The construction of the ambitious, long planned pipeline project form Baku at the Caspian Sea to the Mediterranean in Turkey has started but a lot of problems lie still ahead.
The BTC pipeline is being built to transport crude oil from the Azeri-Chirag-Gunashli (ACG) field, which lies 120 kilometers off the cost of Azerbaijan and contains at least 5.4 billion barrels of recoverable oil, to Western markets. The pipeline will be 1760 kilometer long, 442 km in Azerbaijan, 248 km in Georgia and 1070 km in Turkey. It should be able to carry one million barrels per day.
The project is operated by BP with a 30.1 percent stake. Further participants are the Azeri state oil company Socar (25%), Statoil (8.71%), Unocal (8.9%), Turkey's TPAO (6.53%), ENI (5%), Total (5%), Itochu (3.4%), Inpex (2.5%), ConocoPhillips (2.5%), and Amerada Hess (2.36%).
The project is one of the biggest foreign direct investments in the region, with an estimated cost of almost $3 billion. It will be partly debt financed. International Finance Corp., the private sector lending arm of the World Bank and the European Bank for Reconstruction and Development have agreed to lend $300 million each. The rest of the $1.7 billion, which should be financed externally, is hoped to come from commercial banks from the US, Europe and Japan.
However, in recent days and weeks, further problems for the project have arisen. There are a considerable number of environmental groups which announced to sabotage the pipeline and these are not even terrorists from the Caucasus and the Middle East. One of the peaceful protesters is Amnesty International. They fear that 30?000 landowners in Turkey will be negatively affected by the land acquisition for the construction of the pipeline.
Another opponent is ?Friends of the Earth?. They fear assume that the project threatens the environment in all three host countries. Their special focus however is on Georgia. A leakage cause by a lack of maintenance or sabotage could damage the mineral water resources at the Borjomi National Park. The produced mineral water has a world wide reputation and is of high importance to the Georgian economy as it provides 10 percent of the country?s export revenues. Furthermore, the contracts, the three countries singed with the pipeline consortium, were heavily criticized. These agreements surpass all other domestic legislation, including environmental laws. Turkey for example has agreed that the consortium does not have to comply with all existing and future environmental and social legislation. The country has also agreed to abstain from all actions which could hamper the development of the project, otherwise it would have to compensate the contractor for the occurred economic damage.
One should also keep in mind, that the whole pipeline project has been politically motivated. It has the strong support of the United States of America, which has been seeking to open new export routes and diversify oil supplies. A further aim was to deepen the relations with the strategic important Turkey, as well as supporting the newly independent states Azerbaijan and Georgia. Other project like the existing pipeline through Russia to Novorossik or a project in Iran would have been economically more viable. But after the war in Iraq and the prospect of increased exports from the Middle East, Caspian oil could become less important in the view of the Americans and therefore the political support for the project could decrease. A potential increasing economic cooperation with Russia would only strengthen this development.
The other political driving force behind the project was the President of Azerbaijan, Haidar Aliev. But the 80 year old regent experienced some health problems recently and this could lead to an unstable political situation in the country. Aliev?s son and vice president of Socar is considered to lack the stature to follow his father and to become head of the state. One of the top contenders to succeed President Aliev is Rasul Guliev, a former speaker of parliament who has been in exile in the US since 1996. He is likely to return to Baku at the end of May. Guliev would probably not shake up the entire system but he could question oil contracts signed by Alliev and the use of money, designated to the Stat Oil Fund in order to support social programmes, which was used to fund the pipeline project. In any case, it would be harder for BP to deal with the successor of Alliev. With this outlook, it also can be seen, why the funds from the World Bank and the European Bank of Development are so important. They offer a political cover against domestic political decisions. No ruler of the country can afford to be on bad terms with these international organizations.
That dim outlook was probably the main reason, why Exxon Mobil and Devon Energy, which are BP?s partners in the ACG development, did not join the pipeline consortium. BP will have two very difficult years if it wants to complete the project in a local environment which could prove to be very unstable in the near future.
Author: Andreas Wild
