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Economy: Russia Hopes To Lure Azeri Oil

A Russian offer to reduce pipeline fees from Azerbaijan to the Black Sea appears to be the latest maneuver to head off the Baku-Ceyhan project. After threatening fines against Azerbaijan, Moscow is trying to convince the country's partners in the oil industry that they should use its pipeline to Novorossiysk instead. RFE/RL's Michael Lelyveld reports.

Boston, 18 July 2000 (RFE/RL) - Russia has been using a series of mixed signals and tough tactics to lure Azerbaijani oil away from the planned pipeline from Baku to the Turkish port of Ceyhan.

Last week in London, the Russian pipeline company Transneft held a meeting with major oil companies involved in Azerbaijan's biggest Caspian project to offer them a deal for reduced transit fees on the Russian route to the port of Novorossiysk. The Russian line competes with the Baku-Ceyhan project, which is backed by the United States.

The pipeline to Novorossiysk is also the same one that ran through Chechnya before fighting erupted last year. In March, Transneft completed a 300-kilometer bypass around the territory at a cost of some $140 million. Transneft has been trying to find ways to pay for the budgeted cost of construction ever since.

The problem has been compounded by the fact that there has been only a limited demand for the line. The Western oil companies built their own pipeline through Georgia several years ago, allowing them to export oil for about one-fifth of the Russian tariff to Novorossiysk.

Transneft has insisted on charging the Azerbaijani state oil company SOCAR the higher rate under a 1996 contract. But SOCAR recently stopped all shipments because the country needs to build up reserves of winter fuel. Transneft responded by threatening to impose fines of $29 million on Azerbaijan. Earlier this month, Azerbaijan Prime Minister Artur Rasizade firmly rejected the demand.

It is unclear whether the Russian government will try to collect or not, although Transneft sent a formal notice of the penalty to Azerbaijan last week. When asked about the fines in Baku last week, Russian Deputy Foreign Minister Viktor Kaluzhny called them "wrong" and "not worth discussing," according to Azerbaijan's ANS News. There was no explanation of the contradictory signals from the Russian government.

The conflict stems from the political nature of the Chechnya bypass project and the entire pipeline issue. The fees and the fines are just two ways of fighting the U.S.-backed plan for Baku-Ceyhan. That project depends on finding enough Caspian oil to fill the new pipeline. Moscow's attempts to persuade, cajole or coerce SOCAR into sending oil over the Russian route will reduce the amount available for the line to Turkey.

The Baku Sun, an English-language newspaper, called the Russian effort a "clumsy campaign to draw Azeri oil exports through its territory."

Transneft has now made an offer to the Western oil companies to cut its transit tariff from $15.67 per ton to as little as $8 or $10, which is still two or three times the rate for shipping through Georgia. But if the oil companies accept, Transneft has suggested that it will file a proposal with the Russian government to reconsider the 1996 contract with SOCAR, according Azerbaijan's MPA news agency. SOCAR would then presumably be offered the same lower rate and relief from the threatened fines.

The tactic appears to be aimed at pressuring Azerbaijan to seek help from its partners among the Western oil companies, so that SOCAR can escape its costly contract and avoid the penalties. The advantage for Transneft is that it can fill its pipeline with Caspian oil and keep those volumes from eventually flowing to Ceyhan.

Even before Baku-Ceyhan can be built, there is likely to be competition. Russia has announced that it would like to enlarge its Novorossiysk route to carry more oil, while the partners in Azerbaijan's "contract of the century" are reportedly considering an expansion of their route through Georgia to the port of Supsa.

Transneft is said to have offered even lower transit rates to Kazakhstan and Turkmenistan for using the Novorossiysk line. The United States has been trying to persuade Kazakhstan in particular to make a formal commitment of oil to Baku-Ceyhan.

The normal course of competition may be complicated by questions about who speaks for the Russian government. Is it Transneft of Kaluzhny? Only the pipeline company seems to favor the fines on Azerbaijan, but it is unclear whether Kaluzhny has influence over Russian policy.

Then-Prime Minister Vladimir Putin ordered construction of the Chechnya bypass during the war last year. Several schemes for funding the project fell through, including one false report by Transneft that the pipeline would be financed by the European Bank for Reconstruction and Development.

Although the pipeline is now in operation, the payment for it is still a problem. It may be some time before Putin's strategy and all of his reasons for building the bypass become clear.