Turkmen Report: July 22, 2001

21 July 2001

An independent source reports that Turkmen President Saparmurat Niyazov flew to one of his palaces in Avaza on the Caspian seashore after having granted his cabinet ministers a 10-day vacation. Surprisingly, there was no traditional welcoming ceremony at the town's airport, in fact, the president flew by helicopter directly to the resort. It was initially reported that he would spend five days at the sea, but his vacation was unexpectedly prolonged.

This change is reported to be linked to a worsening of Niyazov's health. Turkmenbashi suffers from diabetes and thrombophlebitis. When visiting the Mary and Balkan velayats this year he did not even participate in traditional parties with his ministers. Turkmen official news agencies have not confirmed this information. (RFE/RL Turkmen Service)



16 July 2001

A 45-km oil pipeline will link the Korpedzhe oil and gas field with the Ekerem sea terminal on the Caspian, in western Turkmenistan. The pipeline is being built by the Turkmenneft state concern's Neftespetsmontazhstroy (special oil construction and assembly) group and by the Balkanneftegazstroy (Balkan oil and gas construction) group. Teams from these groups have already laid pipes in the first, 15-km section of the new transportation route.

Korpedzhe is the biggest natural gas deposit in western Turkmenistan. It is where the Turkmen-Iranian Korpedzhe-Kord-Kuy gas pipeline begins. Since independence, this pipeline has become one of the major export routes for Turkmen gas to world markets. This hydrocarbon deposit also contains considerable reserves of crude oil. At least 130,000 tons of oil are extracted there annually. (Turkmen State News Service)



16 July 2001

Five officers of Turkmenistan's secret police, the KNB (former KGB), raided the Baptist church in the western town of Balkanabad (formerly Nebit-Dag) during a service on 7 July, church sources have told the Keston News Service. During the raid the officers took down the name, address, and place of work of all those present and warned them not to meet again under threat of confiscation of their church building. They also warned the Baptists not to take their case to court, specifically mentioning the case of the Pentecostal church building that was confiscated in the capital Ashgabat, whose pastor, Viktor Makrousov, has tried -- so far unsuccessfully -- to challenge the confiscation in court. "Don't go to a judge," the officers reportedly told the Baptists, "there will be no result."

The raid came at 5 o'clock in the evening, exactly 12 hours after Baptist Pastor Vasilii Korobov -- who had been visiting Balkanabad -- left to return home to Ashgabat. Keston has not been able to independently verify the reports of the raid. (Keston News Service)



11 July 2001

The growth rate in drug addiction in Turkmenistan over the last two years has reached unprecedented levels. Directly adjacent to war-stricken Afghanistan, where so many narcotics are grown, the channels for drug transport by members of the Taliban represent a serious danger -- and not only for Turkmen citizens.

Some experts suppose that the withdrawal of Russian border guards at the end of 1999 initiated by Turkmenistan has ensured the "transparency" of the southern border of Turkmenistan. However, the 850-kilometer Turkmen-Afghan border is under intensified control by local special services. The numerous arrests of smugglers and the confiscation of dozens of tons of drugs and weapons testify to the state of the permanent "opium war" that Turkmen border guards are fighting against the Afghan drug mafia. At the beginning of 2000, the State Committee got rid of more than 700 kilograms of heroin, 6.5 tons of opium, and also 18 tons of poppy and koknar seeds.

The flow of Afghan narcotics goes basically from the Iran-Turkmen and the Uzbek border. The path of drug transport goes like this: Tajikistan-Uzbekistan-Turkmenistan-Russia. According to some information, up to 80 tons of narcotics annually are transported through the Turkmen border to Russia, which, in turn, serves as a transit country to Europe.

Several years ago the problem of drug addiction was not so pronounced in Turkmenistan. President Niyazov declared then that the militia should not detain people for possessing 5 grams of drugs.

Today, drugs use among youth aged 14 to 30 years has become a social disease. An especially difficult situation arises in villages, where the heroin trade in these places has become a widespread business. Narcotics here are cheap because of the close proximity to the border with Afghanistan and Uzbekistan. Some settlements near the border have become transshipment points for narcotic couriers. According to reports by official sources, most of these couriers are women trying to earn money to support their families.

Recently, an overwhelming majority of opium smokers switched to heroin injections, and the number of "syringe" drug addicts increases daily.

