Financiers and investors line up behind BTC project

The Baku-Tbilisi-Ceyhan (BTC) oil transport project has received several big boosts. On May 31, a representative of the European Bank for Reconstruction and Development (EBRD) told that the bank was ready to provide a $ 300 mm loan to the pipeline sponsor group, enough to cover more than 10 % of the project?s estimated cost of $ 2.9 bn. Then on June 4, the US Overseas Private Investment Corporation (OPIC) said it would extend a $ 300 mm loan guarantee to any private bank willing to fund the pipeline project.
On the same day, it was reported that the US Export-Import Bank was nearly ready to extend a loan guarantee for the project. It also stated that the International Financial Corporation (IFC), the World Bank?s commercial lending arm, was prepared to lend $ 300 mm.

None of these institutions is expected to make a formal commitment before the last quarter of 2002 or the first quarter of 2003, but these reports seem to indicate that the sponsor group is making progress with respect to financing the pipeline. The group is expected to cover about 30 % of the cost of the project with their own funds and about 70 % with loans from international financial institutions, government-affiliated lenders and commercial banks.
Meanwhile on June 5, members of the sponsor group said after a meeting in Baku that they had finalized all of the agreements needed to begin work on the pipeline. A final decision on the project will be made by the end of June, they said. A representative of BP, the leader of the sponsor group, said that his company saw no obstacles and expected construction work to begin next year. He also noted on June 5 that TotalFinaElf of France had begun talks on joining the BTC sponsor group.

At present, the participants in the sponsor group include SOCAR, which holds a 25 % stake and has sold another 20 % to other investors; project operator BP, with 38.21 %; Unocal of the United States, 9.58 %; Statoil of Norway, 8.9 %); TPAO (7.5 %); ENI of Italy (5 %); Japan's Itochu (3.4 %); and Delta Hess (2.36 %).Russia's LUKoil expressed interest in the pipeline project but said recently that it had decided against participating. ExxonMobil and Devon, which are -- like LUKoil -- members of the BP-led Azerbaijan International Operating Company (AIOC), have also opted out of the BTC group.
The partners will build a 1,730 km pipeline from Baku to Ceyhan by way of Georgia over a period of 32 months. The link is expected to start pumping oil in 2005. Initially, all of the oil flowing through the pipeline will come from the Azeri-Guneshli-Guneshli block, which is being developed by the AIOC.

Azerbaijan and the AIOC say that the Azeri-Guneshli-Guneshli concession holds enough oil to fill the entire BTC pipeline, which will have a peak capacity of 1 mm bpd. Indeed, the AIOC announced recently that its fields contained reserves of 5.3 bn barrels of oil, not 4.6 bn barrels as previously thought; this statement was hailed by representatives of the sponsor group as evidence that BTC was an economically viable project.
However, other observers believe that Azerbaijan will not be able to produce enough crude to fill the BTC line. The US government, one of the oil transport project's major backers, has responded to these critics by urging Kazakhstan, another Caspian producer, to use the BTC pipeline as an export route for some of its oil. US officials have even talked about establishing an Aktau-Baku-Ceyhan (ABC) export route for Caspian oil.