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OSCE: Caspian Pacts Don't Guarantee Pipeline

Boston, 23 November 1999 (RFE/RL) -- Experts say it may be more accurate to view the Caspian agreements at the summit of the Organization of Security and Cooperation in Europe (OSCE) summit as an avoidance of failure rather than a resounding success.

Industry officials and analysts agree that the pacts on the Baku-Ceyhan and trans-Caspian pipelines were necessary steps forward. But despite symbolic importance, they say there are not guarantees that either line will be built.

In the case of Baku-Ceyhan, the package of agreements signed in Istanbul remain incomplete. A BP Amoco official tells RFE/RL that although an inter-government agreement was signed by Turkey, Azerbaijan and Georgia, the attached host government agreements for Azerbaijan and Georgia could not be completed in time.

The three countries also concluded a fixed-price project agreement and commercial contract, guaranteeing that Turkey will cover cost overruns above $1.4 billion for the part of the project on its soil. But similar guarantees for Georgia and Azerbaijan have yet to be arranged. Michael Townshend, BP Amoco's director of international affairs in Washington, says it is still unclear who will pay if those segments push the total cost over the target mark of $2.4 billion.

An "Istanbul Summit Declaration" and the "Charter for European Security" both voiced support for security and stability in Central Asia. But a critical throughput agreement for oil to be put in the pipeline remains in the future, as does financing for the line. Kazakhstan has reportedly committed major volumes of oil to the project, but more may be needed to make the pipeline a success.

Townshend stopped short of calling the event a watershed for the plan to build the 1,730-kilometer line from Baku to the Mediterranean.

Townshend's company leads the Azerbaijan International Operating Company, the only Caspian offshore consortium that is currently producing oil. He calls the pipeline deal, in his words, "a very good next step." But he stresses, "It doesn't mean we're going to build it. This is the framework that says we're going to test it for investors."

Even more cautious is Robert Ebel, director of the energy and national security program at the Center for Strategic and International Studies in Washington. He says the agreements have not significantly raised the chance that the pipeline will be built. But at least they have avoided the criticism that would have followed if no agreements had been signed at all.

Ebel tells RFE/RL, "They made the mistake of raising expectations. Then, everybody gets disappointed if it doesn't happen."

The outlook appears to be even less certain for the trans-Caspian gas line from Turkmenistan. A framework agreement for the project was signed, but Townshend indicates that the pact may commit the parties to little more than carrying on more negotiations. Hopes were raised that Turkmenistan and Azerbaijan would resolve their dispute over ownership of the Kyapaz/Serdar oilfield in time for the OSCE meeting, but no deal was reached.

Details of the gas pact and any side agreements remain murky. The Financial Times reports that a Turkish commitment to buy Azerbaijan's newly found gas have convinced it that it should let the trans-Caspian pipeline cross its territory. Azerbaijani gas would not be ready until at least 2005. So far, it is unclear whether gas from Baku would then displace some Turkmen supplies or whether another line to Turkey would be built. Turkey's many pledges have also raised doubts about whether all promises can be fulfilled.

But a failure to sign agreements would likely have had negative consequences for both projects, given the broader context of the OSCE summit on matters affecting the Caucasus.

The OSCE has been promised some role in Chechnya, but its influence remains vague. For Caspian nations, Russian President Boris Yeltsin's refusal to change course in Chechnya must overshadow any statement of principles, considering that war is raging within 150 kilometers of the two pipeline routes. This week, unidentified helicopters reportedly bombed Georgian territory, even closer to the transport corridor. Agreements may mean little to foreign investors until hostilities cease.

Beyond the cold facts of financing, business may be seen as less important than a growing humanitarian crisis. If developers are looking for financing from the World Bank, for example, they could find that the priority for the region will be the plight of an estimated 220,000 Chechen refugees.

South of the corridor, the OSCE meeting has also failed to deliver a hoped-for peace deal for Nagorno-Karabakh. By calling for a regional security system, Azerbaijan and Armenia may only be marking time, waiting for domestic tensions to ease before taking the tough steps. With the conflict unsettled, it remains unclear whether the Baku-Ceyhan line can ever be routed through Armenia. The pipeline pacts may have already eluded Armenia.

With the flurry of agreements, the vision of pipelines appears closer, but peace may be as distant as ever. The Caspian nations need both before their prospects can improve.