Russia, Azerbaijan Seek New Oil Transit Deal

MOSCOW, May 21 (RIA Novosti) – Russia and Azerbaijan are negotiating a new oil transit agreement, Russian Foreign Minister Sergei Lavrov said during a news conference on Tuesday after a bilateral meeting with Azerbaijan’s foreign minister.

“Our respective energy agencies and companies are working on preparing a new intergovernmental agreement which will reflect current realities,” Lavrov said.

Last Tuesday, Russia published a document terminating the 1996 transit agreement. Lavrov explained that the 1996 agreement had been signed “on the assumption that the pipeline would be filled 100 percent and based on that, the tariff was established.”

That condition was not met, Lavrov said, adding the agreement had been terminated for economic reasons.

Sources in the State Oil Company of Azerbaijan (SOCAR) were cited by local media outlets in Azerbaijan on May 14 as saying they had not received any advance warning of the termination.

However, later that week, Deputy Head of Azerbaijan’s Presidential Administration Novruz Mammadov told local media that “the transportation of oil at the moment is simply not profitable to both parties in terms of economic and commercial viability.” Mammadov added “we accept the decision of the Russian Federation as perfectly normal.”

Speaking after Tuesday’s meeting, Azerbaijan’s Foreign Minister Elmar Mammadyarov confirmed that talks are currently underway between SOCAR and Russia’s oil pipeline operator Transneft on this issue, and urged people not to politicize the issue, Trend News Agency reported.

The 1996 agreement to pump oil via the Baku-Novorossiysk pipeline envisaged the transit of at least five million metric tons of oil a year, with a tariff of about $15.70 per metric ton. However, SOCAR sent about two million metric tons of oil via the pipeline in 2012 and 2011, and planned to further reduce that to 1.6 million metric tons this year.

Transneft said it had lost about $50 million a year because the pipeline was operating at half capacity. Azerbaijan has been having problem filling the pipeline to capacity as its oil exports have been steadily falling since 2008.

Earlier this year, Moscow announced it would no longer rent the Gabala early warning radar station in Azerbaijan, after the two sides failed to agree on new terms. The lease for Gabala, signed in 2002, expired in December 2012. Russia is replacing Gabala with new systems in southern Russia.

Last June, Russia said it would double the number of personnel and deploy Iskander short-range ballistic missiles at its Gyumri military base in neighboring Armenia.


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