Trans-Caucasus Pipeline Under Way At Last

A tractor drew up. It was rusted through, all its parts rattling, missing a windscreen, and plastered with mud. Out climbed a middle-aged man in muddy shoes, trousers made of sacking and a worn greasy sheepskin coat. He took a cigarette.

Thanks to his tractor, Vitaly, poor as he is, is one of the better-off residents of Tsnisi, a village in southern Georgia. He can feed his family and make ends meet.

This region is often called the "Georgian Siberia" because of its difficult soil and tough climate. Thousands of locals have emigrated, either to Tbilisi or abroad. The main source of income is potato plots.

But now, as if from nowhere, the region is about to host perhaps the largest infrastructure project currently being built in the world, the Baku-Tbilisi-Ceyhan oil pipeline, running from the Caspian Sea to the Mediterranean. Builders are at work, trucks line the road, vast lengths of pipe are being shipped in. For the locals this means large windfalls, given out as compensation for the plots of land they are giving up to the pipeline.

Farmer Zelimkhan Natenadze, 64, has been paid 1,104 US dollars for his plot. "Now I have plenty of money to live on and put aside for a rainy day," he said. Even in Georgia that is not a large sum, but it makes all the difference to Natenadze. "I'm happy, it's serious money," he said.

Baku-Tbilisi-Ceyhan, or BTC, is about to change the economics and the politics of the Caucasus forever. Starting on the Caspian seaboard near Baku, the pipeline will travel through Azerbaijan and mountainous areas of Georgia on its way to the Turkish port of Ceyhan.

The 1,760-kilometre pipeline, which has been costed at 2.95 billion dollars, will run for 442 km through Azerbaijan and 248 km through Georgia, with the longest and last stretch in eastern Turkey. It is due to become fully operational in early 2005.

Vast revenues will be earned from the project, particularly for the main oil exporter, Azerbaijan. Peak capacity will be one million barrels a day and the line is due to have an operating life of 40 years. According to Samir Sharifov, managing director of the National Oil Fund of Azerbaijan, Azerbaijan will earn profits of between 700 million and one billion dollars a year if the export price stays at 20 to 25 dollars a barrel. This would translate into total revenues of five billion dollars or so for the government's coffers by the year 2010.

Almost everyone in Azerbaijan and Georgia is enthusiastic about BTC, yet IWPR's investigation has uncovered that various sides have very different expectations of it. The development of BTC has in fact three stories - one for the investors, one for the governments, and one for the people along the route.

Attitudes in Azerbaijan and Georgia diverge greatly. What both countries have in common is problems with compensation payments being given out to landowners. The broader consequences of the project for the two countries are very different. BTC will bring Azerbaijan huge revenues, although there are perennial worries about funds being siphoned off through corruption. In Georgia, most people agree that their pipeline brings political advantage, but are less sure about the economic benefits.

For the investors, BTC is a huge logistical challenge, but the overall aim is very simple.

"We view the Baku-Tbilisi-Ceyhan pipeline strictly as a commercial venture," said Michael Townshend, General Manager of BTC Co, the company managing the project. He said the pipeline was designed as the shortest and most cost-effective route for getting Caspian oil, extracted by BP and its partners, to international markets.

The project was first mooted in the early Nineties and then ran into trouble as oil prices fell towards the end of the decade and estimates of the likely reserves in the Caspian were downgraded. But instability in the Middle East, rising oil prices, and continued interest from the United States, in particular, put BTC back on track.

BP is the main shareholder in BTC Co with just over 30 per cent of the shares. Next in importance come the National Oil Company of Azerbaijan, SOCAR, with 25 per cent, the United States' Unocal with 8.9 per cent, Norway's Statoil with 8.7 per cent, and seven other companies with smaller shares.

The shareholders came up with 30 per cent of total project financing. The rest of the funds came in loans from international financial institutions. The International Financial Corporation, IFC, and the European Bank for Reconstruction and Development, EBRD, approved loans in November, opening the way for commercial banks to finance the project. With a return of 12 per cent of investment per year built into the project's feasibility study, BTC is expected to pay for itself in 20 years.

The green light for BTC augurs well for another project, the South Caucasus Gas Pipeline which will funnel gas from Azerbaijan's Shah Deniz gas fields in the Caspian to Turkey and on to Europe. That pipeline will be laid alongside BTC for most of its route and is due to be completed about a year later, in 2006.

"DREAM COME TRUE" FOR GOVERNMENTS

At a ceremony marking the beginning of construction in September 2002, the late Azerbaijani President Heidar Aliev called the pipeline project a "dream come true" for his country. "This project and its implementation can become a guarantor of peace, stability, and security in the Caucasus region. This steel pipe will bring Azerbaijan, Turkey, and Georgia even closer together," he said.

The geopolitical significance of the pipeline escaped no one. By making a route from the Caspian Sea to the Mediterranean that bypassed Russia, Iran and Armenia, the three countries were building a pro-western strategic alliance through the new energy corridor.

