MOSCOW (Bloomberg) -- OAO Gazprom is seeking to reach a $3 billion agreement with Japan to supply almost one-fifth of steel pipes for a gas link in Russia’s Far East, partially replacing domestic producers, a person familiar with the plans said.

The Russian gas exporter may decide by the end of this year on borrowing as much as $3 billion from Japan Bank for International Cooperation for pipe imports, the person said, declining to be identified because the talks are private. Energy Minister Sergei Shmatko said in September Russia was in talks with Japan on a loan of $2 billion to $3 billion for the project.
Domestic steelmakers may have trouble meeting delivery deadlines because of the risk of delays in rail shipments to the Far East, said the person. Gazprom is comparing timeframes with those proposed by the Japanese.
Sergei Kupriyanov, a Gazprom spokesman, declined to comment on pipe supplies, delays or financing. A Tokyo-based spokeswoman for JBIC, who asked not to be identified in line with bank policy, declined to comment.
With Russia hosting the 2012 Asia-Pacific Economic Cooperation Summit in Vladivostok, Gazprom aims to complete the first phase of the pipeline in the third quarter of 2011 under a deadline set by Prime Minister Vladimir Putin. Construction began in July.
------------Pacific Coast
Gazprom estimates the project will cost at least 210 billion rubles ($7.1 billion). Connecting Sakhalin Island, north of Japan, with Vladivostok on the mainland, the 1,350-kilometer (840-mile) link will transport as much as 7 billion cubic meters of gas a year to domestic consumers on the Pacific coast. It will use 1.1 million metric tons of pipe, the person said.
The pipeline will probably be expanded and a plant may be built in Vladivostok to produce liquefied or compressed natural gas for export to Japan and other Asian nations, Deputy Chief Executive Officer Alexander Ananenkov said in July.
Gazprom is holding talks with JBIC on financing as much as 200,000 tons of pipe purchases from Marubeni-Itochu Steel Inc., the person said.
Several Japanese suppliers are in talks with Gazprom and the volume is yet to be set, said a Japanese official, who declined to be identified.
----------------Steel suppliers
Marubeni-Itochu Steel plans to start negotiations with Gazprom on supplies, said a Tokyo-based official for the venture, who asked not to be identified, citing company policy. He declined to confirm or deny whether the companies had held previous talks or provide the start date for negotiations.
Marubeni-Itochu Steel has an option to buy pipes from Japanese steelmakers or to procure them from overseas producers, the spokesman said by telephone. He declined to name any of the potential suppliers.
Gazprom has been in discussions with the Marubeni Corp. and Itochu Corp. steel venture on pipe supplies “for a long time, already a year,” while talks on the loan intensified after May, one person said. Putin traveled to Tokyo that month, leading a delegation that included Gazprom CEO Alexei Miller.
Russian pipemakers said they hadn’t missed deadlines. “There are no delays,” Alexander Deineko, the head of the Pipe Industry Development Fund, said on Nov. 9. “Mills are producing large-diameter pipes on schedule.”
---------------Import duties
An 8 percent import duty on large-diameter pipes, used mainly for gas links, may be extended by three years as capacity is twice the level of demand, said Sergei Bilan, the deputy head of the country’s biggest pipemaker, OAO TMK. Russia can produce 3.2 million tons of large-diameter pipe a year, he said.
“Russia’s economy ministry has recommended preferential treatment for domestic pipes,” Deineko said. “If imported pipes are no more than 15 percent cheaper than the Russian ones, the customers are recommended to buy domestically produced pipes.”
TMK’s Volzhsky plant is one of the domestic suppliers designated for the project, Ananenkov said.
Far from falling behind schedule, domestic pipemakers are seeking to collect “billions of rubles” from Gazprom for supplies. “Gazprom owes us a lot of money,” Bilan said.
Gazprom’s press office declined to comment on debts for domestic pipe supplies.
“What are Japanese pipes needed for? Who should get money from Russian projects?” Bilan said. “Japan’s central bank keeps interest rates low and offers cheap loans, so it’s just a matter of state support.”