How the Chechen Economy Works

Today Russia continues to deliver to Chechnya gas and electricity free of charge. These deliveries were not terminated either during the assault on Grozny or the seizure of the hospital in Budyonovsk. On the one hand, using the fact that Chechnya is a constituent member of the Federation, like Moscow, for example, and, on the other hand, being afraid of terror, Russian companies and state governance bodies transfer resources to it. A portion of pensions is paid on the territory of Russia, while the rest of the sum goes to Chechens and there are no guarantees that these deliveries are not used against Russia.

The actual volume of resources sent to Chechnya is unknown. While Prime Minister, Sergei Stepashin managed to get information only on the delivery of gas and electricity. Thus, from 1995 to July 1st, 1999 the federal centre delivered to Chechnya almost 4 billion KWt/h of electricity and 14 billion cubic metres of natural gas worth a total of over 1.5 billion roubles (however, official statistics give rise to doubts: according to information of the mass media, in 1997 and January-July 1998 alone, Chechnya did not pay for the delivery of gas and electricity from Russia worth more than 1.7 billion roubles).

In 1997 Russia allocated to Chechnya 963 billion non-denominated roubles (including 88 billion roubles as transfer payments, 300 billion roubles as payment of pensions by the Russian Pension Fund, 72 billion roubles as payment of transit of Azeri oil, 2.8 billion roubles as payment for the servicing of the oil pipeline). In January-July, 1998 Chechnya received more than 200 million denominated roubles (40 million roubles as transfer payments; 118 million roubles as payment of pensions by the Pension Fund; 25,361 million roubles as payment for the servicing of the oil pipeline). In the first half of 1999 Chechnya received only 122.54 million roubles out of 284.4 million roubles due to it from the federal budget: 50 million roubles "to pay wages to the employees of the budget-financed sphere of the Chechen Republic," 7 million roubles "to render assistance to socially unprotected layers of the Chechen population," 0.54 million roubles to pay for special flights and finally, 65 million roubles "to compensate for the expenses of the state concern "Chechentransneft" for ensuring the transit of Azeri oil." The last item cannot but cause the greatest surprise: as is known, out of 120,000 tonnes of Azeri oil pumped in 1992 into the pipeline, the entire 120,000 tonnes were stolen on the territory of Chechnya (in 1998 Transneft pumped through the Baku-Novorossiisk oil pipeline 2.87 million tonnes of oil instead of the planned 2 million tonnes).

As for the revenue items of the Chechen economy, one of the most important of them is the production of petroleum products, in the first place, diesel fuel, and its delivery to Russia. Meanwhile, the production of its own oil in the republic is insignificant. Chechnya produced over 4 million tonnes of oil in 1991, 3 million tonnes in 1992, slightly over 1 million tonnes in 1994 and about 500,000 tonnes in 1996. In 1997, according to official data, oil production constituted 2 million tonnes but in 1998 it dropped dramatically again due to banditry: the republic extracted 120,000 tonnes in March, 57,000 tonnes in June and 57,000 tonnes in July and about 30,000 tonnes in August. Overall, out of the planned figure of 1.5 million tonnes of oil production in 1998, Chechnya produced only a half of the required amount; moreover, 50% of this volume was produced illegally. At the end of the year, the production and transportation of oil from wells to refineries was completely stopped due to theft, which totalled, according to the statements by Chechen officials, about 700,000 tonnes for the year. According to figures of the State Statistics Committee, in January-May 1999 Chechnya extracted 96,000 tonnes of oil (as compared to 530,000 tonnes in the respective period of 1998). These figures are very illustrative.

The following facts also testify to the scope of the thefts: in October 1998 out of 6,276 tonnes of oil produced by the oilmen of the company "Oktyabrneft," only 1,246 tonnes reached the refinery. Over 80% of it was stolen. Over 300 holes were made in the 1,850 m. pipeline extending from the oil base to the Grozny refinery: "a golden valve" was made every 10 metres of the pipeline. In the area controlled by him, Shamil Basayev possessed not simply stills but a small oil refinery made in Germany. A mini-pipeline led from the oil pipeline to the mini-refinery. Not only pipes but also the very deposits began to be seized. By the beginning of 1999 the bandits had seized most of the oil derricks owned by the company "Starogrozneft" and now it has only five operating wells.

Today the bulk of oil comes to Chechnya from Russia (back in 1997 these deliveries amounted to 2 million tonnes). Oil comes not only from pipelines but also from small deposits on the territory of the North Caucasus. Stable ties have been established between Chechen field commanders and Russian enterprises: Chechnya has become an off shore zone, in which our oil is refined and is supplied back without the payment of any taxes. At the very beginning of the gasoline crisis, when the price of Russian diesel fuel came to exceed 2 roubles per litre, Chechen fuel cost less than one rouble. It is not surprising that the sowing and harvesting campaigns in the regions bordering on Chechnya are almost entirely carried out with the use of Chechen fuel: it meets up to 70% of the requirements of the Stavropol Territory and over 33% of the requirements of Kabardino-Balkaria.

Precisely the oil business is the economic basis of the independence of many field commanders from the central Chechen authorities and, correspondingly, one of the main reasons for chaos in Chechnya. Currently, there are about 300 oil stills operating in the republic and each of them yields $1,000-$1.200 of profits per day on average. At the beginning of 1998, incomes from the illegal oil refining in Chechnya were estimated at $3 million per month.

Of course, oil is not the sole source of income for Chechnya. There are other sources as well. It is clear that agriculture and other types of honest business, which by chance have been preserved in the republic, do not play a noticeable role in financial flows. The basic source of money is crime: from the theft of federal transfer payments to hostage-taking: from January 1997 to the middle of 1999 over 60 Chechen criminal groupings abducted 1,094 people, including 270 people in 1999 (17 of them were militia men and 80 - servicemen). As of the middle of the year, 514 hostages continued to be held in captivity. The trade in narcotics continues to play a large role in the Chechen economy: assistance from the Afghan Taliban movement mainly comes in the form of narcotics, which are then sold in Russia. It is believed that precisely these narcotic substances contributed to the explosive development of the pandemia of drug addiction in Russia last year: whereas at the beginning of the year Russia had one million drug-dependent people, at the end of the year this figure rose to 2 million.

Although incomes from oil refining constitute not less than 25% of Chechnya's overall incomes, it is precisely this that is of principal significance for the republic. The point is that incomes from it are the most regular and the least centralised. That is why, as distinct from regular but centralised federal transfer payments and foreign support (including the delivery of narcotics), and also as compared to non-centralised but irregular receipts from robbery, incomes from oil refining contribute to the greatest degree to the maintenance of Chechnya in its contemporary fragmented and chaotic state.

http://www.globalsecurity.org/military/library/news/2000/02/game/346.htm

Re: Chronology of Russian-Chechen relations -- part two

How the Chechen Economy Works