AZERBAIJAN AND UKRAINE SECURED MUTUALLY COMPLEMENTARY TENDENCY OF ECONOMICS
THINKS THE FIRST VICE-PREMIER OF AZERBAIJAN GOVERNMENT ABBAS ABBASOV
The government of Azerbaijan attaches great importance to economic cooperation with Ukraine that is year by year strengthening and dynamically developing. Ukraine continues to remain Azerbaijan’s important trade partner and ranks among top tens of main foreign economic partners.
In the first half year 2002 foreign trade turnover between Azerbaijan and Ukraine amounted to $39,5 million, this is more 1,6 times than in similar period of past year.
In the first half year of the current year the structure of Ukraine export to Azerbaijan has mainly dominated with products of machine building (purpose-built cars, tank-trucks), ferrous metallurgy (steel rolling, rods, pipes, channels), electrotecnical sector (current-conducting materials, heat exchangers, refrigerators), chemistry (polypropylene), foodstuffs (flour, condensed milk, cream, sucrose, chocolate and confectioner, sunflower-seed oil, ethyl alcohol, salt) and etc.
Structure of import from Azerbaijan to Ukraine has been mainly responsible for products of fuel&energy complex (kerosene, lubricants), chemistry, various spare parts and armature, cotton, filbert, tomato.
It should be noted that trade turnover does not reflect real economic potential of bilateral relations and requires certain measures for further development of mutual trade.
Further growth of trade turnover between our countries can be achieved at the expense of increasing volumes and expanding range of procured goods, this is quite real under close relations between respective government structures.
Special economic interest in bilateral relations gains practical solving of problems related with exploration, development and rehabilitation of oil&gas fields in Azerbaijan sector of the Caspian sea and research of possibility of multivectoral pipeline grid to transport energy to global markets.
By request of Ukraine contract for supplies of 66,7 thousand tones of diesel fuel at the amount of $12,8 million signed between the State Oil Company of Azerbaijan and GAK “Ukrresurs” last year was prolonged.
Important direction in cooperation between Azerbaijan and Ukraine gains realization of multilateral agreement for international transport for development of Europe-Caucasus-Asia bridge which created favorable conditions for further development both transport and trade-economic relations.
Flexible tariff policy on the railway transport and relevant service are created there. The parties accepted Baku-Poti-Ilichevsk rout the most reasonable and efficient one. The parties approved interest in further development of ferry crossing by the routings Ilichevsk-Poty, Baku-Turkmenbashi, Baku-Aktau.
The state aircompany “Azerbaijan Hava Yollary” makes regular flights to Kiev and Odessa. Ukraine airlines arranged regular flights between Kiev, Donetsk and Baku.
International trucking is regulated by bilateral intergovernmental agreements and multilateral Agreements “TRACEKA” and OBEC.
Motor transport administrations of both states sustain constant relations, exchange of permission forms (150 units in 2002).
Since December 2000 after commissioning of fiberoptical cable trunk TAE 30 direct digital communication channels for exchange of telephone schedules were activated. This allowed increasing quality and security between two states. There are also 18 analogous channels in direction Baku-Kiev and 6 in Baku-Kharkov directions.
At present Azerbaijan uses transport means of Ukraine for telephone exchange with Moldova. In the future it is planned to replace analogous communication channels by digital. The Justice Ministry of Azerbaijan Republic registered over 60 companies and joint ventures with $1 million authorized capital total. These companies are specialized in production of agriculture products, consumer goods, preparing of documents and commercial activity.
In accordance with the “Program of long-term economic cooperation for 2000-2009 between Azerbaijan and Ukraine” AOZT “Gidromashservis” and AOT “Zaporozhtransformator” formed in Azerbaijan joint venture to produce and repair oil-immersed transformer. The plant is slated to start operation in the first quarter 2003.
Charity cooperation between Azerbaijan and Ukraine remains the important factor of mutual understanding, strengthening of intergovernmental relations. Adequate legal base for development of bilateral cooperation is created in science, education, medicine, culture, tourism and other charity sectors.
In past years cooperation in education noticeably improved. By the decree of the president of Azerbaijan Republic the Baku Slovene University is established. For four years this university prepares specialists in “Ukraine studies”.
“The Center of Ukraine Culture” and Sunday school are established to the Slovene University in order to acquaint Azerbaijanis with Ukraine language, literature and culture.
There are arranged direct relations between some institutes of higher education of two states. Since last year Azerbaijani students left for education for Kiev “International Academy of Management”. Hence, since past year 10 students of Baku Slovene University continue education in the Institute of political and social science named after Heydar Aliyev in the above Academy.
It is expected that since 2002/03 specialists in Azerbaijan language and literature will train in Kiev State University’s orient science faculty.
Azerbaijan pays close attention to culture relations with Ukraine. At present Azerbaijan Culture Centers are functioning in Kiev and Kharkov. May of the current year saw Ukraine Culture Days in Azerbaijan.
In consideration of painful and hard conditions of Azerbaijani refugees in response to Azerbaijan’s request in 1999-2000 Ukraine delivered 120 heavy-load containers to be re-equipped and used as temporary housing.
