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Caspian: Slow Progress On Pipelines Raises Concerns

Countries in the Caspian region appear to be making little progress toward building key pipelines, despite a series of agreements signed in Istanbul in November. The problems raise questions about whether political leaders were ready to make the hard choices, or whether they were simply tempted by a photo opportunity.

Boston, 27 January 2000 (RFE/RL) -- Difficult demands and hard bargaining have slowed progress on two Caspian pipelines, raising concerns that officials may be treating recent agreements as largely ceremonial pacts.

More than two months have passed since the signing of pipeline accords at the Istanbul security summit on November 18. But negotiations have continued on both the Baku-Ceyhan oil pipeline and the trans-Caspian gas pipeline without a breakthrough.

Recent talks in several capitals involving leaders of Turkey, Georgia, Azerbaijan and Turkmenistan, as well as U.S. officials, have yielded positive statements but inconclusive results. In the case of Baku-Ceyhan, demands by Georgia have stalled a host government agreement, despite a visit by Turkish President Suleyman Demirel and three more days of talks that ended Monday in Ankara.

Georgia is seeking 3 percent of all the oil that transits its territory, a share that would give it 30,000 barrels a day of the projected volume from Azerbaijan and other Caspian countries.

It is also trying to avoid liability for environmental damage on its territory and compensation for land in the pipeline's path. Although Georgia has agreed to provide security for its portion of the pipeline, reports suggest that most of its demands and differences with Azerbaijan have remained essentially unchanged.

Despite mediation by the United States and Turkey, attitudes in the region appear to have hardened. Georgia's positions have been firmly rejected by Ilham Aliev, the vice president of Azerbaijan's state oil company SOCAR. Aliev, who is the son of Azerbaijan's President Heidar Aliyev and his likely successor, has reportedly suggested that the country's oil could still flow through Iran if Georgia's stand does not change.

Similar problems have apparently dogged the trans-Caspian gas pipeline, despite Turkmenistan's official statement this week that the venture is "already registered in the annals as the largest project of the 21st century."

Although working groups met in Ashgabat this month and a state committee for the project was formed in Baku, there seems to be no solution yet to the competing demands of Turkmenistan and Azerbaijan.

Turkmenistan has so far refused to give up its long-standing claims to Caspian oilfields on its border with Azerbaijan. In retaliation, Azerbaijan has demanded a large share of the capacity of the proposed trans-Caspian line to Turkey, effectively reducing Turkmenistan's projected gas sales.

Until the dispute escalated last year, Azerbaijan was not considered as an exporter of gas. In 1999, oil-rich Azerbaijan produced slightly less than 6 billion cubic meters of gas. But it has demanded export capacity of 16 billion cubic meters a year from the line, which is to be completed in 2002.

Azerbaijan's claims have been based on projected gas reserves at several fields that were first thought to contain oil. With the passage of time, estimates of the country's gas assets have risen to astronomical heights. Last June, President Aliyev announced that Azerbaijan's Caspian field known as Shah Deniz might contain 7 billion cubic meters of gas. In December, Ilham Aliyev estimated the country's Absheron deposit at 3 trillion cubic meters, about 500 years worth of production at current rates.

The biggest problem with these competing claims is not one of individual validity or merit. It is rather the potential damage to the value of agreements in the region as a whole.

Despite the fanfare of signing ceremonies in November, nearly all the unresolved problems with these pipeline deals were known to the participants. Yet, they were persuaded to sign agreements under the pressure of a public event before the issues were resolved. Now, the value of these pacts, and those that may be signed in the future, may well be called into question. Clearly, the Caspian is a region where it is very difficult to say when a commitment is one that will actually be kept.

The Caspian lines are not the only ones that may suffer losses of credibility. Similar problems have plagued Iran's 23-year agreement to sell gas to Turkey. Tehran surprised Ankara in December by announcing that it had finished work on its part of a pipeline under their 1996 agreement and was now ready to start gas deliveries. But Turkey had dragged its feet on its side of the border and was forced to negotiate over possible penalties.

All this posturing in the region raises questions about whether financial institutions will take these pipeline projects seriously when Caspian countries ask them to commit billions of dollars in funds. While political leaders may be tempted to take part in ceremonial agreements, they will ultimately have to resolve their basic disputes before a deal can really be called a deal.