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Caucasus: Chechnya, Kabardino-Balkaria Compete For New Oil Refinery

(RFE/RL) The pro-Moscow Chechen authorities have launched a full-scale campaign to pressure the state-owed oil company Rosneft not to proceed with construction of a new oil refinery in the Kabardino-Balkaria Republic (KBR).

Rosneft's subsidiary Grozneftegaz still controls the extraction and sale of Chechnya's oil, from which it retains the lion's share of the profits, which one Chechen government official estimated in late 2006 -- before last year's massive oil-price increase -- at 25 billion rubles (marginally over $1 billion) annually.

The possibility that Rosneft would build a refinery in the KBR was first made public on November 22, 2007, by KBR Minister for State Property and Land Resources Mukhamed Sokhov, who told the republic's parliament that Rosneft planned to build a refinery in Tersk Raion with an annual capacity of between 3 million-5 million tons with the aim of expanding the republic's oil industry, reported on March 12.

Those plans encompassed the privatization of the state-owned company Kharbizhin that extracts oil from wells in Tersk. On November 30, Rosneft's vice president for investment, Aleksandr Sapronov, said the company would declare a tender for and finance a feasibility study for the refinery and then decide in conjunction with the KBR leadership whether it was financially expedient to proceed. Sapronov noted that both Chechnya and Stavropol Krai have similarly proposed construction of a refinery on their territory.

Speaking at a press conference in Nalchik on March 4, KBR President Arsen Kanokov affirmed that Rosneft plans to build an oil refinery in Tersk Raion, but he put its annual capacity at just 2 million tons, including crude extracted in Chechnya. Chechnya produced 1.9 million tons in 2004 and hoped to extract 2.2 million in 2005, but production apparently peaked at around 2.1 million tons in 2006 and is expected to fall in coming years, according to "Groznensky rabochii" on December 20, 2007.

Kanokov's statement elicited outraged protests from Grozny. Chechen parliament speaker Dukvakha Abdurakhmanov, a close associate of Chechen Republic head Ramzan Kadyrov, described it on March 12 as "an insult to the entire Chechen people," reported. Abdurakhmanov said that the Chechen legislature adopted the previous day an appeal to the Russian president and State Duma stressing the need for Rosneft to change its economic policies and spend more of the proceeds it receives from the sale of Chechen crude on reconstruction and solving social problems in Chechnya.

Chechen human rights ombudsman Nurdi Nukhadjiyev, who is likewise close to Kadyrov, denounced Rosneft's plans on March 14 as "amoral" and "incomprehensible" given that Chechnya's Oil Institute trains qualified specialists and in light of the high unemployment rate in Chechnya. Nukhadjiyev repeated criticisms voiced 18 months earlier by then-Chechen Industry and Energy Minister Amadi Temishev, who in October 2006 accused Rosneft of resorting to "barbaric" methods to maximize production without any heed for the ecological damage caused. Nukhadjiyev contrasted what he termed Rosneft's "colonial" approach with that of Gazprom, which is engaged in reconstruction of infrastructure destroyed during the fighting in Chechnya.

Nukhadjiyev further quoted Kadyrov as vowing that "he will never permit the construction outside Chechnya of a refinery to process Chechen oil." At the same time, Nukhadjiyev stressed that Kadyrov does not object to economic development in the KBR as such, and that Chechnya's opposition to the project is directed solely at the management of Rosneft. One week earlier, on March 6, Kadyrov told journalists that an oil refinery with an annual capacity of 5 million tons will be built in Chechnya, reported. In that context, Kadyrov stressed the need for establishing good working relations with Rosneft.

Chechen Prime Minister Odes Baysultanov duly met with Rosneft President Sergei Bogdanchikov and reported back to Kadyrov on that meeting, according to the Chechen government website on March 27.

Baysultanov reportedly argued that it would be economically more viable to site the planned refinery in Chechnya, rather than in the KBR, given that Chechnya's estimated oil production over the next decade will be 20 million tons as opposed to 7 million tons in Kabardino-Balkaria. Baysultanov implied that a formal agreement with Rosneft will be signed at a meeting in early April at which it is hoped to conclude a parallel agreement under which Rosneft will sell to the Chechen government at cost all the natural gas extracted together with the oil.

Baysultanov also told Kadyrov that a new agreement has been reached under which Grozny will receive a larger share of the profit tax from the sale by Rosneft of Chechen crude. The sum in question is approximately 300 million rubles ($12.8 million).

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