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Turkmenistan: Niyazov Gets New Terms For Gas Pipeline

The U.S.-led consortium for the trans-Caspian gas pipeline has presented a new proposal to Turkmenistan President Saparmurat Niyazov. Our correspondent, Michael Lelyveld, provides details.

Boston, 23 March 2000 (RFE/RL) -- A U.S. government official says Turkmenistan's President Saparmurat Niyazov has been presented with improved financial terms for the trans-Caspian gas pipeline which are expected to advance the project.

The new incentives are said to include reduced project costs, a shorter payback period and a "very attractive" figure for the effective gas price, once delivery charges to Turkey are taken into account.

"It's a completely reconfigured proposal," the U.S. official told RFE/RL on Wednesday. He spoke on condition of anonymity.

The new plan was presented to Niyazov on Monday by PSG International, the U.S.-led consortium for the project, at a meeting in Ashgabat. A PSG spokesman described the plan as the company's "last and final" proposal, according to Platt's, a petroleum industry news service.

The consortium has revised its financial terms since last month, when Niyazov complained that a combination of project costs and Azerbaijan's demands for a half-share in the pipeline's capacity could keep Turkmenistan from realizing any profit for seven or eight years.

Niyazov proceeded to open talks with Gazprom on more than doubling Turkmenistan's gas supplies to Russia. This month, Niyazov also announced plans to increase its deliveries to Iran. Both moves are seen as making it more difficult for Turkmenistan to supply the gas volumes for the 1,650-kilometer trans-Caspian line. Partners in the project include U.S.-based Bechtel and GE Capital Corporation, as well as the British-Dutch group Royal Dutch/Shell.

The U.S. official said the new terms would allow Turkmenistan to earn a profit at an earlier date and would assure gas deliveries to Turkey starting in 2002.

So far, Niyazov has not renewed PSG's one-year mandate for the project, which expired February 19 but was extended for one month. Niyazov is said to be studying the new plan. The U.S. official voiced hope that a formal announcement of a renewal would come Monday, when Turkish President Suleyman Demirel is scheduled to visit Ashgabat.

A decision against renewing PSG's mandate appears unlikely, in light of what the Turkmen Press described this week as Niyazov's pipeline policy. The official press called it an "unshakable adherence to the principles of multi-route gas pipeline infrastructure development in the region which will decrease considerably the influence of political factors on the solution of economic problems."

But the Russian news agency Interfax reported Wednesday that Niyazov has reacted negatively to PSG's new plan. Interfax quoted Niyazov as saying that the proposals "do not take into account our national and economic interests, and are constituted in such a way as to delay the project." Niyazov said, "The process has come to a standstill, but it is not our fault," according to Interfax.

One possible interpretation is that the loss of the U.S.-backed option would considerably weaken Niyazov's hand in negotiating future gas prices with Russia and Iran.

Turkmenistan is in talks with Gazprom about raising its deliveries from 20 billion cubic meters annually to 50 billion cubic meters. Under its current agreement, Russia is obligated to pay for only 40 percent of the gas in cash, with the rest in bartered goods. Turkmenistan is also negotiating with Iran on an increase in sales to 13 billion cubic meters from about 2 billion a year.

The PSG plan has called for trans-Caspian deliveries of 16 billion cubic meters to Turkey with an additional 14 billion cubic meters to be passed on to Europe. Last week, PSG's president, Edward Smith, suggested that the pipeline's capacity could be raised from 30 billion to 38 billion cubic meters to accommodate Azerbaijan.

The sequence of competitive moves began one month after agreements on the trans-Caspian line were signed in Istanbul last November. After discovering a huge offshore gas field, Azerbaijan demanded access to the planned pipeline, saying it could no longer be considered only as a transit country.

Baku's demand for half the capacity of the line dramatically changed the economics of the plan for Turkmenistan. Niyazov proceeded to publicize the Russian and Iranian options as a way to pressure the U.S. developers to come up with new terms.

A reported agreement between Niyazov and Azerbaijan President Heidar Aliyev on giving Azerbaijan only 5 billion cubic meters of access was apparently short-lived. Last week, Ilham Aliev, the president's son, raised the figure to 8 billion cubic meters and half of the pipeline's future capacity. It is not yet clear whether PSG's new plan includes a final resolution of the controversy with Azerbaijan.