KAZAKSTAN-RUSSIA OIL PIPELINE GETS INCENTIVES FROM YELTSIN

. Russian president Boris Yeltsin on April 25 decreed substantial tax breaks for the international consortium that plans to build the Russian stretch of the Russia-Kazakstan oil pipeline. The Caspian Pipeline Consortium-Russia (Russian acronym: KTK-R) will be exempt from mandatory sales of hard-currency proceeds until the year 2013, provided those proceeds are reinvested in the completion, operation, and servicing of the pipeline and its future extensions. Kazakstani president Nursultan Nazarbaev had conferred with Yeltsin in Moscow the preceding day and claimed credit for precipitating Yeltsin’s decision — a major step toward starting the project.

Projected at a huge throughput capacity of 65 to 67 million tons annually, the pipeline is supposed to be dedicated to the oil extracted from Kazakstan’s Tengiz field, one of the world’s largest, connecting it to Russia’s Black Sea port Novorossiisk for reexport to international markets. The U.S. companies Chevron and Mobil Oil are developing Tengiz in partnership with Kazakstan; and Russia’s LUKoil is muscling in for a stake in the project. However, the Russian chokehold on export pipelines from Tengiz has hampered the field’s development and held down investment to a fraction of the projected $20 billion. Kazakstan and Chevron have shipped only insignificant amounts of Tengiz oil by small-capacity tankers and by rail via Azerbaijan and Georgia, and via Iran for reexport or swap deals.

The KTK pipeline consortium, originally formed in 1992, has experienced internal disagreements and successive redistributions of shares among its partners. But it now appears close to a final formula involving Chevron, Mobil, British Gas, state companies of Oman and Kazakstan, and Russia’s LUKoil and Rosneft. The consortium is divided into KTK-K and KTK-R, both headquartered in Moscow and having different sharing arrangements, for purposes of building the pipeline sections in Kazakstan and in Russia, respectively. (Petroleum Information Agency, April 25)

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