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Azerbaijan: Russians Exert New Pressure

Despite its Caspian resources, Azerbaijan is coming under new pressure from power shortages and potential debts to Russia for halting oil shipments through a pipeline to Novorossiysk. Correspondent Michael Lelyveld reports that Moscow may now be in a position to exert its influence by threatening to impose financial penalties on Baku.

Boston, 3 July 2000 (RFE/RL) -- Azerbaijan may be facing the double threat of an energy shortage and a debt to Moscow after an announcement that Russia will impose $29 million in contractual fines.

On Thursday, Semyon Vainshtok, head of the Russian pipeline monopoly Transneft, said he has asked Azerbaijan to pay a $29 million penalty for failing to pump enough oil through a line to the port of Novorossiysk, the Reuters news agency said.

Under a 1996 contract with Transneft, Baku pledged to ship 2.3 million tons of oil through the Novorossiysk pipeline this year. But as of early June, it had provided only 340,000 tons.

Despite years of publicity about its Caspian wealth, Azerbaijan has found less oil than expected when it signed its contract with Transneft in 1996. Foreign companies are producing oil in Azerbaijan, but nearly all of their output is exported through Georgia, which charges a lower tariff than the Russian route.

The situation has left Azerbaijan's state oil company SOCAR without enough of its own oil to meet both its export commitments and its domestic needs. Azerbaijan has recently discovered large amounts of gas, which could ease the country's energy crisis. But it may take two years before the gas becomes available for either domestic use or export.

In the meantime, Azerbaijan is being squeezed by shortages of both oil and gas. As a result, it may be vulnerable to a new form of pressure from Moscow after several years of self-sufficiency in energy.

Russia's claim for payment comes as Azerbaijan is also seeking enough oil for the Baku-Ceyhan pipeline project, which is backed by the United States. It is unclear whether Russia is only seeking fines from Azerbaijan or larger concessions in exchange. Moscow has frequently used energy debts as a way to gain influence and shares in the industries of other former Soviet states.

Last year, Russia was unable to use its contract to demand more oil from Azerbaijan because the line to Novorossiysk ran through Chechnya, making it subject to continual interruption and theft. But in March, Russia completed a bypass line around Chechnya, making the contract enforceable again.

While Russia has kept up the pressure to get oil for its pipeline, Azerbaijan has had to balance the risk of fines with the danger that it may run out of fuel for next winter. Last January, Azerbaijan was forced to ration electricity because of shortages of both fuel oil and gas at its power plants. The power cuts came as a shock to Azerbaijani citizens, raising the potential for domestic unrest.

Azerbaijani President Heidar Aliyev blamed the shortages on corruption and dismissed some officials for alleged thefts of oil. But the problems have continued, forcing the government to take steps to avoid another electricity cutoff this year.

In the past month, SOCAR has announced a series of plans in an attempt to satisfy Transneft and the need for electricity. Three weeks ago, SOCAR Vice President Ilham Aliyev said the company would start to import gas in October for its power plants so that it could devote more oil to export.

But on Tuesday, the Interfax news agency quoted a SOCAR official as saying that the company has now decided to stop all exports through the Novorossiysk pipeline because of insufficient oil. SOCAR seems to have calculated that it could not avoid the Russian penalties even if it continued shipping oil for the rest of the year, leaving it subject to both power shortages and the fines.

Baku would also have to depend on Moscow for any imported gas that might be substituted for oil, because supplies from Turkmenistan, Kazakhstan, or Russia would all have to come through a Russian pipeline. Baku would have to pay Russian pipeline fees.

Azerbaijan's predicament may only get worse because its contract with Transneft calls for shipping more oil to Novorossiysk each year. SOCAR is obliged to more than double its exports through the Russian line by 2002.

As its commitments to Russia rise, so will Azerbaijan's debts. The result is that the country may pay a high price to use its own oil for electricity.