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Turkmen Report: September 23, 2000

23 September 2000
Turkmenistan, Uzbekistan Settle Border Issue, Reiterate Cooperation
September 21, 2000

The presidents of Uzbekistan and Turkmenistan have signed a treaty defining their shared 1,867-kilometer border.

The signing in Ashgabat today occurred as part of a two-day visit by Uzbekistan's Islam Karimov to Turkmenistan. The two countries are former republics belonging to the Soviet Union, which broke up in 1991, and were not divided by an international border until then.

Karimov said that the two countries are the first states in Central Asia to sign a treaty on delimination of their border. They would now proceed to physically mark the border spelled out under the treaty.

Karimov also stressed the important position Turkmenistan occupies today in Central Asia.

"The issues of entering Europe, Caucasus, or Bulgaria and Romania through Turkmenistan and the Caspian Sea were never considered before. Now, since we have become independent, our aim is to reach the Persian Gulf, Caspian Sea, Azerbaijan, Georgia and the Black Sea through Turkmenistan and Iran. Turkmenistan plays a great and important geographical and geopolitical role in solving these issues," Karimov said.

The Uzbek president mentioned that he and Niyazov discussed problems of cargo transit and tariffs and signed an inter-governmental agreement on cooperation in the field of tax legislation. The new document enables the two countries' tax agencies to exchange various economic and legislative information.

Karimov said that the trade turnover between the two countries "has increased two and a half times in the first seven months [of 2000] [against the same period of last year]. However, in the terms of figures this is $170-180 millions, which does not seem to me to be so much."

The Uzbek leader said he wants to double the annual trade turnover between his country and Turkmenistan. (BBC Central Asia Monitoring -- Uzbek Radio; Interfax; RFE/RL)

Karimov Indicates A Shift In Uzbekistan's Stance On Afghanistan
September 22, 2000

Uzbekistan may change its attitude towards the Taleban regime in Afghanistan, President Islam Karimov said today in Ashgabat following the talks with Turkmen president Saparmurat Niyazov.

Karimov stressed that Uzbekistan cannot ignore changes in attitude towards the Taleban in the world. "Previously, the attitude was very tough, but now there are elements indicating a milder attitude," Karimov said.

The Uzbek president expressed his bewilderment at the speech made by Borhanoddin Rabbani, President of the Islamic State of Afghanistan, at the UN Millennium Summit in New York.

"I did not understand what Mr. Rabbani wanted. It was absolutely incomprehensible what stance he was advocating and what his perspective is of tomorrow in settling the Afghan problem," Karimov said.

Karimov also said following the talks with his Turkmen counterpart Saparmurat Niyazov that Afghanistan requires economic projects to divert the nation away from war and into "the industrial process."

Karimov praised Turkmenistan's efforts in the Afghan peace settlement, saying the conflict threatens the entire Central Asian region.

"Any confrontation within Afghanistan will inevitably spill over the border, so it is natural that we are concerned about what is transpiring in that country. The Afghan war threatens regional stability, especially with the expansion of the drug trafficking that will seek new outlets," Karimov said.

On his part, Niyazov noted that Uzbekistan will take part in the construction of power lines and a gas pipeline across Afghanistan. (BBC Central Asia Monitoring; RFE/RL; Interfax)
Turkmen Ambassador Says It's Better To Speak To Taleban
September 20, 2000

A dialogue and cooperation with the Taleban regime will yield larger results than attempts to isolate it by imposing sanctions, Turkmenistan's Ambassador to the United Nations Aksoltan Atayeva said yesterday at the political debates during the 55th session of the UN General Assembly.

"The sanctions are working particularly against the Afghan people, so they are counterproductive," Atayeva said, adding that "any external interference in the inter-Afghan conflict, especially by force, is unpromising and would exacerbate the process."

Atayeva further said that Turkmenistan was ready to promote the Afghan peace settlement under the UN mandate. "Everything must be done to persuade the warring sides to cease fire and start negotiations," she said. (Itar-Tass)

"Repentant" Turkmen Officials Lose Homes Over Graft, But Keep Jobs
September 21, 2000

A number of high-ranking Turkmen officials have surrendered their luxury homes and palaces to the state after admitting corruption, officials reports said yesterday.

But Turkmen President Saparmurat Niyazov has allowed some of them to keep their comfy posts after they showed "remorse" and promised to change their greedy ways, the Neitralny Turkmenistan daily reported.

