OREANDA-NEWS. December 17, 2010. Final Investment Decision (FID) to expand the Caspian Pipeline Consortium (CPC) pipeline mechanical capacity to 67 MTPA was passed in Moscow. Sergey Shmatko, Minister of Energy of the Russian Federation, Lyazzat Kiinov, Deputy Minister of Oil and Gas of the Republic of Kazakhstan, representatives of Transneft and KazMunaiGaz National Companies, as well as CPC General Director attached their signatures to the document approved by the Shareholders of the Consortium. The document sanctions commencement of the work on expansion of the pipeline throughput, reported the press-centre of CPC.

The Decision defines all parameters of the Project: from financial, economic and Project Implementation Schedule to the HSE parameters. Construction is to begin in spring next year. Expansion is envisaged in three phases while completion of the Project is planned for 2014.

Estimated CPC Expansion Project cost is USD 5.4 bln. Financing of the Project and its ultimate profitability are guaranteed by the Ship or Pay Agreement under which Shareholders – Producer Companies undertake to use the expanded pipeline capacities. If the agreed delivery volumes are not reached, a relevant Producer Company commits to make payments to CPC in the amount of CPC's revenue shortfall.

Expansion Project will be primarily financed with CPC’s tariff revenue accumulated under the Shareholders’ prior decisions to increase the tariff, to reduce the rate of interest on the loans and to suspend debt servicing.

Upon completion of the document signing ceremony the RF Minister of Energy stated as follows: “Caspian Pipeline Consortium is an up-to-date project that is fully consistent with the national interests of Russia. Russia would remain the biggest energy partner for the Kazakh hydrocarbons transit, while Kazakhstan would be able to export more crude oil thus increasing its own production. The Tengiz – Novorossiysk pipeline is very important for the development of the large oil fields of the Caspian region, including but not limited to those being developed by the Russian companies. The Russian and Kazakhstan producing companies would be able to get the full price for their crude and save on the transportation cost as compared to the alternative export routes. I would like to stress the importance of this project for the economy of these two countries. It will give a new spin to the cooperation between Russia and Kazakhstan in the field of energy.”

Commenting on the decision Transneft President Nikolay Tokarev expressed his satisfaction with the completion by the Consortium Shareholders of anything but simple work that took several years: agreement of all terms and conditions for implementation of Phase 2 of CPC development. Mr. Tokarev stressed that signing of the Expansion Project FID is an important milestone in the history of the Consortium, which will take it to the breakeven level while preserving the interests of Russia and Kazakhstan, as well as private companies participating in the Project.

President of NK KazMunaiGaz Kairgeldy Kabyldin congratulated all attendees on the signing of the document and emphasized exceptional importance of CPC expansion for delivery of the increasing Kazakh crude oil volumes to the international markets. "The decision made today is especially relevant within the context of the decisions on further increase of production at the fields such as Tengiz and several others. It also yet again witnesses importance of the Project as one of the vectors of Kazakhstan oil industry development. We are pleased to be able to attain this challenging objective together with our Russian partners and international oil and gas companies", said he.

“This important achievement was made possible by the leadership and support of the governments of Russia and Kazakhstan,” said Chevron Chairman and CEO John Watson. “Chevron appreciates the valuable contributions of our partners, Transneft and KazMunaiGaz, toward sanctioning of the CPC expansion project.”

General Director of Caspian Pipeline Consortium Nikolay Platonov, in his turn, stated: "The decision long-awaited by the Company was made today. CPC is ready to embark on implementation of the Project and to perform all work in strict compliance with the parameters set by the Shareholders, as well as with all statutory norms of Russia and Kazakhstan. Application of the best technologies and equipment will minimize environmental impact and implications for the social environment and, thus, commission a pipeline system that guarantees safe and efficient transportation of Kazakh and Russian oil to the international markets over decades of stable operation. CPC Expansion will be of practical value not only for the Shareholders in the Project but also for the regions where the pipeline is located where the Project will generate new jobs, new work and materials orders".

CPC Expansion Project that envisages expansion of the pipeline throughput to 67 MTPA includes construction of 10 additional pump stations (2 in Kazakhstan and 8 in the Russian Federation), six crude oil tanks in the vicinity of Novorossiysk and a third single point mooring at CPC Marine Terminal, as well as replacement of an 88 km pipeline section in Kazakhstan.

CPC Shareholders: Russian Federation (represented by Transneft – 24% and CPC Company – 7%) – 31%; Republic of Kazakhstan (represented by KazMunaiGaz – 19% and Kazakhstan Pipeline Ventures LLC – 1.75%) – 20.75%; Chevron Caspian Pipeline Consortium Company - 15%, LUKARCO B.V. - 12,5%, Mobil Caspian Pipeline Company – 7.5%, Rosneft-Shell Caspian Ventures Limited – 7.5%, BG Overseas Holding Limited - 2%, Eni International N.A. N.V. - 2% and Oryx Caspian Pipeline LLC – 1,75%.