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. Last Updated: 07/27/2016

Republic Hopes for Cash Piping Early Azeri Flows

GROZNY -- The real hope for the Chechen oil industry, and the republic as a whole, is the pipeline that should soon carry Caspian Sea oil from Azerbaijan across Chechnya to Russia's Black Sea terminal in Novorossiisk.

The flow from the huge Caspian reserves, described as the world's last great untapped source of oil, would bring Chechnya substantial transport fees and potentially huge profits from the refining opportunities.

The pipeline already exists, stretching from the Caspian port of Baku west to Novorossiisk. The weak link, politically and infrastructurally, is the section of the pipeline that traverses Chechnya.

But since the pipeline is mostly underground, the Chechens say it is relatively undamaged. The eastern section, from Dagestan to Grozny, needs to be reversed since it is designed to carry oil in the opposite direction. This is a relatively simple task, and the Chechens are asking $2 million from Russia to bring the pipeline into working order.

Chechnya's President, Aslan Maskhadov, signed a key agreement with Russian Prime Minister Viktor Chernomyrdin in Sochi in mid-June that paved the way for cooperation on the oil pipeline.

The two agreed that the Russian Fuel and Energy Ministry and the Chechen oil company Yunko should conclude a tripartite agreement with Azerbaijan to cover the responsibilities and interests of the three parties, as well as security issues.

This represents a breakthrough for Chechnya: Previously, Russia had insisted on acting on Chechnya's behalf in negotiations with Azerbaijan.

Yunko's president, Kozh-Akhmed Yarikhanov, said he is confident that Russia, Azerbaijan and Chechnya will sign a tripartite agreement on transporting the Caspian oil within a month. Once the political deal is sealed, questions of tariffs and financing repairs can be sorted out, he said. Chechen officials say they can get the pipeline up and working within two months of a deal being signed.

"Today the interests of Russia and Chechnya practically coincide," agreed Chechnya's deputy prime minister, Movladi Udugov. "To be honest they only really coincide when it comes to the oil deal."

Former top field commander and now deputy prime minister Shamil Basayev said the Chechens would guarantee the safety of the pipeline and anyone coming to work in the territory.

Russia is as anxious as Chechnya to get the pipeline ready to receive the first oil from the Baku-based Azerbaijan International Operating Co., or AIOC, which is due to start flowing later this year. If the Chechen section is not prepared in time, the AIOC has the option of connecting to an existing Georgian pipeline, or resorting to costly barges or railways to move the first export oil.

The existing Baku-Novorossiisk pipeline will be able to transport approximately 100,000 barrels a day of "early oil" that AIOC expects to start flowing in September.

AIOC has said some additional capacity could be built into the Chechen pipeline, but new pipelines will have to be built to accommodate the 700,000 barrels per day that AIOC expects to transport by 2010.

Russia is angling for a second northern pipeline that passes through its territory, which would allow Moscow to maintain its influence in the region. But proposed southern pipelines -- through Azerbaijan, Armenia and Georgia and ending at the Georgian port of Poti or the Turkish Mediterranean port of Ceyhan -- have found favor as a way to sidestep Chechnya and Moscow altogether.