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. Last Updated: 07/27/2016

CPC Ready to Start New Pipeline in '96

The Caspian Pipeline Consortium announced Thursday that it will start construction of a pipeline early next year that will greatly increase oil exports from Kazakhstan and Russia.

Phase one of the project -- to be completed by January 1997 -- will build a 250-kilometer pipeline from Tikhoretsk in the North Caucasus to a new terminal on the Black Sea, Fuel and Energy Minister Yury Shafranik told a news conference.

This first section alone will add 15 million tons to Russia's present annual pipeline capacity of 110 million tons, he said.

"We are at a very important part of the project," Shafranik said,"which means the beginning of practical work on construction."

The CPC was set up in 1992 by Russian, Kazakh and Oman governments to finance a $1.9 billion pipeline, stretching from the Caspian to the Black Sea, that will transport about 70 million tons of oil annually from landlocked Kazakhstan. Oman has a 50 percent stake in the project, while Russia and Kazakhstan have 25 percent each.

The first phase is estimated to cost $400 million, which should be recouped within eight years, Shafranik said. He added that the first phase of the pipeline will transport $1.5 billion worth of oil each year from the Urals, Western Siberia, Kazakhstan and the Volga region.

Russia and Kazakhstan have contributed pipes and guaranteed minimal oil delivery through the pipeline, while Oman provided the project with funds and acted as a guarantor for financing of the first stage. Shafranik estimated the Russian contribution at $300 million.

The pipeline is primarily meant to facilitate exports from the Tengiz oil field in Kazakhstan, which is developed by Tengizchevroil, a 50-50 joint venture between Chevron and the Kazakh company Kazakhstanmunaigaz. The $20 billion project has been plagued by export restrictions imposed by the Russian pipeline operator Transneft.

But the CPC and Chevron have been unable to agree terms under which the U.S. oil company could join the consortium. And this might create difficulties for financing the second stage of the pipeline, Shafranik said.

"We have funds for the first phase of the project," he said, but added that "financing the second phase is only possible with the guarantee of the pipeline user."

The consortium plans to hold a tender for the pipeline's construction in the third quarter of 1995, where preference will be given to Russian companies, Shafranik said. The pipeline construction would create 2,000 new jobs and the consortium has allocated $100 million for the workers' wages, he said.

Valery Chernyayev, Transneft's president, said the exact location of the terminal on the Black Sea was still undecided, but added that Solyenoye Ozero and Yuzhnaya Ozoriyevka near Novorossiisk were both under active consideration. Novorossiisk, Russia's biggest Black Sea port, is unsuitable because of its stormy weather, he said.

The transportation tariff per ton of oil, agreed upon with Ernst & Young, has been set at $3.25 per kilometer for the guarantor of the project and $3.50 for other companies, said Viktor Ott, first vice president of Rosneft.