Russia and Azerbaijan will terminate the agreement on the transit of Azerbaijani oil through Russia via the Baku-Novorossiysk pipeline which has operated since 1996. The relevant decree was signed by Russian Prime Minister Dmitry Medvedev on May 5, a source familiar with the text of the document told Prime Agency today.
The Foreign Ministry was instructed to inform Azerbaijan about the termination of the agreement. This bilateral Russian-Azerbaijani intergovernmental agreement on the transit of Azerbaijani oil via the Baku-Novorossiysk pipeline envisages the transportation of five million tons of oil per year at a rate of $15.67 per one ton of oil transit.
Spokesman and PR advisor to the Transneft (TRNFP) president, Igor Demin, told Prime Agency that the contract included the amount and rate which have been changed over the years. He said that Azerbaijan has failed to fulfil its obligations in pumping volumes which were set in the agreement at a level of five million tons of oil a year, but in reality amounted to about two million tons.
Demin said the termination of the contract will allow the passing of relations at the level of economic facilities, rather than political. He added that the parties will be able to negotiate a new tariff for the next year. The old one will remain this year.
Transneft started reconsidering the terms of an intergovernmental agreement with Azerbaijan in August 2011. A proposal was made to Baku to reduce the quota of pumping via the pipeline by 30-40 per cent, up to 3-3.5 million tons. The draft amendment to the contract was submitted for approval to Baku, but not approved.
Then Transneft wanted to deliver quotas unclaimed by Azerbaijan to LUKOIL LKOH. It started production at the Yuri Korchagin field in the Caspian Sea in 2010. Transneft's direct losses on pipeline maintenance which is partially empty and working at a limit of profitability, were estimated at $50 million per year.