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Russia: Questions Linger On Energy Projects

The latest progress on Russia's plan to pipe gas to Turkey has raised questions about why other projects in the region are taking so long. RFE/RL's correspondent Michael Lelyveld takes a look at the issues.

Boston, 10 May 2000 (RFE/RL) -- Turkey has started work on its part of a new pipeline to carry gas from Russia across the Black Sea, highlighting one of the biggest problems for the region's energy exports.

The work on the ambitious pipeline project known as Blue Stream began on the Turkish side last week with the groundbreaking for a 200-kilometer link between the Black Sea port of Samsun and the city of Corum.

Similar construction above ground has already started on the Russian side, according to The Associated Press. A joint venture between Russia's Gazprom and ENI of Italy plans to join the two countries with the deepest underwater pipeline in the world. Despite the challenges, the 1,200-kilometer project is scheduled to start delivering gas to Turkey next year.

Although analysts were initially skeptical about the $2.9 billion plan, the Blue Stream project has now received official financing that appears to cover all costs for the underwater part of the line. Export credit agencies and government-owned banks from Italy, Japan, Turkey, Germany, and Britain now seem to be taking most of the risk.

Despite its difficult engineering, the Blue Stream project has one great advantage. It crosses no borders, other than those of the buyer and the seller of the gas. Russia's current connection to the Turkish market runs through Ukraine, Romania, and Bulgaria. Although this is also being expanded, the negotiations took years.

Since the start of the pipeline competition in the region six years ago, very few significant projects have actually been built. Most of these have been bilateral projects, that is, those involving only two countries. Most have also involved Russia in some role.

Projects like the Baku-Ceyhan oil line and the trans-Caspian gas line have been harder to organize because they require cooperation among several countries with diverging interests. Although Georgia signed a host-government agreement for the Baku-Ceyhan line between Azerbaijan and Turkey last month, the pact took some six months to negotiate.

Western oil companies can point to more success with the Baku-Supsa line, which now carries Caspian oil from Azerbaijan to Georgia's port on the Black Sea. Although the cost of the bilateral project rose to about three times its estimate, the issues now seem relatively simple because of the limited number of interests involved.

By contrast, negotiations over the trans-Caspian gas pipeline from Turkmenistan to Turkey have stalled because of disagreements over transit and access through Azerbaijan.

Other successful pipeline projects in the region include the 200-kilometer connection from Turkmenistan's Korpedzhe gas field to Kord-Kuy in Iran, completed in late 1997. The bilateral link allowed Turkmenistan to continue at least a small volume of exports after a dispute with Russia closed down its major connection through Kazakhstan.

Progress is also continuing on the Caspian Pipeline Consortium's pipeline from the Tengiz oilfield in Kazakhstan through Russia to the port of Novorossiysk. Despite long negotiations, the project ultimately involved only a single international border, increasing the chances that it would succeed.

The fastest recent project may also have been the simplest and most brutal. Russia's bypass oil line around Chechnya may well set a record for pipeline construction, with 312 kilometers of line completed in about four months in the middle of a war. The project on Russian territory took place without negotiations and apparently without financing, and probably with a bare minimum of engineering. Yet, there is now little doubt about the speed of the results.

The examples suggest that pipeline projects involving multiple countries are most difficult because they are more than mere challenges of engineering and financing. Agreements require neighboring and sometimes distant countries to find common interests and ways to share in economic development. Such decisions are particularly hard in a region where energy is the prime source of national income.

Once pipelines are built, the links may last for decades, establishing patterns of trade and relations that may remain longer than the leaders or the governments that negotiate them. It is little wonder that projects involving several regional interests have taken so long.