Of many thousands Azerbaijani diaspora in Ukraine has all opportunities for its full and dynamic development. “Congress of Ukraine Azerbaijanis” and “Voice of Azerbaijan” paper are functioning and published in Kiev.
Development of economic cooperation between Azerbaijan and Ukraine is brought by close and multilateral industrial and science-technical relations formed in the past and by common strategy interests. Economic difficulties, necessity to create mechanisms of economic cooperation, business encouragement and coordinated movement to market for the sake of consumers make actual arranging of full cooperation between Azerbaijan and Ukraine.
First of all, it is necessary to activate all opportunities to arrange direct contacts and provide complete freedom to activity of economic organizations, not ignoring national legislation. Special attention must be paid to preventing disintegration of such components of economic infrastructure like transport, communication, energy and etc.
The main document that defines perspective economic cooperation of Azerbaijan with Ukraine is the Agreement of economic cooperation for 2000-2009. Document contains the Program of long-term economic cooperation, activity for realization of the same where certain directions of economic cooperation are defined. This document is the base for further cooperation of bilateral economic relations.
There is active work between Azerbaijan and Ukraine in creating necessary legal-contract base. Tremendous contribution of presidents of Azerbaijan and Ukraine Heydar Aliyev and Leonid Kuchma to development and strengthening of Ukraine-Azerbaijani relations must be specially noted.
Achieved agreements and signed documents create good opportunities for further expansion of bilateral cooperation.
Total number of intergovernmental and interdepartmental agreements signed between Azerbaijan and Ukraine is over 70. About 10 projects of bilateral agreements are on different phases of coordination.
The Treaty of friendship and cooperation and Treaty of economic cooperation for 2000-2009 signed on 16 March 2000 in Baku also widen relations of two states. These treaties fixed high level of strategy partnership of two states and marked new era in Ukraine-Azerbaijani relations.
Also, other important documents are signed between Azerbaijan and Ukraine:
• of free trade
• of air communication
• of science-technical cooperation
• of cooperation in custom
• of stimulation and mutual protection of investments
• of cooperation in tourism
• of international trucking
• of maritime shipping
• of mutual recognition of rights and regulating of property
• of cooperation in communication
• of cooperation in pharmaceutical industry
• of avoiding double taxation and evasion of tax payments on incomes and property
• of mutual recognition and equivalency of education and scientist decree documents
• of cooperation in youth policy and sport
• of visa-free travel
Interdepartmental
• Agreement between Ministries of Culture of cooperation in culture and art
• Agreement between Health Ministries of cooperation in medicine and health
• Agreement between Labor Ministries of cooperation in labor, employment and social defense
• Agreement of production cooperation and specialization of production in railway transport between railway administrations
• Agreement of cooperation between tax administrations
• Agreement of cooperation between Justice Ministries
Realization of signed documents and achieved agreements is subject of obligatory discussion of joint intergovernmental Azerbaijani-Ukraine commission in economic cooperation drafted to operatively solve arisen problems.
Today Ukraine-Azerbaijani relations have good perspective. Further expansion of normative-contracted base, realization of signed documents will fully increase bilateral cooperation.
Realization of the project of Euro-Asian oil-transport bridge within the framework of the conception of multivectoral routs for transporting Caspian energy resources to world markets has its own perspectives.
Having required facilities and specialists Ukraine is interested in realization of the project for oil and oil products transportation via its territory to Europe using existing transport communications and pipelines and facilities of its oil refineries.
However, at present, despite the attraction of Ukraine rout, due to Azerbaijan’s (SOCAR) participating in construction of the Main Export Pipeline Baku-Tbilisi-Ceyhan and necessity to draw considerable finances for this aim, our participating in Ukraine project for construction of Brody-Plotsk oil-pipeline is quite difficult.
At that, interested Ukrainian companies can jointly with SOCAR study terms of participating in the tender for purchase of Azerbaijani oil to fill Odessa-Brody oil-pipeline.
For Azerbaijan one of priorities is development of strategy partnership with Ukraine both on bilateral base and within GUUAM.
As it is known on 10 October 1997 the Presidents of Azerbaijan, Georgia, Moldova and Ukraine on the meeting in Strasbourg created political consultative forum GUAM which was stipulated on the Joint Communique of 24 April 1999 on Washington summit of NATO (residents of GUUAM member-countries passed statement that specifies main directions of cooperation), in September 2000 during Millenium Summit leaders of “five” signed New York memorandum of GUUAM, announced “new phase of development of organization”.
Important step on the way of widening cooperation within the scope of GUUAM becomes Yalta summit (6-7 June 2001). On the summit presidents of country-participants have signed Yalta Charter of GUUAM - the document that defines main goals, principles, directions of cooperation, organized structure of GUUAM.
The main task of the current stage of development of GUUAM is transformation of political dialogue to heavy practical results, first of all in economy.
Current cooperation of GUUAM states in economy can not be considered satisfactory. Small potential of foreign economic relations of GUUAM is brought by slow economic development of each member-country. At that, among positive factors of economic development within GUUAM must be noted inherited from the USSR specialization of country-participants and tendency to forming mutual-supplementary economics in some sectors.