Nurmurat Gulmuradov, who heads the state road-building concern, Turkmenavtoellary, sacrificed a 70-room palace after he admitted it had been built from ill-gotten gains, the paper said.

Gulmuradov asked for the president's forgiveness and even took an oath before his colleagues that he would mend his ways, the newspaper reported.

Niyazov, who is known here as Turkmenbashi -- or "Father of all Turkmen" -- "showed great humanity" and decided that Gulmuradov could keep his job, the newspaper added.

The director of a regional oil and gas warehouse Atadzhan Akiyev also chose to give his two-story home to the government after admitting to corruption.

The newspaper quoted a letter from Akiyev to Niyazov in which he pleaded for forgiveness and added: "I give the state my house, which I am not worthy of, without regret."

Such cases are not alone, according to the newspaper, and some of the confiscated homes have now been converted into kindergartens.

Corruption is pervasive in this Central Asian state and Niyazov often accuses top officials at cabinet meetings of taking bribes.

Niyazov, who runs this Central Asian state with an iron fist, has spent millions of dollars in state funds on statues and palaces dedicated to himself while many residents in desert regions live without electricity or running water. (AFP)

Minor Earthquake Hits Turkmen Capital
September 20, 2000

An earthquake hit Ashgabat and the town of Firyuza at 20:19 local time yesterday.

The earthquake measured 2.5 points [on Richter scale] in the capital and 3.5 points in Firyuza, the Turkmen seismologic research institute reported. No destruction or casualties have been registered so far.

The earthquake's epicenter was located 85 km southwest of Ashgabat, on Iranian territory in the town of Bojnurd. (BBC Central Asia Monitoring -- Turkmen State News Service)

Turkmen Boy To Receive Life-Changing Surgery In U.S.
September 19, 2000

A young boy from the Central Asian nation of Turkmenistan will undergo a complicated operation in Los Angeles to remove a baseball-sized tumor from his jaw, the group paying for the procedure said.

The procedure to be performed on September 22 is potentially very dangerous, said Fresh Start Surgical Gifts, a non-profit organization that provides free reconstructive surgery for children suffering from physical deformities.

Andrey Boroviskiya, 12, was first spotted by a U.S. Peace Corps worker on a bus in the former Soviet Republic, said Fresh Start.

The tumor had been growing since his birth. The disfigured boy was ostracized, and could not receive the proper medical care in Turkmenistan to remove it.

"Andrey's ability to eat and drink is greatly impaired and his upper-airway is at risk," said Fresh Start director Martin Davis.

"His face is severely deformed, but is correctable by surgical removal of the tumor and reconstruction," Davis said.

The surgery will cost more than USD 100,000, the group estimates.

"With the help of donations from all over the United States, we're able to provide Andrey with the best care available," Davis said.

The surgery is dangerous because the tumor is a mass of blood vessels, "and a large fluid loss is expected during the procedure," the group said.

Fresh Start presented Andrey's case earlier this year at a symposium at the Salk Institute in La Jolla, California. He was examined by some of the world's leading authorities, who reached a consensus on how to approach the operation.

All surgeons are donating their time, the group said. (AFP)

Uncertainty Around Trans-Caspian Pipeline: PSG Closes Ashgabat Office September 19, 2000

The U.S. consortium involved in the trans-Caspian pipeline project to ship Turkmen gas to Turkey said yesterday it was closing its office in Ashgabat because of the project's uncertain future and the company's failure to establish fruitful relationship with the Turkmen government.

Representatives of PSG, which comprises General Electric Capital Services and Bechtel Enterprises, said also that the consortium was handing over leadership in the $2.0 billion project to partner Royal-Dutch Shell.

"We have agreed that Shell will take on the leadership of the consortium and the project will be managed in Turkmenistan through Shell's offices in Ashgabat," a project official, Stephen Tommczak, told Reuters.

Tommczak said the PSG offices would close at the end of October but added that the closure did not signify exit from the project.

Turkmenistan has a deal to sell huge volumes of gas to Turkey starting 2002, but the trans-Caspian project ran into trouble last year when gas was found off the Azeri coast, prompting Baku to demand a share in the pipeline capacity.

PSG presented project proposals to Turkmen President Saparmurat Niyazov earlier this year, but is yet to get a response.

