KIEV, Oct. 23 - The cutoff of Russian oil supplies to Kremenchuk Oil Refinery (UkrTatNafta) in Ukraine's Poltava region could lead to an artificial shortage of oil products in Ukraine, Ukrainian Economics Minister Anatoliy Kinakh said at a press conference on Tuesday.

"I would like to stress in particular what serious importance the Kremenchuk Oil Refinery has for the Ukrainian oil products market. At various times, it accounts for 40% to 45% of oil product resources on the Ukrainian domestic market, and the destabilization of its operations can definitely not be allowed because it could lead to very serious and negative preconditions for the lack of a balance between supply and demand, that is, an artificial shortage of oil products on Ukrainian territory," he said.

Russia's Tatneft, which is the main supplier of crude to the refinery, halted supplies to the Kremenchuk Oil Refinery on Oct. 19 as part of a corporate conflict that has already forced the plant to reduce its oil refining regime.

After suspension of oil supplies from Russia, UkrTatNafta has switched to a low oil refining regime.

"Today, the refinery is working under a special regime. The Russian pipeline is halted," said Pavlo Ovcharenko, recently reinstated as the company's board chairman following the armed takeover of the plant and a subsequent court order.

According to Ovcharenko, crude stocks at the refinery are large enough to work in a low processing regime for 12 days.

He reported that the enterprise is receiving crude oil via direct contract from UkrNafta.

According to Ovcharenko, the company is also participating in a tender for crude extracted in Ukraine, which is taking place at Ukrainian Interbank Currency Exchange on Tuesday.

Ovcharenko reported that UkrTatNafta plans to purchase about 200,000 tons of crude extracted in Ukraine and about 300,000-350,000 tons of crude extracted in Russia, for refining in November.

At the same time, he expressed hope the issue of oil supplies to Kremenchuk oil refinery will be solved within the next couple of days.

According to Ovcharenko, UkrTatNafta could post a loss of UAH400 million for 2007.

"For the first time in six years the company has a net loss through the first three quarters – UAH127 million. And the financial indicators keep getting worse. The company might end 2007 with a loss of UAH400 million," Ovcharenko said on Tuesday.

Ovcharenko said the losses are because the company buys crude oil at inflated prices and sells the resulting product at depressed prices.

In the last three years payables have increased to UAH3.7 billion. The refinery is experiencing a shortfall in operating capital totaling about UAH300 million.

"The deterioration of the company's financial situation was done intentionally with the goal of bankrupting it," he said.

It was reported late last week that the Sumy court of appeals reinstated Pavlo Ovcharenko as CEO of UkrTatNafta. UkrTatNafta CEO Serhiy Hlushko, however, said the refinery had been seized and that he had been removed.

Rustam Minnikhanov, the prime minister of Tatarstan and chairman of Tatneft's board of directors, urged the Ukrainian president and government to intervene in the situation on Oct. 19.

Ukrainian national oil and gas company Naftogaz has been challenging the legality of transferring 18.296% of the shares in UkrTatNafta to two companies friendly to Tatneft - Seagroup International Inc (United States) and Amruz Trading AG (Switzerland) - for years.

The disputed 18% was canceled at the end of May and transferred from nominal holder ING Bank Ukraine to Naftogaz Ukrayiny. The stake owned by Naftogaz increased from 43.054% to 61.346%.

The shareholders from Tatarstan protested. They had controlled more than 55% of the UkrTatNafta shares: Tatarstan's Property and Land Resources Ministry owned 28.778%, Tatneft - 8.613% and Seagroup International and Amruz Trading - 18.296%.

The Ukrainian Fuel and Energy Ministry moved to replace the refinery's management this year, but no decision was reached due to the conflict between the refinery's shareholders. (om/ez)