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Transneft ready to launch second leg of Baltic pipeline in July-1

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(Adds Vainshtok quotes, comments, details, background paragraphs 3-15)

MOSCOW, June 14 (RIA Novosti) - Transneft [RTS: TRNF] is ready to start building the second leg of the Baltic Pipeline System (BPS) in July of this year, the Russian oil pipeline monopoly said Thursday.

"If the government makes a decision on construction, then we are ready to begin in July," Transneft CEO Semyon Vainshtok said at a meeting with Russian President Vladimir Putin.

Earlier, he estimated the project's cost at $2.5 billion.

Russian Prime Minister Mikhail Fradkov signed a resolution in mid-May for the construction of a second leg of the BPS, a pipeline with an annual capacity of 50 million tons (about 370 million bbl), which will run from the Russian town of Unecha, near the Belarusian border, to the Primorsk terminal bordering on Finland.

It will pump Siberian oil from Russia to Germany across the Baltic seabed and on to the rest of Europe and the United States, bypassing Belarus and Poland.

Vainshtok also said that Transneft and the state-run oil product transit company Transnefteprodukt will merge in mid-September.

The merger is expected to raise the companies' efficiency and cut independent producers' expenses on oil and petroleum products transportation, experts said.

The companies will merge within five months through the privatization of the wholly state-owned Transnefteprodukt and the contribution of its stock to the charter capital of Transneft where the government holds 75%, the press office said.

After the merger, the state will hold at least 75% plus one share in the united company, the press office said.

Vainshtok also told Vladimir Putin that construction of the East Siberia-Pacific Ocean (ESPO) pipeline, to pump crude eastward, would be completed by late 2008.

He said thus far 950 kilometers (600 miles) have been built, adding that the distance was about one-third of the 2,700-kilometer (1,600-mile) pipeline.

State-run retail savings bank Sberbank said Thursday it is ready to extend to a Transneft subsidiary, Vostoknefteprovod, a 65 billion ($3.5 billion) credit line to finance the project.

The ambitious ESPO oil pipeline, managed by the company, is slated to pump up to 1.6 million barrels per day of crude from Siberia to Russia's Far East, which will then be sent on to China and the Asia-Pacific region.

The ESPO project was launched in April 2006 and the first leg of the pipeline, 2,700 kilometers long and estimated at $11 billion, will be commissioned in December 2008. It will link Taishet, in the East Siberian region of Irkutsk, to Skovorodino, in the Amur region, in Russia's Far East.

The initial project plans have been revised as the pipeline's first stage was rerouted for ecological reasons about 400 kilometers (250 miles) away from Lake Baikal, the world's largest freshwater body, and divided into three segments following a series of discussions and a presidential order.

The second stage will involve the construction of a Skovorodino-Kozmino pipeline, to pump 367.5 million barrels per year, and an increase in the Taishet-Skovorodino pipeline's capacity to 588 million barrels.

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