But foreign investors hesitate

Although the West pines for Caspian oil, the establishment of an international consortium to run the Odesa-Brody oil pipeline still remains problematic. A number of Austrian companies have announced their intention to extend the existing Druzhba (Friendship) oil pipeline as far as Vienna, Ukrtransnafta Chairman of the Board Oleksandr Todiychuk said. At present, the pipeline transporting Russian oil to the countries of Eastern and Central Europe across Ukrainian territory ends in Bratislava. It is planned to begin in the immediate future the construction of the Bratislava-Vienna segment reaching one of Europe’s largest oil refineries near the Austrian capital. “They have only discussed the idea of this project, but it was clear they were determined to put it into practice very soon,” Mr. Todiychuk added.

The Austrians held negotiations with the Ukrtransnafta chairman in Slovakia, the venue of last week’s international consultations about the construction of transport corridors for Caspian oil to be delivered to the West European market. According Mr. Todiychuk, Austria is interested in black gold precisely from Kazakhstan and Azerbaijan because current supplies from Norway are the only and therefore risky source of fuel for the country. The Ukrtransnafta head also noted that tentative agreements on the first purchases of Caspian oil had been made with oil refineries in Slovakia, Hungary, and Poland.

There being today several projects of oil transport from Azerbaijan and Kazakhstan, for example, across Romania and Bulgaria, most potential buyers in Bratislava preferred to deal precisely with Ukraine, for the Odesa-Brody oil pipeline was built last summer and a new oil terminal capable of receiving large tankers was commissioned in Odesa on December 19. “We are going to receive the first tanker in February or March,” Todiychuk promised.

It will take about $90 million to fill the Odesa-Brody pipe with its first consignment of oil. “We could find this money by ourselves, but it is not worth doing so in the current situation,” the Ukrtransnafta CEO believes. In his opinion, it should be suggested to future buyers of Caspian oil that they invest this money and thus become true partners in the project. This is intended to provide more stable operating conditions for the Odesa-Brody oil pipeline.

Mr. Todiychuk failed to say clearly what the foreign investors will gain from investing in the project. It will be impossible to deliver the first oil to Western refineries because this is just a trial run of the process fuel. In other words, following the first filling, the pipe should always be full. The Ukrtransnafta head ruled out the possibility of transferring some of the company stock to foreigners: “It is forbidden by law to privatize this country’s oil transport system, and we are not going to break this law.”

Addressing a Kyiv investment forum earlier in December, President Leonid Kuchma said that in any case Ukrainian oil pipelines would be sold sooner or later. But by all accounts, this is unlikely to occur in the next years. Earlier, US Ambassador to Ukraine Carlos Pascual said some American companies were interested in leasing the Odesa-Brody oil pipeline, but no specific negotiations have been held since then with official Kyiv. Foreigners are frightened away by different opinions about the future of the just-built pipeline in the Ukrainian leadership, especially in the parliament.

And although the Cabinet of Ministers can formally manage and lease out any kind of state-owned property, it is quite easy to foresee an upsurge of “patriotic” protests, say, in Verkhovna Rada.

It is for this reason that the government never managed to attract foreign investors to the Odesa-Brody project either at the R&D stage or during construction. The previous government, to put it mildly, did not even try to do so. Under the circumstances, the first tanker laden with Caspian oil is likely to be paid for by Ukrtransnafta. The current situation is that an international consortium to operate the already-built pipeline will benefit this country only after Verkhovna Rada, probably of the next convocation, approves an appropriate law. Pending this, none of the large international oil companies is likely to venture to come to Ukraine for fear of falling victim to political speculation.