Because of the huge problem that drug abuse poses, the national movement "Into the 21st Century Without Drugs" was founded in Turkmenistan last year. The broad and multifold program to combat drug addiction and the narcotics trade. The UN's World Health Organization as well as other public organizations conducting anti-drug programs at schools, and in the army are involved in the overall framework of the program of preventive propagation.

However, the network of clinics in the country for people addicted to narcotics has not been expanded (see "LISTENERS' CORNER," below). The bare bones financing of clinics does not allow for a complete and full treatment of patients. Symptoms related to the psychological disorder of youths considering the pressures of unemployment, loss of contact with the community, and other pressures -- these things can cause young people to misuse drugs. And it's ineffective to try to fight drug addiction without addressing the social causes. (GazetaSNG.ru, referring to "Delovaya Nedelya")



18 July 2001

By Bruce Pannier

In Turkmenistan, finding employees qualified to fill top government positions seems to be next to impossible. The country's president, Saparmurat Niyazov, who makes all government appointments, has a disappointing track record when it comes to making long-term hires. All of his appointments are eventually fired, sometimes after having served only a few months in office. It's a trend that many attribute to Niyazov's fear of rivalry -- and one that has had a negative impact on stability in the struggling Central Asian republic.

Most recently, the country's foreign minister, Batyr Berdiev, found his head on the professional chopping block. Berdiev, who was appointed in January, was dismissed earlier this month for allegedly failing to cope with a drinking problem. Niyazov took his traditional route of announcing the sacking in a public forum -- in this case, a session of parliament:

"Here is Foreign Minister Batyr Berdiev. He started work recently. He is a very good, very polite boy. But, unfortunately, he has some shortcomings. He drinks a lot [of alcohol]. During his short time in office we talked about this four times. I said: 'Batyr! Please don't drink.' Several times I said 'Don't drink, Batyr.' He agreed, but he continued to drink."

After only six months in office, Berdiev was fired. He was not alone. Communications Minister Ravshad Kerkavov was also dismissed this month. According to the state-owned newspaper "Neitralny Turkmenistan," Kerkavov was "not only unable to deal with his duties, [but] he even added to the trouble." Tekebai Altiev, the minister of water management, was fired at the same time, allegedly for failing to respond to the severe drought afflicting Turkmenistan and all of Central Asia. He was the second water chief to lose his post this year.

In June, two other top officials saw their career paths take sharp detours. Serdar Chariyarov, the head of the Defense Ministry's training department, was demoted and stripped of his military rank. Defense Minister Batyr Sarjaev was also dismissed.

It remains to be seen whether Niyazov will be more satisfied by Sarjaev's replacement, Colonel Gurbandury Begenjov. In an article outlining Begenjov's qualifications for his new post, the Russian newspaper "Izvestiya" pointed out that the new defense chief might be better suited for an agricultural post, as he had graduated from the Turkmen Agricultural Institute and worked as a tutor at the Bairamali Veterinary College.

Sarjaev, dismissed from his defense post, was re-appointed chairman of the country's railroad system. He replaced Khalmyrat Bardiev, who was appointed in January but died under unclear circumstances in June. "Izvestiya" gave this account of his death: "During an inspection of railroad tracks in Ashgabat, Mr. Bardiev got lost in thought and was run over by a passing train." Official Turkmen explanations have been even less clear.

The rash of dismissals don't stop there. The customs committee chairman and the agriculture and education ministers have also lost their jobs this year. In fact, even the one traditional exception to Turkmenistan's chronic government turnover has proved a victim of Niyazov's apparent penchant for firing. Boris Shikhmuradov was the country's foreign minister for nearly eight years before losing his post last summer. He has since been appointed ambassador to China, but once again his days may be numbered. Niyazov suggested this last month in accusations directed at yet another dismissed official, General Annamurat Soltanov, the military commander for the western Balkan Province:

"When you worked as deputy defense minister, as colonel-general, you made illegal deals. In 1993 and 1994, when Boris Shikhmuradov was in charge of the Defense Ministry as a deputy prime minister, you illegally sold our military hardware abroad. I am commander-in-chief, but no one told me about this. I found out about this deal just recently. Your signature is there. For this action, I am removing you from your post as the military commander of the Balkan Province. I am taking away your rank and casting you out of the armed forces. You will not receive any benefits for military service. In fact, you belong in jail, but I am not going to put you there. Get out!"

