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Azerbaijan: Baku Getting Less Than It Wanted From Turkey

Turkey agreed this week to buy natural gas from Azerbaijan, ending many months of delay. But Ankara put off the delivery date and cut the expected volume as it struggles with its economic crisis and the burden of too many gas deals. Correspondent Michael Lelyveld reports:

Boston, 15 March 2001 (RFE/RL) -- Azerbaijan won an agreement this week to sell its Caspian gas to Turkey after 10 months of tough negotiations. But in the end, Baku seems to have gotten only about half of what it sought.

The 15-year gas pact signed 12 March during a visit by Azerbaijan President Heidar Aliyev was among nine documents presented at a meeting with Turkish President Ahmet Necdet Sezer. The ceremony eased tensions that had mounted over Turkey's delay in pledging to buy Azerbaijani gas since talks started last May.

Those concerns broke out in the open last week when Aliev's son, Ilham, a top energy official, accused Ankara of stalling the process and threatened to sell the gas to Iran instead.

The compromise appears to be that Turkey has now committed itself to a gas deal, but only for deliveries that are much smaller and later than those urged by Azerbaijan.

Baku wanted to sell 5 billion cubic meters of Caspian gas a year starting in late 2002. Instead, Turkey agreed to buy only 2 billion cubic meters beginning in 2004. Despite Azerbaijan's hopes to supply greater volumes in later years, the agreement calls for reaching the level of 5 billion cubic meters only in 2006. The amount would rise only slightly to 6.6 billion cubic meters through 2018, the Turan News Agency said.

The problem is that Turkey has already made major commitments to buy gas from Russia, Iran, and Turkmenistan. Breaking the promises to Russia and Iran would cost Turkey big penalties under take-or-pay contracts.

At the same time, Turkey's appetite for more gas has been severely curbed by reality. On 13 March, the "Turkish Daily News" reported that the government will announce a deep cut in this year's economic forecast from 4 percent growth to a 2 percent decline due to Ankara's recent crisis. The drop could be reflected in Turkey's energy demand for years to come.

The smaller agreement with Turkey may mean that gas development in Azerbaijan could take place more slowly than the country had planned, unless another buyer is found. In other words, the economic downturn in Turkey may translate into slower growth in Azerbaijan.

The pace could also affect a decision by Britain's BP oil company on whether to invest in a new pipeline through the Caucasus from Azerbaijan's offshore Shakh Deniz field.

BP has been struggling with the question of whether to build a new pipeline or to rebuild parts of an old Soviet-era line through Georgia. Azerbaijan wants the new line, but Turkey's small commitment may make the cost harder to bear.

The old pipeline is reportedly able to handle only about 4 billion cubic meters per year, but it now appears that might be enough until 2005.

Any deal will be subject to several more accords, including a transit agreement with Georgia, which proved difficult to negotiate in the case of Baku-Ceyhan. Any further delay may raise additional doubts.

The modest size of the accord with Turkey may also raise questions about whether Azerbaijan pursued the right strategy in dealing with rival Turkmenistan. Originally, the two countries planned to cooperate on a trans-Caspian gas line from Turkmenistan through Azerbaijan and Georgia to the Turkish market.

In 1999, Turkey signed an agreement to buy up to 16 billion cubic meters of Turkmen gas annually and to transit another 14 billion to Europe. Deliveries were supposed to start next year.

But after Azerbaijan discovered its own gas in the Caspian, it demanded half of the line's capacity, cutting the benefits for Turkmenistan. The project was put on hold indefinitely. In the meantime, conditions in Turkey have changed for the worse. In hindsight, Azerbaijan might have gained a greater export opportunity with Turkey if it had settled its differences with Turkmenistan earlier and made smaller demands.

Now, it is unclear how Turkey will honor all of its commitments for gas imports from Russia, Iran, Turkmenistan, and Azerbaijan. If one of the exporters is to be disappointed, which one will it be?

Turkmenistan President Saparmurat Niyazov is due to visit Turkey next month in one of his rare trips abroad to discuss the fulfillment of his 1999 gas pact. Without a trans-Caspian pipeline, Turkmen gas can only reach Turkey through Russia or Iran.

But after downsizing and delaying its deal with Azerbaijan, Turkey may also want to put the brakes on Turkmen gas. In light of Turkey's economic troubles, there may be little reason for any of its energy suppliers to celebrate its latest gas deal.