- The Washington Times - Wednesday, May 15, 2002

YUZHNAYA OZEREIKA, Russia The Caspian Pipeline Consortium (CPC), a $2.65 billion pipe that runs 910 miles from Kazakhstan's giant Tengiz field on the Caspian Sea to a terminal on the Russian Black Sea, was designed to bring large amounts of oil drilled by ChevronTexaco Corp. to the nearest open sea.

Since November, it has been doing just that, allowing the American company to halve the cost of delivering the crude to its clients' tankers. The crude was previously transported by old Russian pipelines and by train.

But it has also had another effect.

As the largest foreign investment in Russia, it has shown in a big way what thousands of small Western companies have discovered in small measures: how foreign investors are shaken down in the world's largest country.

CPC executives interviewed in five locations in Russia and Kazakhstan said corruption in Russia takes place much in the same way everything else takes place there: bureaucratically.

"They most often use real and imagined regulations as a smoke screen," one oil executive said.

"A regulator will come up and say, 'Look, the code says you must do this study before we give you a permit, it's the law, and by the way, you must do it with a certain type of company that is licensed in this region, and there is only one company licensed, and this is the company you must use.'"

"In a way, you can't blame them," he added. "They make $50 or $100 a month and they have jobs that give them enormous power."

However, Frederick Nelson, CPC's deputy general director for projects, called suggestions of bribes being handed out "pure speculation." He added, "In my four years [as the top manager of the project], no one provided me evidence that money was 'passed around.'"

The CPC sources gave these examples:

•An agency in Russia is charged with ensuring that certain utilities not be built on certain mineral deposits. For instance, an acid plant should not be built over a gold deposit, lest the plant ruin the gold.

"The pipeline went over many oil and gas deposits that were well documented, depleted and sometimes decommissioned," a source familiar with the situation said.

"We fought for 18 months, we brought in lots of specialists and eventually we got Moscow to overrule their local regulators. And as it turned out, the brother-in-law of the woman who was requiring us to do that study was the head of the agency that would have done it."

•At the oil-tank farm, the fire department proved a tougher adversary. In addition to the $4 million worth of lightning towers, "the fire department forced us to replace perfectly good [water cannons] that cost $1,500 a piece with Russian ones that cost $22,000 a piece," another executive said.

•CPC executives expressed anger about an administrative ruling by the port authority of Novorossiisk on the Black Sea to extend its jurisdiction to the terminal, which is several miles away, and charge a fee of $30,000 to $50,000 each time a tanker loads up.


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