Those officials who are not dismissed are often subject to humiliating public abuse when Niyazov takes them to task for what he sees as poor job performance. Interior Minister Purkhan Berdiev lost his wages this month for failing to clean up crime in Turkmenistan. The mayor of the capital Ashgabat has twice lost his salary for allowing criminal activity to continue in the city. Niyazov's own press secretary was docked a month's pay when he was caught smoking in public, and the head of the country's meteorological department had his salary slashed for failing to provide accurate weather forecasts.

State prosecutors, judges, media chiefs, and regional and local officials have all lost positions for alleged corruption, nepotism, poor work or failing to meet goals set by Niyazov. In the nearly 10 years of Turkmenistan's independence, few officials have marked even a one-year anniversary in the same office. Many have been demoted and now work in menial positions. Some have fled the country and now say they are opponents of the Turkmen regime.

The result is a culture of secrecy and misinformation. This year, for example, the Turkmen Agriculture Ministry reported a record grain harvest -- an unusual claim when neighboring Iran, Uzbekistan, and Tajikistan are reporting major failures in their own agricultural sectors and have appealed for help to the United Nations. Other economic figures coming out of the country are equally dubious. But in a situation where officials work under the nearly constant threat of losing their posts, Turkmenistan's trade and economic statistics are unlikely to reflect reality anytime soon. (RFE/RL)

http://www.cacianalyst.org/Headline_3.htm

18 July 2001

Dr. Sybil Schwartz

Saparmurat Niyazov has been named Turkmenistan's "president for life." Nonetheless, over the past two months rumors of a possible coup in Ashgabat have increased in number and specificity. These, combined with Niyazov's continuing ill-health, suggest that an early leadership transition is a distinct possibility. The list of possible successors is diverse, ranging from the responsible to the dubious, including individuals with known drug connections. Whoever emerges will likely have to struggle against other contenders, which does not rule out the resort to force. In the name of a smooth transition, Russia, the West, and regional powers should all keep their distance.

BACKGROUND: Frequent turnover in the upper echelons of the government of Turkmenistan are nothing new. Last year's shift of Minister of Foreign Affairs Boris Shikhmuradov to the position of Ambassador for Caspian and Afghanistan Affairs, his later reassignment as ambassador to Beijing, and on 8 July the sudden removal of Shikhmuradov's successor at the Ministry of Foreign Affairs, Batyr Berdiev "for drinking too much" and his replacement by parliamentary chairman Rashid Meredov -- all this is not atypical of the highly personalistic system that has prevailed there. Now, however, the question of turnover at the presidential is suddenly being discussed in Ashgabat.

Recent travelers, foreign diplomats, and observers at several points abroad are all reporting increasing rumors of possible early changes in leadership in Turkmenistan. President's Niyazov's ill-health and the perception by some members of the Turkmen elite that his policies are increasingly erratic have fed these rumors. A coup is not ruled out, with a number of factions and individuals frequently cited as possible instigators. Included among them are persons with solid and responsible backgrounds and at least one with known connections with the drug trade.

However, the transition occurs, it is unlikely that failed contenders will quickly rally around a new leader. The size of the stakes in this energy-rich nation and the winner-take-all practices of recent years makes a smooth transition unlikely and the resort to force possible, even probable.

IMPLICATIONS: Any sudden shift in Turkmenistan's leadership would unsettle both regional neighbors and major powers, including Russia, Iran, Afghanistan, and the West. Russian diplomats have already sounded out western diplomats in Ashgabat regarding the likely response of their governments to the various possible contenders, including at least one who is presently resident in Moscow. The Putin government would be concerned that a new leadership continue to honor commitments to send gas to Russia and that it not interrupt the functioning of military observation posts with Turkmenistan. Western states will all seek an early end to Turkmen-Azerbaijani contention over Caspian oilfields, whereas Iran is likely to keep a hands-off policy in all but the most extreme circumstances. In the event that the transition is not effected smoothly, civil breakdown in Turkmenistan is not excluded, whether along regional or clan lines, or both. Any vacuum of state power would leave only two principal forces in the country: the increasingly active Muslim entities that Niyazov has encouraged, and the drug traffickers, who serve both Russian and European demand and also a rapidly growing number of domestic addicts. External powers cannot be expected to sit passively in the face of either situation. Uzbekistan in particular could not countenance chaos in Turkmenistan, nor is it likely that the Taliban would sit passively if their friend Niyazov were to be replaced by someone less sympathetic to them.

