Turkey pushes Azerbaijan to forge ahead with BTC pipeline

Jan 16, 2003 01:00 AM

While IMF chiefs were busy warning the Azeri government over its funding of the Baku-Tbilisi-Ceyhan (BTC) pipeline, Turkey’s visiting leader pushed for the Caspian republic to forge ahead faster with the billion dollar project. Speaking in Baku with Azeri President Heidar Aliyev, the leader of Turkey’s Justice and Development Party (AKP), Recip Tayyip Erdogan, said on January 7th that he thought the current schedule, under which the first oil will be sent to Turkey in early 2005, was too conservative.
"We consider 2005 to be too late,” Erdogan said. “We must fight time, and the earlier we finish construction, the more we win.”

The AKP leader -- widely seen as Turkey’s “unofficial prime minister” after his party won the November 3rd general election -- was in Baku as part of a grand tour of Caspian and Central Asian states. He was accompanied by Turkish Energy and Natural Resources Minister Hilmi Guler, Culture Minister Huseyin Celik and more than 100 business representatives.
Continuing to address energy and trade issues, Erdogan added, “Our next goal will be the realisation of the Baku-Tbilisi-Erzurum natural gas pipeline project," while “We have to do more for the development of the commercial relations. There are some problems with Azerbaijan on the promotion of foreign capital, in customs and taxation areas, and in banking and transportation sectors.” However, he said, these could be overcome.

Erdogan also gave Turkey’s continued support for Azerbaijan in the dispute of the Nagorno-Karabakh enclave, and for Azeri efforts to clamp down on terrorism. However, he also alleged that militants from the separatist Kurdish Workers Party (PKK) were operating “in the guise of cultural organisations” on Azeri soil -- a charge later denied by Baku.
Elsewhere though, while relations with Turkey have long been historically close, the week saw increased tension between the government and the IMF. In early December, an IMF mission led by John Wakeman-Linn, deputy division chief in the Fund’s European II Department, had failed to reach an agreement with the Azeri government over the $ 16 mm second tranche of the Fund’s Poverty Reduction and Growth Facility (PRGF) programme. This facility had originally been frozen in September 2002.

Michael Mered, the Fund’s resident representative in Azerbaijan, said back then that the IMF’s loan programme was “clearly off track”. Concern then deepened when IMF officials indicated that $ 100 mm of loans to Azerbaijan might also be halted in January due to worries over the government’s handling of the State Oil Fund (SOF), worth some $ 700 m, and planned changes to taxation.
According to a statement from Mered on January 3rd, Azerbaijan spent around $ 45 mm from the SOF in 2002, with the likelihood of there being a "Tripling of oil fund expenditures over 2003” which could “affect the money supply and threaten the country’s macroeconomic stability, particularly if additional spending is made.”

The IMF’s concern is that the Azeri government is dipping intothe SOF in order to finance the BTC pipeline. This massive energy project has been hitting a number of snags since the ground breaking ceremony last September. Construction of the route has been postponed until spring this year, as contractors have not yet received advance payments.
"The SOF is quite transparent and is being regularly audited," Mered said. "However, we were initially concerned that an oil fund established independent of parliament and separate from the state budget could lead to an incoherent fiscal policy with two budgets."

Mered also criticised other, ad-hoc social welfare expenditures that the government has been talking about -- such as providing assistance to the country’s refugees and internally displaced persons and for other social and infrastructure projects.
He also singled out the proposal announced in October last year to offer profit tax discounts of up to 60 % by region and industry sector starting this month. Mered said that implementation of the plan could jeopardise "the integrity" of the country’s tax code. He suggested that a regional infrastructure investment fund might be a better way to encourage businesses outside Baku than the planned tax reform, which would reduce tax burdens to non-Baku based firms.

For its part, Azeri officials responded to Mered’s criticisms by saying that the country was capable of surviving without the IMF’s aid.
Akif Musayev, chief of the policy and research department at the Ministry of Taxes, said "The IMF cannot require the implementation of its conditions, they are only recommendations… Azerbaijan has enough currency reserves and can manage without the IMF’s loans."

Source: The Oxford Business Group
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