Meanwhile Niyazov has signed a tentative deal to sell 50 bcm of gas every year to Russia, which in effect would leave none for the planned U.S.-backed pipeline, as well as strengthen Turkmenistan's dependence on Russia. (Reuters)

Turkmenistan Out Against Being Played For Fool In Gas Project -- Niyazov
September 22, 2000

Turkmen President Saparmurat Niyazov responded today to the decision of the U.S. company PSG to close down its Ashgabat-based office, saying the company had failed to meet a number of basic requirements of its partnership with Turkmenistan.

According to Niyazov, the basics included ensuring political guarantees and making initial investments into the trans-Caspian gas pipeline project, as well as developing the ecological safety program for the project and putting it into practice. Having failed to meet these requirements, the PSG still demanded that its authority as consortium's leader be extended so that it could start working to take all of the proceeds out of Turkmenistan to offshore zones. The consortium also claimed the right to fix Turkmenistan's share in the profit until the moment the project recouped the investment. Such an approach is hardly acceptable to Turkmenistan, Niyazov said. He added that "the U.S. partner can regain its authority as consortium's leader as soon as it meets our lawful requirements."

Niyazov also said he does not agree with the view of "the U.S. partners, namely Mr. Wolf, special representative of the U.S. president in the Caspian region" who argue that the current delay on the development of the project would lead to "Turkmenistan missing its chance to implement the project."

Niyazov expressed his firm conviction that natural gas would long be on the list of high consumption products and therefore would always be in demand on the world markets. (Itar-Tass)

Kazakhs To "Fiercely" Uphold Interests In Deciding Caspian's Status
September 22, 2000

Kazakhstan advocates settling the legal status of the Caspian Sea "in a civilized and diplomatic way," but intends "fiercely" to uphold its own interests, the head of the Kazakh Security Council's economic security department, Rustem Zholaman, said in Almaty today at the international conference "National and regional security of the Central Asian countries in the Caspian Sea basin."

Zholaman noted that a sectoral division of the Caspian Sea, which is currently supported in principle by three countries (Russia, Kazakhstan, and Azerbaijan), makes it possible "to search points of contact" precisely in this direction with the other two Caspian littoral states (Iran, Turkmenistan).

He also noted that Kazakhstan, which advocates a diplomatic settlement of the problems in the Caspian region, is not being driven by other interests "in contrast to neighbors which may allow themselves to develop hydrocarbon deposits in disputed territories before the legal status of the Caspian Sea has been defined."

Therefore, Zholaman said, Astana believes that deposits located in the disputed sectors of the Caspian Sea should not be developed before its legal status has been defined. (BBC Central Asia Monitoring -- Interfax-Kazakhstan)

Turkmenistan Does Not Plan To Sign Long-Term Gas Agreements - Niyazov
September 22, 2000

Turkmenistan does not plan to sign agreements for the sale of natural gas lasting more than one or two years, Turkmen President Saparmurat Niyazov said yesterday at the press conference in Ashgabat.

Niyazov explained that the constantly changing conditions on the market for hydrocarbon resources make long-term contracts unprofitable.

The Turkmen leader also announced that Turkmenistan is ready to sell gas at $42 per thousand cubic meters at the border next year. Niyazov said that Ashgabat has been negotiating gas deliveries to Ukraine and Russia and is currently waiting for a reply from these countries.

"The price of $36 per thousand cubic meters with payment partly in hard currency and partly in investment and trade offered by Ukraine is very low. It is not profitable for us," Niyazov said.

Niyazov stressed that Turkmenistan's policy on gas exports has no political undertones and is based only on the republic's economic interests.

"We are prepared to sell gas to anybody, but only at the price that has been proposed. Therefore, any claims about preferential treatment for any side are groundless," he said.

Niyazov's comments cast doubts over a preliminary agreement that called for Turkmenistan to supply Moscow with 50 billion cubic meters of gas annually over the next 30 years.

The deal was struck earlier this year when Russian President Vladimir Putin came to Turkmenistan, although the two countries failed to agree on a price.

Niyazov's statement comes two days after an international pipeline consortium said it is closing its offices in Ashgabat because of uncertainty over its trans-Caspian project.

