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President Vladimir Putin: Semyon Mikhailovich [Vainshtok], I wanted to say first of all that I have signed the federal law ratifying the agreements between the governments of Russia, Bulgaria and Greece on cooperation in the construction and operation of the Burgas-Alexandropoulis oil pipeline. I would like to give you this copy. I hope for active joint work with our partners. What is happening at the moment in this area? How do you assess the situation?

Semyon Vainshtok: We have begun the active phase of work on the Burgas-Alexandropoulis project. Work is going ahead well with the Greeks, but we are seeing a few delays on the Bulgarian side. We met with the Greek and Bulgarian ministers at the St Petersburg Economic Forum. We have no demands with regards to the Greeks. They have already nominated their companies and these companies are taking part in talks, but the Bulgarians have not yet decided who will represent them in this project. We met with the Bulgarian minister, Mr Gagauzov, and I hope that this meeting will encourage the Bulgarians to speed up work on their side.

Vladimir Putin: Is work underway?

Semyon Vainshtok: Yes, very actively. Russia, for its part, has already done everything. Transneft, Rosneft and Gazpromneft have organised a consortium. We have prepared the entire package of documents for the international company. Last week, we invited the Greeks and the Bulgarians for talks, which have taken place, and we proposed a choice of country for where the company will be registered – probably one of the European Union countries. We have carried out a study of the 26 EU countries and proposed a charter and the entire package of documents, and I hope that we will have everything approved very soon.

Vladimir Putin: How is work going on building the pipeline to the Pacific coast?

Semyon Vainshtok: We are working actively on this project and have already built 950 kilometres of pipeline.

Vladimir Putin: A third of the total length.

Semyon Vainshtok: Even more. The total length is 2,700 kilometres, and we have already built 950 kilometres. There are big difficulties – permafrost, seismically active zones, and 107 rivers to cross. We are currently building the section crossing the Angara River – more than three kilometres. We have already crossed the Ust-Ilim water reservoir. We are confident that we will complete this project by the end of 2008.

Vladimir Putin: What about in the north?

Semyon Vainshtok: We have completed the investment feasibility study and sent the documents to the ministry. The ministry will then submit them to the government, which will decide whether or not it makes sense to build the Kharyaga-Indiga pipeline. But we are ready. We have done a lot of work and we are very much ready to undertake this project.

Vladimir Putin: What about in the northwest?

Semyon Vainshtok: We received a government order on designing the Baltic Pipeline System-2 on May 15. As things currently stand, we have completed the approved part of the project and submitted it for expert opinion today. We hope we will have the conclusions of this expert opinion in July. If the government decides to go ahead with construction, we will be ready to begin work in July. This project would involve around 1,200 kilometres of pipeline. 

Vladimir Putin: Your company knows better than anyone how the oil sector in general is working. What is your assessment of its work?

Semyon Vainshtok: The oil sector is showing some growth – around 1.5 percent. The most important thing that the sector should be focusing on is refining oil in Russia. As we have discussed on many occasions, and as is your own idea, Russia needs to reduce its exports of crude oil, start refining more oil within the country and increase exports of refined oil and finished products for the petrochemicals sector. Transnefteproduct is currently in transfer regime and we think that the oil sector has the possibility of greatly increasing its oil products export potential.

Vladimir Putin: This would also benefit the environmental situation in the country and in our cities.

Semyon Vainshtok: Yes, there would be a double benefit in that we would export high-quality products that meet international standards, and we would at the same time raise the standards of the products on our domestic market. I think there is logic in this. At the moment we have still have a situation where the market takes what we give it, and no one is putting money into development…

Vladimir Putin: How is the merger process between Transneft and Transnefteproduct going? 

Semyon Vainshtok: We are keeping to the timetable we received from the State Property Agency. We met with their representatives just yesterday and they said that they would adjust the timetable soon – there is the valuation of the company to be carried out, the share issue to organise and so on. The merger of the two companies should take place some time in mid-September, and this will have big advantages for the oil sector and for the country as a whole.

Vladimir Putin: What is the current state of work contacts with our main partners, with our neighbours?

Semyon Vainshtok: Relations with our Chinese colleagues are developing well. They were a little mistrustful of us at first. Now we have reached a preliminary agreement that they will finance the cost of the pipeline from Skovorodino to the Chinese border. We are working on these terms now. We simply made a mistake when we said that the cost would be $400 million, but that was the figure the calculations gave us back then. The Chinese also started having their doubts about this figure and suggested that they undertake the work in stages and control every cent that is spent. We welcomed this decision. Today, unfortunately, the cost has risen to $436 million, but the Chinese see the objective need for all of these expenses. There has not been a single delay in transferring the funds. They are transferring the funds. We have completed the investment feasibility study and the Chinese have received it and examined it. There are no problems and no complaints about the quality of the work our design institutes are carrying out. I think that we will have good and normal contacts.

As for KTK, where we are also making some progress, we held talks with Chevron and have already held several meetings with our colleagues from Kazakhstan. As far as the progress made is concerned, we were looking previously at Russia having its debts paid back by 2016, but just a few days ago, on the eleventh, we agreed on a common position with our Kazakhstan colleagues that Russia would be paid back in full by 2010…

Vladimir Putin: …For what we are owed.

Semyon Vainshtok: For what we are owed and nothing more. Of course, there are some problems to sort out, and I am sure there will be some tough talks with Exxon Mobil. They have a completely different position, and this is understandable, because they have no interest in this pipeline but simply see it as a cash machine.

Vladimir Putin: As we agreed, expansion of KTK should be synchronised with the implementation of the Burgas-Alexandropoulis project.

Semyon Vainshtok: Absolutely so. This is our objective and this is just what we are working on.