CONCLUSIONS: If numerous reports from diverse sources prove correct, Turkmenistan is likely to be the first post-Soviet state in Central Asia [...] to undergo a leadership transition. Turkmenistan's traditions of clan division, the USSR's "divide and rule" tactics, and the policies pursued by Niyazov make it unlikely that a transition will be easy or smooth, however it occurs. Conscious of this fact, and at least as well informed on possible impending events as observers outside his government, Niyazov may well move successfully to cut down the leadership of any current plots against his rule. Whatever Niyazov does to preempt his opponents, no observers on the scene doubt that the formation of informal coalitions that might some day compete for control over Turkmenistan has already begun.

Western powers and Russia, as well as Iran and Uzbekistan, should all be consulting now with one another now in order to assure a mutual policy of "hands off." These same states should also consider what they would be prepared to do in support of an acceptable successor government in Ashgabat. Corporate interests in the country, and then especially the oil and gas companies, are well advised to have in place contingency plans that could be implemented on the shortest notice. (The Analyst, http://www.cacianalyst.org/Headline_3.htm)



14 July 2001

By Kemal Ilter

Nearly two weeks ago Italy's Saipem engineering company broke ground to build twin natural gas pipelines under the Black Sea from Russia to Turkey, known as the Blue Stream natural gas pipeline. A few weeks later Kazakh oil will commence to be transported by ships via the Turkish straits, which have been under threat of oil transportation not only from Kazakhstan but also Russia and early production of Caspian oils. These two hot issues have been on Turkey's agenda and it seems they continue to be there.

Therefore, the "Turkish Daily News" wanted to discuss these issues with an expert. We interviewed respected expert Ferruh Demirmen, who is a petroleum consultant and has spent more than 30 years working on oil issues. He made informative comments concerning Blue Stream, Turkmen gas, and Baku-Ceyhan pipeline issues.

Here is the full text of the interview:

TDN: You have been critical of the Blue Stream project in the past. Some of your concerns have been the technical difficulties associated with this project. Vittoria Mincato, the CEO of ENI, stated in the recent energy conference [The Story of Three Seas] in Istanbul that ENI is experienced with such projects. What is your reaction?

DEMIRMEN: Blue Stream is not like any other subsea pipeline that ENI has built. Its implementation will require a technological leapfrog, and that will not be without risks. The deepest pipeline built to date is the Mensa field pipeline in the Gulf of Mexico. There the pipeline is 100 kilometers long and the water depth is 1,600 meters. In contrast, the subsea section of Blue Stream will be 380 kilometers long and the water depth over much of the pipeline route will be much deeper than the Mensa field, reaching a depth of 2,150 meters in places. Furthermore, in terms of geohazards, the Black Sea poses far more serious technical challenges and risks than the Gulf of Mexico.

I mentioned these risks in one of my articles published in your newspaper ("Turkish Daily News," 23 April 2001), and I do not wish to repeat them here. The one thing I want to emphasize is that some of these risks, such as pipe corrosion due to ambient acidity and pipe collapse due to high hydrostatic pressure, can be mitigated by taking certain preventive measures (at cost). But in a subsea setting no effective or reliable measures can be taken against earthquakes, slope instability, and mass-gravity flows, all of which could cause pipe failure. Fortunately, such geohazards occur rarely in human terms; unfortunately, they are unpredictable. They are left pretty much to the vicissitude of nature, or chance.

I should also clarify that the risks I am referring to relate not so much to the construction phase of the pipeline, but rather to its operational phase -- expected to last at least 25 years, and possibly 50 years. There is a distinction between building a pipeline and operating it safely over a long period of time. Currently, we do not have enough experience with the operational phase of deep-sea pipelines to realistically assess their safety over prolonged periods. In the case of Blue Stream, facing rather unique geohazards, scarcity of empirical data is all the more troubling. Pipe failure during the operational phase of Blue Steam could cause not only interruption of gas supply for a long period of time (and very costly repairs), but also serious environmental damage to the Black Sea. After the Aral Sea in Central Asia (as a legacy of the Soviet Union), the Black Sea is already the most polluted inland sea in the world. Why jeopardize its fragile environment even further?

