Ukraine’s state oil pipeline operator Ukrtransnafta has warned on the upcoming increase in the transit fee for Russian oil that flows across the Druzhba trunkline to Hungary, Slovakia and the Czech Republic, citing war-related costs.
The planned increase is set to take effect from 1 January 2023, almost one month after the European Union’s ban on imports of Russian seaborne oil cargoes goes in force on 5 December.
According to a notice from Ukrtransnafta to Russian oil pipeline operator Transneft, quoted by Bloomberg, the base transit rate, applied to the shipment of oil for 100 kilometres across the network, will go up by over 18% to €13.60 per 1 tonne ($1.91 per barrel).
In April this year, Ukrtransnafta implemented the increase in the base tariff to €11.50 per tonne from €8.60 per tonne.
The Ukraine’s operator argued that it carries additional unplanned expenses that are related to the continuing Russian invasion in Ukraine, such as implementing additional security measure for its personnel.
In addition, it has to repair any damages to the pipeline network as a result of Russian missile and drone attacks, and solve issues in sourcing spare parts for the maintenance of pipelines and equipment.
Russian oil transit shipments are a remaining major source of income for the operator that had to halt parts of its network used to transport oil imports from the country’s terminals on the Black Sea to domestic refineries and to Belorus, after the start of the war.
Last year, oil transit shipments generated revenues of about $127 million against the same period in 2020 from the Ukrtransnafta’s total annual income of $170 million, according to its report.
The operator lost two oil pumping stations in regions that had been occupied by Russian forces in the eastern and southern parts of Ukraine since February, and had to idle 10 out of 28 pumping stations, it said in a financial report.
Druzhba supply interruptions
Russian oil supplies to Hungary, Slovakia and the Czech Republic have already been interrupted twice this year.
Earlier in November, Ukrtransnafta had to halt the pumping of oil as a Russian missile attack took a power distribution facility out of service close to the country’s border with Ukraine.
However, the operator had been able to restore power delivery to pumps within less than 24 hours, with flows to the three countries resumed.
Earlier in August, however, Russian oil flows across Ukraine were halted by Transneft for more than a week, with the company saying that Western sanctions prevented the Russian operator from paying transportation fees to Ukrtransnafta.
Shipments had resumed only after Hungary’s largest oil importer and producer MOL and Slovakia’s refiner Slovnaft agreed to pay the transit fee to Ukrtransnafta on behalf of Russian Transneft.
Additionally, a European bank agreed to act as an intermediary for handling Transneft’s payments for oil shipments across Ukraine destined for the Czech Republic, Reuters reported.
Political uncertainty
Russian pipeline oil flows to the three countries will become more important in 2023 as Hungary, Slovakia and the Czech Republic have been temporarily exempted from the European embargo on Russian oil purchases because of the lack of immediate alternative import routes.
Ukrtransnafta said that its current transit agreement with Transneft expires in January 2030 but there are risks that Russian oil transit deliveries may be halted in the future as a result of political decisions.
Relations between Ukraine and Hungary have been tense this year, as Hungary’s Prime Minister Viktor Orban repeatedly criticised European sanctions against Russia, maintained close ties with the Kremlin and blocked the delivery of western military equipment to Ukraine via the country.
Just this week, Ukraine’s Foreign Ministry said it summoned Hungary’s ambassador after Orban made a public appearance at the weekend wearing a scarf with a map of the country’s pre-1918 borders that included parts of modern Ukraine and Romania.
A Transneft’s spokesperson told Moscow business daily Kommersant that the operator will “hold consultations” with relevant Russian ministries to decide whether the Russian operator will agree to the Ukraine’s higher transit tariff.
