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Where there is no law, but every man does what is right in his own eyes, there is the least of real liberty
Henry M. Robert

You Cannot Relocate the Oil Fields, But Transport... The state proves unable to even organize its participation in the Caspian project

13 November, 2012 - 00:00

Nothing calls forth catcalls at the summit than lost opportunities. And when the doubts and expectations of those at the top reach the mass media, the situation starts looking like slight panic. This happened concerning statements on transporting Caspian oil through the territory of Ukraine. Bad sign, gentlemen.

The last move in the Caspian game, which called forth such excitement looked like this: the Presidents of Azerbaijan and Turkey met in early May. The meeting was accompanied with a statement by Gaidar Aliyev on May 10 about the exceptional profitability of the Baku — Jeichan route. After this our press reflected the splash of despair — Ukraine was dropping out from the race for transporting Caspian oil.

We managed to respond to the stunning statements from our Azerbaijan friends ten days later: on May 20 the President’s press-secretary Oleksandr Maydannyk stated that the question had not been finally solved and warned that “it is risky and ineffective to be limited to only one source and one pipeline.” Later President Kuchma demonstrated concern in the Caspian oil no less than once a week. The tone of newspaper publications became expressively optimistic, which, however, is also not a good sign.

WHY THE RUSH?

The needed Caspian oil pipelines either have low transporting capacity or are still under construction. Most of them are only in the planning stage, like for instance Baku — Jeichan, the main competitor to the South Ukrainian option. Oil transport should start no sooner than 2001 through already extant pipelines and reach 30 million tons by 2004. They plan to use the oil terminal in Odesa and connect to the Odesa — Brody pipeline. The rush is caused by the fact that the final decision must be made by early 1999.

THE SHARKS DON’T LIKE US

Optimists still hope that the world oil sharks have long been smacking their lips over Ukraine. They are even bewildered why such leading stockholders of Azerbaijan International Operational Consortium as Shell, British Petroleum, Amoco, and Russia’s Lukoil have not yet found a way to lobby successful completion of Odesa’s Southern (Pivdenny) complex and the Odesa — Brody pipeline. This fits in with their strategic plans (at least in view of the anticipated low cost of transport). They have found a way to influence Azerbaijan and Kazakhstan. The participation schemes of these countries in the international consortiums are set up so that their foreign partners provide 100% of the investment in the projects. Azerbaijan found the best way by managing to secure by means of complicated operations 51% of AIOC exploration without investing a cent in it. You cannot move the oil field, but unfortunately for Ukraine, there are many transportation routes.

No one knows which one they will choose especially if the potential transit country is suffering from global plans and inconsistency. Fortunately, Ukraine has already given up its ambitions to 10% participation in the AIOC and concentrates on more realistic oil transport projects. These efforts resulted the invitation from the Azerbaijan government to participate in the AIOC working group considering transport routes. However, the invitation was sent on May 12, while the group was established on September 5, 1997. The fact that Romania and Bulgaria were not invited at all is poor consolation.

INVESTMENT OPPORTUNITIES FIND NO TAKERS

The EBRD issued two basic conditions for financing the oil terminal construction near Odesa. First, to negotiate with the leading companies, which own the Caspian oil and those, which control the market in Europe (in addition to those mentioned there are Exxon, Mobil, Chevron, and others) on whether they are interested in it. Second, the EBRD, just like Shell, British Petroleum and Statoil cannot get a serious guarantee from the Ukrainian side. They have also failed to secure a clear mechanism for paying the loans off. Essentially, there is no structure to accept investment for constructing the terminal. Potential investors somehow want to run a business with only one subject, which would make Ukraine’s oil transport plans come true. They do not favor state ministries; they prefer a company, maybe even state-owned, but stable. The presence of the State Oil Company of Azerbaijan (SOCA) in the best way boosted the establishment process of AIOC and another 18 consortiums for Caspian oil extraction. The appointment as first Vice President of SOCA of Ilkham Aliyev gave project participants special confidence in the future.

However, in our country international corporations cannot go the easy way. Today there are four basic owners of what is known as the project of the Eurasian Oil Transport Corridor (EOTC): the Druzhba oil pipelines company owns the existing pipeline. Eksimnaftoprodukt is the main contractor of the Odesa terminal, and Ukrnaftoterm owns it. The three first structures are the main stockholders of Ukrnaftoterm. The paradox is that the pipelines’ enterprises are placed under control of the Naftohaz Ukrainy national stock company. It seems that the bewilderment of investors regarding the variety of economic subjects slated to erect the Pivdenny Ukrainian oil transporting corridor, began to evoke a response from the Ukrainian government. Leonid Kuchma at the meeting with BP Director Ian Rushby in early May attempted to present Naftohaz Ukrainy as the long-desired sole Ukrainian representative, authorized to solve the problems of building the EOTC.

THE ROMANCE CONTINUES

According to the deputy chairman of the State Committee for Oil and Gas of Ukraine Valery Shulyko, who is coordinating the EOTC project, it would be more appropriate to form an international consortium unifying all owners and contractors of the terminal and pipelines to be used in the project. Participation in such a consortium of international corporations would link the project to the plans of Caspian oil transport. However, there is a shortage of money to complete pipeline construction and little to build the terminal. It is essential to load it with oil. Dreams that an oil terminal would be built in the middle of the Black Sea at Ukrainian expense would force oil companies reconsider their transport strategy will never come true. Still there are some romantics. The chairman of the national stock company Ihor Bakai threatened in an interview with Zerkalo nedeli to complete the Odesa — Brody pipeline at Ukrainian expense only and denies the need to form an international consortium for the project. With such enthusiasm from Ukrainian officials the oil transport corridor is likely to become a useless decoration of the Ukrainian steppe, through which not a single drop of oil will go despite all the financial sacrifices of Ukraine.

THE TRAIN IS PULLING OUT...

Everybody understands that the AIOC and IMF do not care about the electoral difficulties of Ukrainian policy. The Cabinet of Ministers failed to confirm the working group for negotiations with the AIOC. If Ukraine takes too much time to solve its internal problems, they could just ask us to wait for the next project.

 

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