The trans-Caspian route to take gas from Turkmenistan to Turkey is backed by the United States as a way of lessening Turkmenistan's dependence on Iran and Russia. (Interfax, RFE/RL)

Ukrainian Leader Plans To Sign Gas Deal With Turkmenistan
September 22, 2000

Ukrainian President Leonid Kuchma is to visit Turkmenistan soon to sign a deal on the natural gas deliveries, the Turkmen News Service reports following today's telephone conversation between Kuchma and Turkmen President Saparmurat Niyazov.

While speaking with Niyazov, Kuchma confirmed that Ukraine is ready to pay for the natural gas delivery. He also told Niyazov that Neftegaz Ukrainy company has transferred about $600,000 quarterly in payment for the 1999 gas debt. Ukraine has fully supplied merchandise in payment for the debt, Kuchma said. (Itar-Tass)

Turkmenistan's GDP Rose 15% In January-August
September 21, 2000

Turkmenistan posted GDP of 14 trillion manats (5,200 manats/$1) in January-August 2000, up 15% year- on-year, the national statistics institute reported.

Added cost went up due to a high rate of development in the real sector, especially in industry (18%) and agriculture (27%). There was considerable growth in the country's key industry's, especially gas production (69%) and textiles (39%). (Interfax)

Turkmen Leader Slams Domestic Banks
September 20, 2000

Weaknesses in Turkmenistan's banking operations negatively affect all sectors of the economy and cause instability of the national currency, Turkmen President Saparmurat Niyazov said at the Cabinet of Ministers meeting yesterday, Turkmen TV has reported.

The banks' narrow-sighted and illiterate credit policy disturbs the circulation of money in the country, the president said. He added that any financial operation with foreign investors should require guarantees [to return money]. (BBC Central Asia Monitoring - Turkmen TV Channel 1)

Capital Investment In Turkmenistan Up 3.4% In January-August
September 18, 2000

Capital investment in Turkmenistan rose 3.4% year-on-year to 5.1 trillion manats in the first eight months of 2000.

Foreign loans decreased to 25% of capital investment from 40%, and totaled 1.27 trillion manats. Some 70% of foreign loans went into the oil and gas sector.

The lion's share of investment -- 78% or 3.978 trillion manats -- was absorbed by the production sector.

The official exchange rate for September 18 is 5,200 manat/$1. (Interfax)

World Bank Officials Blame Poverty on "Hijacked" Reforms, Single Out Turkmenistan And Belarus
September 19, 2000

The World Bank said today that government policies favoring narrow private interests are a main cause of high poverty levels in former Soviet republics.

World Bank economist Ana Revenga said in Prague the highest levels of poverty are found in countries where vested interests have hijacked economic reforms.

"There are countries in Eastern Europe and the CIS where, in some sense, the state is captured by vested interests. Its very hard to imagine these governments taking action in a sustained way that is good for (fighting) poverty, if many of those actions go against those interests that have taken the state hostage," Revenga said.

Revenga said two-thirds of the people in Tajikistan live on less than two dollars per day. About half of the people in Moldova and Kyrgyzstan, and 42 percent of Armenians, live below that level.

Russia, Georgia and Azerbaijan also had high poverty levels. About 20 percent of the people there live on less than two dollars a day.

World Bank Vice President Johannes Linn acknowledged that the World Bank during much of the 1990s had underestimated the scope of corruption and criminal influence in reforms. He said the World Bank should have insisted on broader ownership through privatization.

Asked to specifically name countries where "state capture" is most rampant, Linn said the World Bank is currently not lending to Turkmenistan and Belarus.

IMF Says Russian Growth Helping CIS Partners
September 19, 2000

The International Monetary Fund says the revival of economic activity in Russia is helping its close trading partners in the Commonwealth of Independent States, such as Ukraine.

In its latest World Economic Outlook, issued today in Prague, the IMF says Ukraine is this year expected to enjoy economic expansion for the first time since the start of transition. It cautions however that progress on structural reform remains slow.

The IMF is also critical of progress on structural reform in Belarus, which it says is even less advanced, and which also suffers from triple digit inflation.

The report further says that high levels of external debt and slow pace of structural reforms continue to hobble economic activity in Georgia, the Kyrgyz Republic, Moldova and Tajikistan.

However, the report says that Kazakhstan, Azerbaijan and Turkmenistan have received boosts, like Russia, from higher prices for energy. (RFE/RL)

RFE/RL Journalist Slain In Moscow
September 22, 2000

Iskandar Khatloni, a Moscow-based correspondent for Radio Free Europe/Radio Liberty's Tajik Service, died in a Moscow hospital last night from head wounds after being attacked in Russian capital. The case is now under investigation.

