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Lavrov: Azerbaijan oil pipeline contract termination not political

May 24, 2013 at 12:03 AM   |   Comments

MOSCOW, May 24 (UPI) -- Russia's decision to suspend its use of an Azerbaijani oil pipeline isn't the result of political tensions, Russian Foreign Minister Sergei Lavrov says.

Lavrov said Tuesday in Moscow the May 5 move by Prime Minister Dmitry Medvedev to revoke an intergovernmental agreement to transport oil through the Baku-Novorossiysk pipeline was purely a business decision.

"Any deterioration in relations between the two countries is out of the question," Lavrov said.

The decision to end the Baku-Novorossiysk transport agreement came as Russia is preparing to vacate its Soviet-era Gabala radar station in Azerbaijan following a bitter and unresolved disagreement over lease costs.

Moscow's subsequent move to terminate the Baku-Novorossiysk contract sparked widespread speculation Russia was carrying out a retaliatory move against Azerbaijan -- more supposed evidence of increasingly frosty relations between the Kremlin and its former satellite.

But Lavrov and Azeri Foreign Minister Elmar Mammadyarov each denied the events were connected or that bilateral relations were breaking down, the Azerbaijan Press Agency reported.

"I don't agree with such an assessment," the Russian foreign minister said. "The situation over Gabala radar station is known -- we failed to agree on price. Other claims are speculation and we are not engaged in speculation."

Negotiations between Azerbaijan's state energy company SOCAR and Russia's Transneft to reopen the pipeline under new terms are already under way, Mammadyarov added, urging commentators not to "politicize" the two issues.

"If grounded in terms of commerce, we can sign a new agreement (for Baku-Novorossiysk)," he said. "We solve our relations basing on the principles of friendship and peaceful neighborhood."

Azerbaijan has complained for years about losing money on the pipeline due to Transneft's tariff of $15.64 per ton of oil transported through Russian territory to the Black Sea port of Novorossiysk, set in a 1996 deal.

Since then, it has developed far cheaper pipeline and railroad routes to neighboring Georgia.

The prices Baku can fetch for the oil are further depressed because Russia mixes its high-quality Azeri Light product with its own heavy sour Urals brand at Novorossiysk, which has resulted in it selling at a discount to the benchmark Brent crude.

Russia, meanwhile, has said Azerbaijan hasn't sent enough oil through the pipeline to keep it economically viable. About 2 million tons were piped through the route in 2012, SOCAR reported.

Lavrov said the lack of sufficient oil coming through the pipeline is what's driving the decision, not anger over the Gabala radar station, News.az reported.

"As to the contract on the Baku-Novorossiysk pipeline signed in 1996, originally the sides aimed to fill up the pipe and the rate was calculated inappropriately," Lavrov said.

"In fact, the pipeline was not fully filled up which caused problems for the Russian side. So, this is a purely economic matter. Possibly, tariffs will be reconsidered."

SOCAR said last week the termination of the Baku-Novorossiysk contract, which takes effect next year, won't affect oil production in Azerbaijan or its exports.

"The decision of the Russian government will have no negative impact on the supply of Azerbaijani oil to the world markets," the company said in a statement. "Azerbaijan has established a reliable system of oil and gas pipelines and their diversification in a short term."

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