November 1, 2007 / 2:38 PM / 12 years ago

UPDATE 1-Ukraine refinery row may spark wider crisis

(Adds comments from Tatarstan official in Kiev)

By Pavel Polityuk

KIEV, Nov 1 (Reuters) - A management dispute at Ukraine’s largest refinery will lead to a production crisis compounded by the certainty that Russian firms will not supply it with oil, the ousted manager and a shareholder said on Thursday.

The Kremenchug refinery was taken over by ex-manager Pavel Ovcharenko with armed police after a regional court had reinstated him. The plant has been running at reduced capacity after Russia’s Tatneft TATN3.MM cut supplies.

A trade representative of Russia’s Tatarstan region, which controls Tatneft and has a 28.8 percent stake in the company running the refinery, said no Russian firm would supply Kremenchug while the dispute remains unresolved.

“Today, I think not a single Russian company in this complicated situation will provide oil when even the recipient is unclear,” the Ukraine-based representative, Rostislav Vakhitov, told a news conference.

Officials said last week the refinery bought 170,390 tonnes of oil on the domestic market, mostly for this month. Ovcharenko said last week he was seeking to negotiate monthly supplies of up to 350,000 tonnes from Russian companies.

Kremenchug normally processes 180,000 barrels of Russian crude per day — or about 500,000-600,000 tonnes per month.

Sergei Glushko, the manager Ovcharenko expelled by armed forces, is supported as the legitimate head by both the Ukrainian government and Tatarstan.

He told the Delo daily newspaper on Thursday that the consequences of the dispute could hit the country’s second largest refiner, Lysychansk, controlled by TNK-BP TNBPI.RTS.

A flood of cheaper oil products imports to replace the lost Kremenchug output would undermine the local market and the profitability of all other refineries, like Lysychansk, he said.

“Without Russian oil we cannot do anything. Daily refining has dropped to a third of previous levels — to 7,000 tonnes from 18,000 tonnes. Give it a week more and we will be in crisis,” Glushko said in the paper.

“Stopping a refinery means a big inflow of imports. This will hit the Lysychansk refinery. What’s more, stopping domestic refining will lead to 100 percent dependence on deliveries from abroad.”

He said Ukraine’s largest oil company, Ukrnafta, simply did not pump enough crude oil to provide for Kremenchug’s needs.

“Ukrnafta’s overall yearly extraction of oil is 3 million tonnes, and realistically no more than 200,000 tonnes a month can be sent to Kremenchug. Ukrnafta can only meet one third of the plant’s needs and that does not guarantee efficient work.”

On Tuesday, Tatneft, also a shareholder in Ukrtatnafta, rejected calls by the Ukrainian government to hold a supervisory board meeting to solve the dispute.

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