Caspian Business Report
Biweekly Market Intelligence Report on the Caspian Region Up to date business,
governmental, economic and legal news from Azerbaijan, Georgia, Turkmenistan,
Kyrgyzstan, Kazakstan and Uzbekistan
Copyright (C) 1998. US-Azerbaijan Council.   Web-Master Aslan Kurbanov

 Vol 2. No. 5

March 15, 1998



RUSSIA DOES NOT OBJECT TO CONSTRUCTION OF PIPELINE TO  MEDITERRANEAN. (Moscow, Russia). The Russian minister of Fuel and Energy, Mr. Sergey Kiriyenko told journalists that his country has no objections to the construction of a oil pipeline from Baku to Turkey via Georgia. This despite the fact that the only existing pipeline in the region (Baku-Novorossiysk) will come under increasing competition once the Baku-Mediterranean pipeline comes on stream. Currently, early oil from the Azerbaijan International Operating Company flows through the Baku-Novorssiysk pipeline. Mr. Kiryenko said that US companies had over politicized pipeline issues. He went on to say that multiple pipelines would reduce Azerbaijan's risk on relying on a single route to transport oil. Mr. Kiryenko said "There must be many pipelines and economic expediency must resolve everything related to these matters". According to the Fuel and Energy minister annual oil production in the district of Baku is in the region of 40 to 60 million tones. The Baku-Supsa pipeline will eventually carry 5 to 7 million tones of oil per annum while the pipeline to the Mediterranean will transport 40 million tones per year. Russia's carrying capacity is at present limited to 15 to 17 million tones per year. Increasing the country's carrying capacity will require huge amounts of investments which Russia is unable to afford at this time.
YELTSIN AGREES TO CASPIAN DIVISION. (Akmola, Kazakstan). During a telephone
conversation on March 3, 1998, between the presidents of Kazakstan and Russia related to problems over the legal status of the Caspian Sea, Mr. Yeltsin voiced support for an agreement reached in February which aimed to settle Caspian Sea divisions related to resources under that sea. Mr. Nursultan Nazarbayev recently disclosed this information to the National Television of
Kazakstan during a brief interview.


