukoil, at the time Russia’s biggest oil company. However Vainshtok soon demonstrated that he was not going to work in the interests of any single group of private or state companies and quickly established himself as one of the leading minds behind Russia’s robust energy policy under Putin.
Almost as soon as he had taken control of the company Vainshtok launched a series of pipeline construction projects. After completing in early 2001 a relatively cheap ‘trial balloon’ pipeline bypassing war-torn Chechnya, Vainshtok pushed a 190-kilometre link connecting Sukhodolnaya-Rodionovskaya, which was to prove his first major strategic pipeline project.
Launched on September 27, 2001, this project effectively cut Ukraine out of some 600,000 barrels per day of crude transit volumes which had previously been pumped to Russia’s principal Black Sea oil port of Novorossiysk by Ukraine’s Prydniprovski Trunk Pipeline operator, now part of UkrTransNafta.
Energy as foreign policy
With the launch of the Sukhodolnaya-Rodionovskaya link, Ukraine lost some USD 60 million in annual transit fees. Vainshtok set a precedent at the time by denying that the project had any political objectives, claiming that it was launched solely in order to improve the efficiency of crude exports for Russian oil companies. This has been a pattern often repeated in recent years. Always a smart man with the facts to substantiate his rhetoric, Vainshtok can be relied upon to have comparative pipeline tariff figures up his sleeve, always demonstrating the economic argument in favor of the new pipelines he has built.
Vainshtok’s real fame came via the launch of the Baltic Pipeline System (BPS), pumping western Siberian crude to the newly built oil terminal in Primorsk on the coast of the Gulf of Finland. On December 27, 2001 Russian President Vladimir Putin, who has always been prepared to throw his considerable political weight behind Vainshtok, pressed the button at Primorsk terminal, and powerful pumps began loading 730,000 barrel cargoes of crude oil supplied by Roman Abramovich’s Sibneft into the tanks of Russian tanker Petrokrepost. It is no secret that Transneft had difficulty finding the USD 2.7 billion needed for construction of the BPS, but today the situation has reversed and investors swarm to lend money to Transneft. Over the past six years the capacity of the BPS increased more than sixfold to 1.5 million barrels per day, bringing ever increasing political muscle to the energy wing of the Kremlin.
In early 2003 the performance of the BPS enabled Transneft to shut down Russian crude exports to the Latvian port of Ventspils. In August 2006, massive shipments to Primorsk required Transneft to shut down crude shipments to Lithuania’s 190,000-barrel per day Mazeikiu refinery, sold in June that year to the Poland’s PKN Orlen. This year, Russia cut oil product exports to Estonia and announced plans to divert crude exports from the Druzhba pipeline to Germany and Poland to Primorsk.
Declining crude exports
Apart from the BPS expansion, Transneft today is developing another big project, the Eastern Siberia – Pacific Ocean (VSTO) pipeline with an initial capacity of 600,000 barrels per day. However, the switch since 2005 in Russia’s energy export policy away from crude oil and towards refining domestically and exporting quality fuels has served to make many of Vainshtok’s new crude export pipelines effectively redundant. Several corporate sources in Moscow indicate that this stagnant situation coupled with uncertainty over the actual launch of the VSTO were among the main reasons for Vainshtok’s shift from crude oil exports to the Olympic project.
However, the two positions are not totally at odds with each other. After all, much like Transneft in 1999, Vainshtok will be running a state corporation while enjoying the unquestioned support of Vladimir Putin, the man whose backing allowed him to achieve so much in the energy sphere. The Sochi Winter Games is a multibillion dollar project that could cost up to USD 12 billion - a sum analysts have noted is eerily close to the approximate cost of the first stage of the VSTO link.
Vainshtok is widely perceived as one of very few senior managers operating in today’s Russia capable of delivering with his iron management grasp, making astute assessments of top priorities and close ties to the upper echelons of Russian power. Putin made it clear that he needed the Sochi Olympic Games to succeed by personally going to Guatemala this summer for the vote to make sure it went Russia’s way.
The move stands in stark contrast to Ukraine’s preparations for its own coming international showpiece, the Euro 2012 Football Championships, for which preparations remain dogged by political in-fighting despite much fanfare in the months since winning the right to co-host the tournament. By appointing a man of Vainshtok’s undoubted pedigree, Putin is demonstrating that for him the Olympics are more than just a game.
