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Russia: Government Approves Investments In Baku-Ceyhan Pipeline Project

Russia appears to have reluctantly given its political approval for its oil companies to invest in the Baku-Ceyhan pipeline after years of arguing that the project would not be commercially viable. Instead, officials now say that the government has no control over investment decisions, clearing the way for a possible deal with Lukoil. RFE/RL correspondent Michael Lelyveld reports.

Boston, 17 April 2002 (RFE/RL) -- Russian oil companies are now free to join in the Baku-Ceyhan pipeline project, but they are hardly being encouraged to do so, officials have suggested in the past week. Moscow's latest statements on a role in the U.S.-backed oil route indicate that a grudging shift in Kremlin policy has already taken place.

After years of opposing the pipeline from Azerbaijan through Georgia to Turkey, Russian officials seem to have opened the door to an investment by Lukoil in the $2.9 billion project, which could start in July.

Russia's biggest oil firm has been holding talks with the Azerbaijani state oil company SOCAR for months while awaiting "political" approval from Moscow. Statements in the past week hint strongly that a political decision has now been made.

Speaking in Baku on April 10, Russia's Deputy Prime Minister Viktor Khristenko noted that the Russian government owns only a minority share in Lukoil, suggesting that the investment in Baku-Ceyhan would be difficult to block.

The Interfax news agency reported that Khristenko said, "We cannot seriously say that the state is able to shape [the] shareholders' position on a particular project."

Russia continues to prefer export routes on its own territory, but it is now faced with the prospect that Baku-Ceyhan will proceed soon, whether it participates or not.

Khristenko cited the state's stake in Lukoil as 7.5 percent. That figure includes the government's plan to sell 5.9 percent of the company's shares later this year.

The state hopes to realize $700 million to $800 million from the sale, making it hard to have it both ways. The government can only hurt Lukoil's value by trying to keep it from investing like other international oil companies.

Lukoil has been considering a role in the Caspian route to the Mediterranean for the past three years, but opposition within Russia has been stiff. The company owns 10 percent of Azerbaijan's biggest offshore project, which is the pipeline's main source of oil.

Comments by Russia's ambassador to Azerbaijan last Friday echoed Khristenko's remarks. Nikolai Ryabov said, "The construction of the Baku-Tbilisi-Ceyhan main export pipeline is a commercial issue, and appropriate companies are dealing with that. For this reason, it is up to them to complete the project," Azerbaijan's Turan news agency reported.

Turan quoted Ryabov as saying that "oil companies contact each other directly. They can decide for themselves whether to take part in the project or not." He also dismissed criticisms of the project by some Russian State Duma deputies, saying, "Such statements have no legal power."

Moscow's position on Baku-Ceyhan has evolved gradually since last May when Deputy Foreign Minister Ivan Ivanov first declared that Russia would let its companies take part in construction of the pipeline, though it claimed that the project was not economically viable.

Officials then argued that companies like Lukoil could be cleared to invest if profitability could be proved. Supporters of the pipeline have responded that it will produce double-digit returns.

The new Russian statements stick to the argument that Baku-Ceyhan will not be commercial, but they seem to have abandoned any connection to a political approval for the first time.

Khristenko made clear that he still has little liking for the route through Georgia, saying, "I do not believe that the project to build the Baku-Tbilisi-Ceyhan pipeline is political. But I think it should be economically feasible, which I, personally, cannot see."

He vowed that Russia would compete to make the route less attractive for exporters. Khristenko said, "In light of our understanding of pipeline transportation, we will undoubtedly adjust our transit policy and economic figures, including transit tariffs."

But potential investors like Lukoil may be competing against time. On 5 April, SOCAR announced that it had completed its list of project sponsors at the request of international finance agencies. In line with earlier plans, the company said it would reduce its share of the project from 45 percent to 25 percent by distributing stakes to companies that had already signed on. Britain's BP oil company would be the largest shareholder with 38.2 percent.

The move is unlikely to prevent a last-minute deal with Lukoil, although it may be under pressure to act. SOCAR has also sent letters to U.S.-based ChevronTexaco and TotalFinaElf of France, said Valekh Aleskerov, head of foreign investments at SOCAR, according to Interfax.