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No End In Sight To Kadyrov Vs. Rosneft Standoff

The market value of Rosneft's Chechen assets is 11.8 billion rubles ($211 million).
The market value of Rosneft's Chechen assets is 11.8 billion rubles ($211 million).

In late 2015, Russian President Vladimir Putin finally acceded to repeated requests from Chechen Republic head Ramzan Kadyrov that the joint stock company Chechenneftekhimprom, which controls the republic's oil sector infrastructure, including oil wells and two refineries, be transferred to Chechen ownership.

The formal handover has been delayed, however, by the need to reach agreement between the Chechen authorities, the Russian state property agency Rosgosimushchestvo, which owns Chechenneftekhimprom, and the state-owned oil company Rosneft, which manages it on the terms for the transfer of ownership.

In late February, the Russian daily Kommersant reported that the Russian government was in the process of approving a joint offer by Rosneft to hand over Chechenneftekhimprom's fixed assets and also sell to the Chechen government its 51 percent stake in the Rosneft subsidiary Grozneftegaz, which leases some of Chechenneftekhimprom's facilities, together with Rosneft's other assets in Chechnya. That package makes eminent sense insofar as without the use of Chechenneftekhimprom's facilities, Grozneftegaz would have problems in continuing its operations, which currently yield 300,000 tons of crude oil annually.

But in an interview last week with the TV channel Rossia-24, Kadyrov denounced as inflated and ridiculous the price of 12.5 billion rubles ($222.2 million) that Rosneft is demanding on the basis of an independent assessment it commissioned from PricewaterhouseCoopers. The market value of Rosneft's Chechen assets is 11.8 billion rubles; the additional 725 million rubles is apparently meant to cover the costs of preliminary planning for the construction of an oil refinery in Grozny with an annual capacity of 1 million tons. Agreement on that project was reached in 2010, but it never got off the ground, and federal Minister for the North Caucasus Lev Kuznetsov told journalists late last year that it has been shelved indefinitely as not financially viable given the current price of crude oil and the modest amount of oil extracted in Chechnya.

Chechen leader Ramzan Kadyrov
Chechen leader Ramzan Kadyrov

In the course of his TV interview, Kadyrov also deplored Rosneft's failure to honor its commitment to build that refinery. He did not, however, comment on or even mention an alternative proposal attributed to Rosneft. On March 20, the website reported that in the interest of creating badly needed new jobs in Chechnya and helping the republic to expand its tax base, Rosneft has offered to build a bitumen plant in Grozny in place of the planned oil refinery.

Russian Deputy Energy Minister Kirill Molodtsov has reportedly approved that proposal. But the website quotes two financial analysts as saying such a plant would not be economically viable either. The analysts believe that given the limited demand in Chechnya for bitumen products for use in highway construction, it would be cheaper to buy and transport them from elsewhere in the Russian Federation. In 2015, Rosneft produced over 1.7 million tons of bitumen, equal to one-third of total domestic production, at eight other plants it owns.

Meanwhile, Rosneft and Chechenneftekhimprom each acquired at auction in late March the rights to extract oil from two Chechen oil fields, the news portal Caucasian Knot reported.

The views expressed in this blog post do not necessarily reflect those of RFE/RL.

About This Blog

This blog presents analyst Liz Fuller's personal take on events in the region, following on from her work in the "RFE/RL Caucasus Report." It also aims, to borrow a metaphor from Tom de Waal, to act as a smoke detector, focusing attention on potential conflict situations and crises throughout the region. The views are the author's own and do not represent those of RFE/RL.


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