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Azerbaijan: World Bank Denies Agreeing To Support Pipeline Project

Despite reports from Azerbaijan and Georgia that the World Bank will back Caspian pipelines through their territories, a bank official said no decision has been made. The global lender is in the midst of a policy review for all "extractive industries," and no commitment is expected before it is completed next year.

Boston, 14 December 2001 (RFE/RL) -- The World Bank has denied reports that it has agreed to support two Caspian pipeline projects from Azerbaijan through Georgia to Turkey.

Azerbaijani and Georgian officials both said recently that the World Bank signaled that it will help finance the Baku-Ceyhan oil pipeline and a parallel project from the offshore Shah Deniz gas field.

The chairman of Azerbaijan's parliamentary commission for economic policy, Sattar Safarov, was quoted by the Turan news agency as saying that the bank was willing to provide $200 million for Baku-Ceyhan.

Similarly, the chairman of the Georgian International Petroleum Corporation, Georgi Chanturia, said that multilateral lenders including the World Bank would put up 70 percent of the funding for the Shah Deniz project, according to the "Turkish Daily News."

Both reports appear to be premature.

An official of the World Bank's International Finance Corporation (IFC) tells RFE/RL that the bank is still at "an early stage of the process" in considering such loans.

The official said, "There are discussions going on." But he added, "We have not even brought the discussion up to our board yet."

According to the official, the IFC was approached by the companies involved in developing the two projects, which are supported as a strategic goal of the United States to create a Caspian energy corridor through Caucasus.

The official said, "It's standard practice for companies to approach us and see if we're interested," and added: "An offer was made by the private companies for IFC to get involved, and we take such offers seriously."

Britain's BP oil company has been leading the consortiums for both pipeline projects. The Baku-Ceyhan oil line from the Caspian to the Mediterranean is expected to cost between $2.8 billion and $2.9 billion. The gas line from Shah Deniz has been estimated at $1.3 billion as part of a total development costing $3 billion. Both are likely to get support from U.S. agencies such as the Export-Import Bank and the Overseas Private Investment Corporation.

But the IFC official, who asked not to be named, indicated that it was still too soon to talk about a World Bank commitment or even a deadline for a decision. The official said, "We discuss projects around the globe constantly," adding, "at this point, we're not even talking time frames." The IFC is the World Bank's main lending arm for private-sector projects in developing countries, with an emphasis on sustainable development.

World Bank loans have been seen as an important anchor for financing by other multilateral lenders. Although the IFC's practice is to finance a maximum of 25 percent of a project, its backing can open the door to financing by a host of other institutions, such as the European Bank for Reconstruction and Development (EBRD). Private lenders also see World Bank approval as a sign of confidence a project.

In 1999, the IFC and the EBRD each agreed to lend up to $200 million for development of "early oil" from Azerbaijan's Chirag oil field in the Caspian. Later development from Chirag and adjoining fields is expected to be the main source of oil for Baku-Ceyhan.

Azerbaijani officials have had talks with the IFC on Baku-Ceyhan since at least July 1999. But the IFC official said this week that there will be no decision until a current study of the bank's energy policies is completed in early 2002 as part of an "extractive industries review consultative process." The review includes input from governments, business, and non-governmental organizations.

The official said, "At the end of that review, there will be a policy on what kinds of projects the bank should be getting involved in."

The IFC has made relatively few loans for pipeline projects during the tenure of World Bank President James D. Wolfensohn since 1995. Some of his early comments on the World Bank's role suggested that it should not use its resources for projects that could be adequately financed by private oil companies.

In the only recent pipeline project backed by the bank, the IFC approved a $200-million loan in 2000 to support an African oil export development linking Chad and Cameroon. The $3.5 billion project, led by U.S.-based ExxonMobil Corporation, was opposed by environmental and rights groups.

In recent months, Russia has toned down its opposition to the Baku-Ceyhan project, which skirts Russian territory. But Russian officials continue to promote a competing route from Baku to the Black Sea port of Novorossiisk, arguing that Baku-Ceyhan is not commercially justified.

Although a firm IFC commitment to Baku-Ceyhan may take time, a decision could be needed soon. Construction of the 1,730-kilometer pipeline is scheduled to start in mid-2002. Both the oil and gas pipelines are expected to be finished by 2005.