I think, widening of cooperation of GUUAM member-countries must be assisted by:
activation of trade-economic relations on the base of step-wise trade liberalization;
coordination of conceptions of structure development of national economies;
active foreign policy to draw investments;
realization of large intergovernmental cooperation projects, first of all in energy and development of international transport infrastructure.
Constant development of GUUAM requires development of common strategy of activities, preventing of disputes existing between interests of member-countries and ways to achieve that.
19-20 July of the current year saw next meeting of presidents of GUUAM member-countries during that tasks of strengthening legal organizing bases of GUUAM and further widening of cooperation within GUUAM were discussed.
During the summit the heads of countries noted priority of development of comprehensive cooperation within the framework of GUUAM focussed on expansion of trade-economic cooperation and providing secure and efficient functioning of transport channels, first of all Europe-Caucasus-Asia.
As main directions of cooperation within GUUAM on this phase were defined consistent strengthening of institutes of the organization, creating of favorable terms for branch cooperation, attraction of other states and organizations to different sectors of cooperation of GUUAM.
Special role in improving economic terms and the most efficient use of trade potential of GUUAM member-states is imposed on Agreement for creating free trade zone signed during the summit.
Chief item of the summit centered on establishing and activity of branch working groups of GUUAM in transport, energy, economy and trade, communication and information processing technology, culture, tourism, science and education and in fight against terrorism, organized crime and illicit drug traffic. Here was noted importance of active attraction of private companies and entrepreneurs to realization of joint projects and programs.
At present world community shows more and more interest to GUUAM, take for example participating of foreign states and international organizations in the summit.
Outcomes of Yalta summit show that GUUAM has potential to solve existing problems.
With a view to increase efficiency of bilateral economic, science-technical and charity cooperation in 1998 here was formed joint intergovernmental Azerbaijani-Ukraine commission in economic cooperation with wide authorities to arrange trade-economic, scientific-technical and culture relations, forming of relevant legal-contract base, operative solving of problems arising in the process of economic cooperation.
Fourth summit of joint intergovernmental Ukraine-Azerbaijani commission in economic cooperation took place on 14 February 2002 in Kiev, there were discussed certain ways of increasing dynamic of trade turnover between states, carrying of coordinated activities in further development of mutual beneficiary economic and scientific-technical relations, intensification of control for executing bilateral agreements in economy.
In the period after session the parties made certain work in expansion of bilateral trade-economic cooperation, solving of existing problems. Decisions envisaged in the Protocol of fourth session of the commission were generally fulfilled.
At that, it must be noted that all ministries, administrations and organizations of parties duly approached tasks of realization of provisions stipulated in Protocol of fourth session. The parties did not fully use opportunities of cooperation in machine-building, metallurgy, agriculture and some other sectors of economy.
Therefore, forthcoming fifth session of Intergovernmental Azerbaijani-Ukraine commission slated for 29 August of the current year is the tendency to expansion of diapason of further cooperation and decision of actual economic problems.
In the preliminary project of agenda of commission’s session Azerbaijan proposed Ukraine to study seven items of which main are: about fulfilling of Protocol of fourth session of Intergovernmental commission; about realization of the Program of long-term economic cooperation for 2000-2009; about perspective directions of economic cooperation; about settling debts; about legal-contract base.
Moreover, on the forthcoming session of the commission we propose to sign four intergovernmental instruments, among them:
cooperation in preventing emergency and liquidation of consequences;
labor activity and social defense of Azerbaijan citizens temporarily working in Ukraine, and Ukraine citizens temporarily working on the territory of Azerbaijan; cooperation in development of competition;
Protocol to intergovernmental agreement about cooperation in governmental relations.
Also, Ukraine is proposed to sign Memorandum about cooperation between Ministry of Economic development of Azerbaijan Republic and State committee of Ukraine in regulator policy and business undertakings.
Problems have always existed and are existing. I do not want to dwell on them, they must be solved and we aimed at it.
BAKU-TBILISI-CEYHAN - CHRONICLE OF THE PROJECT
Work at construction of strategy oil-pipeline of Azerbaijan Baku-Tbilisi-Ceyhan that will become the first Caspian pipeline projected to move huge Caspian Azeri light to Mediterranean market intensively goes ahead.
July
“Overwhelming majority of shareholders of the sponsor group formed to finance construction of the Main Export Pipeline Baku-Tbilisi-Ceyhan have already sanctioned this largest project”, said an official of the State-run oil Company of Azerbaijan.
According to him, it is expected that other participants of the Sponsor Group will follow them in the recent future. “But there is no certain time when shareholders must take decision as to MEP, just schedule of operations for the pipe construction”, reported Media Press.
In accordance to the decree of the president Heydar Aliyev, financing of 70% out of SOCAR’s 25% stake in the consortium for construction of the Main Export Pipeline Baku-Tbilisi-Ceyhan to move Caspian liquids to world markets is to be done through joint with project’s other partners attraction of credits from foreign finance bodies, remaining 30% - at the expense of internal resources of the government.
For information: funds for pipe construction are allotted as 30 and 70. This means 30% of project cost is to be granted by BTC Co. partners, remaining part - borrowed from western banks, stipulates a Decree spread by the press-agency of presidential establishment of Heydar Aliyev.
