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Azerbaijan: U.S. Plan For Caspian Pipeline Makes Little Progress

Boston, 9 June 1999 (RFE/RL) - Despite numerous agreements, there have been few real signs of progress for a U.S.-backed plan to build a gas pipeline across the Caspian Sea, analysts say.

With the passage of time, the risk may also increase that conditions will not be met for building the trans-Caspian gas pipeline, which is one of the pillars of U.S. policy for the region.

Officials have been optimistic about the prospects for both the trans-Caspian project and a main export pipeline for oil from Baku in Azerbaijan to Turkey's port of Ceyhan. But experts see little evidence of concrete steps that will move either project off the drawing board.

Supporters of the U.S. plans believe the trans-Caspian gas line from Turkmenistan to Turkey will be built first. Last month, Turkmenistan's President Saparmurat Niyazov told reporters in Ashgabat that gas deliveries could start in 2002, a timetable which is viewed as ambitious.

The pipeline plan of PSG International, a consortium led by U.S.-based Bechtel Corporation and General Electric Company still has many hurdles to overcome. Officials said last week the composition of the consortium and the final route through Azerbaijan and Georgia will be determined by July 15th, Azer-Press reported. Financing alone could take another eight to 12 months, officials have said.

Time may be critical in the competition to supply the Turkish gas market. Both Russia and Iran are working to get their pipelines to the country first.

One potential problem for the trans-Caspian scheme is Turkmenistan itself. Analysts say there are growing concerns that the country's financial troubles may make matters difficult. Officials of the U.S. Export-Import Bank have raised doubts about Turkmenistan's ability to service its debts. Under its charter, the bank may not provide financing or loan guarantees unless it has a reasonable assurance of being repaid.

The participation of U.S. lending agencies, such as the Export-Import Bank, is seen as crucial, both for financing and the commitment of political will. But Turkmenistan's grip on fiscal health has been slipping since March 1997, when it lost access to its traditional gas export pipelines after a pricing dispute with Russia.

The Niyazov government has been hoping for most of the past year to win loans based on future gas sales to Turkey through the proposed Caspian pipeline. The loans are needed just to keep the economy afloat. While the gas sales were agreed upon last month, it is not clear that they will take place unless the new line is built. But the project with an estimated cost of $2.5 billion will also require loans, based on the gas sales.

Although Turkmenistan has more than enough gas to meet all of Turkey's needs, it has been unable to reach paying customers. The isolated country has only been able to export small amounts of gas to Iran. A deal negotiated to sell gas to Ukraine through Russian lines was halted last month after Kyiv ran up debts totaling $900 billion.

The amount is staggering for Turkmenistan, whose entire gross domestic product last year was valued at about $2.4 billion, according to calculations based on International Monetary Fund figures. The country suffered a trade deficit of $386 million last year and will incur another $200 million deficit this year, the Economist Intelligence Unit said last month.

The pipeline plan may also be endangered by the continuing border dispute between Turkmenistan and Azerbaijan on the division of Caspian oil fields. Last month, Niyazov pledged that the disagreement would not delay the pipeline. But similar assurances have been given before. The United States is trying to settle the issue by sending map experts to determine the dividing line.

But it is not clear that there has been any formal agreement to abide by the U.S. findings. In the end, the issue will come down to decisions by the Caspian's two neighboring leaders, Niyazov and Azerbaijan's President Heydar Aliyev.

Few breakthroughs have been possible without the presence of Aliyev, who has been out of the country following heart surgery in the United States in late April. He was scheduled to return to Azerbaijan from recuperation in Turkey today. However, three earlier dates were predicted and missed.

The state of Aliyev's health can only be guessed. But concerns about stability in the Caspian region have mounted as the 76-year-old leader has failed to appear at a series of key events, including his country's independence day, the annual oil and gas conference in Baku and the visit to the region of World Bank President James Wolfensohn.

Iran could pose a further challenge for the trans-Caspian pipeline, although consortium officials believe Tehran's objections to dividing the waterway can be safely ignored. The problem is that Iran is one of Turkmenistan's few existing sources of export income. Future projects may bring new income, but Turkmenistan needs cash now.

Officials of both Azerbaijan and Turkmenistan have tried hard to mend fences with Iran over the past month in an apparent effort to keep their options open. Such moves may reflect uncertainty about Caspian pipeline plans, despite the public shows of confidence.