Let me hasten to add in this connection that I am not at all opposed to new technology. Innovation and technology, in fact, are a part and parcel of the petroleum industry, and, in a sense, they form the bloodstream of the industry. New technology, however, always entails a learning curve, and brings with it the risk of failure. New technology, therefore, must be justified on a need basis (such as cost reduction or lack of an alternative), and the risks associated must be acceptable. In the case of Blue Stream, I see just the opposite. Compared to the Azeri and Turkmen gas projects, Blue Stream will be the least competitive cost-wise, and the risk of failure, including potential environmental consequences, is high.

A far more sensible alternative to Blue Stream would have been an overland gas pipeline from the Russian town of Izobil'noye to Erzurum across Georgia. The transit fee payable to Georgia under this scheme would have been far outweighed by the lower cost of construction, ease of construction, and negligible environmental risks. The project would have also contributed to the economic prosperity and political stability in the Caucasian region. The only advantage, as it were, I see with Blue Stream is the prestige it may bring to ENI (Saipem) and Gazprom -- prestige that I am afraid may be short lived.

In any case, what Turkey has to gain from Blue Stream that it could not have gained from the overland Izobil'noye-Erzurum alternative, is not at all evident. Turkish energy officials, politicians, and business circles defending Blue Stream have been mysteriously silent on this issue.

TDN: Mr. Mincato of ENI also stated during "The Story of Three Seas" conference that Turkey will need so much gas in the near future that it does not have time to discuss or argue about Blue Stream.

DEMIRMEN: Mr. Mincato must have made that statement with a tongue in cheek. Turkey, indeed, will need lots of natural gas for domestic consumption and to fuel its economy, but it has committed itself to buying so much gas that it runs the risk of oversupply. Concern for oversupply was the reason why Turkey did not want to purchase more than 6.6 billion cubic meters of gas a year from Azerbaijan. The same concern is reflected even in the language contained in the new Natural Gas Market Act that took effect recently. Blue Stream figures prominently in Turkey's gas demand-supply equation, and it is appropriate that it receives close scrutiny in public forums.

Furthermore, Blue Stream has ramifications that go beyond gas demand-supply questions. At present, Russian-sourced gas already makes up more than half of domestic gas consumption. Depending on what the forecast is regarding future gas consumption, in the next decade Russian-sourced gas including Blue Stream will constitute from 50 percent to nearly 100 percent of Turkey's domestic gas consumption. Such heavy dependence on Russia is obviously excessive from strategic and energy security points of view. It amounts to mortgaging to a large extent the country's energy needs on Russia. It could also be cause for concern for industries and businesses that rely on Russian gas for power generation, etc. How could Turkey be so relaxed or complacent about this issue? Not long ago, Poland passed a law that limits its reliance on Russian gas to no more than 40 percent of its domestic need.

TDN: How do you see the future of Turkmen gas as far as Turkey is concerned?

DEMIRMEN: In so far as domestic consumption, Turkey had to make a choice between Blue Stream and trans-Caspian Turkmen gas projects (TCGP). Having made the decision to go ahead with Blue Stream, Turkey closed the door for Turkmen gas for domestic consumption purposes. The gas demand-supply equation simply makes Turkmen gas a nonviable option for Turkey.

Turkmen gas can in principle be imported to southern Europe via Turkey and Greece (the so-called INOGATE project), and this is purportedly what the Turkish energy officials and some politicians still have in mind. However, unless somebody is willing to put up capital in pursuit of political goals -- which is very unlikely -- I believe INOGATE's prospects as an economic entity are very dim. TCGP gas in southern Europe will face fierce competition from alternative sources, in particular Algeria. Azeri gas also has a clear market advantage over TCGP gas.

Russia and Iran, both of which have vast gas reserves, have also tried to obstruct TCGP on ecological grounds and by raising the legal status of the Caspian Sea as a thorny issue. Russia does not want to loosen its historical grip on Turkmen gas, and Iran is a long-term competitor to Turkmenistan on gas exports.

TDN: Do you mean Turkmen gas is lost for Turkey?

DEMIRMEN: I am afraid so, at least for the next 10 years or so. The political leadership would not want to admit it, but in my view this is the stark truth. This did not have to be so.

After the breakup of the Soviet Union in 1991, the Turkic republics in Central Asia and the Caspian region wanted to look beyond Russia for guidance and economic prosperity and to foster their newly gained political independence. Turkey's geographic position and its close ethnic and linguistic ties to these republics (not to mention religious affinity) gave Turkey the perfect opportunity to fill the role of leadership toward these nations. What was needed was a long-term strategic vision that transcended short-term commercial interests.