In order to provide SOCAR’s participating in BTC it is decided to form subsidiary company that will get all ownership and managing functions in the project and 25% stake.
According to the Decree of Azerbaijan government, the National Bank is instructed to transfer $118 million from country’s internal resources to Oil Fund in order to cover part of funds required for BTC financing at the expense of country’s internal resources in consideration of the fact that one of sources of accumulating country’s currency reserves are bonuses paid till 2000 by foreign investors within the scope of oil contracts. In consideration of this and participating of SOCAR’s affiliated company in many oil&gas projects the company is considered as solvent body.
Within the framework of realization of the project for construction of the Main Export Pipeline Baku-Tbilisi-Ceyhan it is announced to form BTC Investment group. The group is authorized to draw funds for pipe construction. The group will enter all members of BTC Co. pipeline operator: SOCAR - 25%, BP- 34,76%, Statoil - 8,71%, Unocal - 8,90%, TPAO - 6,87%, ENI - 5%, ITOCHU - 3,4% Delta Hess - 2,36% and TotalFinaElf - 5%. As reported in SOCAR, BTC Investment will be formed parallel to BTC Co. Establishment of the latter is “expected very soon”, reported in SOCAR. BTC Investment will draw investments, BTC Co - to be borrower of funds from international finance bodies. By this time, negotiations with World Bank are about completed and now one can say the World Bank will finance the project. It is expected that the bank will grand BP credit at the amount of $500 million for MEP construction. Also negotiations with European Bank of Reconstruction and Development are close to completion, the latter is ready to take part in financing MEP construction. It is expected that America’s Overseas Private Investment Corporation will allot credit at the amount of $300 million to meet politic risks during construction of Baku-Ceyhan pipeline. Credit will facilitate realization of the first phase of commercial financing of the pipeline project from USA’ side.
As far as project’s technical aspects are concerned, at the time being about all engineering works are completed. 10 meters channel, the pipeline will run along, is defined, Turkey’s state pipeline operator BOTAS that is subcontractor on Turkey’s territory is notified about start of construction.
After sanctioning of the project, September will see land acquisition the pipe crosses over. Pipe procurement is slated for the third quarter 2003. Diameter of Azerbaijani sector of the pipe will be 42 inches, on Georgian - 42-46, Turkish - 34 inches. Working pressure will make 100 Bar. Construction duration - 2,5 years. The first tanker in Turkish Ceyhan port will wait for Azerbaijani oil in the first quarter 2005
August
On 1 August instruments for establishment of Baku-Tbilisi-Ceyhan (BTC Co.) pipeline company were signed in London. Ceremony of signing the document was attended by officials of three country-owners of transit territory - Azerbaijan, Turkey and Georgia. From Azerbaijani side documents were signed by the vice-premier of the government Abid Sharifov. This event is an important step in the process of realization of pipeline project aimed at crude export at 1 760 km from Azerbaijan and Caspian region via Georgia to Ceyhan port on the Turkish coast of Mediterranean Sea.
According to the press-release of the project operator, each BTC partner is now BTC Co. shareholder which will build, own and operate this pipeline. Forming of BTC Co. is important and necessary step that will allow shareholders to began full construction as soon as Board of Directors of BTC Co will get guarantee of completion of preliminary operations concerned with pipe construction. The president of the State Oil Company of Azerbaijan heads Board of Directors of BTC Co., BP - project operator.
BTC Co shareholders are: ÂĐ (38.21%); ĂÍĘŔĐ (25%); Statoil (9.58%); Unocal (8.90%); TPAO (7.55%); ENI (5%); Itochu (3.40%) and Amerada Hess (2.36 %). Moreover, TotalFinaElf obtained right for outbid of 5% stake in BTC Co. and this transaction will soon complete.
According to the speech of the head of State Oil Fund of Azerbaijan Samir Sharifov made on the conference, each partner of BTC Co. must form affiliated company which must represent them in the project Baku-Tbilisi-Ceyhan. The affiliated company of SOCAR will earn the name “Azerbaijan BTC” and registered in Cayman islands like many others. This company will represent Azerbaijan and get SOCAR’s 25% stake in MEP project.
According to Samir Sharifov, British-American BP, Norway’s Statoil and American UNOCAL give guarantees for SOCAR’s affiliated company when getting foreign credits for the same. Such guarantee requires some finance expenses from company-guarantors. For defrayal of these expenses after the pipeline is commissioned these companies will get 2 million barrels of profitable oil from Azerbaijan’s stake. S. Sharifov noted that before taking such decision the government of Azerbaijan studied number of versions including guarantees to international finance structures at the expense of funds accumulated in country’s oil funds by 2006. But this would mean that Azerbaijan must pawn all its oil savings. So, the government turned off this idea and after negotiations with managerial heads of these three companies they agreed to give guarantees as partners of Azerbaijan. Amount of attracted funds together with bank interests will exceed $2,3 billion against projected construction cost of Baku-Tbilisi-Ceyhan of $2,95 billion. Internal funds of company-participants will amount to $1 billion (30% of project’s total cost).
Credits will be drawn from the European Bank of Reconstruction and Development, International Finance Corporation, Export Agencies of France, Germany, USA, Japan, Italy, Great Britain, insurance agencies OPIC and MIGA and commercial banks at the rates LIBOR+3%, “Turan” quoted the deputy director of the State Oil Funds of Azerbaijan Samir Sharifov as saying.
