BAKU-CEYHAN PIPELINE AT FINAL STAGE

Natural gas has overshadowed oil in Turkey’s energy strategy and involves radical foreign policy readjustments. The Baku-Ceyhan oil pipeline is still one of Turkey’s priority projects that will affect the region’s international developments - the Caucuses and the Middle East. In the 20^th century the Arab world’s Middle East oil was the determining factor in shaping international events and even wars. Will Central Asia’s natural gas be the determining factor in the 21^st century and will the Turks be more successful than the Arabs in not falling into capitalism’s traps and intrigues? There is reason to believe that the Turkish world in the new century will be much more successful in its natural gas strategies than the feuding Arab world has been about oil in the outgoing century.

At a time when the Baku-Ceyhan pipeline project came close to conclusion and the final agreement was about to be signed fresh difficulties appeared between Turkey and the multinational oil companies which raised the "third country risk" issue. Presidents Demirel and Aliyev will now come together, once again, and try to work out a solution. They also need President Shevardnadze’s help to finalise this important pipeline project for the new millennium.

It is almost certain that Demirel and Aliyev will work out a consensus to solve these difficulties and the Georgian Administration will follow suit. The Baku-Ceyhan pipeline agreement may, therefore, be a fact before the end of the year. However, the situation concerning the other important energy project, the Trans-Caspian pipeline for 30-billion m³ Turkmen natural gas to Turkey, is far from reaching this happy end. The following is the intriguing story behind the Baku-Ceyhan project.

Foreign policy highlights of Turkey’s energy policy

Turkey imports more than 50% of its energy consumption each year and this gap is constantly widening. Renewable resources such as wind and solar energy, hydraulic energy or coal-based thermal plants are far from being enough to meet Turkey’s energy needs in the new century. Turkey’s oil consumption is 28-29 million ton/year today and it will rise to 45 million ton/year in 2010. The increase will be much bigger in natural gas imports.

Oil imports have always been an important item in Turkey’s energy policies in recent decades and the solution of this problem concerned as much the national foreign policy as energy techniques of scientists. The MFA (Ministry of Foreign Affairs) established the following principles about Turkey’s energy policies in determining the oil and natural gas imports:

• Not to be dependent on a single source or country
• To find alternative sources of energy
• To achieve flexibility in supply
• To secure security of supply
• To increase indigenous resources as much as possible in energy procurement.

The Kirkuk-Iskenderun pipeline with its up to 70 million ton/year capacity was sufficient to meet Turkey’s energy needs. But when the Gulf War delivered deadly blows to it as from August 1990 Ankara had to make new plans and alterations to its energy plans.

Straight after the December 1995 general elections, in March 1996, Energy Minister Husnu Dogan (ANAP) ordered an overall revision of Turkey’s energy policy. His successor, Recai Kutan (today’s Virtue Party Chairman), continued with that work and the findings of technocrats were put into force by the following Governments based on the Mesut Yilmaz-Bulent Ecevit cooperation. The man in charge of energy in this period is today’s Deputy PM and Energy Minister, Cumhur Ersumer (ANAP-Canakkale), excluding Ecevit’s minority government before the April 1999 elections when Ziya Aktas (DSP-Istanbul), claimed to be an American national, took over as Energy Minister for a few months.

Natural gas replaces oil in Turkey’s energy imports

The basic characteristic of this new Turkish strategy for energy imports w as that natural gas replaced oil, by and large, with all its consequences in Turkey’s domestic affairs and especially foreign policy and security strategies. These changes in Turkey’s energy strategies inevitably brought it face to face with the superpower struggle as well and Ankara is now rapidly heading for its final choice in this policy.

In December 1997 PM Mesut Yilmaz worked out a 5-point program with the Clinton Administration in Washington and energy headed the list of these five points. The Baku-Ceyhan pipeline was the centre of energy flow to the western world in the new millennium, according to the US-Turkish plans. At Washington’s insistence Ankara changed its policy and the tripartite agreement with Turkmenistan and Iran about importing Turkmen gas to Turkey via Iran fell through, even though the three heads of State had already initialled it. Instead the American policy of a Trans-Caspian pipeline was adopted.

Turkey assures Azerbaijan that it will not act without mutual consent

The work carried out on Baku-Ceyhan and the Trans-Caspian pipelines has now come to the final stage on the first but is marking time on the second. This achievement on the first project was thanks to the sincere co-operation Ankara and Baku worked out at the beginning of the negotiations. This was due to the Azeris’ complaint that Ankara was working out arrangements with oil companies and western countries in disregard to Azerbaijan’s oil policies and commitments. In the autumn of 1997 Ankara pledged to Baku that it would make no arrangements about the Baku-Ceyhan pipeline without consultation and prior consent of Azerbaijan and meticulously kept to its promise. Consequently Turkey and Azerbaijan achieved to appear as a single front at the negotiations and jointly took their steps.

The first disagreement between Turkey and the oil companies appeared at the cost of the Baku-Ceyhan pipeline. While the companies claimed that it would cost $4 billion and no less than $3.7 billion, Turkey, in consultation and agreement with Azerbaijan, undertook to build it at $2.4 billion at its own risk. Turkey and Azerbaijan jointly decided with the oil companies on the details of the "throughput agreement", throughput being the amount of oil to run each year through the pipeline and the companies’ commitments about it.

In May 1998 Turkey and Azerbaijan signed a protocol to achieve the Baku-Ceyhan pipeline project together. On Turkey’s national day, October 29^th, 1998 Turkey and Azerbaijan, with the participation of Georgia and the United States, announced worldwide in a declaration that the project was economically viable, politically desirable and environmentally friendly.

It was a breakthrough in the realisation of the Baku-Ceyhan pipeline, but the oil companies’ procrastination was endless. They were still insisting on the cost of $3.7 billion. Turkey’s response was to give them business incentives for $2.4 billion and put the necessary funds for it in the 1999 budget. Within five months Turkey completed the work last June on all the incentives and guarantees about passage royalties, tax systems, and land expropriation prices for the project. Thus a project conforming to world project-financing model came into existence. The project is now ready to be financed by the relevant international finance corporations.

At this point the oil companies and multinationals drew another red herring across the path. They now demand that Turkey should also undertake "third country risk". If the project is delayed because a third country, ie Azerbaijan or Georgia causes any delay in issuing the necessary construction permits Turkey will be responsible. Turkey will pay the fines and indemnities involved in the agreement for failure to complete the project on time, even if it is caused by a third country.

Ankara is now trying to solve this problem with Azerbaijan and Georgia. President Aliyev will come to Ankara in November and may give the finishing touches to the project that has already advanced too much for anyone to stop it for long. The intergovernmental agreement, the transit agreement and the guarantee agreements are ready.

Ankara believes that the Baku-Ceyhan project will be finalised in November and attention will then be focused on the Trans-Caspian pipeline, which is much more important than the first agreement. The intriguing aspects of this project and the details of the superpower strife therein will be dwelled on in another Turkpulse article.  uras@ada.net.tr, October 18^th, 1999