Turkey was only partially successful in such a leadership role, and in the case of Turkmenistan, its policy was a dismal failure.

For Turkmenistan, exporting its rich gas resources westward along an East-West corridor was of vital importance. It saw the TCGP project as the embodiment of such aspirations. With much fanfare, Turkmenistan and Turkey signed intergovernmental protocols and a gas-supply agreement involving TCGP, which was strongly supported by the United States. The project had the backing of a reputable and financially strong Western consortium (Bechtel-GE Capital-Shell) that was seriously interested in the project.

But once Blue Stream entered the scene as a firm project, TCGP effectively lost its "raison d'etre." From then on, TCGP was primarily a political project, useful for some Turkish politicians to talk about but holding little real promise. Projects supported by mere political rhetoric and not backed by real need rarely become a reality. Turkey could not absorb both Blue Stream and TCGP at the same time.

It is true that some other obstacles arose in the path of TCGP, such as Turkmenistan President Saparmurat [Niyazov's] insistence on some advance payment from the United States and more importantly, the Shah Deniz gas-condensate discovery in Azerbaijan. There were also personality conflicts. However, these were not insurmountable problems.

With regard to Shah Deniz, Turkey, acting as a benevolent "big brother," could have brought Turkmenbashi and Azerbaijani President Heidar Aliyev together to resolve their dispute on the sharing of a gas pipeline from Turkmenistan to Turkey. That required good will and smooth relations with both countries. Having lost credibility, in fact good will, in the eyes of Turkmenistan because of Blue Stream, for Turkey such a role was hardly conceivable.

TDN: What do you think about the United States' position on Blue Stream?

DEMIRMEN: The United States has not advocated Blue Stream mainly because it saw it as a rival to TCGP, which it supported. The TCGP is part of the East-West energy corridor extending from the Caspian region to the West, bypassing both Russia and Iran. By supporting the East-West energy corridor, including the TCGP, the United States has tried to reduce the influence of Russia, and to some extent Iran, on the economic development of the New Independent States of the former Soviet Union. For the United States, this had the dual advantage of promoting the welfare and independence of these states while at the same time increasing the energy security of the West.

I believe the United States also opposed Blue Stream because the project increased Turkey's dependence on Russia in terms of its energy needs. The United States has historically valued Turkey not only as a NATO ally, but also as a secular and democratic Islamic country in a critical region.

TDN: When we look at recent events, the Baku-Ceyhan option seems to be more powerful than before. Do you agree on this issue? Is there any obstacle in front of Baku-Ceyhan?

DEMIRMEN: The Baku-Ceyhan project gained a major impetus, in fact experienced a near-breakthrough, within the last few months. There were several reasons for the dramatic turn of events. One reason was that the basic engineering study that was completed in May alleviated cost concerns. The new cost estimate is now $2.8-2.9 billion, higher than the $2.4 billion previous estimate, but still within the economically acceptable range. It is also worth pointing out that the additional cost pertains to such items as upgrade of the Azerbaijan terminal for oil batching operations (to include Kazakh oil) and expropriation of land in Azerbaijan and Georgia. These additional cost items had been foreseen but not included in the earlier cost estimate.

The second reason was the confidence that the potential investors gained regarding the economic significance of the Kashagan field in Kazakhstan. The Kashagan West well, completed in June, found oil, which was from the same reservoir as oil found in Kashagan East. This confirmed that Kashagan is a major oil field that could contribute to Baku-Ceyhan's throughput in the event of reserves insufficiency from the Azeri side.

The third reason was the affirmation, in the last month or so, by the Bush administration that it would continue the Clinton administration's energy policy in the Caspian region. Among others, this meant continued support to Baku-Ceyhan. All the signals coming from the Bush administration indicate that the U.S. trade sanctions against Iran will not be lifted in the foreseeable future. This means the Iran option will remain effectively closed, giving a further boost to Baku-Ceyhan.

The major development, perhaps overshadowing all these developments, however, was the BP's confirmation in recent months that Baku-Ceyhan is economic. BP went ahead even further, by declaring that reserves in Azerbaijan alone were sufficient to render Baku-Ceyhan viable. In other words, the Kazakh oil, while welcome, was no longer essential. The seal of approval given by BP was a crucial endorsement that Baku-Ceyhan needed. The sponsor group has approved expenditures ($150 million) for detailed engineering, and other oil companies, including Chevron, TotalFinaElf and ENI, all outside AIOC and previously not supportive of Baku-Ceyhan, have expressed interest in the project. Even Russia, probably prompted by the desire to deflect intense criticism of Blue Stream in the Turkish media in recent months, has softened its criticism of Baku-Ceyhan.

