OREANDA-NEWS. November 14, 2007. Standard & Poor's Ratings Services said today that it affirmed its 'BBB+' long-term corporate credit rating on Russian pipeline operator OAO AK Transneft. The outlook is stable.

"The rating is supported by Transneft's unique market position as the key transporter of Russia's crude oil production to domestic and export destinations," said Standard & Poor's credit analyst Andrey Nikolaev. "As a result, the company benefits from positive government support, including supportive tariff regulation."

Transneft also benefits from a strong operating profile, historically cautious financial management, and highly competitive costs compared with those of shipping alternatives.
Constraining factors include risks associated with the company's major multibillion U.S. dollar capital projects--primarily the Eastern-Siberia-to-Pacific-Ocean (ESPO) pipeline. While debt-financed investments in ESPO construction have already led to an anticipated increase in leverage, the tariff for the new route has not yet been determined.

 At June 30, 2007, Transneft had total debt of Russian ruble 125 billion ($5 billion).
"We expect Transneft to retain its position as Russia's sole oil pipeline network operator, and thus its strategic importance to the government," said Mr. Nikolaev.

 Rating evolution will be largely driven by any changes in ongoing and extraordinary state support and evidence of adequate tariff increases or other forms of government financial support to finance new investments.

Unexpected variations in the company's investment policy, resulting in excessive debt increases, could pressure the rating if not offset by growing actual or expected state support.

The evolution of Transneft's stand-alone credit quality will depend on how ongoing investment projects (including the ESPO pipeline) proceed with regard to tariff levels and their structure, as well as crude volumes. We are also closely monitoring the company's financial policy and efficiency since the management team change in September 2007.