BAKU-CEYHAN OIL AND GAS AGREEMENTS SIGNED.

The recent summit in Istanbul of the Organization for Security and Cooperation in Europe (OSCE) (see the Monitor, November 19, 22-24) provided a political backdrop to the signing of historic agreements on the export of Caspian oil and gas to international markets. The issue itself does not concern the OSCE, but only the producer and transit countries–Azerbaijan, Turkmenistan, Kazakhstan, Georgia and Turkey–as well as the United States, which provided the decisive political impetus to the negotiation of these agreements and whose continued support remains indispensable to their implementation.

If implemented, the agreements will end Russia’s century-old monopoly as a consumer and transit country for Caspian oil and gas. A large share of those resources will for the first time bypass Russia, to be routed directly to international markets. This shift should help consolidate the political independence of Caspian and South Caucasus countries, enable them to earn hard-currency revenue, provide a basis for regional cooperation, spur economic reforms, connect these countries firmly with the international economy, and increase the Western stake in preserving these countries’ independence.

On November 18, Presidents Haidar Aliev of Azerbaijan, Eduard Shevardnadze of Georgia and Suleyman Demirel of Turkey signed as contracting parties–with U.S. President Bill Clinton co-signing as a witness–a set of six agreements for the Baku-Tbilisi-Ceyhan main export pipeline (MEP). The signed documents include a tripartite intergovernmental agreement, three host-country agreements, and a turn-key agreement and a cost-guarantee agreement–both of which involve Turkish obligations (see below). The agreements cover a host of political, legal, financial, commercial and safety issues, and set a time frame for the construction and commissioning of the MEP.

The overland pipeline will measure 1,730 kilometers in length, including 465 kilometers in Azerbaijan, 255 kilometers in Georgia and 1,010 kilometers in Turkey. The estimated cost of the project is US$2.4 billion, including US$1.4 billion for the section on Turkish territory. The government of Turkey is guaranteeing to cover any cost overruns on the Turkish section, to be built by the Turkish state company Botas on a turn-key basis. The annual throughput capacity is projected at 25-30 million tons in the initial stage starting in 2004, and at 50 million tons in the second stage from 2007 onward. Countries on the northern rim of the Mediterranean–from Turkey and Greece to Italy and France–are the main prospective consumers.

Construction work is envisioned to begin in early 2001. The Azerbaijani, Georgian and Turkish governments as well as the Azerbaijan International Operating Company–AIOC, the largest international oil consortium active in that country–are now due to form an implementation committee and a pipeline construction company (MEPCO); to work out throughput agreements, by which producer companies dedicate specific oil quantities to this pipeline; and to secure the financing for the project. These steps are expected to be accomplished in that order during the course of 2000.

The pipeline is intended to transport not only AIOC oil, but also certain quantities from other international projects in Azerbaijan, as well as oil from Kazakhstan and possibly from Turkmenistan. Western banks as well as oil companies active on either shore of the Caspian Sea will be invited to participate in the investment effort on a strictly commercial basis. The United States government is providing consulting services through the Agency for International Development, and has pledged loan guarantees to the tune of US$500 million from the Overseas Private Investment Corporation and the Export-Import Bank.

With the development of Azerbaijan’s oil deposits proving more complicated and taking longer than expected, oil inputs from Kazakhstan are considered essential to the Baku-Ceyhan pipeline’s commercial prospects. During the Istanbul summit, President Nursultan Nazarbaev signed a statement of intent which envisages the export of up to 20 million tons of Kazakhstani oil through the Baku-Ceyhan pipeline. That prospect, however, looks uncertain at this time because Kazakhstan is already committed to routing the output from its giant Tengiz onshore field directly to Russia’s port Novorossiisk. Only the quantities to be extracted from as yet undeveloped offshore fields will be available for export through the Baku-Ceyhan pipeline (Caspian Times-News, Turan, Habar, Prime-News, Anatolia news agency, Dow Jones Newswires, Bloomberg, November 19-28).

The Monitor is a publication of the Jamestown Foundation. It is researched and written under the direction of senior analysts Jonas Bernstein, Vladimir Socor, Stephen Foye, and analysts Ilya Malyakin, Oleg Varfolomeyev and Ilias Bogatyrev. If you have any questions regarding the content of the Monitor, please contact the foundation. If you would like information on subscribing to the Monitor, or have any comments, suggestions or questions, please contact us by e-mail at pubs@jamestown.org, by fax at 301-562-8021, or by postal mail at The Jamestown Foundation, 4516 43rd Street NW, Washington DC 20016. Unauthorized reproduction or redistribution of the Monitor is strictly prohibited by law. Copyright (c) 1983-2002 The Jamestown Foundation Site Maintenance by Johnny Flash Productions