RUSSIA VILLAGE AT CENTRE OF SCANDAL

Corrosive chlorides found in country’s network of pipelines, causing first-ever shutdown of main export artery to Europe

RESIDENTS of Nikolayevka haven’t had much to gossip about since the owner of the vodka museum over on People’s Friendship Street died, forcing the closure of the only tourist attraction in town.

But now that this hardscrabble village in central Russia has emerged as the epicentre of an international oil scandal, they say they knew all along that something bad was about to happen.

It’s here, just east of a looping bend in the Volga River, that authorities

say corrosive chlorides entered Russia’s 64,374.76km network of oil pipelines, causing the first-ever shutdown of the main export artery to Europe.

President Vladimir Putin was quick to lash out at national operator Transneft, saying the crisis was causing “huge” damage. Eight days later, investigators blamed a band of black marketeers working in concert with a local company that had access to Transneft’s system through feeder lines in Nikolayevka.

Russia’s Investigative Committee accuses the group of stealing at least one million rubles (RM64,218) of pipeline-ready oil, covering their tracks by replacing it with a similar volume of a liquid mixture consisting of raw crude and organic chlorides.

The scheme lasted about 10 days and ended up tainting as much as five million tonnes of exports through the Druzhba link to Belarus and beyond, affecting refineries throughout Eastern Europe.

That includes at least 1.6 million tons shipped out of the UstLuga terminal on the Baltic, most of which is still at sea, data compiled by Bloomberg show.

The node in Nikolayevka, now a crime scene, had a capacity to move as much as 40,000 tonnes a month, or about 1,300 tonnes a day.

That means that each tonne of dirty crude may have ended up contaminating almost 400 tonnes of oil already in the network.

“This is a story about greed and small-time fraud colliding with incompetence and a lack of control over what goes in the pipe,” said Bloomberg oil strategist Julian Lee.

A least four of the six suspects sought by the Investigative Committee have been taken into custody. They include a woman who’s the nominal owner of the company that controls the depot in Nikolayevka.

The facility’s former owner, Roman Trushev, said he sold the depot last year, according to Kommersant.

Trushev, who’s wanted for questioning in Russia, said he was in Germany when the scandal erupted and cancelled plans to return to Moscow.

Transneft chief Nikolay Tokarev, who served in the security agency KGB with Putin in Dresden during the Cold War, said in his meeting with the president that the company has about 150 collection points around the country similar to those supplied by Nikolayevka.

Most of them, he said, are run by large oil companies.

Diluting the contaminated oil could take several months and cost Transneft more than US$370 million, according to Citigroup Inc analyst Ronald Smith.

The spoiled crude may need to be mixed with clean supplies to avoid damaging refineries.

Deputy Prime Minister Dmitry Kozak said Transneft will foot the bill for any physical damage suffered by its partners in Belarus, Poland and elsewhere as a result of the dirty flows.

The final figure will likely be below US$100 million, according to Energy Minister Alexander Novak.