Reconstruction of Ingushetia's oil and gas sector

Given its specifics and potential, the republican oil and gas sector ought to become the most prosperous industry in Ingushetia. However, because of a number of objective and subjective reasons, the situation in the oil and gas sector has grown so much worse over the past years, that the industry has not only been unable to contribute to the republican budget, but also has come to the brink of bankruptcy.

Every year the republic produced up to 200,000 tons of oil, but its budget received just a paltry part of the funds from selling it. Thus, the republic received less than USD2 million out of the USD22 million from oil exports in 2001. This money was barely enough to cover the loss suffered by Ingushneftegazprom ("Ingushetia's Oil and Gas Industry"). The republic's biggest company that employed more than 2,000 workers was on the verge of bankruptcy.

An audit of the industry's finance in spring this year, done by the Russian Accounts Chamber (Auditing Commission), uncovered the facility was in debt, including wages and taxes in arrears, which amounted to 340 million rubles.

Analysts believed the situation in the company was deliberately reduced to bankruptcy in order to sell it later for nothing. However, the republican leadership could not allow private hands to get the only facility on which the republican budget depended heavily and which accounted for 70% of regional gross product. This year alone, the republic has allocated about 120 million rubles to reconstruct the oil sector.

Cutting down stealing alone has made it possible to raise daily oil extraction from 300,000 to 400,000 tons. Guarding of oil products is currently handled by a republican police unit of 120 and 180 officers of a private security firm at the company, as well as a number of other agencies.

Those measures have to some extent enabled the state to be in control of distribution of oil products, but even so, as Ingushneftegazprom head Yusup Geroev says, the stealing problem remains, and its solution requires resolute measures from the republican leadership.

The most recent government meeting on October 11 this year which involved Ingushneftegazprom representatives adopted a new plan of action to prevent stealing of oil, providing that every loss caused by it must be covered by officers of the security firm.

The situation in the company has presently grown much better, according to Ingushetia's Prime Minister Timur Mogushkov. "Analyzing the state of affairs in the company, one can ascertain a complete settlement of eight-month wage arrears and a 23% reduction of the debt to budgets at other levels," he said on local television.

Yet launching the republic's first oil refinery in Voznesenovskaya, Malgobek district, became the most significant event in recovering the oil sector. Ingushetia's oil industry used to be a part of the Grozneft ("Grozny Oil") group. When the two republics were divided, Ingushetia was left without the refining stage. The new refinery with a capacity of 100,000 tons of oil a year will allow the republic not only to extract and export crude oil, but also to produce a high-quality A76 petrol, diesel fuel, and fuel oil. This in turn automatically lifts the problem of providing agricultural machinery with diesel fuel and petrol. Considering that the republic has had to search for a 25-million ruble credit to carry out the "Harvest-2003" this year, the new facility is to save a substantial part of the region's spending on fieldwork. Moreover, petrol prices are expected to drop significantly when the refinery goes into operation, while they are much higher presently than in other regions.

What future awaits the republic's oil sector is hard to forecast. A lot depends on world oil prices and investments in exploration and extraction. Even the most modest estimates indicate at least 6 million tons of liquid hydrocarbons are yet to be extracted in the republic, experts say.

Saudi Arabian, British, and American companies first evinced interest in extracting Ingushetia's oil in the mid-1990s. Oil supplies are discussed with a number of neighboring states. An agreement on trade and economic cooperation with Belarus provides for supplies of agricultural machinery and consumer goods from Belarus in exchange for Ingush oil.