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Azerbaijan signs gas pipeline deal with Georgia

Azerbaijan and Georgia have signed an agreement on the transit, transport and sale of natural gas...

Azerbaijan and Georgia have signed an agreement on the transit, transport and sale of natural gas, marking an important step towards a planned gas pipeline running across Georgia to Turkey.

Haydar Aliyev, the Azeri president, said the first delivery of gas through the pipeline would be made in 2004 from Azerbaijan's offshore Shah Deniz field, operated by BP and estimated to contain around 700bn cubic metres of natural gas.

Natik Aliyev, president of SOCAR, the Azeri state oil company, said Georgia wanted to receive its transit tariff of $2.50 per 1,000 cubic metres for the first five years of the agreement in the form of five percent of the total volume of gas transited through the pipeline.

The agreement accounts for a maximum transit tariff of $5 per 1,000 cubic metres of gas over 20 years.

From 2004, Georgia also plans to buy up to 500 million cubic metres a year of additional gas from Azerbaijan at an average price of $55 per 1,000 cubic metres.

Earlier this year, Azerbaijan signed an agreement to supply Turkey with 2.0bn cubic metres (bcm) of gas in 2004, rising to 3.0 bcm in 2005, 5.0 bcm in 2006 and 6.6 bcm per yearin 2007-18.

While the agreement is an important step forward for the proposed Azerbaijan-Turkey pipeline, it is not the last before construction can begin.

Turkey, Georgia and Azerbaijan's parliaments must still ratify the host-government and inter-governmental agreements.

Other Shah Deniz shareholders must also give the go-ahead for construction, if they decide that the project is commercially sound. BP officials has originally said they were looking for project approval by the end of the year, in order to meet the 2004-2005 deadline.

In July, Azerbaijan, thinking it had reached agreement with Georgia, prepared to host a signing ceremony. However, a letter from the World Bank convinced the Georgians that they should negotiate a higher tariff.