Russia Chechnya Clear Way for Caspian Oil Pipeline

MOSCOW (Reuter)–Russia and its separatist-minded republic of Chechnya ended months of wrangling Tuesday when they signed an oil transport deal that will allow early Caspian crude to reach world markets by late 1997 via Chechen territory.

The agreement is crucial to Chechnya’s economy–battered during a 21-month war with Russian that ended a year ago–and to the $8 billion international oil consortium keen to use this "northern" route from the start of 1998.

Fuel and Energy Minister Boris Nemtsov told reporters that the deal included an agreement to transport 200,000 metric tons of Azeri oil to Russia’s Black Sea oil export outlet of Novorossiisk by the end of the year.

It was not clear how much of the oil would pass through the pipeline–as the Chechen section was damaged during the war. The 930 miles long pipeline linking the Azeri capital of Baku to Novorossiisk includes a 160 km section across Chechnya.

Russian oil pipeline monopoly Transneft is obliged to start moving Azeri crude by October 1–and the line is unlikely to be ready by then. Repair work on the Chechen section is due to begin in 10 working days–but it will take three to four weeks.

Nemtsov said in the short term tankers could be used until the line was fully renovated.

"Early oil will go (through the pipeline) after October 1," Nemtsov said.

The Azerbaijan International Operating Company–led by a British Petroleum-Statoil alliance–is due to start production from its giant Caspian fields later this month.

It expects to produce 40,000 to 50,000 metric tons of oil this year–which needs to be transported to Novorossiisk. One possibility is to deliver Caspian oil to Russian refineries and swap it for Russian crude at the port.

"Transneft can use the swap option or the pipeline," said AIOC spokeswoman Taman Bayatly. "It’s their obligation to get the oil back to us at Novorossiisk for loading on to tankers."

The remainder of the 200,000 metric tons of oil scheduled to reach world markets this year will be purely Azeri-owned. Azeri state oil company SOCAR is also a member of the AIOC consortium.

Volumes this year are small–but AIOC plans to up output to 1.5 million metric tons (30,000 barrels per day) in 1998–and will want the pipeline in working order by the start of next year.

Full details of the package of agreemen’s signed Tuesday were not revealed–but it includes a guarantee from Chechnya to protect the route. Chechnya will receive $854,000 from the Russian side for the 1997 part of the deal.

A Transneft spokesman’said the packages also included a longer-term agreement between the two sides.

"I am still unsure exactly what form this takes–but as far as I am aware there was one document dealing with oil until the end of 1997 and another covering a longer time period," he said.

AIOC plans to use a second pipeline running from Baku to Georgia’s Black Sea coast–but this route is unlikely to be ready before late 1998.

New pipelines will be needed eventually to cope with AIOC’s main output–due to peak at 700-800,000 bpd in five to 10 years.

Russia and Chechnya’s reconciliation on an economic level is in stark contrast to difficult relations on a political one.

Chechnya said on Tuesday it would publicly execute two criminals found guilty of murder on Wednesday just a week after a similar execution sparked angry reactions in Moscow.

Nemtsov has tried to separate economic from political issues–saying on Sunday that the row over public executions would not get in the way of the oil transport deal.

"This (execution) shows only one thing–the unpredictability of the situation in Chechnya," he told Russian television. "This only strengthens my belief that it’s necessary to have alternatives (to the Chechen route)."

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