 SOCAR 1997 RESULTS DISCUSSED. (Baku, Azerbaijan). Board members of the State
Oil Company of the Azerbaijan Republic (SOCAR), recently held a meeting to discuss the company's performance in 1997. Mr. Natig Aliyev, SOCAR's president said that in 1997, SOCAR produced approximately 9 million tones of oil thus over fulfilling its plans by 2%. SOCAR exported
120,000 tones of oil in the same year and drilled an additional 24,000 meters in wells under its management. The refined oil plan was over fulfilled by just 0.6%. SOCAR earned $388 million in its foreign operations last year. In 1997, gas production totaled 5.9 billion cubic meters, which was down by 361 billion cubic meters year on year. This was attributed by SOCAR's board to the fact
that the company overall experienced acute financial difficulties in 1997. During the year SOCAR was unable to collect some 3 trillion manat in accounts receivable payments. In 1998, SOCAR will provide $3 million of its own money to complete drilling at  four offshore wells that experienced financial difficulties in 1997. SOCAR will also invest money in increasing the capacity
of a gas compressor unit at Neft Dashlary (*Since the Chirag oil field came online, the compressor unit has come under pressure from increasing volumes of gas being delivered). During the meeting SOCAR's board also discussed plans for 1998.
TURKMENISTAN TALKS PIPELINES. (Ashgabad, Turkmenistan). Mr. Khoshgeldy Babayev,
the deputy minister of oil and gas industry and mineral resources of Turkmenistan told reporters that his country will in the near future resume gas exports to Ukraine via Russia. The minister was speaking at an international exhibition on oil and gas projects in Turkmenistan which was held on March 11th. The minister also said that a technical and economic substantiation project for the construction of a pipeline from Kazakstan-Turkmenistan-Iran-Persian Gulf is being worked on. He also said that his country was in negotiations with foreign companies on the construction of such a pipeline. Amongst companies thought to be involved are, Mitsubishi, Exxon and China's CNPC. The deputy minister also referred to the Turkmenistan- Afghanistan-Pakistan project saying that as far as he can see, this project may got off the ground towards the end of the year. At the same time Turkmenistan is in separate negotiations with Mobil and Exxon to construct a pipeline from the country to China and possibly extending to Japan. In 1998, Mr. Babayev said Turkmen gas deliveries to Iran will amount to 4 billion cubic meters of gas. The gas will be transported along the newly opened Korpeje-Kurt-Kui gas pipeline. In the future Turkmenistan will aim to deliver approximately 12 billion cubic meters of gas. The Korpeje-Kurt-Kui pipeline came on stream in December, 1997 and is 156 km long. Its current carrying capacity is 8 billion cubic meters. Mr. Babayev voiced his country's support for the TransCaspian gas pipeline project which will involve laying pipelines on the bottom of the sea bed. However, he added that this was conditional on all littoral states solving all outstanding issues related to the Caspian Sea.
GASOLINE PRICES SOAR IN KAZAKSTAN. (Akmola, Kazakstan). INTERFAX  reports that wholesale and  retail prices for petroleum products, including gasoline, shot up in  late December in response to much-reduced production at refineries in Aktau, Pavlodar and Chimkent. They took delivery of  10.79 million  tons of crude last year, just 55% of  their total  capacity of 19.4 million tons a year. The result was that the  price of  gasoline shot  up in  Almata. A-76 rose from 18  tenge per liter ($0.18) to 25 tenge per liter ($0.33). In Karaganda it rose to 39.5 tenge per liter and in Aktau to 35 tenge. Kazakstan's Anti-Monopoly  Committee blamed falling refinery output for the problem. Mr. Serik Kurmangaliev, deputy  chairman of  the Committee  for  Price  and  Anti-
Monopoly Policy  at the  Agency for  Strategic Planning  and Reforms, on February 27 said that the situation was paradoxical: Kazakstan produced 25.758 million  tones of  crude in 1997, 14.968 million tonnes of which was exported. Crude was sold at $50-$60 per tonne at home, $72 in Russia and $100-$126  in other  countries. Kazakhoil,  the  national  petroleum company, did not raise
its domestic prices for crude last year at all.  Prices on  fuels and lubricants at  the Aktau plant's gate rose an average of  just 4%-5%. But in January they rose an average of 30%. That prompted a  response from  the Anti-Monopoly  Committee.  The  Chimkent refinery also saw output drops last
year.  The  number  of  distributors  has  shrunk,  leading  to  declining competition on retail markets, particularly in Pavlodar and Kazakhstan's eastern regions.  Price collusion  and rising  charges for fuel and lubricant storage also played  a role,  particularly  in  Karaganda,  Southern Kazakhstan regions, and  Semipalatinsk in  Eastern Kazakhstan  region, Kurmangaliev said.  In fact,  the committee  has no  first hand  evidence of collusion. Kurmangaliev said  the charge  of collusion was based on the fact retail prices were  uniform despite  varying  wholesale  prices.  He  said  his
committee had  neither the  money nor  the human  resources to conduct a more detailed investigation into the charge.  However, the committee has taken steps to correct the situation. It has sanctioned  the Aktau  refinery and  begun evaluation  of  fuel  and lubricant quality  jointly with State Standards. It has also recommended that the  government place  oil products  suppliers on
the register  of monopolies.
THREE COMPANIES SIGN AGREEMENT ON TRANSPORTATION OF TENGIZ OIL VIA GEORGIA. (Tbilisi, Georgia). An  agreement for the  transportation  of oil produced  at
the Tengiz oil-field in Kazakstan via Georgia was signed on March 2nd in
Tbilisi. The document was signed by Richard Matzke,  president of Chevron
Overseas Petroleum Inc.,   Okan Tapan,  president  of  British  Caspian
TransCo company and Vakhtang Kiknadze, president of the  Georgian  state  oil
company Saknaftobprodykti. The agreement envisages the transfer of the 232 km
pipeline Khashchuri-Batumi(Georgia) to Chevron and also its connection to a new
 pipeline called Ali-Bairamly (Azerbaijan)-Khashchuri. Richard Matzke  said
reconstruction of the existing  oil  pipeline  Khashchuri-Batumi  must  be
completed within four months. This  will increase oil transportation capacity
on the line by 7 to 8 million tones.  Matzke said  that  oil  will  be
transported to Black Sea ports by railway even when the pipelines are full
operational. Chevron has been transporting oil by rail since March 1997. The
agreement comes a step closer towards completing Georgian president Eduard
Shevrenadze's idea of a Eurasian transport corridor.
The first batch of oil produced by AIOC's Chirag-1 platform which became
operational in November of 1997 crossed the Azeri-Russian border on February
28. The oil entered the Transneft pipeline system and will be transported to
Novorossiysk a port city on Russia's Black Sea coast. As of March 13, AIOC has
produced an estimated 150,000 tones of oil. AIOC's press service disclosed that
problems that caused delays in moving oil were due to difficulties the company
experienced when trying to clear shipments with Russia's custom's service The
problem has now been cleared up according to sources within AIOC. Transneft has
pledged to work with AIOC to ensure that future problems are avoided. In a
related development, AIOC is saying that it will export 80,000 tones of oil in
the first quarter of 1998.
cooperation with foreign partners plans to increase oil production five fold in
the coming two years. This according to Mr. Revaz Tevzadze the president of
Gruzneft who revealed this information during an interview with the Oil
Information Agency. He said that we have worked out a program that envisages a
short term  production expansion of  up to 200,000 tons of oil in 1998. Further
increases in oil production of  up to 1 million tones is planned.  Total
investments according to Mr. Tevzadze for this project will total $150 million.
75% of the planned investment will be provided by foreign companies such as JKX
and Ramco (U.K.) Swiss National Petroleum Ltd and Frontera Resources (U.S.).
All the latter companies have set up joint-venture operation with Gruzneft. The
president of  Gruzneft said that his company's plans were realistic and aimed
at setting up long term joint operations with foreign companies. To date, 14
oil and gas condensate fields have been discovered in Georgia. Most of these
fields were first uncovered during the 1960s and 70s. Oil reserves in these
fields are estimated at 580 million tones of oil and 98 billion cubic meters of
Georgia). Russia's legitimate  interests  in  the  future  transportation  of
Caspian oil will be taken into account, according to the Georgian Foreign
Minister Irakly Menagarishvili, Interfax reports. He said that in relation to
the Russian absence at the Istanbul conference of the Turkish, Azerbaijani,
Georgian, Kazak and Turkmen foreign ministers on the transportation of Caspian
oil and gas. He said  this might  have been  due to the fact that the
conference dealt exclusively  with the  "western" route  which does  not go
through Russia. He also  stated that  Russia's participation  in the production
and transportation of  Caspian oil  is not  doubted by  anyone.>

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