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. Last Updated: 07/27/2016

CPC Hit with New Back Tax Claim

MTMoscow has opposed doubling the pipeline's capacity, as this would increase a bottleneck at the Turkish straits.
The Chevron-led Caspian Pipeline Consortium has been hit with fresh back taxes as its struggle with Moscow over the fate of the country's only private oil link shows no signs of easing.

The consortium plans to mount a legal challenge to claims that it failed to pay $290 million in taxes for 2004 to 2005, CPC spokeswoman Olesiya Kuznetsova said Friday. The Federal Tax Service levied the taxes July 13.

Analysts warned that the new taxes, fresh on the back of claims that the CPC also underpaid taxes for 2002 to 2003, were a means of applying pressure on the consortium as it battles against the Kremlin's desire for increased control.

The 1,510-kilometer pipeline, which connects oil fields in Kazakhstan to the Black Sea port of Novorossiisk, is the only oil export link that falls outside the monopoly held by state-controlled Transneft.

"This type of project is viewed very differently today," said Tanya Costello, an analyst at Eurasia Group. "Russia and Transneft seem to be pushing for a high level of control over the project," she said.

Yukos was felled by back tax charges and its key assets passed into the hands of state-controlled Rosneft. President Vladimir Putin has also cracked down on foreign oil companies, spearheading the effort to dilute the share of Shell and BP in two of the country's biggest oil and gas projects.

With a 15 percent stake in CPC, U.S. oil major Chevron is the largest of eight private companies involved in the venture. The Russian and Kazakh governments have the largest shares, with 24 percent and 19 percent, respectively. Russia passed its shares to state pipeline monopoly Transneft last month. Other shareholders include BP, Shell, ExxonMobil, LUKoil and Rosneft.

Moscow has been seeking to garner greater control over the project and its revenues, facing harsh opposition from the other shareholders, analysts say.

It has opposed plans to double the pipeline's capacity to 1.4 million barrels per day, a move that would greatly increase the amount of oil in direct competition with Russian products for passage through the already-crowded Turkish straits.

Kuznetsova said the shareholders did not discuss the issue at a Friday meeting. "All they discussed was eurobonds," she said, adding that the members decided to set up a working group to consider issuing eurobonds, to be led by Transneft. Market sources have said the eurobond could be as high as $5 billion.

The consortium has to pay back $5.5 billion in loans from its private shareholders before sharing profits with its state owners.

The consortium's members have made a series of compromises in a bid to ease Moscow's opposition to expansion, including the construction of new pump stations, storage tanks and a third offshore loading system, as well as tariff adjustments.

Costello of Eurasia Group said the state could likely hold out for several years, as no pressure to expand the pipeline exists until the Kashagan field in the Caspian Sea comes online.

Kazakh officials say they expect the first crude to flow from the field no earlier than 2009, while Costello said a 2012 estimate seemed more appropriate.

The CPC is already fighting a back tax claim of 4.7 billion rubles ($183 million) for 2002 to 2003.