OAO Yukos Oil Co., Russia's second-largest oil company, signed an agreement on Saturday with Russian Railways to more than double the railway delivery of oil exported to China this year and increase the amount fivefold by 2006.

The agreement came after negotiations on the proposed US$2.5 billion Sino-Russian oil pipeline bogged down.

The two Russian companies agreed to raise oil shipments by rail to 6.4 million tons this year from 3 million tons last year, according to Xinhua News Agency.

The amount is expected to increase to 8.5 million tons in 2005 and to 15 million tons by 2006. It will increase further from 2007.

Last month, China National Petroleum Corp. (CNPC), the nation's largest oil producer, agreed to buy 10 million tons of oil annually from Yukos starting from 2006 for seven years.

The oil will be delivered via the existing rail line linking Russia's Zabaikalsk with the Manzhouli area in China.

Sinopec, China's second-largest oil company, is likely to buy the remaining 5 million tons of Yukos oil. It would be shipped via another railway linking the Russian territory to Erlianhaote in Inner Mongolia.

Yukos exported about 3 million tons of oil to China last year, accounting for 60 percent of Russia's crude exports to China.

Russian company executives said they will invest 40 billion rubles (US$1.4 billion) to upgrade the railways and expand transportation capacity to handle the oil.

The executives said that increasing oil exports by rail to China will benefit both Yukos and Chinese oil companies while the Russian government makes its final decision whether its crude oil pipeline should end in China or Russia's East Pacific port in favor of Japan.

China and Russia signed a nonbinding framework agreement last March to build an oil pipeline, running from Angarsk in eastern Siberia to Daqing in northeast China.

The trunkline would allow China to ship 700 million tons of Russia's crude through the pipeline to China over the next 25 years. The deal, worth US$150 billion in total, would be the largest-ever bilateral trade agreement between the two countries.

The project took a knock after Japan offered a rival pipeline that would bypass China and stretch to Russia's Far Eastern port of Nakhodka.

The latest reports indicate that Russia is likely to build the trunkline to Nakhodka, and build a branch line to Daqing as a compromise.

(China Daily March 29, 2004)