According to him, SOCAR holds nearly $750 million in the project . Of which $250 million - own funds, $500 million - attracted. Within the framework of the project SOCAR has already spent $70 million out of own funds. Remaining $180 million out of $250 are to be granted from currency reserves of National Bank ($118 million) and funds of the State Oil Fund of Azerbaijan ($62 million).
According to S. Sharifov this is a good proposal for SOFA since project’s profitability will amount to 12% while pay-back period is 20 years. Funds come from tariff income of the project will accumulate on the separate account from where part of them will run for pay-back of attracted funds and part will be divided between project participants. Most part of Azerbaijan’s income will run in SOFA and part to SOCAR’s account. As soon as in the beginning of August Board of Directors of BTC Co. will announce awarding preliminary contracts for the current phase of construction: for pipe installation in Azerbaijan - Consolidated Contractors International Company (Greece), for pipe-laying in Georgia and other construction works in both states - Spie Capag (France) - Joint Venture with Petrofac (USA). List of tender participants has been approved in late 2001 by all BTC partners, applications were examined by BP’s project group. Contracts were discussed on the base of fixed cost.
Bechtel (USA) will continue works as contractor in projecting, supplying and management. The Turkish state pipeline operator BOTAS will continue its role of subcontractor of the turnkey contract based on fixed cost of Turkish sector of the pipeline.
According to the press-release of BTC Co., the project meets the schedule and must be completed to the moment of production of first oil within the framework of Phase 1 development of Azeri-Chirag-Guneshli field, planned for the beginning 2005.
THE PIPELINE NOVOROSSIYSK-CEYHAN WILL OPERATE IN TWO DIRECTION, THINKS THE PRESIDENT OF “ROSNEFTEGAZSTROY” IVAN MAZUR
Caspian Energy: Ivan Ivanovich, what is today’s stage of realization of the joint project of Rosneftegazstroy and Georgian International Oil Corporation - Novorossiysk-Ceyhan oil-pipeline?
President of “Rosneftegazstroy” Ivan Mazur: I want to turn back to roots of this project - main regional project as you know is Baku-Ceyhan and this is Azerbaijan-Georgia-Turkey sector. In consideration of 250 km length of Turkish sector it is planned to build here gas- and oil-pipelines. Together with GIOC we defined joint participating in the project and considered the project to be interesting, as it is known, project operator is BP. The government of Georgia passed decision to protect interests of local constructors, hence, 70% of operations are to be performed by local companies. Naturally, in considerations of Georgia’s 30 years experience in the former Neftegazstroy Ministry of the USSR we decided to consolidate our efforts on this construction and founded GruzRosneftegazstroy with subsidiary of GIOC.
Rosneftegazstroy is interested in this project, since at present (nearly in September-October), we complete construction of three pumping stations for CPC. Then will begin relevant operations on Georgia territory.
The second aspect of problems we agreed with GIOC is analyze of all potential Georgian oil fields plus Black sea shelf to draw cash flow in the future for joint development of these fields. Potentially, oil reserves are not too huge, but they exist and need heavy investments for development.
The third aspect of our agreement concerns solving of prime problems in ecology and rational nature management. For realization of projects in these directions we create joint engineering center to conduct environmental monitoring on the base of aerospace and geographic information systems.
Then, the Georgian International Oil Company sent proposal to take part in the consortium for construction of the Novorossiysk-Supsa-Ceyhan pipeline. This project we study today - examine pipe rout, carry engineering, preliminary costs and etc. This is the potential version of filling Ceyhan with oil - if required, or looping.
Caspian Energy: Does it mean that you are going to install pipe-branch to the pipeline?
President of “Rosneftegazstroy” Ivan Mazur: What does pipe-branch mean? Pipe-branch must be first agreed with Azerbaijan and BP.
Our project is independent - Novorossiysk-Ceyhan will run nearly parallel to Baku-Ceyhan along the Black sea cost with reverse possibility. As it is known Ceyhan receives Middle East oil too, in the event of surplus. It would be possible to reverse Novorossiysk-Ceyhan and move oil to European markets through underwater Black Sea oil-pipeline to Europe.
We also consider possibility of oil transportation by Novorossiysk-Ceyhan in two directions. As it is known, Middle East oil is also exported to Ceyhan, in the event of surplus Novorossiysk-Ceyhan can be reversed and move oil to European markets through the Black sea subsea oil pipeline to Europe.
Caspian Energy: But these are large expenses, the sea is quite deep?
President of “Rosneftegazstroy” Ivan Mazur: Now it is not important, negotiations with CPC began in 1986 and today we have already built this pipe. Take, for example, Blue Stream, or the pipe extended from Eastern Siberia, from Asian-Pacific region to Chine, this project exists 15 years. At that time these projects seemed hypothetical. Rosneftegazstroy has a substantial experience of pipe construction and no company in the area of the former Soviet Union has such experience.
Proceeding from this, I confidently affirm that any scheme, even the most mysterious, has right to life. Which one will work - is another matter, we give preliminary estimation of the project. In the beginning no one admits it, then mentality changes, the situation changes, cash is attracted...