To return to your main question, I now see Baku-Ceyhan as a near-certain project with a 90-95 percent chance that it will materialize. Barring exceptional and unforeseen circumstances, there is little that stands in the path of the project. Investor support for the construction phase seems all but certain.

TDN: You mentioned BP's crucial endorsement. BP, like other oil companies, had previously opposed Baku-Ceyhan. And many analysts had given little chance to Baku-Ceyhan. Why did BP change its position, and why were many analysts so pessimistic?

DEMIRMEN: BP's endorsement was long in the making, and its announcement did not come as a surprise. In fact, in some subtle ways, BP had been hinting its assessment since last fall. I am sure BP knew since early last year that Baku-Ceyhan was economic given prevailing oil-price scenarios. Considering reserves in the ACG fields and Shah Deniz, I suspect Baku-Ceyhan was economic even at $15/barrel (real terms). With oil prices becoming more robust and oil prices, at least for the midterm, expected to remain at the $20 plus level, Baku-Ceyhan's viability was not in doubt. This is what I had maintained repeatedly myself on different occasions.

BP, however, chose to delay its firm endorsement of Baku-Ceyhan until recently partly because it needed to be more confident about oil-price forecasts and partly because it wanted leverage vis-a-vis the Iran option. With the Iran option remaining closed indefinitely, gradually an element of inevitability about Baku-Ceyhan emerged. Further waiting or uncertainty would have meant further delay in full-field development of ACG, which the company did not want to see happen. Shah Deniz development and gas export to Turkey was also in the offing.

As expected, project economics also improved with technology. Thanks to technology, wells in the ACG fields that were originally predicted to produce 5,000-7,000 barrels of oil per day (bo/d) came onstream at double these rates, some reaching 30,000 bo/d. This reduced field development cost. I am sure further reductions in cost will be forthcoming.

As for the analysts and pundits who were pessimistic or critical of Baku-Ceyhan, they ignored the dynamics of the oil industry, including the nonstatic character of reserves, underestimated the significance of Shah Deniz, and underestimated the growing concern, in particular in Europe, for increased tanker traffic in the Bosphorus. Many also misread Vice President Dick Cheney's role in the Bush administration. Mr. Cheney played a key role in formulating Mr. Bush's energy policy. Many analysts and oil companies that had thought or hoped for Mr. Cheney to steer a pro-Iranian oil policy have been proven to be wrong. The pundits who persistently claimed insufficiency of reserves for Baku-Ceyhan have also been wrong. BP chief Sir John Browne's announcement In "The Story of Three Seas" conference last month, that the Azeri reserves were sufficient to make Baku-Ceyhan economic, was very significant.

TDN: Can you elaborate on the role of Shah Deniz with Baku-Ceyhan?

DEMIRMEN: Shah Deniz played a pivotal role in bringing Baku-Ceyhan to its current stage. Discovery of the field in mid-1999 prompted BP and Statoil, both of AIOC, to change their basic strategy toward Baku-Ceyhan. The prospect of exporting gas to Turkey gave these companies a strong commercial incentive to support Baku-Ceyhan. Shah Deniz also provided badly needed liquid (condensate) reserves for Baku-Ceyhan.

TDN: What about Chevron and ExxonMobil? Do you think they will join Baku-Ceyhan?

DEMIRMEN: Early this year Chevron expressed interest in Baku-Ceyhan. Where the company stands now in this respect, I do not know. Chevron's eventual participation in the project will heavily depend on the results of Absheron-1 exploration drilling results. The company has been keeping a tight rein on the information from this well. Unconfirmed reports indicate that the well found gas, but the commercial significance of this find is not known. If the Absheron structure holds commercial oil or gas, I very much suspect that Chevron will join Baku-Ceyhan. As for ExxonMobil, so far it has shown no interest in Baku-Ceyhan. The recently announced discouraging exploration results from the offshore Oguz concession in Azerbaijan, where ExxonMobil has an interest, are a disincentive for the company to join Baku-Ceyhan. However, ExxonMobil has other exploration interests in Azerbaijan, and its position vis-a-vis Baku-Ceyhan may change over time.

