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Azerbaijan: Oil Pipeline Project Falls Behind Schedule

  • Michael Lelyveld

Backers of the Baku-Tbilisi-Ceyhan oil pipeline have missed their target date for approval of the Caspian project, as cost and tariff estimates rise. But supporters continue to voice confidence that the project will go ahead after years of planning for the Caucasus energy route.

Boston, 19 July 2002 (RFE/RL) -- Azerbaijan's key pipeline project has fallen behind schedule for approval, sparking speculation over possible reasons for the delay.

On 17 July, Dow Jones Newswires reported that the final go-ahead for the Baku-Tbilisi-Ceyhan oil pipeline from the Caspian Sea to the Mediterranean will be held up at least until 31 July because Italy's ENI oil company has no board meeting scheduled before then. Britain's BP oil company, the consortium leader for the project known as BTC, had previously predicted approval by the end of June.

On 28 June, consortium spokeswoman Tamam Bayatly told the Interfax news agency that BP had given its blessing to the long-awaited project and other members of the group would follow in "the next few days." The group's top manager, Michael Townshend, then told Azerbaijan's ANS television that the approval "could well happen by mid-August," "Caspian Business News" reported. Townshend added that this "is not necessarily a precise date."

Although BP owns 38 percent of the venture and ENI recently took a 5 percent share, all nine members must make final commitments before the 1,730-kilometer project can officially begin. Townshend continued to voice confidence in the outcome, saying that all the main contractors for the project are expected to be chosen in the next six weeks.

A few weeks one way or the other will not make much of a difference on a project that has been planned and debated for years. But delays are bound to raise questions among BTC skeptics, who have argued just as long over the commercial and political issues behind the U.S.-backed line.

According to Dow Jones, an ENI spokeswoman has denied rumors that the company wants to withdraw its sponsorship. ENI was a late entrant to the consortium last November and was also recently rumored to be seeking an increase in its interest to 10 percent. The company has said little, making it hard to know which rumor to believe.

The maneuvering seems to be related to ENI's interests in Kazakhstan, where its Agip subsidiary is the operator of the project to develop the Kashagan oil field, one of the world's largest finds in the past 20 years. ENI has hedged its bets on exporting from Kashagan by buying a share in the BTC route, even though backers insist that the line will be profitable with Azerbaijani oil alone. The pipeline's capacity is 1 million barrels per day.

But U.S. government supporters of BTC have cast their eyes across the Caspian for years in the pursuit of an energy corridor through the Caucasus that would include Central Asian oil. Kazakh officials including President Nursultan Nazarbaev have also spoken periodically about renaming the project the "Aktau-Baku-Tbilisi-Ceyhan" line, with the idea of barging oil from Kazakhstan's Caspian port of Aktau.

Over the years, the signals on Kazakh participation have been hard to read because they have been inconsistent. In November 1999, Nazarbaev made a pledge to ship oil through the BTC line during a security summit in Istanbul, but he later backtracked, complaining that the promise was made under pressure. At times, he has promoted the Aktau idea. At still other times, Kazakh officials have said the choice is up to the oil companies, not the government.

Ironically, two of the most recent members in the BTC consortium -- ENI and France's TotalFinaElf -- have explored a pipeline route from Kazakhstan through Iran, an option that Washington has strongly opposed. The export question has been dragging on for so long that it may not be finally settled until BTC is actually built.

In the meantime, the final word on BTC has been hard to pin down. This week, "Caspian Business News" quoted Townshend as saying that the estimated cost of the pipeline has crept up to $2.95 billion. The increase of $75 million is a slight one from previous estimates of $2.875 billion. But two years ago, backers worked hard to deny reports that the project would rise above the psychological ceiling of $3 billion. At the 1999 summit, officials used the figure of $2.4 billion.

The pipeline tariff, or the cost of shipping oil, has also risen to "just over $3.30 a barrel" for BTC shareholders. Other shippers will have to pay more. Followers of the project over the years will remember that the target tariff was $2.58.

Turkey's two-month-old government crisis has also lent an air of uncertainty to its ability to build its part of the project. But so far, there have been no public signs of second thoughts about a project that has been a strategic goal for both Ankara and Azerbaijan.

Final questions of financing also remain to be settled. The consortium members plan to borrow $2 billion, but specifics are still murky. For over a year, reports have suggested that the World Bank would lend $500 million. But Townshend said, "They haven't yet told us exactly how much they are willing to lend." Details on private lending have been unavailable.

Yet for all the questions, there seem to be none about whether some of the world's biggest oil companies will be able to raise money for the pipeline, which is still expected to be built by 2005. Most analysts believe that the project has had so much support that it will overcome the remaining hurdles, sooner or later. After years of planning and preparation, a decision against building the line would be far bigger news than a decision to go ahead.

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