Caspian Energy: Are politic risks concerned with conflict in Abkhazia taken into consideration?
President of “Rosneftegazstroy” Ivan Mazur: Politic - is the business of politicians. But we are engaged in economy. We always were friends with Georgia. Naturally, this project is political, geopolitical. But if not today, international treaties will be signed tomorrow all the same. Russia, led by Vladimir Putin, keeps quite open, pragmatic policy and historically we can not conflict with our neighbor. Quite contrary, the project will bring conflicting parties closer to speed up the process of regulation.
Today ITERA supplies Georgia with Russian gas and we continue this tendency in joint construction projects, now we are working at presentation of Novorossiysk-Ceyhan project. This project is contradicted by our opponents only - for example Transneft who does not want to lose its monopoly over Russian pipe routs (commentary of editors exclusively for CASPIAN ENERGY, the president of Transneft Simon M. Vainshtock called Novorossiysk-Ceyhan the “economically inefficient” and refuted possibility of participating of Russian pipeline monopolist in the project).
But history and economy will judge and set up everything, so in Baku-Ceyhan case, as it is known, everybody rejected this project, today we see that despite that the pipeline will be built in any case.
Caspian Energy: Will your project affect CPC’s efficiency?
President of “Rosneftegazstroy” Ivan Mazur: CPC is priority rout for Russia, there is enough oil for it, and even more than required. Potential Caspian resources, as you know, are huge. The matter is that how Caspian will be developed, where its resources will be driven to?
Therefore I think your grandchildren will grow up and Novorossiysk-Ceyhan project will work on.
Caspian Energy: Thanks you for interview.
WHO WILL FILL ODESSA-BRODY OIL-PIPE?
Growth of oil production in Azerbaijan and Kazakhstan, discovery of new oil&gas fields in Russian sector of the Caspian will inevitably lead to further heightening of competition for main-strategy and not large liquid volumes, which in turn will find own sales market mainly in European states.
If there is everything is clear with strategy volumes of Caspian hydrocarbons - Azerbaijani oil is to be exported to Mediterranean Sea via Greece and Turkey, Kazakh oil to Eastern and Central European markets crossing Russian territory, then so-called additional Black sea routs that are projected to relieve Turkish Straits of Caspian oil have not been formed yet. These projects are Burgas (Bulgaria) - Alexandrupolis (Greece), Constanta (Romania) - Triest (Italy), and the first sector of Ukrainian Odessa-Brody-Gdansk system that has already been built. At that constant deficit of requests for oil export in these directions makes realization and use of these pipeline routs economically non-efficient. Chance to fill the pipe can be gained by the first installed pipeline that will provide quite good transit terms for potential exporters. In connection with this the Ukraine’s oil-pipeline, that is already built, is worthy of attention.
Odessa-Brody
The pipeline system Odessa-Brody-Gdansk - is one of alternative Black sea systems projected to export Caspian oil to European states and is the first completed oil-pipeline prepared to receive crude. May of the current year saw completion of construction of the first part of Ukraine sector of Eurasian oil-transporting bridge that will include oil-terminal “Southern” near Odessa with capacity of 9 million tones of oil and linking oil-pipeline “Odessa-Brody” lengthened at 673 km that was opened on 19 August 2001. Throughput of the pipe will make 12 million tones of oil a year.
Throughput of the second sector - “Brody-Gdansk” will make 40 million tones of oil a year.
On the first phase the new oil-pipeline “Odessa-Brody” will move nearly 100 thousand tones of oil, reported the first vice-premier of Ukraine Oleg Dubina after signing ceremony of the act of the State Commission on commissioning of completed sector of the oil pipeline.
The government and OAO “Ukrtransnafta” are planning to fill the pipeline facilities at the expense of means saved on construction of the entity. As regards plans to draw transit oil, O. Dubina noted that he had already had negotiations with Kazakh oil companies, but there were no certain terms to start supply.
Potential consumers
• Ukraine is interested in transit of Kazakh oil via its territory, recently reported the prime-minister of Ukraine Anatoly Kinakh during a meeting with the president of Kazakhstan Nursultan Nazarbayev. This meeting has been held within the scope of Eurasian economic summit. According to A. Kinakh, in consideration of growing oil production in Kazakhstan Ukraine is prepared to create terms for economically efficient transit of Kazakh oil to Europe, reported RBK.
• In turn, Nazarbayev noted that Kazakhstan is interested to use transit possibilities of Ukraine to transport oil by Black sea and Eurasian oil-transport bridge.
As it is known, in the current decade Kazakhstan expects to produce up to 100 million tones of oil a year. In 2003 capacity of CPC’s Tengiz-Novorossiysk will make 28,2 million tones of oil a year (on the first phase of the project, to grow to 67 million tones annually). Throughput of Bosporus strait limits tanker shipping of Novorossiysk oil to Mediterranean sea, so, the rout Odessa-Brody can come into force now. However, in order to reach Ukraine Kazakh oil must cross Russia’s territory. Commissioning of Russian sector of Sukhodolnaya-Rodionovskaya pipeline that bypasses Ukraine reduced transit of Russian oil via Ukraine, therefore the latter studied possibility to cut transport tariff.
