AZERI-KAZAKH INTERGOV’L AGREEMENT ON BTC WILL ENABLE TO DETERMINE RUE OF GAME, SOCAR PRESIDENT

AZERI-KAZAKH INTERGOV’L  AGREEMENT ON BTC WILL ENABLE TO DETERMINE RUE OF GAME, SOCAR PRESIDENT

EXCLUSIVE INTERVIEW WITH NATIK ALIYEV, THE PRESIDENT OF SOCAR

Question: In what stage is the signing of an Azerbaijani-Kazakh intergovernmental agreement on joint oil pumping via the Baku-Tbilisi-Ceyhan main export pipeline?

Answer: Much work has been done with regard to sign an intergovernmental agreement between the two countries and general principles of the Aktau-Baku transport corridor have been defined.

Earlier we supposed to sign the document on 25 May 2005 in a solemn ceremony of commissioning of the BTC pipeline, while for some reasons Kazakhstan was not ready to do it. The Aktau-Baku system requires Azerbaijan and Kazakhstan to offer definite facilities on oil transportation regimes, favorable fiscal terms.

An intergovernmental agreement is concluded to define the rules of the game: to get determined how the Aktau-Baku pipeline will function. If the governments of Azerbaijan and Kazakhstan are interested in efficiency of the Aktau-Baku transport system, they have a right to offer privileged customs, tax and many other terms for the corridor.

After the signing of an intergovernmental agreement another not least important transport condition is created.

It is signed for the establishment of a favorable regime of investing
, enabling the investors to construct terminals, ports, oil pipelines and another infrastructure.

Q: How soon do you expect the signing of an intergovernmental agreement between Azerbaijan and Kazakhstan?

A: We received a letter from representatives of Kazakhstan and there intentions for continuing talks on the issue.

Kazakh party has sent remarks on some items of the intergovernmental agreement and now they are being analyzed by our specialists.

We are going to study the essence of notes and to meet with counters from Kazakhstan in September. Such meeting will be, more probably, held in Kazakhstan and in Baku.

We want once more consider and discuss the issues concerning the agreement. I guess, we will conclude all work, initial and wait for convenient time for signing of the intergovernmental agreement.

Simultaneously, we will work over future transport agreement.

Q: Is there a necessity for signing of an intergovernmental agreement right now when the development of Kashagan field, which is a guaranteed oil supplier for BTC, is scheduled within several years?

A: It is necessary to sign an intergovernmental agreement and as soon as possible a transport agreement for the commencement of work over the Aktau-Baku transport corridor.

A project on the establishment of necessary infrastructure which would be implemented in the territory of Kazakhstan, is estimated to some $3bn.

The sum includes the construction of a terminal, port infrastructure, and 5 oil tankers of total 125,000 tons displacement. Investors will not appear until the agreements are signed and the rules of the game are defined.

It should be noted that today there are potential investors in the system вЂ" they are several participants in the Kazakh project of Kashagan field. However, the investors should know the rules of the game and their legal basis to establish a consortium, to ensure financing, and to define participation share, and as sooner the agreement is signed as sooner the real work will start.

Q: We have information that French company Total wants to establish a sea terminal n Azerbaijan under the Aktau-Baku system. Could the company start its work without having the intergovernmental and transport agreements?

A: Total is eager to establish a transport corridor, which would work on private rules. The corridor is designed for long-term operation (approximately 50-60 years), and it will constantly develop and get expanded along with oil production in the Caspian region.

Total, certainly, can start work even today, while the company is unwilling to set up such a game without having necessary agreements signed between the two countries The company wants to receive such terms which would guarantee oil transportation operations within a long time.

The investors should be sure that the rules of the game will remain unchanged, as this is a huge risk. Multi-billion investments will be required for the implementation of the project.

Q: There are terminals in Azerbaijan and they function successfully. How much necessary is the construction of a new terminal?

A: In Azerbaijan we can expand the existing infrastructure and establish a new special one the oil transportation via the Aktau-Baku corridor. Most depends on investors.

It depends on weather the investors use the existing capacities in Azerbaijan or build different terminals like Total company, offer to do it near the Pirsaat peninsula.

It’s quote another matter that the establishment of a new infrastructure is of acute importance for Kazakhstan. The Aktau port will carry out only the existing deliveries.

Here it is dealt with a new oil to be lifted Kashagan field, which means 25 million tons of oil a year. Kazakhstan should be more interested in rapid coordination and signing of documents. It will enable to start formation of an investor group for the development of infrastructure.

Q: The discharge capacity of the BTC pipeline is 50 million tons of oil a year and the AIOC will produce crude in the same volume from the Azeri-Chirag-Gunashli fields.

How will be oil pumping via the pipeline set if Kazakhstan will supply 25 million tons of oil more a year. Is it possible to expand the BTC to such volumes?

A: The shareholders in the project on the development of Kashagan field are eager to produce 25 million tons of oil a year by 2010. We will not have free capacity in the BTC by that time, as oil to be produced from the Azeri-Chirag-Gunashli field will fulfill entire discharge capacity of the pipeline.

As of current forecasts 1.2 million barrels of oil will be produced from the Azeri-Chirag-Gunashli fields, but not 1 million barrels of oil a day. The BTC can be extended to pumping 1.8 million barrels of oil a day.

However, we should carry out calculations on commercial profit of such expansion. As of preliminary forecasts, $1bn is required for the expansion of the discharge capacity of the BTC by 80%.

The most important for us today is to conclude an agreement with oil producers and undertake an obligation for crude deliveries, after which it would be possible to design a program on expansion of the BTC pipeline. If it costs $1bn, we will think weather it is worth to carry out by ourselves.

Basically, who want to pump oil let him to finance it, while we will expand the pipeline. This excess discharge capacity will be their with the same tariffs.

Q: Is there a BTC oil quality bank developed?

When oil pumping starts from Kazakhstan, the crude will get mixed with the high quality Azerbaijani oil Azeri Light.

A: We have a concept on Quality Bank. The buyers pay good money for barrel of Azeri Light. Thank to BP company this oil brand has become popular throughout the world.

Until the BTC is fulfilled with oil produced from the Azeri-Chirag-Gunashli fields, Azeri Light will preserve its quality in the Turkish port Ceyhan, while after mixture other law quality oil the mixture will be more probably sold under the title of �BTC Blend’ and cost cheaper than Azeri Light.

The essence of the Quality Bank is not to prevent the loss of the owners of higher quality oil during the mixing with low quality crude. Producers of good oil will receive compensation for loss in quality.

There is a concept on Quality Bank and the SOCAR is working over it. We know how the oil added in the BTC affects on the quality of exit product in Ceyhan.

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