Publication: Monitor Volume: 4 Issue: 111

Kyiv announcedyesterday that it prepares a major bid for importing Azerbaijani oil andtransiting it to Western Europe. The Ukrainian government made public itsdecision to initiate the formation of an international consortium for thatpurpose. The government appointed a special task force to work out thetechnical and financial plan before the end of this year. Ukraine wants thisproject subsumed to the European Union’s plan for a transit corridor fromCentral Asia via the South Caucasus and Ukraine to Central and Western Europe.

As outlined yesterday by task force chief Valery Shuliko at a briefing, theUkrainian plan envisages:

–expanding the handling capacity of the Pivdenny oil terminal, near Odessaon the Black Sea, to forty million tons (from the current twelve million)

–modernizing four Ukrainian refineries with a combined processing capacityof 20 million tons of crude annually;

–completing the pipeline from Pivdenny to Brody on the Polish border, wherethe Ukrainian pipeline would branch into the Polish pipeline system, whichin turn branches into German pipelines. The operation entails laying morethan 400 kilometers of pipe (in addition to some 250 already laid) andboosting the annual throughput capacity to thirty million tons (from thefourteen million initially projected).

Kyiv projects the aggregate cost of these undertakings at US$800 million.Yesterday’s reports did not mention a solution to the problem of shippingthe oil on the Black Sea from Georgia to Ukraine. (Ukrainian agencies, June9; Eastern Economist Daily, June 10)

Ukraine’s political and economic motivations are as old as the state itself:They have to do with reducing its risky dependence on Russian oil. Tworecent circumstances favor this plan. First, the worldwide drop in oilprices, which seems to deter Western investments in the planned pipelinefrom Azerbaijan to Turkey. This situation in turn has led Azerbaijan andUkraine recently to discuss a Ukrainian alternative route for the “big” oildue on stream after 2000 (For background see the Monitor, May 12, 15, 26 and27). Second, the cost overruns on the Azerbaijan-Georgia pipeline project.These have led to a dispute between Baku and the international consortium,unnecessarily raising a further question mark on the main export route.

The cost effectiveness of the Ukrainian route remains to be proved.Geographically and politically, however, Ukraine constitutes the most directand safest export route for Caspian oil to Central and West Europeanmarkets. Ukraine’s candidacy to that role can prod Moscow into redoublingefforts to divert Caspian oil exports via Russia.