RFE/RL President Thomas A. Dine today expressed his shock and sadness at Khatloni's death. "Mr. Khatloni was a valued colleague and a distinguished journalist on whose reporting many people relied. He will be missed. I very much hope that everything will be done to bring those responsible to justice."

Khatloni, who had worked at RFE/RL since 1996, earlier served for ten years as a BBC correspondent. Well-known in Moscow and the human rights community internationally, Khatloni at the time of his death was working on stories about human rights abuses in Chechnya.

Born in October 1954 in Tajikistan, Khatloni was a widely published publicist and poet, with numerous articles and four volumes of poetry to his credit. He is survived by his wife Kimmat, and a daughter from a previous marriage. (RFE/RL)

Islamic Rebels Renew Attacks on Kyrgyz Frontier
September 22, 2000

Kyrgyzstan's Defense Ministry says Islamic rebels have renewed their attacks on the country's southern frontier, breaking a tense calm that had lasted for several days.

Chief Defense spokesman Bolot Imanaliyev said sporadic fighting erupted between Kyrgyz troops and insurgents near the southern mountain passes of Telbe and Khodzha-Achkan yesterday evening.

He said Kyrgyz soldiers also battled with a group of Islamists near the Kurbaka mountain pass, also in the south of the country. No Kyrgyz troops were reported killed in the fighting.

The rebels, from the Islamic Movement of Uzbekistan, renewed their insurgency campaign against Kyrgyzstan and Uzbekistan last month.

Imanaliyev said rebels remaining on Kyrgyz territory are now attempting to retreat towards the Tajik border as temperatures drop before the onset of winter. (RFE/RL)

Karimov Says Uzbekistan Able To Protect Itself, Needs No Russian Help
September 22, 2000

Uzbek President Islam Karimov says his country is able to protect itself against a perceived Islamic threat without foreign help.

Karimov, on a visit to Turkmenistan, said Uzbekistan has "never invited and is not preparing to invite armed forces from outside no matter what country they are from".

Uzbekistan and Kyrgyzstan are currently fighting incursions by armed Islamic militants. Russia, which is seeking to regain a foothold in the Central Asian former Soviet republics, has offered security guarantees against the perceived Islamic threat. Last month, Karimov denied reports Uzbekistan had asked Russia for military help.

Karimov today said Russian press reports suggesting Uzbekistan is unable to deal with the militants are aimed to create "tension, panic and uncertainty" in society and facilitate the creation of a collective regional force which would "necessarily include Russia."

Karimov also declared that Uzbekistan is against the creation of collective regional armed forces in Central Asia and confirmed that there are no longer any militants on Uzbek territory.

"This is no longer an issue. They penetrated [our territory] and we have already eliminated them, wiped them out. They are no longer on the territory of Uzbekistan," Karimov said. (RFE/RL, BBC Central Asia Monitoring -- Uzbek Television Channel 1)

Tajik Man Sentenced To Death For Attack On UN Employee
September 21, 2000

A Tajik man has been sentenced to death for robbing a UN military observer at knifepoint.

AP quotes a judge in a Dushanbe municipal court, Murodzhan Saloheddinov, as saying the convicted man -- Rustam Ubaydullayev -- forced his way into a car being driven by an Austrian citizen working for the UN in the capital in February.

Ubaydullayev was caught after his victim jumped from the car to safety.

The judge said that the harsh sentence was due to Ubaydullayev's previous criminal convictions, the serious nature of the crime, and the fact that the victim was a foreign citizen working for an international organization. (RFE/RL)

Second Azerbaijan Opposition Party Banned From November Poll
September 21, 2000

One of Azerbaijan's main opposition parties has been banned from upcoming parliamentary elections.

An official with the Central Election Commission said today that the Azerbaijan Democratic Party had been left off ballots for the November 5 poll. Ilgar Abbassov said of the more than 5,000 signatures the party had submitted to register, more than 4,000 were what he called, "not viable."

The exclusion follows the commission's banning of another opposition party, Musavat, earlier this week.

