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Russia: U.S. Optimistic About Prospects For Caspian Oil Agreement

Washington, 26 November 1996 (RFE/RL) - The United States is optimistic that participants in complicated negotiations over the vast oil riches of the Caspian Sea will soon have an agreement on how to regulate and divide the liquid gold.

Next week in Moscow, on December 6, members of the Caspian Pipeline Consortium (CPC) plan to sign a long-delayed restructuring agreement that will finalize the existing number of consortium members and their holdings.

Half the consortium is owned by the governments of Russia, Kazakhstan and Oman. Eight producing companies together own the remaining 50 percent -- the Russian LUKoil and Rosneft (gas) companies, British Gas, the Italian Agip company, the Kazakh Munaigaz, and three American corporations -- the Chevron and Mobil oil companies, and the Oryx Energy Company of Texas.

Next week's agreement will also cement a decision on CPC pipeline routes to bring oil from Kazakhstan's Tengiz region to Western markets.

In Washington, a State Department official, who did not wish to be named, told RFE/RL that the U.S. is optimistic the agreement will be signed in December. "We expect it to happen. We hope it will," she said.

A breakthrough reportedly came in closed session earlier this month at a meeting in Moscow. But the secrecy surrounding the proceedings and the lack of a formal announcement on its results has left some experts skeptical.

They say CPC breakthroughs have been announced before and then passed without notice. Wrangling over taxes, transit fees, and the financing of pipeline construction, as well as who should be a shareholder in the consortium, could still delay agreement into next year, according to some experts.

The U.S. official acknowledged that "the tax angle hasn't been worked out yet." But, she says, "the rest of it looks good."

The United States has been following negotiations over Caspian Sea oil since the CPC was founded in 1992 with the participation of Chevron and other private American companies.

The State Department says there are several reasons for U.S. interest.

"This is not just any commodity, this is about oil -- governments are involved, politics are involved, there are strategic factors of concern to the United States," said a State Department official.

The official points out that the United States is already engaged to some extent in the politics of the region as one of the countries trying to mediate the Nagorno-Karabakh conflict between Armenia and Azerbaijan, as a friend to president Eduard Shevardnadze of Georgia, and as a NATO ally of Turkey.

U.S. involvement scaled new heights a year ago when president Bill Clinton telephoned Azerbaijan's president Heydar Aliyev to discuss the proposals for Caspian oil pipeline routes.

Azerbaijan has its own independent, multi-national consortium to develop southern Caspian oil deposits.

Called the Azerbaijan International Operating Company (AIOC), it had been considering a pipeline option with Iran but later cooled, reportedly because of U.S. pressure.

At the time, U.S. officials said they were concerned also about Moscow's growing influence in the region and pressure to expand existing pipelines leading through Russia.

The White House said that when Clinton telephoned Aliyev in October, 1995, he told him the U.S. favors using more than one pipeline route to export the oil.

The U.S. State Department says support for multiple pipeline routes from the Caspian basin has been long-standing U.S. policy for several years.

U.S. officials says it makes good sense to have alternatives in a region where things can easily go wrong.

"It is not a very stable part of the world," said the State Department official.

In addition, she said there are small developing countries in the region and the United States would like to see them get a fair economic opportunity and share in the Caspian projects.

But most importantly, the United States says so much oil will be coming out of the Caspian Sea, there will have to be several pipelines to handle the flow.

If the two major consortiums go ahead with current pipeline plans, there will initially be four separate routes -- two for each group -- that appear to be identical or overlapping in part.

Two pipelines will lead from points on the Caspian shores to the Russian Novorossijsk port on the Black Sea. And two will go to separate Black Sea ports in Georgia.

Azerbaijan's ambassador to the United States, Hafiz Pashayev, said in an RFE/RL interview Monday that the AIOC plans to begin construction next year on a pipeline going from Baku to Georgia's Black Sea port Supsa.

He says this will be for the "early oil, only about five million tons a year."

Pashev says in roughly eight years, Azerbaijan anticipates an annual output of 40 million tons from the southern Caspian oil fields. By that time a bigger and longer pipeline will be needed to move the oil to hard currency markets.

Pashayev says his government is considering a plan to extend the Georgian route to Turkey's Mediterranean port of Ceyhan.

"We still have a year before we need to decide," he said.

The other CPC consortium wants to upgrade and build on to a pipeline that would go from the Tengiz fields to Georgia's Batumi port and then build a new route that would take Tengiz oil through Chechnya to Russia's Black Sea port of Novorossijsk.

Pashayev says Azerbaijan already has an agreement with Russia to transport oil also going through Chechnya to Novorossijsk.

He says it was concluded in January and is "a very nice agreement," making Russia and its Transneft company completely responsible for moving the oil from the border with Azerbaijan at Dagestan through the Chechen capital Grozny to Novorossijsk port.

The State Department official says similar terms apply to the CPC Russian route.

"It will be Russia's responsibility to get the oil to Novorossijsk," she said.

Political conditions are a factor in the pipeline route decision. But the official emphasized that in the end it will boil down to considerations of profit, saying: "The final decisions have to be commercially viable. It doesn't matter how much oil there is and where the market is, if the pipeline is not commercially viable, including taxes and transit fees, it will not be built."