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Azerbaijan/Georgia: Critics Accuse Leaders Of Disadvantageous Gas Deal

The leaders of Azerbaijan and Georgia have both been called upon to defend the terms of an agreement to build a Caspian gas pipeline to Turkey. Critics in both countries say their negotiators gave away too much.

Boston, 5 October 2001 (RFE/RL) -- A gas pact with Georgia has come under heavy fire from critics in Azerbaijan, who say that the government has been too generous with its neighbor to the west.

The intergovernmental agreement signed in Baku on 29 September by Presidents Heidar Aliyev of Azerbaijan and Georgia's Eduard Shevardnadze brought an end to the wrangling that had stalled progress on a pipeline to Turkey for months.

The significance of the accord was nearly lost in the controversy over who got the better of the deal.

The $1 billion pipeline will be the first to bring Caspian gas across the Caucasus since the Soviet collapse. When deliveries start from the offshore Shah Deniz field in 2004, the line will provide an alternate fuel source for Azerbaijan, Georgia, and Turkey, all of which rely on Russia for gas.

An earlier attempt to achieve the same goals by building a pipeline across the Caspian from Turkmenistan broke down after Ashgabat failed to agree with Baku on terms for their shares.

In the trans-Caspian case, the argument was about sharing the pipeline's capacity. When first conceived, the line was expected to carry only Turkmen gas, providing Azerbaijan and Georgia with revenue from transit fees.

But Azerbaijan's discovery of gas instead of oil at Shah Deniz in May 1999 changed the picture for Baku. It soon demanded half of the pipeline's capacity, making it less economic for Turkmenistan.

With that history, it was hardly surprising that Georgia would seek favorable terms for access to Western markets, just as Azerbaijan did previously with Turkmenistan. In negotiations over the Baku-Ceyhan oil pipeline, Georgia did the much same thing, persuading Azerbaijan to give up its share of transit fees after a delay of five months.

Although accounts of the gas deal vary widely, resource-poor Georgia appears to have gotten less than the $5 per thousand cubic meters that the World Bank demanded it should get, according to a letter obtained in August by "The New York Times." Azerbaijan had offered $2 per thousand cubic meters instead.

Western news agencies reported this week that the agreement between Aliyev and Shevardnadze will give Georgia $2.50 per thousand cubic meters to start, rising gradually to $5 over 20 years. Georgia can take up to 5 percent of the transit gas in payment, according to Natig Aliev, president of the Azerbaijani state oil company SOCAR.

The "Oil and Gas Journal" reported that Georgia plans to take all of its payment in gas initially, while buying an additional 500 million cubic meters at a discounted cost of $55 per thousand cubic meters. At that rate, Tbilisi would pay $27.5 million to Azerbaijan and the consortium led by Britain's BP oil company at the outset, instead of getting cash.

But the terms have been attacked by Azerbaijani critics and the press in the past week. The daily "Azadliq" said, "The details of the agreement have been kept secret as if this was a private issue between Heidar Aliyev and Eduard Shevardnadze and has nothing to do with the Azerbaijani people."

The paper said that Georgia would earn $500 million from the deal, adding that "in other words, it will match the state budget." It seems to ignore that its own estimate of Georgia's earnings would be over 15 years.

At a meeting of the Union of Azerbaijanist Forces, party leader Togrul Ibrahimli also blasted the deal.

Ibrahimli said: "It is foolish to sell gas to Georgia at knockdown tariffs in this situation. Foreigners cannot believe that Azerbaijan buys 1,000 cubic meters of gas from Russia for $60 and sells its own gas to Georgia for $55."

That criticism seems to gloss over the fact that Shah Deniz will give Azerbaijan its own major source of gas for the first time, allowing it to end its reliance on costly Russian supplies.

On the other side, Shevardnadze has been called upon to defend the terms against charges that they are not good enough for Georgia.

In an interview with Georgian Radio before leaving for his trip to the United States, Shevardnadze was told by an interviewer that "our journalists claim that Georgia has agreed to a very low tariff."

Shevardnadze responded by calling the criticisms a collection of "weird rumors and incompetent and, obviously, malevolent pseudo-arguments claiming that this project is disadvantageous for Georgia." He also tried to remind listeners that Georgia needed an alternate gas source because of Russian cutoffs in the past.

The result is that a deal that might have been seen as producing benefits for both parties has been attacked on both sides instead. That may be the political cost of the compromise.