Political observers say the election will be an indication of the country's commitment to democracy. It also could influence the choice of successor to 77-year-old President Heydar Aliyev. (RFE/RL)

Kyrgyz Opposition To Back One Presidential Candidate
September 20, 2000

Two Kyrgyz opposition parties pledged today to work together to oust incumbent President Askar Akayev in October elections.

Felix Kulov, who heads the Arnamys party, signed an agreement to back Socialist Party leader Omurbek Tekebayev as candidate for president.

Kulov was barred from the race yesterday by the Central Election Committee because he refused to take a controversial Kyrgyz language exam.

Kulov and Tekebayev said Kulov would head Tekebayev's election headquarters and would be named prime minister if Tekebayev wins the election.

Kulov said he accepted the offer because both parties want to ensure a parliamentary rather than a presidential state, and ensure the rule of law and an independent media.

Akayev has ruled since the Central Asian country gained its independence in 1991. (RFE/RL)

Kharrazi Urges Iranian Route For Caspian Oil
by Michael Lelyveld and Robert McMahon

September 20, 2000

Iran's foreign minister has again called for his country to be the prime transit point for energy resources from Central Asia and the Caucasus to world markets.

Foreign minister Kamal Kharrazi last night repeatedly said that Iran has the best developed infrastructure for the transfer of oil and said it could help spur economic progress for the entire region. He spoke at a round table in New York sponsored by the Eurasia Group and the U.S. Chamber of Commerce. His speech was heavily attended by representatives of Western oil firms.

The U.S. has blocked consideration of Iran as a transit route for energy resources from places such as Azerbaijan. Kharrazi did not directly mention the United States but called for the countries of the region to reject the influence of "external powers" and to work together to promote economic development.

Kharrazi acknowledged that tensions in the region will continue to obstruct economic progress in the near future. But he said Iran stands ready to promote peace, and cited his country's role in the recent successful peace initiatives in Tajikistan.

Kharrazi has been holding a series of bilateral meetings with his regional counterparts on the sidelines of the UN General Assembly session. The talks have focused on issues such as the oil industry and establishing a legal basis for establishing the boundaries of the Caspian Sea.

He said domestically Iran is pursuing a number of economic reforms dedicated to reducing the government's role in the economy, pursuing privatization and reducing the country's reliance on the petroleum industry.

The meeting was the second in two days involving Kharrazi and prominent academics and business leaders in the United States. On Monday, Kharrazi visited Harvard University in a meeting that was arranged without publicity.

Officials at Harvard and at Iran's Mission to the United Nations in New York said that Kharrazi and an Iranian delegation traveled to Boston for a private dinner with a small group of professors and Middle East specialists at Harvard's John F. Kennedy School of Government.

Kharrazi was scheduled to appear earlier Tuesday at a breakfast sponsored by the ILEX Foundation in Boston for what were described as "cultural" contacts. Officials at the ILEX Foundation did not return calls to our correspondent in Boston.

The appearance at Harvard reflects a U.S. policy of allowing greater "people-to-people" access for Iranian officials within the United States. It is also consistent with the UN initiative for a "dialogue among civilizations," a theme originated by Iranian President Mohammed Khatami.

Iranian diplomats are normally required to apply to the State Department for permission to travel beyond a 40-kilometer radius of United Nations headquarters in New York. Permission to accept invitations to conferences outside New York was routinely denied until earlier this year. A spokesman at Iran's mission to the United Nations said that Kharrazi is also expected to visit the University of California at Los Angeles this week.

U.S. and Iranian officials consciously avoided publicity for the Harvard visit in a sign of the tentative and potentially controversial nature of the contacts.

The mixed message on the public nature of the Iranian contacts seems to stem from concerns that they may be politicized. In the past, the State Department has denied visas to Iranian officials to address oil industry conferences because of concerns that the appearances could be used to criticize U.S. sanctions and pipeline policies. The emphasis on "cultural" contacts and the restrictions on press access may help to avoid such issues at a sensitive stage in improving relations.

A State Department spokesman in Washington declined to discuss the implications of Kharrazi's travels, saying only, "We treat each visa request individually." The official added, "He's going to academic settings."

The visits follow a series of near contacts between high-level U.S. and Iranian officials this month at the United Nations. Both U.S. President Bill Clinton and Secretary of State Madeleine Albright attended a speech given by President Khatami at the UN Millennium Summit. Albright was also present at a meeting with Kharrazi as part of the "six-plus-two" contact group of countries on Afghanistan.

