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New refinery planned for Chechnya

Hydrocarbon Engineering,

Rosneft chief Sergei Bogdanchickov announced on 2 February 2010 that the company is planning to build a new refinery in 2011 with rumoured annual capacity of 1 millon t, which is equal to around 2% the company's total output. Whilst the construction of a refining complex is nothing out of the ordinary in Russia, what makes this decision newsworthy is that the new refinery is to be built in Grozny, the former war-torn capital of Chechnya previously described by the UN as the most destroyed city on earth.

Not only is this project a strategic development for Rosneft as it continues to expand its countrywide operations (it already operates a subsidiary in Grozny with the Chechen government - Grozneftegaz), but it is also a highly significant move for Chechnya and the wider region. It is no coincidence that these grand plans for industrialisation and investment come a week after Aleksandr Khloponin was appointed head of the newly created North Caucasus Federal District. A trained economist, shrewd businessman and former leader of the successful industrialised Krasnoyarsk Krai region, Khloponin has been tasked with addressing a key aspect of regional security which has as yet been conspicuously absent from both the Kremlin's and local leaders' agendas.

Rebuilding work
Since being appointed by Vladimir Putin in 2007, Chechen president Ramzan Kadyrov has overseen an astonishing rebuild of both Grozny and his hometown of Gudermes, but behind the aesthetics has failed to effect any socio-economic changes, ruling the republic as his own fiefdom by resorting to brutality and autocracy. Despite their tiny size and small populations, the North Caucasian republics continue to receive disproportionately large allocations from the federal budget, with some 80-90 per cent of regional funding coming directly from Moscow.

Unemployment is estimated to afflict 50 - 60% of the able population and the lack of progress in stabilising the local labour market, and subsequent underdevelopment of both economic and social structures has undoubtedly been a key factor in the rise in regional militancy, not just in the past few years, but dating back to the decades before Dzhokhar Dudayev led the first wave of a nationalist secession movement in the 1990s. In the USSR, the Caucasus, and Chechnya in particular, had been a vital hub of Russia's domestic oil industry and oil revenues currently account for 70 - 80% of Chechnya's income, but this money has rarely been reinvested in the region and as the license holder, Rosneft (i.e., the central government) stands to take the lion's share of any contracts.

Potential dangers
In the past Chechens have been excluded from this lucrative business, despite the official existence of employment quotas, and a repeat of this scenario once the new Rosneft facility is complete in 2013 could once again stoke ethnic tensions. The oil industry and Chechnya have long been uneasy bedfellows, with official estimates in 2005 claiming up to one third of the oil produced and refined in Chechnya had been siphoned, stolen and smuggled to fund separatist activities. Refineries constitute an attractive target for terrorist attacks because of their political and economic value to the state, however, to date no large-scale attacks have been mounted on such a facility, with smaller bomb blasts and the sabotage of pipelines the preferred tactic.

Author: Samantha Wolreich

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