Publication: Fortnight in Review Volume: 6 Issue: 6

.In apparent deference to short-term political and financial considerations, the Georgian government is delaying progress on the Baku-Tbilisi-Ceyhan (Turkey) oil export pipeline project. The other participants are Azerbaijan, Turkey, the international consortium of oil producers AIOC–Azerbaijan International Operating Company, led by British Petroleum Amoco–and the United States as a major moving force behind the project. The partners are unable to reach agreement with the Georgian government on the conditions for the transit of oil through Georgian territory and for the operation of the Georgian stretch of the pipeline. A series of closed-door meetings in Ankara, Tbilisi, Baku and Istanbul ended inconclusively.

Georgian demands are said to include:

–the international investors to bear the costs of compensating Georgian land owners for the expropriation of land tracts along the planned pipeline route;–Georgia to be exempted from responsibility for the pipeline’s security and financial liability in case of “force majeure” incidents;–the transit tariff accruing to the Georgian government to be raised to 20 cents per barrel–from the lower level which had been envisaged–on the Georgian stretch of the pipeline;–Georgia to be allowed to retain for her own use–presumably for processing at a yet-to-be-built refinery in Supsa–a 3 percent quota of the crude oil bound for Turkey from Baku;–the partners to finance environmental protection measures along the pipeline route “according to Western environmental standards;”–Georgian engineering companies, local suppliers and labor to be guaranteed a sizable participation in pipeline construction operations and related activities on Georgian territory.

The other parties are seeking to address Georgia’s objections without lifting the cap on the overall cost of the project. Washington in particular is concerned to maintain that cap in the lower range of the cost estimates, i.e., around US $3 billion. Turkish President Suleyman Demirel has assigned a special envoy to shuttle to Tbilisi and Baku in a mediation effort. Turkey, moreover, offers to provide military training, electronic surveillance systems, arms and ammunition to help Tbilisi maintain the security of the pipeline.

Observers in the region also detect some strictly political considerations behind Georgia’s position. The country is in the midst of a presidential election campaign. President Eduard Shevardnadze, seeking reelection to another five-year term, apparently considers it important to avoid an exacerbation of relations with Russia in the lead-up to the April 9 balloting. Such a tactic may reflect Shevardnadze’s and his advisers’ recently expressed concern that Russia’s conduct toward South Caucasus countries is being shaped primarily by the “special services,” with their record of rogue operations in the region. Shevardnadze’s team also apparently feels that a pipeline deal that would be signed ahead of the presidential election could be attacked by political opponents, almost irrespective of its terms. If these interpretations are correct, the Baku-Ceyhan project will remain on hold until after the Georgian election, but would have to resume its progress shortly afterward, so as to lend substance to Georgia’s stated dedication to Caspian oil and gas transit projects.

“The Fortnight in Review” is prepared by senior analysts Jonas Bernstein (Russia), Stephen Foye (Security and Foreign Policy), and Vladimir Socor (Non-Russian republics). Editor, Stephen Foye. 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, 4526 43rd Street NW, Washington, DC 20016. Unauthorized reproduction or redistribution of “The Fortnight in Review” is strictly prohibited by law. Copyright (c) 1983-2002 The Jamestown Foundation