Russian Railways has agreed to lower transportation tariffs to help increase oil exports, the president of the state monopoly, Gennady Fadeyev, said during a meeting with his counterparts from the Ministry of Railways last week.

``What we want is to increase the transportation volume instead of keeping a fixed transportation. If the amount reached 30 million tonnes, we will consider lowering the transportation price,'' Xinhua news agency on Friday quoted Fadeyev as saying.

However, some traders are sceptical that plans to increase rail exports could be met by lower tariffs.

``We are not sure if Russia will follow its commitments this time,'' a source from a mainland oil trading firm said. ``There is a bottleneck in the system, so I think even transporting 10 million tonnes of oil via rail would be a stretch.''

Lukoil, which has replaced Yukos as the supplier, plans to export up to 10 million tonnes of oil a year to China by next year and 15 million tons a year by 2006.

There are initial plans to transport 160,000 tonnes of oil to the mainland between this month and next.

Russian Railways suspended oil exports to the mainland in September because Yukos, which is facing tax issues, was unable to pay the bills.

According to China National Petroleum Corp (CNPC), Yukos was supposed to export 3.86 million tonnes of oil to the mainland but has only managed 2.84 million tonnes this year.

Traders in China say that more Russian exports are expected to be met via sea as there are already logistics problems even before the Yukos problem surfaced. Additional railway infrastructure may have to be developed to meet even 15 million tonnes a year of supply.

Russian Railways is planning US$3.5 million preliminary work to electrify the Chita-Zabaikalsk line, which will be completed in 2007. Ths will help to boost carrying capacity by 40 per cent.

China needs Russian oil badly, especially to counter the decline of its biggest onshore field in Daqing. And since plans for China to buy Russian oil via a 2,400-kilometre pipeline might not come to fruition, it might have to depend on rail exports. China has already halted Daqing oil exports to Japan this year in a desperate move to keep the oil for domestic use.

To secure Russian oil, CNPC is reportedly bidding for Yukos' largest production unit even though the Russian federation has hinted it prefers to sell Yuganskneftegaz to Russian oil firms. CNPC had previously lost its bid for Slavneft in an auction to sell off 75per cent of the Russian firm's assets within two years.

While the railway volumes would seem like a huge boost at the moment, it is still only a fraction of China's crude imports. The oil pipeline from Russia would supply twice the volume that can be carried by rail at the moment, and at a cheaper cost, experts say.

Russian Railways has indicated that it may set up a joint venture with the Chinese side to study the logistics of helping Lukoil meet its export commitments.

The railway operator will begin test supplies to China, starting with 60,000 tonnes this month.

karen.teo@globalchina.com