The contract between the Azerbaijan Republic and the Russian Federation on transit of the Azerbaijani oil through the territory of the Russian Federation

of January 18, 1996

The Azerbaijan Republic and the Russian Federation which are hereinafter referred to as with the Parties, aiming at further strengthening of good-neighbourhood, wishing to develop bilateral mutually beneficial economic cooperation, recognizing the aspiration of the Azerbaijan Republic to develop reliable and effective ways of transportation of the Azerbaijani oil on the international markets, aiming to create favorable conditions for transportation of the Azerbaijani oil on the territory of the Azerbaijan Republic and its transit through the territory of the Russian Federation and considering Agreement provisions to the Energy Charter of December 17, 1994, agreed as follows:

Article 1

1. The parties cooperate for the purpose of creating favorable conditions for transit of the Azerbaijani oil on trunk oil pipeline through the territory of the Russian Federation and the contract performance concluded between the organizations authorized by them according to Article 6 of this Agreement.

2. The parties take all measures depending on them for the simplification of program implementation, projects and works necessary for ensuring transit of the Azerbaijani oil through the territory of the Russian Federation and the related acceptance, delivery, transportation, transfer, storage and loading of the Azerbaijani oil, including issue of the corresponding permissions without unreasonable delays and restrictions.

Article 2

According to Article 1 of this Agreement, but without limiting general sense of the specified Article, the Azerbaijani Side:

- guarantees delivery since December, 1996 of the corresponding amounts of the Azerbaijani oil, that amounts of the Azerbaijani oil which is handed over for transit through the territory to the Russian Federation will annually increase and will constitute at least 5 million tons per year in 2002;

- agrees to abstain from participation in any international treaty which can entail restrictions or obstacles for transit and the related acceptance, delivery, transportation, transfer, storage and loading of the Azerbaijani oil if such international treaty does not correspond or contradicts this Agreement.

Article 3

According to Article 1 of this Agreement, but without limiting general sense of the specified Article, the Russian Side:

- provides freedom of transit of the Azerbaijani oil through the territory of the Russian Federation according to Agreement provisions to the Energy Charter of December 17, 1994;

- guarantees inclusion of the Azerbaijani oil in transportation schedules and oil export and since December, 1996 free and stable acceptance and transit of the Azerbaijani oil through the territory of the Russian Federation on trunk oil pipeline against collection point on the Russian-Azerbaijani border to tanker board in the port of Novorossiysk according to requests of the Azerbaijani Side, that amounts of transit of the Azerbaijani oil will annually increase and will constitute at least 5 million tons per year in 2002;

- recognizes that the Russian Side is not owner of the Azerbaijani oil transported according to this Agreement and that the property right to the Azerbaijani oil belongs to suppliers of this oil;

- agrees to abstain from participation in any international treaty which can entail restrictions or obstacles for transit and the related acceptance, delivery, transportation, transfer, storage and loading of the Azerbaijani oil if such international treaty does not correspond or contradicts this Agreement.

Article 4

For the purposes of this Agreement for services in transit of the Azerbaijani oil through the territory of the Russian Federation on trunk oil pipeline from collection point on the Russian-Azerbaijani border to tanker board in the port of Novorossiysk the rate in the amount of 15, of the 67th US dollar for one metric ton which is the single payment is established. No other payments for such transit, in addition rate, are made.

Article 5

Disputes between the Parties in connection with application and interpretation of this Agreement are subject to negotiated settlement.

If negotiations will not lead to dispute settlement, such disputes are subject to permission according to the procedure, provided by relevant provisions of the Agreement to the Energy Charter of December 17, 1994.

Article 6

The organizations authorized by the Parties will sign contracts in which will approve detailed conditions of acceptance, delivery, transportation, transfer, storage, loading, condition of calculations, warranty obligations and other conditions of transit of the Azerbaijani oil through the territory of the Russian Federation according to this Agreement.

If the organization authorized by the Azerbaijani Side does not provide delivery for transit through the territory of the Russian Federation on trunk oil pipeline of the Azerbaijani oil in the amounts provided in contracts, it compensates the losses suffered in this regard by the organization authorized by the Russian Side.

If the organization authorized by the Russian Side does not provide transportation of the Azerbaijani oil in the amounts provided in contracts, it compensates the losses suffered in this regard by the organization authorized by the Azerbaijani Side.

Provisions of the second and third parts of this Article are not applied since December 1, 1996 during the period equal to the period of temporary application of this Agreement.

Article 7

The loads conveyed as transit goods through the territory of the Russian Federation to the Azerbaijan Republic and intended for production and oil transportation are exempted from taxation by the customs duties, taxes and fees on customs clearance. When implementing examination of such loads the principle of the minimum sufficiency is applied.

Issue of permissions to transit is performed in accordance with the legislation of the Russian Federation without unreasonable delays and restrictions.

Article 8

The Intergovernmental commission for observation of accomplishment of this Agreement is hereby established. Each Party will be provided to the Commissions by two representatives. The commission will accept the rules of procedure.

Article 9

In case of the force majeure circumstances making impossible accomplishment of the obligations specified in this Agreement, the Parties will consider the situation for the purpose of adoption of the mutually acceptable decision on minimization of negative effects of these circumstances.

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