June 27, 2019 / 5:10 PM / a month ago

UPDATE 1-Russia to pay Kazakhstan $15/b for tainted oil in crisis breakthrough

* Payment would be first settlement over tainted oil

* Deal could serve as template for full settlement

* Talks with others are slow as some oil remains unsold (Updates with details, background)

By Alexander Ershov and Alla Afanasyeva

MOSCOW, June 27 (Reuters) - Russia will pay Kazakhstan compensation of $15 per barrel for tainted oil, industry sources said on Thursday describing the move as a breakthrough in an oil contamination crisis that disrupted Russian and Kazakh flows earlier this year.

Three industry sources said a preliminary deal had been agreed by Russian pipeline monopoly Transneft with Kazakhstan and the total sum will amount to $76 million, which includes quality losses, demurrage and storage costs.

"It is the first real progress since the crisis began in April," one of the sources said.

Transneft and Kazakhstan's oil transport company Kaztransoil did not respond to a request for comment. A final agreement between the companies is yet to be signed, the second source said.

News of the contaminated oil broke in late April when buyers from the Baltic port of Ust-Luga and along the Druzhba pipeline to Germany, Poland, Hungary, Slovakia, Ukraine, Belarus and the Czech Republic discovered chemicals in the oil.

Up to 5 million tonnes of the tainted Russian oil had by then been shipped from Ust-Luga via Druzhba to central Europe before flows were suspended. The volumes included some 700,000 tonnes of Kazakh oil and mainly bought by trading house Vitol.

UNSOLD OIL

Other buyers of contaminated Russian barrels supplied via Druzhba pipeline and through Ust-Luga port are yet to agree on the size of claims they will make. They include such big trading firms and European majors like Glencore, Trafigura , BP, Eni and Royal Dutch Shell .

The compensation agreement with Kazakhstan is the first such deal since the crisis began and could serve as a template for other agreements, including with Western buyers of Russian oil.

"Russia will try to replicate this success with other buyers but progress has been limited so far because a lot of oil remains unsold," an fourth industry source, who is not directly involved in talks with Kazakhstan, said.

Sources told Reuters earlier this week less than half of the tainted crude loaded on tankers has found end-users.

"Negotiations are not very active right now. Everyone is watching who is the first one to agree (in Russia)," said a fifth industry source at a major buyer of Russian oil.

Transneft has said it would only compensate Russian producers and fellow pipeline companies while Western buyers should seek compensation from Russian suppliers.

The fifth source said an agreement between Transneft and the Kremlin's biggest oil producer Rosneft would be key to determining the overall level of compensation for other producers and buyers.

Transneft's boss Nikolai Tokarev and Rosneft's chief executive Igor Sechin, both close allies of President Vladimir Putin, have repeatedly clashed over different issues in recent years, including the dirty oil crisis. (Additional reporting and writing by Olga Yagova and Dmitry Zhdannikov, editing by Deepa Babington and Emelia Sithole-Matarise)

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