World Bank warns Georgia on fees for Caspian gas pipeline

In an unusually blunt approach, the World Bank has warned Georgia that it will lose all financial assistance if it does not negotiate higher tariffs on a proposed gas pipeline from the Caspian through Georgia to Turkey. The threat was made in a letter to President Eduard A. Shevardnadze of Georgia, which depends heavily on foreign assistance, from a senior official of the World Bank. The bank sent the sharply worded letter after it appeared that Mr. Shevardnadze was ignoring advice from bank officials that he seek higher fees.
"This failure to heed the advice that has been provided will also call into question the justification for future support to Georgia from institutions such as the World Bank," Judy M. O'Connor, the bank's director for Georgia, wrote in the letter. A copy of the letter was provided to The New York Times by officials involved in the pipeline negotiations.
Mr. Shevardnadze, who had postponed signing the pipeline agreement, responded to the letter by reopening negotiations on the transit fees. This will further delay approval of the pipeline agreement that negotiators worked out in July.

Although the World Bank and other international lenders play important roles in Georgia and other developing countries, they have been criticized for becoming too involved in country decisions. The letter to Mr. Shevardnadze was considered an unusually strong example of how the bank sometimes expands its role.
Nicholas van Praag, a spokesman for the World Bank, said that the warning had been intended to help Georgia negotiate a better deal for itself and that the tough language was because Georgia receives loans on extremely good terms. "If they don't take advantage of the opportunity to get what the country deserves, there is not much point in getting such favourable treatment," he said.

The disagreement between Mr. Shevardnadze and World Bank officials centres on $ 20 mm a year that Georgia would collect in transit fees from a proposed pipeline running from a big natural gas discovery in an offshore field in Azerbaijan through southern Georgia to Turkey. Azerbaijani officials want lower tariffs than the World Bank believes Georgia should get for carrying the natural gas across its territory.
The pipeline is expected to follow the route of another proposed pipeline that would carry oil from the Azerbaijani capital, Baku, to the Turkish port of Ceyhan on the Mediterranean. The two pipelines would link the energy resources of the Caspian Sea with energy-starved Turkey and Western markets. They are considered important to economic prosperity and political stability in the Caucasus.

The oil companies involved in the Baku-Ceyhan oil pipeline are scheduled to sign an agreement with the Azerbaijan government to spend $ 3 bn to expand oil production from the so-called Azeri field in the Caspian. Company officials said the investment made it more likely that the $ 3 bn oil pipeline would be built because an existing pipeline to the Black Sea did not have the capacity to handle the increase in production from the new field.
The oil companies, led by BP, will not make a final decision on the Baku-Ceyhan line until next year, when they have the results of a detailed engineering study now under way. The companies planned to begin construction on the gas pipeline first and then lay the oil line alongside it.