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Russia negotiated damage compensation principles for Druzhba pipeline counterparties

The parties still have to complete a major effort to determine specific amounts of compensations but all the preconditions were made today for on-spec oil to arrive on the border with Poland on June 9

MOSCOW, June 3. /TASS/. All the participants in negotiations on settlement of the situation with contaminated oil supplies over the Druzhba oil pipeline reached common understanding of principles for computation of damages for off-spec oil deliveries, Deputy Energy Minister of Russia Pavel Sorokin told reporters on Monday.

"The next round of negotiations among shippers and offtakers has ended today. The day was fairly efficient and good; we signed a protocol on results. All the parties, all the participants initialed it, which is a rather important point. We hope that the greater portion of procedural points is closed. Specific amounts [of damages] were not discussed today because it is still too early for this. However, procedural points, mechanisms and algorithms of interaction were discussed and conceptually accepted by all the parties," Sorokin said.

The parties still have to complete a major effort to determine specific amounts of compensations but all the preconditions were made today for on-spec oil to arrive on the border with Poland on June 9, the official noted.

"On-spec oil is already flowing in all other directions, to the South Europe - from the end of month. I hope we will see on-spec oil in the northern branch line in six coming days," Sorokin noted. "The next reporting date is June 9, when on-spec oil should be on the border of Belarus and Poland," he added.

Damages to be determined individually

The parties worked out a general mechanism to determine damages from contaminated oil and subsequent compensations but figures will be computed individually for each offtaker and shipper, Sorokin said.

"It [mechanism of damages calculation - TASS] is a common one for each refinery and each offtaker. Certainly, reasonable justified costs sustained by the parties will be addressed but the reasonable amount should be negotiated between the offtaker and the shipper," the Deputy Minister said.

"We provide colleagues with a mechanism for compensations to companies then. It is impossible to indicate a single amount for everyone - everybody has a different cost of funding, stocking and oil blending rate. That is, each company and each offtaker has different costs in such situation and this will be determined by oil companies and their clients. We communicated a common principle for all stakeholders; accordingly, everyone understands the way of calculations," Sorokin added.

Situation with Druzhba

The Druzhba oil pipeline provides supplies of oil to the Belarusian refineries and its transit to Europe through Belarus, Poland and Ukraine.

In mid-April, Belarusian Belneftekhim reported a sharp deterioration in the quality of the Russian oil running through the pipeline. As a result, several states stopped receiving and refining the Russian oil. The contaminant source was revealed at the Samara-Unecha section. Transneft said that the Russian oil in the Druzhba pipeline was deliberately contaminated. Law enforcement agencies initiated a respective criminal case. Official spokesperson of the Russian Investigative Committee Svetlana Petrenko told reporters earlier that contaminated oil was loaded into the Druzhba oil pipeline in order to conceal multiple oil thefts.

Russia’s Deputy Prime Minister Dmitry Kozak and Belarusian Deputy Prime Minister Igor Lyashenko have agreed on measures to clean the pipeline, so as the supplies of clean oil to Poland could be resumed by mid-June. Supplies of on-spec oil to Belarus resumed in early May.