Update on operations
In accordance with the terms of the contract between LLC Stimul-T and LLC Nord Imperial for acceptance and transfer of oil to the main trunk pipeline system of OJSC AK Transneft, LLC Nord Imperial stopped the process of oil acceptance and transfer from LLC Stimul-T w.e.f. 21.08.2022 at 04:00 a.m. Tomsk time, having notified the counterparty about this 1 month in advance.
The reason for the stoppage was the failure of LLC Stimul-T to fulfill its obligations under the contract, namely the failure to pay for the services provided, as well as the penalty amounts for late payment for services provided in the period from March 2020 to June 2022.
In 2009, a contract was signed between LLC Nord Imperial and LLC Stimul-T for provision of services for acceptance, transfer, storage, and transportation of oil. The contract was concluded in the conditions of equal exchange of views, without any pressure or forcing, without any restriction on the right to make offers, discuss, and agree on the terms and conditions of the contract. Subsequently, the parties entered into additional agreements to the contract (in 2010 and 2012), in which the parties confirmed both the terms and conditions for the provision of services and their cost, as well as the pricing mechanism provided for in the contract.
The cost of services under the contract was calculated in US dollars and paid in Rubles at the current exchange rate. The contract was concluded by the parties for a period of 25 years. In addition to regular fluctuations in the ruble exchange rate against foreign currencies, by the time of the contract signing, there had been multiple cases of a sharp depreciation of the ruble in Russian history. Therefore, by signing a contract with pricing in foreign currency, both parties knowingly and voluntarily assumed all the risks associated with a possible decrease or increase in the exchange rate of this currency against the ruble.
Nevertheless, after the weakening of the ruble against the US dollar, starting from 2015, LLC Stimul-T began to demand a revision of the pricing mechanism under the contract, referring to a sharp increase in the cost of services of LLC Nord Imperial in ruble due to the increased US dollar exchange rate.
LLC Nord Imperial did not refuse and took part in the negotiations, and from 2016 to 2021 offered several options for revising the pricing mechanism and reducing the tariff for services provided.
But none of the offers made by LLC Nord Imperial satisfied LLC Stimul-T in any way. Moreover, in the process of negotiations, LLC Stimul-T changed their understanding of “fair tariff” towards its even greater reduction compared to their own earlier proposals, demanding that the tariff be brought to values unacceptable for LLC Nord Imperial. Instead of implementing the proposed options for tariff reduction, LLC Stimul-T chose to resort to the most wrongful and unfair decision – since March 2020, they simply stopped paying for services. In 2021, partial payments resumed, but they were made at some “fair tariffs” in the understanding of LLC Stimul-T, which in no way correspond to the current contract, but understandable and acceptable only for LLC Stimul-T. Since February 2022, payments have again stopped completely. Even a significant depreciation of the US dollar against the ruble, observed over the past few months, did not affect the desire of LLC Stimul-T to resume payments.
LLC Nord Imperial, despite the non-payment, continued to provide LLC Stimul-T with all the services under the contract, and until September 2021 did not refuse to participate in negotiations to change the pricing mechanism. In September 2021, after another toughening of the position of LLC Stimul-T on the “fair tariff”, the management of LLC Nord Imperial decided to terminate these negotiations, which had become meaningless, and to go to court in order to recover the accumulated payment arrears.
At the same time, before LLC Nord Imperial had filed the case to court to recover payment arrears, LLC Stimul-T did not attempt to change the terms and conditions of the contract regarding the cost of services by way of judicial litigation (in court). Also, LLC Stimul-T had not built their own oil pipeline over all these years, during which expressed their dissatisfaction and demanded a revision of tariffs. We are confident, that the issue of building their own oil pipeline could be resolved, including with financial support from the owners of LLC Stimul-T. Thus, LLC Stimul-T informed us on their plans for the construction back in 2016.
The systematic and deliberate violation by LLC Stimul-T of the obligations stipulated by the contract for almost 2.5 years deprives LLC Nord Imperial not only of income from the provision of services, but also of a source of financing for the maintenance and repair of the oil pipeline. Currently, LLC Nord Imperial, like other small oil companies, is in a difficult economic and financial situation. In such circumstances, the continuation of provision of services and the diversion of own resources for this purpose, in the absence of clear prospects for the prompt receipt of payment, loses all economic sense for LLC Nord Imperial.
Mr Aleksandr V. Baklanov, General Director of LLC Nord Imperial commented:
“In view of the service life of the oil pipeline, every year our company will have to spend more money than before on its diagnostics, repairs and maintenance. Otherwise, the risks associated with a possible failure of the oil pipeline will multiply, which in turn can lead to environmental pollution and significant economic and environmental losses both for LLC Nord Imperial and for our entire region.
Under the current conditions, taking into account the long absence of payment for the services provided, the need to divert and spend funds on ensuring the process of safe and trouble-free operation of the oil pipeline, which we urgently need now at other fields of the Company, it was decided to suspend the provision of services o LLC Stimul-T. Whether this suspension will be temporary, whether it will become long-term, or whether it will lead to the termination of our contract – now it depends on LLC Stimul-T only, namely on when they pay the debts and whether they pay them at all.”Back to list