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Russia: Leaks In The Kremlin-Chechnya Pipeline Deal--An Analysis

Moscow, 10 September 1997 (RFE/RL) - Moscow and Grozny have signed a key agreement on the transport of Caspian Sea oil through a pipeline crossing Chechnya.

The agreement, signed in Moscow yesterday by top Russian and Chechen officials, ends months of deadlock and hard bargaining between the two sides and paves the way for the export Westward of "early oil," or limited-production capacity, from rich Azerbaijani offshore fields in the Caspian Sea.

But, Russia's First Deputy Prime Minister Boris Nemtsov said, after the first public execution of a young couple last week, that the event reinforced his decision that "it is vital to have alternative pipeline routes avoiding Chechnya" for the transport of later, full capacity production Caspian oil. Yesterday's pipeline agreement coincided with Grozny defiantly announcing that two more people accused of murder would be executed in public today, following the ruling of an Islamic court.

Russian reports have speculated on the affect of the executions on the pipeline negotiations, but analysts differ on whether the executions actually influenced the negotiations. Most analysts agree, however, that the executions raise renewed questions about Chechnya's stability.

The pipeline stretches from Azerbaijan's capital, Baku to Russia's Black sea port of Novorossiisk. The Chechen section of the pipeline covers some 150 kilometers. Oil is due to start flowing at the beginning of next month, and yesterday's agreement was essential to start of the operation.

Itar-Tass news agency today says repair teams are already dispatched, in anticipation of the agreement and could start work on the Chechnya secion as early as today. Reports say repair work could take less than three weeks.

Moscow and Grozny agreed yesterday to transport 200,000 tons of oil through Chechnya this year, at a tariff of 43 cents per ton. Until last week, Grozny had demanded more than $2 per ton.

The tariff will give Chechnya a revenue of some $86,000. Russia also agreed to fund the repairs and security of the pipeline from the federal budget. Nemtsov, who is also Russia's Fuel and energy Minister, said after the signing that Russia has promised to pay Chechnya a total of $854,000 this year.

Nemtsov said that the tariff agreed will be paid by Russia's monopoly pipeline operator, Transneft. Nemtsov said the agreement also details the maintenance and protection of the pipeline. A special team of 400 Chechen soldiers will guard the pipeline, and protect workers within Chechnya.

With yesterday's agreement, Chechnya seems to have lost the long-lasting dispute between Moscow and Grozny over the tariff fee for the transport of oil.

Moscow had insisted that 43 cents per ton is the normal transit fee for oil sent by pipeline across Russia, ignoring Chechnya's declared request to be treated as an independent partner in the deal. During an interview with the "Zerkalo" program Saturday on Russian state tv, Nemtsov said that it was a "strategy of the Russian government to make Grozny realize that Moscow is planning options, bypassing Chechnya, for the transport of oil as "an insurance policy" against instability. He added that Russia "would not be a hostage of Chechen leaders" in their quest for independence on this matter.

After the agreement was signed, Nemtsov said that "nobody can now claim that Chechnya has been given special treatment." Nemtsov went on to say that he might take charge of a project to build a pipeline section avoiding Chechnya. Saturday, Nemtsov had said that the fuel and energy ministry has already worked out eight alternative projects, enabling a future pipeline to bypass Chechnya. He said the most probable option would involve a route long some 280 kilometers, to be built in less then two years. The construction of this alternative pipeline, he said, would require some $200 million, and non-budget funds would have to be found for the project. Nemtsov did not say which Russian republic this pipeline would cross, but one likely option is Chechnya's neighboring republic of Dagestan.

A Russian analyst tells RFE/RL that another key reason seems to lead Russia in it quest for an alternative oil route bypassing Chechnya. According to the analyst, while "early oil" is being transported through the existing pipeline crossing Chechnya, it is vital for Russia to make sure an alternative route is created, because the existing one is not only potentially threatened by Chechnya's instability, but is also technically unserviceable for the flow of later, full-capacity production quantities of oil.

Russia aims at being a major player in exporting the huge and lucrative reserves from the Caspian. In addition to the Baku-Grozny-Novorossiisk export route, oil companies are refurbishing a pipeline across Georgia for Azerbaijan's "early oil" exports. The pipeline across Georgia and a new terminal at its Black sea port of Supsa are expected to be ready for oil exports at the end of next year.

Transneft's vice president, Sergei Ter-Sarkisyan recently told the Russian weekly "Itogi" that the existing Chechen pipeline section was built to transport Russian oil to Grozny's oil refinery. He said that because of the internal design of the pipeline, pumping oil in the opposite direction, although possible, would present such technical difficulties to make virtually unachievable having large volumes of oil flow the other way -- from Chechnya to Russia.

Several estimates suggest that -- through the existing Chechnya pipeline could flow no more than five million tons of oil per year. This is the amount of "early oil" expected to be exported, but the estimates for the later, full-capacity production are much larger.

Grozny continues to assert its independence. And, it defiantly continues the practice of public executions under Islamic law, which have been strongly criticized by the Kremlin as violating Russia's constitution. If needed, analysts say these factors will provide Moscow with an additional reason to build a pipeline bypassing Chechnya, without publicly exposing Russia's attempts to gain greater control of Caspian oil wealth.