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Georgia: Pipeline Project Advances, Hurdles Remain

An agreement with Georgia has advanced the Baku-Ceyhan pipeline project, but experts say that hurdles remain. RFE/RL's Michael Lelyveld examines the issues.

Boston, 2 May 2000 (RFE/RL) -- A U.S. government official voiced optimism Monday about prospects for an oil pipeline from Azerbaijan to Turkey following an agreement with the government of Georgia.

Speaking in a phone interview from Washington, the U.S. official told RFE/RL that the host government agreement initialed Friday by Georgia's foreign minister, Irakli Menagharishvili, would allow the Baku-Ceyhan pipeline to proceed as planned.

The official, who asked not to be identified, said: "It's not behind schedule at all," referring to the 1,730-kilometer line from Baku to Ceyhan.

The new confidence over the project follows a five-month delay since an intergovernmental pact was signed at the OSCE security summit in Istanbul last November.

Officials concede that they underestimated the issues that would have to be addressed to reach agreement with Georgia as a transit country. But they now believe that the pipeline can still be completed in time to make its first deliveries in 2004.

In a statement Friday, U.S. President Bill Clinton said the Georgian accord had brought the project "a critical step closer to fruition."

The president said: "I look forward to the next phase of this effort, when companies from the United States, Western Europe and Russia will work with those of Azerbaijan, Georgia, Kazakhstan and Turkey to transform legal framework into commercial reality."

U.S. Secretary of State Madeleine Albright added that: "This agreement marks a major step forward in the evolution of the East-West energy corridor which, in turn, can help to foster democracy, stability and peace throughout this region." The ceremony was witnessed by Azerbaijan's foreign minister, Vilayat Guliyev, and Undersecretary Mithat Balkan of the Turkish Ministry of Foreign Affairs, as well as ambassadors from the region.

Azerbaijan was expected to initial its own host government agreement shortly. Planners hope the terms will be ratified by the parliaments of Azerbaijan, Georgia and Turkey later this month.

The U.S. official said that the completed framework will allow officials to start organizing a meeting of interested oil shippers, investors and financiers, which will probably take place in London.

There were differing assessments of the significance of the Georgian pact.

Michael Townshend, manager of international affairs for BP Amoco, the lead member of the consortium for Azerbaijan's largest Caspian venture, called the accord "very important." But Robert Ebel, director of the energy and national security program at the Center for Strategic and International Studies in Washington, said the agreement was only "another bureaucratic step along the way."

Ebel said the most important development for the Baku-Ceyhan project and the entire Caspian will be the results of drilling at Kazakhstan's giant offshore Kashagan field. If large amounts of oil are found, there could be enough to help fill the Baku-Ceyhan line and make it viable. Ebel said if the deposit turns out to be largely gas, it could dim the commercial outlook across the region.

There also appeared to be disagreements about Baku-Ceyhan's ultimate cost. The Reuters news agency quoted an unidentified U.S. official on Friday as saying that the price is expected to reach $2.7 billion. But the official who spoke to RFE/RL on Monday said, "The target is still $2.4 billion."

Turkey has agreed to guarantee a cost overrun of up to $300 million, but only for the part of the pipeline on its territory.

The biggest break in the Georgian negotiations came in March when Azerbaijan President Heidar Aliyev agreed that his country would forgo its share of transit fees. That concession has proved controversial with Aliyev's opponents. The U.S. official declined to predict the outcome of the ratification vote in the Azerbaijani parliament.

The U.S. official said the sticky issue of Georgian liability was also reportedly resolved with an agreement that the country must make its "best efforts" to protect the pipeline.

The agreement came as an Iranian official disclosed Friday that his country has begun talks on building a 1,500- kilometer pipeline to link Kazakhstan to the Persian Gulf, competing with the Baku-Ceyhan plan. Deputy Foreign Minister Mohammed Hossein Adeli said at the World Economic Forum summit in Almaty that the Iranian project would cost $1.2 billion.