Last Friday’s signing of a Memorandum of Understanding (MOU) between Greek refinery ELPE (Hellenic Petroleum) and Rosneft, valid for one year with an option for renewal, could create significant prospects for ELPE if the Russian petroleum group offers crude at a fair price.

This detail was not specified in the MOU, signed during Russian president Vladimir Putin’s two-day visit to Greece last Friday and Saturday.

If offered a fair price for crude by Rosneft, ELPE can be expected to make substantial orders. The price issue will be discussed in June by a joint committee to be established by the two sides, when they meet to specify trading arrangements.

Rosneft ranks as one of the world’s biggest and most competitive petroleum groups. It operates based on an extraction cost of less than five dollars per barrel, compared to a level of about 15 dollars registered by many rivals. Rosneft is exploiting an enormous yet relatively shallow deposit in Siberia, which helps limit its extraction costs.

Although ELPE is a peripheral player among giants in the international market, the Greek refinery’s output of 350,000 barrels per day is respectable. Russian companies, like all major players, are seeking trading opportunities throughout the world, including with smaller partners such as ELPE, to compensate for lower oil prices.

The Greek refinery will be supplied crude by the Russian petroleum company to be refined and shipped back to the Russian firm as partial or full payment for the crude supplied. The very same ships delivering Russian crude to ELPE’s facilities will depart loaded with petroleum products refined by ELPE.

The deal is based on a new approach being pursued by ELPE that entails conducting business directly with suppliers, without trader intervention, in an effort to reduce costs.

ELPE managing director Grigoris Stergioulis had traveled to Moscow in April for meetings with highly ranked Rosneft officials, in search of closer trading relations.

No quantitative details will be specified in a memorandum of cooperation for trading activity between Greek refinery ELPE (Hellenic Petroleum) and Russian petroleum group Rosneft, to be signed today as part of Russian president Vladimir Putin’s two-day official visit to Greece.

As was disclosed by energypress this week, ELPE, as part of its new framework of cooperation with Rosneft, will be supplied crude by the Russian petroleum company, which, in turn, will purchase ELPE petroleum products.

The deal is based on a new approach being pursued by the Greek refinery that entails conducting business directly with suppliers, without trader intervention, in an effort to reduce costs.

ELPE has acted likewise with petroleum firms in Iraq, Egypt, and Iraq’s Kurdish territory, which has led to a reduction of crude purchase costs by half a dollar per barrel. The cost-related benefits, of course, would diminish if oil prices rise.

Rosneft’s chief executive Igor Sechin, a close associate of Putin’s, will attend today’s signing of the memorandum of cooperation.

Leading up to today’s agreement, ELPE managing director Grigoris Stergioulis had traveled to Moscow in April for meetings with highly ranked Rosneft officials, in search of closer trading relations.

Three years ago, Rosneft, whose trading activity with ELPE stretches back a long way, had publically expressed an interest – through Valentina Matviyenko, Chairman of the Federation Council, during a news conference – to acquire a stake in the Greek refinery.

Matviyenko, who, at the same news conference, was asked about Gazprom’s withdrawal from an international tender concerning the sale of DEPA, the Public Gas Corporation, had responded openly and attributed the disruption to European Commission intervention.

Though the prospect is still at at a premature stage, government officials have not ruled out the possibility of Russian officials retabling their interest in ELPE during the current Putin-led visit. TAIPED, the State Privatization Fund, holds the Greek State’s 35 percent share of ELPE, one of 19 privatizations published in the government gazette just days ago.

Putin, in an article of his published yesterday by Greek daily Kathimerini, implied that Russia wants the EU to treat it on equal terms with European companies.

It is still too early to make any assumptions on ELPE’s prospective privatization, a complicated issue that will take about two years to unravel. ELPE is intertwined with DEPA. ELPE holds a 35 stake in DEPA. The privatization of one depends on that of the other, as was made clear when the country’s previous administration looked at the issue.