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Caucasus Report: May 5, 1998

5 May 1998, Volume 1, Number 10

Geo-Political Wishful Thinking vs. Economic Reality. Events over the past month have called into question both the time frame and the optimum route for the transportation of Caspian oil to Western markets. In early April, the Azerbaijani state oil company SOCAR divulged that the existing west-bound pipeline from Baku to Supsa on Georgia's Black Sea coast is in a far more advanced state of disrepair than previously believed, and that much of it must be replaced. SOCAR was reportedly initially reluctant to consider this option as it would have significantly raised the planned budget for repairs to the pipeline from $315 million to $590 million, but then hinted it would agree to do so on condition that the diameter of the pipeline be expanded from the existing 24 to 42 inches. The rationale for that suggestion was apparently a Turkish proposal that the Baku-Supsa leg should form the first stretch of the proposed Main Export Pipeline intended to transport an annual 35 - 50 million tons of Caspian crude from Baku to the Turkish Mediterranean terminal at Ceyhan. The cost of that pipeline is currently estimated at $2.5 -- $3 billion; but capitalizing on the existing infrastructure to route it via Supsa could lower that estimate. (Giorgi Chanturia, president of the Georgian International Oil Corporation responsible for the Georgian sector of the Baku-Supsa pipeline, endorsed the Baku-Supsa-Ceyhan route in a recent interview with Interfax.)

Meeting in Trabzon in late April, the presidents of the three countries that stand to benefit most -- Azerbaijan's Heidar Aliev, Georgia's Eduard Shevardnadze and Turkey's Suleyman Demirel -- reaffirmed their commitment to the Baku-Ceyhan route for the Main Export Pipeline. That option is also wholeheartedly supported by the U.S. But several members of the Azerbaijan International Operating Company (AIOC), the twelve member consortium created to exploit Azerbaijan's Azeri, Chirag and Gyuneshli fields, have reservations about Baku-Ceyhan, primarily for economic reasons: to be viable, it would have to transport crude not only from Azerbaijan's Caspian deposits but also from Kazakhstan and Turkmenistan. That, in turn, would entail construction of a trans-Caspian undersea pipeline.

All the above calculations are predicated on previous estimates of recoverable reserves of Caspian oil, calculated by the U.S. State Department at 200 billion barrels. But in its annual report released in late April, the International Institute for Strategic Studies termed that figure wildly overstated, suggesting that reserves may not exceed 25 - 30 billion barrels.

A meeting last week of the AIOC steering committee failed to take a decision on whether to repair, or to expand the throughput capacity of, the Baku - Supsa pipeline. Instead, the AIOC is keeping all its options open, and starting talks with Turkey, Georgia and Russia on all possible routes for the MEP. (The northern alternative, via the Russian Federation to Novorossiisk, is being touted by the Russian government as the most cost-effective.) The final decision on the MEP route was originally scheduled for October, 1998, to coincide with the commissioning of the Baku-Supsa pipeline. Both are now almost certain to be delayed. (Liz Fuller)

Armenia Lays Its Karabakh Cards On The Table. In an interview published in "Nezavisimaya gazeta" last week, newly-appointed Armenian Foreign Minister Vartan Oskanian said that Yerevan will unveil its new strategy for negotiating a solution to the Karabakh conflict during the upcoming visit to the region of the co-chairmen of the Organization for Security and Cooperation in Europe's Minsk Group.

Armenia, Oskanian said, will insist on the "package" rather than the "phased" approach, given that the former creates firmer foundations for a lasting peace. (The "package" approach entails resolving all contentious issues within the framework of one document; the phased approach postpones a decision on the future status of the unrecognized Nagorno-Karabakh Republic until the final stage of the negotiating process, after the withdrawal of Karabakh Armenian forces from occupied Azerbaijani territory.) Armenia will also insist that the negotiating process be resumed "without preconditions," that is, without reference to the so-called Lisbon principles. Those principles, adopted at the OCSE summit in Lisbon in December, 1996, encompass the preservation of Azerbaijan's territorial integrity and propose "the highest degree of self-government" for Nagorno-Karabakh within Azerbaijan.

It was disagreement over the relative merits of the phased and package solutions that precipitated the resignation in early February of President Levon Ter-Petrossian, who had conditionally accepted as a basis for future negotiations a phased plan proposed by the OSCE. Then-Prime Minister Robert Kocharian, together with the Karabakh leadership, had rejected that pln in favour of the "package" approach.

Azerbaijan's President Heidar Aliev, who had unconditionally accepted the OSCE phased peace plan last autumn, affirmed his readiness to "cooperate" with Kocharian following the latter's election as Armenian president in late March. But Aliyev added that he saw no need to amend the phased plan, which he hoped Armenia would now accept. Following a meeting in Moscow on 28 April on the eve of the CIS summit, Kocharian and Aliyev issued a statement reaffirming their shared commitment to the ceasefire agreement signed in May, 1994, and to seeking a solution to the Karabakh conflict by political means, through continued negotiations within the framework of the Minsk Group.

President Kocharian subsequently told Armenian journalists that he had made his position on Karabakh very clear during his talk with Aliev. Aliyev for his part is unlikely to abandon his commitment to the phased approach in the runup to the Azerbaijani presidential elections due in October. (Liz Fuller)

Azerbaijan Fails To Attend BSEC Meeting in Yerevan. Azerbaijan inexplicably failed to send a representative to the 30 April meeting in Yerevan of foreign ministers of the Black Sea Economic Cooperation. This absence was surprising insofar as Azerbaijan was scheduled to take over the rotating chairmanship of the BSEC at the meeting, during which participants initialled a Charter on upgrading the BSEC's status. That charter is to be signed by BSEC presidents at their Yalta summit in early June. Bulgaria has succeeded to the chairmanship in place of Azerbaijan, Noyan Tapan reported on 1 May. (Liz Fuller)

Shevardnadze's Moral Victory. As anticipated, last week's CIS summit endorsed the Russian-drafted "Decision on Additional Measures for Resolving the Conflict in Abkhazia." Those measures include creating a joint Abkhaz-Georgian administration, which would also include UN and OSCE representatives, in Abkhazia's southernmost Gali raion. That further increases the involvement of the international community in the search for a solution to the conflict. The draft also extends the zone of jurisdiction of the CIS peacekeeping force currently deployed along the internal border between Abkhazia and the rest of Georgia to cover the entire territory of Gali. This latter measure is intended to expedite the repatriation, first to Gali and then elsewhere in Abkhazia, of ethnic Georgians constrained to flee during the 1992-1993 fighting. But it may also impel the guerrillas of the Georgian "White Legion" to step up their attacks on the peacekeepers, whom they view as an obstacle to their objective of restoring Georgian control over Abkhazia by military means.

Georgian President Shevardnadze admitted in his weekly radio broadcast on 4 May that implementation of the "additional measures" may not be easy. Abkhaz President Vladislav Ardzinba has warned that Abkhazia will counter any attempt to redeploy the CIS peacekeeping force with armed resistance. But Ardzinba predicted that the appointment of former Russian Security Council Deputy Secretary Boris Berezovskii as CIS executive secretary will have a positive impact on resolving the conflict. The Abkhaz president failed, however, to explain why he believes Berezovskii could be successful in that undertaking where the Russian Foreign Ministry and the UN Secretary-General's "Friends of Georgia" Group have so far failed.