Follow-up on Institutional Issues (Phase B) - Multimodal Oil Transport System and Creation of a Common Operator (98.01)

Project Description

An analysis of the possibilities of increased volumes of oil transported from the Caspian Basin to the Black Sea through the Multimodal (rail, ship) Transport System has been carried out. A detailed analysis of the conditions of the infrastructure and the current economics of transport has been concluded. This was done, by desk research, local data collection, intensive visiting of the beneficiaries, conducting interviews with local authorities, and creating a synthesis of data and information into a coherent proposal. A presentation of the necessary improvements in the infrastructure and the required investment emerged along with the requirement for the establishment of the Common Commercial Operator.

Intended results/encountered limitations:

For Objective 1:

* To measure, further elaborate and analyse the Pre-Feasibility Study�s findings and deliver a definite study on the potentiality of the system;

* To analyse the conditions of an uninterrupted and efficient flow of oil and oil products from the hydrocarbon-producing regions of Caspian Sea and Central Asia, to the international markets;

* To identify the technical and management requirements and constraints for the implementation of the Multimodal Oil Transport System, capable of carrying 10 million tons of oil or oil products per year;

* To recommend strategies, policies and investments to be followed to overcome the constraints identified above.

For Objective 2:

* To present to the Beneficiaries the appropriate management structure for the establishment of the Common Commercial Operator;

* To produce the institutional mechanisms serving the overall project objectives in general, and the establishment of the Common Commercial Operator in particular.

Project Objective

Objective No. 1

To elaborate a Feasibility Study "Multimodal Oil Transport System and Creation of the Common Commercial Operator" - A Comprehensive Study for Kazakhstan, Azerbaijan, Georgia, aiming to further elaborate the Pre-Feasibility Study`s findings carried out in the framework of the INOGATE 96.07 and 97.04 projects and to provide a definite research on the potentiality of the system;

Objective No. 2

To re-confirm the viability and the necessity for the establishment of the Common Commercial Operator, the establishment of which is envisaged in the INOGATE Umbrella Agreement on the Institutional Framework for the Establishment of Interstate Oil and Gas Transportation Systems;

To present the appropriate management structure for the establishment of the Common Commercial Operator

Expected Results

For Objective 1:

· It has been proven that the Multimodal Transport System is an efficient mean of transport for both crude oil and oil products. A Multimodal Transport System across the Caucasus region carrying oil from the eastern shores of the Caspian Sea to the Black Sea is already in use to a limited extent. This system involves:

o Kazakh rail and pipelines to Aktau Port

o Loading to tankers

o Unloading from tankers to terminals of the Baku area in Azerbaijan

o Loading of rail-tank cars for transport through Azerbaijan and Georgia

o Unloading to Black Sea terminals

· The existing infrastructure is not capable at present to handle the desired 10 million tons of crude oil per year, mainly because of the lack of certain assets for which moderate investment is required and due to management constraints.

· As a short term upgrade of the existing system, the priority investments required to take the system to 8 million tons of crude oil per year are the following:

o Cleaning Station at the Baku area (Azerbaijan)

o Dredging works for both the port of Dubendi (Azerbaijan) and the Port of Aktau (Kazakhstan) in order to reach a capacity of 10 million tons per year, major investments are required:

§ Construction of the Supsa Maine Export Terminal on the Black Sea;

o Rehabilitation of the Dubendi Port (Azerbaijan). The total cost of the above is estimated at $58.60 mln.

· The railway of the region can scope with the above volumes with their present infrastructures. The optimization of the overall transport operation of the Multimodal Oil Transport System lies upon the efficient management of the system`s assets.

· Economic modeling demonstrates that the transport entities of the three countries involved in the MMT, charging a total route tariff of $24.7 ton of crude oil will earn a total of $250 mln per year in transit fees that will significantly boost their national economies.

For Objective 2:

· A transportation project involving several states and various modes of transport requires an advanced degree of co-ordination. Apart from the investments, in order for the above system to operate and carry 10 million tons of crude oil or more, an efficient operating management structure is required. This structure is the Common Commercial Operator. The Common Operator is conceived as being an entity to which all the participating states (including state-owned companies) and/or entities (port authorities, railroad companies, etc) will participate.

· The main objectives, functions and effects of the Common Commercial Operator are demonstrated within the elaborated Feasibility Study. A basic structure of the Common Commercial Operator and an organizational chart for the Common Commercial Operator has been elaborated and proposed. The Proposed management structure is a precondition for the promotion, financing, realization and operation of the Multimodal Oil Transport System.