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Azerbaijan: Fate Of Pipeline Depends On Turkey's Price Tag

Washington, 23 November 1998 (RFE/RL) -- One of the central players in the Caspian sea oil pipeline drama says it's now up to Turkey to either make or break the U.S.-supported main pipeline from Baku, Azerbaijan to Ceyhan on the Turkish Mediterranean coast.

Ilham Aliyev, First Vice President of the Azerbaijan State Oil Company and the key negotiator of Azerbaijan's production sharing agreements with western oil companies, says the cost of the proposed pipeline has become the central stumbling block and that Turkey could bring those expenses down to a reasonable level.

The Azerbaijan International Operating Company, a consortium including major western oil firms, has postponed its final decision on which route should be designated as the main line for getting Caspian oil out to world markets.

The consortium recently bumped its estimate of building the pipeline up from around $2.4 billion to over $4 billion, saying that was not economically viable at a time when oil prices are at record lows.

But Aliyev, in Washington late last week to discuss the situation with senior U.S. officials, says he thinks the consortium's estimate is "exaggerated" and that Turkish estimates of less than $2.5 billion could be lowered even more.

Recent negotiations with Turkey have been very productive, says Aliyev, but Ankara still needs to reduce the transit fees it plans to charge and contribute to the construction of the pipeline in a number of other ways.

But, Aliyev told reporters on Friday, it's "high time" to make the decision on the pipeline because the existing pipeline to the Russian Black Sea port of Novorossiysk and the soon-to-be-opened early oil pipeline to Georgian port of Supsa will only be adequate for a few more years.

Aliyev says Azerbaijan alone has found that it's oil reserves are actually two or more times larger than originally estimated and production from the first Azeri-Cherak platform is already higher than planned. Add to that the oil from Kazakhstan, Turkmenistan and other neighbors, says Aliyev and it is clear there must be more capacity to move oil out of the region.

Aliyev says that if the Baku-Ceyhan pipeline is delayed, Azerbaijan would have no other choice than to expand the northern route (through Russia) the new Supsa route, and maybe even think of another route, because Azerbaijan cannot allow itself to be forced to limit production due to a lack of capacity for transportation.

Aliyev told reporters that Azerbaijan does not want the decision on a main oil pipeline to become a bone of contention between the countries of the region, however.

Aliyev says it would be a very big mistake if choosing the route created a situation where there were losers and winners. The region has huge amounts of oil to move in various directions and no one wants to be locked into only one route. That's why after Novorossiysk and Supsa there should be the route to Ceyhan and then maybe others as well. Azerbaijan is open to many routes, which would bring peace to this unstable region, not escalate its disputes.

Aliyev's father, Azerbaijan President Heydar Aliyev, joined with the leaders of Turkey, Kazakhstan, and Uzbekistan at the end of October to endorse the Baku-Ceyhan pipeline as the main route for Caspian oil. But that doesn't mean there are not other possibilities, he says, in addition to Russia and Georgia:

Aliyev says Azerbaijan has discussed possible pipelines with a number of other countries, including Ukraine, Romania, Bulgaria and Moldova. So on the Baku-Ceyhan route, it's now up to Turkey to decide whether it will be a reality or whether everyone should simply forget about it.

Aliyev says Turkey is right in saying it cannot allow more oil-carrying ships to pass through the already overcrowded Bosporus strait out of the Black Sea. And, he says, Turkish officials are adamantly opposed to any by-passes proposed by some to pipe the oil just around the strait.

So that means to get the only viable alternative to the Mediterranean, Turkey must do more to lower the costs of building the pipeline if it is to be commercially viable.

Aliyev says he's more optimistic than ever that a decision on Baku-Ceyhan will be made within two months.