Baku Bows to Pressure on Pipeline Plans
by Michael Lelyveld

September 20, 2000

Azerbaijan appears to be bowing to the pressures of the coming winter and Kremlin political strategy with a decision to buy Russian gas so that it can ship more oil through a Russian pipeline.

Speaking in Washington last week, the president of the Azerbaijani state oil company SOCAR, Natig Aliyev, told the ITAR-TASS news agency that the purchase of Russian gas for the country's power plants would allow it "to resume major transit of Caspian oil via the Baku-Novorossiisk pipeline across the Russian territory."

Last month, the Dow Jones news agency reported that Azerbaijan was also considering a German company as a possible gas supplier. It is unclear whether Aliyev's statement represents a final decision or only an argument for sourcing from Russia. In either case, gas would have to reach Azerbaijan through Russian pipelines. Azerbaijani officials have said that deliveries will start next month.

Aliyev's recommendation to buy Russian gas is the outcome of a series of problems since unexpected fuel shortages hit Azerbaijan last winter, leaving much of the country without electricity. In spite of the country's Caspian oil production, Azerbaijan ran low on both fuel oil and gas as power stations turned from one source to another in an effort to keep up with winter demand.

Russia added to the pressure in March by opening an oil pipeline around Chechnya and suddenly declaring that Azerbaijan was breaking a 1996 contract by not pumping oil through the pipeline to Novorossiisk. Moscow claimed that Baku owed it USD 29 million in fines as a result.

Azerbaijan has since supplied only small amounts of oil for the pipeline, trying to keep enough for refining so that it does not run out of power this winter again. Foreign oil companies in Azerbaijan choose to ship most of their Caspian oil through Georgia to avoid the high Russian tariffs on the Novorossiisk line.

So far this year, only about 250,000 tons of oil has moved through the Russian pipeline compared with some 2 million tons in all of 1999, according to Dow Jones. Buying gas from Russia would allow Azerbaijan to free up another 2 million tons of oil to ship through the pipeline, said Natig Aliyev.

Azerbaijan is hard-pressed because it has enormous amounts of Caspian gas that it cannot yet use. The country is making plans to pipe gas to Turkey from its offshore Shakh Deniz field. But the project will not be ready until late 2002, leaving Azerbaijan with two more tough winters without enough fuel.

But the sequence of events that began last year with Russia's decision to build the bypass line around Chechnya suggests that Moscow may have pursued a careful strategy to put Baku on the defensive about how much oil it can provide. The amount of available oil is critical to the U.S.-backed plan for the Baku-Ceyhan pipeline to Turkey, which would compete with Russia's route to Novorossiisk. Unless enough oil is found, the line to Ceyhan may not be built.

When Russia's then-Prime Minister Vladimir Putin ordered construction of the Chechnya bypass during the heaviest fighting of the war, he seems to have had two objectives in mind. The first was simply to keep Russia's oil route open as an option for Caspian exports. The second was to use Russia's contract with Azerbaijan to reduce the amount of oil that would be available for Baku-Ceyhan.

That strategy may now have a chance to succeed, even though Azerbaijan is likely to have plenty of gas for its power plants by the end of 2002. Under the reported terms of Russia's 1996 contract with Azerbaijan, Baku is required to increase its oil shipments to Novorossiisk each year.

It is supposed to send 2.3 million tons of oil through the line this year, increasing the volume to 5 million tons two years from now, according to a report by the Reuters news agency. Natig Aliyev's statement suggests that Baku feels obliged to honor the contract.

Azerbaijan will almost certainly fall short of its target this year, even if it does buy gas from Russia to substitute for oil. The goal of 5 million tons in 2002 also looks difficult, putting Baku in the position of asking for more time or revised terms under the pressure of fines.

Moscow is unlikely to give up its claims easily, considering that it is competing both with Baku-Ceyhan and Azerbaijan's plans to sell gas to Turkey, where Russia remains the largest supplier.

Azerbaijan cannot afford to pay fines. At the moment, it is unclear that it can even afford to pay for Russian gas. But if it seeks to delay the oil volumes that it has promised to Russia, the problem could get even worse because an oil shortage could stall the start of the Baku-Ceyhan project.

The predicament appears to give Moscow a strong advantage in its dealings with Baku, which could make Russian gas a costly source of power for Azerbaijan.