On other side, Azerbaijan who exports today its early oil from “Chirag” field through the oil-pipeline Baku-Supsa (today’s maximal throughput of the pipe is nearly 7,5 million tones a year) can become potential user of Ukraine Black sea direction. But strategy interest of Baku and companies engaged in oil production in Azerbaijan are centered on realization of Baku-Ceyhan project with onward export strategy volumes of its hydrocarbons. Therefore, after the Sponsor group of MEP Baku-Ceyhan has been formed in October 2000 and in July of the current year established BTC Co. that is responsible for installation of this pipeline, talks revolving around filling Odessa-Brody with Azerbaijani oil lost importance.
However, Ukraine has got chance to get some part of Azerbaijani oil exported through Baku-Supsa. After commissioning of the MEP Baku-Tbilisi-Ceyhan oil-pipeline, Baku-Supsa oil-pipeline projected to move early Azerbaijani oil from Chirag field will not stand idle, said the president of Azerbaijan International Operating Company David Woodward (For information, AIOC is engaged in development of Azeri-Chirag-Guneshli).
According to him, within the scope of the project for development of ACG block daily output will amount to nearly 1 million barrels of oil. This means that 1 million barrels of crude will be moved through MEP, remaining - to be transported by Baku-Supsa rout. Earlier forecasts show that “Azeri-Chirag-Guneshli” held nearly 4,6 billion barrels of oil, now this figure amounts to 5,3 billion. So, there must be not less than 700 million barrels of oil to be moved through Supsa. At present, the pipe daily moves 145 thousand barrels of oil recovered from Chirag. Application of remote drilling on fields will lead to increase of recoverable reserves of Chirag by 220 million barrels.
SOCAR, who annually transports 2,5 million tones by Baku-Novorossiysk within the scope of intergovernmental Russian-Azerbaijani agreement, can probably show an interest to Ukrainian proposal. But SOCAR is not prepared to undertake any obligations to oil delivery commitments since buyer for Azeri light is defined through contest, from Novorossiysk port the oil is delivered to consumers.
Today SOCAR is prepared to consider Ukraine proposal about latter’s participating in the project for construction of MEP Baku-Tbilisi-Ceyhan, Azerbaijani agency Media Press quoted SOCAR. Recently the prime-minister of Ukraine Anatoly Kinakh made a statement that Ukraine was prepared to take part in construction of MEP. According to him Ukraine sees this oil-pipeline as creating of global system of diversification of energy supplies and terms for efficient competition of energy market that will help all countries and consumers to gain rather than to compete to Odessa-Brody-Gdansk.
Ukraine is also prepared to take part in modernization of Georgian oil-pipelines and expansion of capacity of maritime port of Georgia. Moreover, Kinakh invited Georgia to take active part in forming Eurasian oil-transport bridge - “Southern” terminal and “Odessa-Brody-Gdansk” oil-pipeline. At present shareholders of the sponsor group formed to finance construction of MEP are SOCAR - 25%, BP - project operator 34,76%, Statoil - 8,71, Unocal - 8,90, TPAO - 6,87, ENI - 5, ITOCHU - 3,4, Delta Hess - 2,36 and TotalFinaElf - 5%.
As you see, strategy interests of main oil producers of Kazakhstan (till 2010 output will amount to 100 million tones a year) and Azerbaijan (to 50 million tones a year till 2010) are mainly centered on filling CPC (yearly throughput is 67 million tones) and Baku-Ceyhan (throughput is over 50 million tones a year).
Competitors
Saying of export of Kazakh oil one must note active role of Russian pipeline monopolist OAO “Transneft” in expansion of its pipeline grid aimed at securing today’s key role of Russia in providing Kazakh oil export. Transit of Kazakh oil via Russia, reported the president of “Transneft” Simon Vainshtock to CASPIAN ENERGY, will amount to 13 million tones in 2000, in 2001 - 17,5 tones. “Transneft” is a participant of such large and developing oil projects like Baltic Pipeline System and project of integration of oil pipeline systems “Druzhba” and “Adria”. Throughput of the first phase of BTC makes 12 million tones of oil a year, throughput of the second and third phases are 18 and 30 million tones a year respectively.
At present, reported S. Vainshtock, government regulation of the Russian Federation about realization of the second phase of BTC is in force now. In the second half of 2002 “Transneft” is going to start construction within the framework of this phase.
In past two years the Russian pipeline company realized projects that allowed to increase safety and expand throughput of Russian export routs. Hence, in five months of 2000 (against projected 16 months) the company managed to build 312 km of oil-pipe with 720 mm diameter bypassing Chechen Republic.
Moreover, within the scope of the project there has been built pipe-link connecting petroleum storage depot and input point on the trunk oil-pipeline. This allowed not only increase safety of export of Azerbaijani oil through Baku-Tikhoretsk-Novorossiysk pipeline but also allowed to receive Kazakh and Turkmen tankers in Makhachkala port to be onward transported to Novorossiysk port through the system of trunk oil-pipelines of “Transneft”.
Hence, since 2000 Russian monopolist has been exporting Kazakh and Turkmen oil by Makhachkala-Tikhoretsk-Novorossiysk rout.
