Baku-Tbilisi-Ceyhan pipeline faces bureaucratic difficulties

by Jon Gorvett

Though Azerbaijan?s top oil executive Natiq Aliyev insisted recently that the Baku-Tbilisi-Ceyhan (BTC) oil pipeline construction is progressing according to plan, the company responsible for building much of the Turkish section is grappling with legal controversy. This development compounds concerns over the pipeline?s environmental impact and potential output, and raises doubts that the project can keep to its construction schedule.
Aliyev, the president of the Azerbaijani State Oil concern SOCAR, has said 9 % of the BTC project?s work has already been completed. "I must say that we are accurately following the schedule and by the end of 2003 the pipeline project will be completed 50 %," Aliyev said on January 29.

Two days later, British Petroleum (BP) Vice President and General Director of the BTC project Michael Townshend also sought to dispel concerns about the project. Townshend told a news conference that digging on the Azerbaijani section of the pipeline would beginin March, with the first pipe scheduled to be laid in June. He confirmed that pipe-laying in all three countries is scheduled for completion during the second quarter of 2004, with oil due to flow before the end of the year. The entire project is estimated to cost roughly $ 3 bn.
Despite the soothing comments, the project may be held up by legal snags in Turkey, some observers say. The Turkish state pipeline company, BOTAS, which awarded the construction contracts for the Turkish stretch, has become enmeshed in a series of corruption scandals in connection with one of its other major pipeline projects, the Blue Stream natural gas pipeline.

On January 22, the Ankara public prosecutors? office filed suit against a former director of the company and five other BOTAS officials, alleging fixing in construction tenders for Blue Stream, which is set to bring Russian natural gas to Turkey through a pipeline under the Black Sea.
A separate Turkish investigation in alleged corruption in state energy agencies, dubbed White Energy, is also progressing in Turkey, casting doubts over many of the country?s energy practices in recent years. Reports in the Turkish press that the Energy Ministry was also investigating BOTAS in regard to the BTC pipeline contracts prompted BOTAS general director Gokhan Bildaci to issue a public denial on January 23 that any investigation was underway.
"The BTC crude oil pipeline project has so far been regarded as a model of success around the world," Bildaci said. "There is no investigation or inquiry started into BOTAS."

The Turkish legal controversy is the latest in a series of delays that have dogged the project -- delays that have persisted even after a statement by a key executive seemed to buoy it. Sceptics -- including Russia, which stands to lose business if the pipeline lives up to projections -- tend to question whether there is enough oil in the proposed Caspian fields to keep up the necessary output. BP Azerbaijan President David Woodward told in December thathe was confident the output of ACG would reach 50 mm tons in 2008-2009. He added that that level could also be maintained for long enough to justify the cost.
BP, the Anglo-American energy conglomerate, controls 30.1 % of the consortium charged with developing the pipeline. SOCAR is a 25 % stakeholder. While partners are in place and Azerbaijani participants are eager to boost the project, environmental concerns have arisen in Georgia and Turkey.

BTC advocates, including Woodward, maintain that the Caspian Sea?s Azeri-Chirag-Guneshli oilfields contain around 5.2 bn barrels of crude. Currently, only the Chirag field is operational, producing some 130,000 bpd, all of which goes to the Georgian Black Sea port of Supsa. Chirag is set to peak at around 160,000 bpd, but the operating consortium claims that it can get 700,000 bpd from the Azeri field until that field reaches a plateau in 2008 -- at which point the Guneshli field comes on stream to take up the slack. Before any of this undergoes testing, though, workers will have to build the pipeline. And that appears a longer process than BP and others might have hoped.
Between Baku and the Turkish port of Ceyhan on the Mediterranean Sea, the pipeline passes through Georgia, where concerns over its environmental impact there held up work until late 2002. While construction on the terminals at Ceyhan and Baku has begun, work on the pipeline itself will not begin until the spring, at the earliest. The reason for the delay is that the construction companies have been unable to obtain the proper financing.

Initially, project participants had wanted BTC members to provide 30 % of the overall budget to cover initial construction costs, while 70 % would come from international banks, export credit agencies and international lenders such as the World Bank. Inconsistencies with parties? names and obligations across various documents have delayed the execution of contracts. Without contracts, the consortium has been unable to make advance payments to many of the construction companies.
While not a fatal blow, this bureaucratic difficulty, combined with the legal problems in Turkey, may slow the project?s momentum. The delays come at an unfortunate time, since industry insiders had been seeing positive signs recently.

Japanese state-owned Inpex had purchased a 10 % stake in the Caspian fields from Russia?s LUKoil in December. Observers see Japanese companies as a potentially significant source of financing, and the fact that Inpex was prepared to spend $ 1.38 bn on the stake showed growing market interest.
Despite the growing uncertainty over BTC?s investment prospects, the project does not suffer for a lack of political interest. In January, the leader of Turkey?s ruling party, Recep Tayyip Erdogan, was in Baku on the first leg of his Central Asian tour. There, he called the scheduled 2005 completion date for the project "too late." Speaking after meeting Azeri President Heidar Aliyev, he added, "We must fight time, and the earlier we finish construction, the more we win."

Jon Gorvett is a freelance journalist based in Istanbul.