TDN: Is Baku-Ceyhan the only route to protect the Turkish straits environmentally?

DEMIRMEN: Before I answer that question, let me briefly point out the magnitude of the problem facing the Turkish straits. At present, some 50,000 commercial ships a year transit the Turkish straits, of which 5,500 are tankers that carry oil or oil products. The CPC pipeline that became operational this summer will eventually have a throughput of 65 million tons a year. The oil, coming from the North Caspian region, will reach the Russian port of Novorossiysk and is currently destined for shipment to the West via the Turkish straits. That means oil tanker traffic through the Straits will easily double or triple.

However, this is not all. The CPC pipeline was designed before the Kashagan field was discovered. It is almost certain that some of the Kashagan oil will also find its way to Novorossiysk. That could mean oil tanker traffic through the straits increasing easily four or fivefold. That would certainly be not acceptable. It is therefore very important to find ways whereby Caspian oil would reach Western markets without transiting the straits.

Baku-Ceyhan is certainly a step in the right direction toward that goal. But it will not be enough. Some of the North Caspian oil reaching Novorossiysk should also be diverted away from the straits. Some Balkan options bypassing the straits have been considered in the past. The most notable of these is the Albanian-Macedonian-Bulgarian route known under the acronym AMBO. This is an oil pipeline project supported by the United States (which funded the feasibility study carried out by Brown And Root) and the European Union. I understand Russia also is interested.

I should stress that the bypass options such as AMBO are not ideal from an environmental point of view. They should also not be viewed as alternatives to Baku-Ceyhan. AMBO will help lessen oil-tanker traffic through the straits, but oil must still be transported from Novorossiysk to Bourgas (the Bulgarian port) by tankers across the Black Sea. So, the Black Sea will remain exposed to dangers caused by oil tanker accidents. But a project such as AMBO at least offers a realistic alternative to maritime oil transport through the straits.

TDN: What about the current infighting in Macedonia? Will it affect the AMBO project?

DEMIRMEN: The current political turmoil in Macedonia has certainly thrown cold water on AMBO, but once the political situation there settles, the project will undoubtedly attract renewed interest. I would also add that there has recently been an increased concern at the international level about the safety of the straits from oil-tanker traffic. This was quite evident in "The Story of Three Seas" conference. The start-up of the CPC pipeline, the increased campaign by nongovernmental organizations against the CPC, and the Turkish government's more proactive stance in this regard have helped bring about this situation. This is all a very positive development. Perhaps now is the time to capitalize on this momentum and try to divert some of the Novorossiysk-bound CPC oil away from the straits. ("Turkish Daily News")



20 July 2001

A listener of ours from Ashgabat is a doctor with long professional experience. She has sent us the following letter.

"The other day I was in one of the Ashgabat hospitals on a service visit. Suddenly I noticed a patient with a face disfigured by leprosy. This fact really shocked me, because this sick person was freely talking with other patients. Such people are supposed to be isolated from all other patients and personnel not only within the hospital, but at an absolutely different and specialized medical establishment.

I immediately contacted the director of the hospital, and to his credit he had taken measures to put the patient with leprosy into the separate isolated room.

How could this have happened? For many decades since Russian tsar times there has been a remote leprosy hospital in the Kopetdag mountains area, located far away from any towns or villages. The sick people from all of Turkmenistan were taken there and professionally treated. Specially educated and trained doctors looked after the patients and carefully cured that terrible disease.

However, I learned that there had been an order "from the upper level" to close this special hospital, and all the patients with leprosy were released and sent to their relatives in different velayats and etraps, where there are neither special hospitals nor experts who could treat them properly. But the most dangerous thing was that they could easily become sources to spread leprosy, which is hard to cure.

Another special medical clinic near the Arzuv village had recently been shut down by the "wise leadership" with no clear reasons given. This was the center for the treatment of alcoholics and drug addicts'. All the patients were released and sent to their homes. This is probably why the number of street thefts, robberies, fights, and violence in Ashgabat has substantially risen recently.

I have contacted the officials at the Turkmen Ministry of Health Protection and Medical Industry and asked them one question: why had those two vitally needed medical establishments been closed? They answered that "this was the health protection program of the Turkmen president; in this decade Turkmen society has no place for alcoholics and drug addicts... There is no room for them in our bright future!" I ask where is the place for these poor people?

For some people this is a comedy, for others -- a tragedy."