Simultaneously with construction of oil-pipeline bypassing Chechen Republic and link from petroleum storage depot in Makhchkala to input point in trunk oil-pipeline, the project of expansion of oil-pipeline Atyrau-Samara has also been realized jointly with Kazakh “Transport of Oil and Gas”.
This allowed expansing capacity of this pipeline from 10 to 15 million tones of oil a year. And increase export potential of Kazakhstan.
Moreover, “Transneft” leads the project for integration of oil-pipeline systems “Druzhba” and ‘“Adria”. The project envisages transportation of Russian and Kazakh oil to world markets via Croatian Omishal port. Project participants are - oil and pipeline operators of Russia, Kazakhstan, Ukraine, Byelorussia, Hungary, Slovenia and Croatia. Today there is understanding in most of principal issues concerned with tariff policy, resource base and finance sources of the project.
Planned productivity of “Druzhba-Adria” system is - 5, 10 and 15 million tones of oil a year stepwise. Realization of above project will allow Russia’s oil-pipeline system to expand its export potential in the coming future by tens of million tones of oil a year. This in inverse proportion cuts chances to fill such additional branches like Odessa-Brody with Caspian oil.
In turn, if Ukraine manages to commission the second part of Odessa-Brody which is to increase pipe’s capacity to 40 million tones then Russian sector of “Druzhba” would lose its actuality since in this event light and sweet Caspian oil will make Russia’s Ural non-competitive, cost of annual supplies of which is $10 billion. As way out Russia’s LUKoil proposed to reverse since 2001 the “pipe” to Brody-Odessa to drive Siberian oil to export. But seems like Kiev is not satisfied with such terms. Other Black Sea routs continue to develop looking at Kiev.
• Greece and Bulgaria have recently successfully completed seven years standing dispute about participating in the project for construction of oil-pipeline Burgas-Aleksandrupolis projected to export Russian oil, the minister of development of Greece Akis Tsokhadzopulos reported in Sofia. According to him, in accordance with the agreement, Bulgaria, Russia, Greece and Russia got 33,3% stake in the project. An international consortium for construction of this pipeline will be formed in April of the current year. According to Akis Tsokhodzopulos it is supposed to move 35 million tones of oil by tankers from Russia’s Novorossiysk port to Burgas and then drive through the pipeline to Alexandrupolis. Trans-Balkan pipeline Burgas-Alexandrupolis lengthened at 260-300 km (margin of error is brought by problems with land acquisition) projected to export Caspian oil to West will cost $600-700 million. The pipe will run by the shortest rout along Black Sea cost. Meanwhile, earlier official Sofia spoke against this project and supported other economically losing versions. But after the post of prime-minister of Bulgaria has been filled by the ex-king Simon in the summer of the current year the situation began changing. As far as relations with Russia are concerned, realizing its policy of diversifying export routs the latter unambiguously supported this project.
• In November of the current year it is expected to sign trilateral agreement for construction of oil-pipeline “Constants (Rumania) - Triest (Italy)”. Agreement will be signed by officials of Romania, Serbia and Croatia, countries the pipeline is to cross over, the ambassador of Romania in Azerbaijan Tasin Jamil reported on the press-conference on occasion of ten years of relations between Azerbaijan and Romania. According to him, construction of the pipeline Constants-Triest will cost $800 million, at that there is oil-pipe exists on the Romania’s territory and a sector to connect Romania and Italy must be built.
Ambassador noted that this pipeline is not competitor to the Main Export Pipeline Baku-Tbilisi-Ceyhan and is projected to deliver Azerbaijani and Kazakh oil from Black sea ports to European markets. Originally it was supposed to transport 5 million tones of oil through this pipe to grow to 35 million tones a year over the life of the project. According to T. Jamil, this project got support of European Union and the USA.
The idea of construction of Constants-Triest pipeline was born three years ago. Kazakh oil must run to Baku then to Poti or Novorossiysk and onward to Constants by tankers. Romania proposes to use Constants port with its oil terminals (35 million tones capacity) and oil-refinery (5 million tones) and promises that “Constants-Triest” pipeline “will connect Kazakhstan with such oil consumers like Yugoslavia, Slovenia and Italy”.
Hence, building of the pipeline does not mean that the pipe gets right to live, this right must be conquered in fierce competition with existing monopolies and alternative oil-export routs. Hope to fill Ukrainian pipe is now as before connected with further oil production and increase of transport volumes via Georgian and Russian trans-shipment ports on Black sea.
P.S Ukraine began preparing to fill export pipeline Odessa-Brody, reported in press-release of “Ukrtransnafta”. As the report says, unloading of the first tanker “Minerva Concert” with 30 thousand tones of Caspian oil on “Southern” port in Odessa region is almost completed, this oil will be discharged to export pipeline. The tanker came here from Novorossiysk where it took “Tengiz” oil from CPC (Caspian Pipeline Consortium) system. Unloading of the tanker and filling of reservoirs with technology oil is done under specialized test regime when systems of “Southern” terminal are tested under different pressures. “Transnafta” reported that during mooring of “Minerva Concert” under heavy weather conditions (wind speed 21 m/s) here had been used electron system of mooring which fully proved its efficiency.
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