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Georgia/Azerbaijan: More Questions Raised About Baku-Ceyhan Pipeline

Last week's agreement between Azerbaijan and Georgia on the Baku-Ceyhan pipeline has raised new questions about the benefits of Caspian oil development. RFE/RL's Michael Lelyveld examines the issues.

Boston, 27 March 2000 (RFE/RL) -- A surprising agreement between Georgia and Azerbaijan has highlighted the big stakes for the region in ensuring that Caspian pipelines are built.

Last week, Azerbaijan President Heidar Aliyev announced a major concession to Georgia on the issue of transit fees for the Baku-Ceyhan pipeline, ending a four-month stalemate. Azerbaijan reportedly gave up its entire share of the fees in order to satisfy Georgia's demands. The deal could clear the way for commercial agreements on the oil pipeline in April or May.

But beyond the announcement itself, the details of the agreement have been confusing and vague. Industry analysts who were contacted last week declined comment until all the facts are sorted out. One problem in understanding the deal is that none of the numbers given in last week's announcement match any of the figures in previous reports.

Last month, Georgia was said to be seeking 20 cents per barrel as a transit fee. This month, the agreement reportedly calls for Georgia to receive 12 cents during the first five years, 14 cents per barrel for the next 11 years, and 17 cents after that. According to the Reuters news agency, an agreement signed in November allowed only 18 cents per barrel as the combined fee for both Georgia and Azerbaijan.

Similar confusion reigns over the tariff for the entire pipeline. Previously, it was reported to be $2 and 58 cents with $1 and 59 cents reserved for Turkey. The latest reports say that Turkey would receive a maximum of 37 cents in fees. According to figures from the State Oil Company of Azerbaijan, nearly 80 percent of the total tariff will be used to pay construction loans and maintenance costs.

As a result, the amount of actual profit from transit is less than some Western analysts thought. The latest figures raise doubts about whether all the haggling and delays were really worth the wait.

But another reason for withholding judgment is the difficulty of knowing when a deal is actually a deal. A reported agreement between Aliyev and Turkmenistan President Saparmurat Niyazov on sharing the trans-Caspian gas pipeline apparently collapsed earlier this month after Azerbaijan restated its terms.

It is hard to tell now whether the trans-Caspian deal is on or off. Niyazov has issued discouraging statements, although there is still some expectation of a signing ceremony next month at the Turkic summit in Baku.

The pact on Baku-Ceyhan could also run into trouble as details emerge. The deal must be ratified by the parliaments of both countries. Opposition leaders in Azerbaijan are already raising objections to Aliev's concession on the transit fees.

But the reports have also served to clarify the importance of seemingly small differences in revenues to the countries in the region. While the amounts seem small in terms of the $2.400 billion cost of the Baku-Ceyhan project, they could make a big difference to the economies of Georgia and Azerbaijan.

Georgia has already calculated that the $52.5 million a year in transit fees that it expects to receive will be equal to 10 percent of its state budget. Based on International Monetary Fund figures for last year, Georgia's fees at their peak would be equal to 1 percent growth in the country's gross domestic product. The value would be 1.6 percent of GDP in the case of Azerbaijan.

Baku may justify the loss of its fees because it stands to gain far more from exporting its oil. Delaying the pipeline could have cost Azerbaijan its share of economic growth. The stalemate had led to active discussions in Azerbaijan about the alternative of exporting oil and gas through Iran.

Much of the Baku-Ceyhan route may also be used for gas, which is becoming increasingly important for Azerbaijan. Its concession may be regarded as a long-term investment in Georgia and its energy routes. It is also an investment in close relations with President Eduard Shevardnadze, who faces re-election next month. The deal seems likely give him a timely boost.

But even if the Georgia deal survives scrutiny, Azerbaijan must still find the needed volumes of oil to fill the Baku-Ceyhan line. All the calculations are based on a line designed to carry 1 million barrels per day. Azerbaijan must look to its Caspian neighbors for oil to supplement its own.

And even if enough oil is found in the Caspian, the task of channeling it into the Baku-Ceyhan pipeline will require many additional deals. That challenge means that Azerbaijan may have to find ways to cooperate with its Caspian neighbors, including Turkmenistan, making the agreement with Georgia only the first of many compromises on revenues and fees.