Former Georgian president Eduard Shevardnadze has made it clear he sees the building of BTC as perhaps the most important achievement of his presidency. "Everyone recognises that Georgia is a key link in this project," Shevardnadze said in a radio interview on August 5.

"The functioning of the pipeline will largely depend on our country. Georgia has become part of a sphere of global interests, which is a serious factor in strengthening our state independence."

Unusually for the Caucasus, the opposition in both countries also supports the project. Their misgivings are confined to its implementation. Ali Kerimli, head of the Popular Front party in Azerbaijan, said, "On the whole we support the BTC project. The signing of the contract was guaranteed in the early Nineties during the rule of the Popular Front government. The project is economically beneficial to Azerbaijan but we have to control its implementation."

In Georgia, all political forces have also welcomed the pipeline. Differences have centred on whether Shevardnadze promised too much.

Transit fees for the pipeline across Georgia are expected to peak at 60 million dollars a year, but the number of permanent jobs created for Georgians once the construction work is over will be just a few hundred. The revenues are a significant boost to the small Georgian budget, but tiny by the standards of Azerbaijan - which actually donated its transit fees to Georgia when the project was in trouble - and unlikely to make a big change to the latter's economy overall.

Opposition leader Mikael Saakashvili, who looks set to become Georgia's next president on January 4, following the peaceful "rose revolution" in November, criticised Shevardnadze's handling of BTC in an interview given in September, saying he had made exaggerated promises that were in fact a "big lie".

He told IWPR, "Shevardnadze was selling this to the population as a future bonanza, [saying] that all will be well in a couple of years. Many years have elapsed since then, and what's really happening is that people are asking more and more loudly, 'Did we get anything from that?'"

"Of course people understand the political importance of this, but Shevardnadze promised much more than just political importance," said Saakashvili. "He promised wealth for pretty much everybody here because of this pipeline. He overplayed it."

A CONTROVERSIAL ROUTE

The decision was taken last year to run the pipeline through a central route in Georgia that takes it next to the Borzhomi valley. This makes it longer and negotiates more difficult terrain than a more direct route would have done. The oil will now flow close to a national park and the sources of the famed Borzhomi mineral water.

A group of local non-government organisations, NGOs, in Georgia which have been fighting the Borzhomi route say that the decision was made without proper consultation. For example, a big public meeting which the EBRD and IFC held with local Borzhomi residents took place only in September, when details of the route had already been chosen.

"I think the project was badly designed, and the one issue that is clear to me and clear to BTC Co is that they know the project design is not complete," said Manana Kochladze, Caucasus regional coordinator of the NGO Bankwatch at the Borzhomi meeting. "They are still designing how the pipeline will go through Borzhomi [and] the Turkish mountains."

"Now they are starting to think how to put a pipeline in [Borzhomi] in a way that is safe," she said. "First they come and say they are choosing this land to cross, and then they decide how they can make it safe."

The main mineral water firm in Borzhomi - and Georgia's third biggest exporter - Georgian Glass and Mineral Water, has also strongly opposed the Borzhomi route.

In response, investors and lenders said they have been talking to locals for at least two years. And certainly most voices at the public meeting came out in favour of the pipeline.

The alternative would have been to run the pipeline through Alkhalkalaki district in the Javakheti region of southern Georgia. There are indications that some decision-makers saw a problem in the fact that Javakheti is overwhelmingly populated by Armenians.

Political analyst Irakli Kakabadze said Georgian and foreign experts had polled the locals in three villages which would have lain along the pipeline route if it had gone through Akhalkalaki. None objected to the project, and many welcomed it as a forerunner of new economic opportunities for the region. Kakabadze believes that running it through Akhalkalaki would have dampened separatist tendencies and improved living standards.

No one in Georgia is clear about how or when the decision was taken to choose the Borzhomi route rather than the one via Alkhalkalaki. References have been made to a meeting of Georgia's Security Council, but the date and content of that meeting has never been made public. The investors say that it was done on the recommendation of the Georgian government. A member of the BTC consortium, speaking anonymously, said the World Bank had recommended the Borzhomi route as the most feasible.

Giorgi Chanturia, president of the Georgian International Oil Company, said the southern route option was scrapped because of the continued - and controversial - presence of a Russian military base at Akhalkalaki. He stressed that the prevalence of ethnic Armenians in the area was not an issue.

Ramaz Jabauri, Georgia's deputy intelligence chief, told IWPR the decision to place the pipeline around Akhalkalaki "was made when the nation was facing a different set of threats". But he now says, "At this point, it might stand to reason to run the pipe through Akhalkalaki to boost local employment opportunities there."

The mayor of Akhalkalaki, Nairi Iritsian, told IWPR he had the impression that Georgia's central government makes a point of alienating the region. As many as 2,000 of its residents go to Russia every year to look for work. Georgian election campaigners coming to Akhalkalaki promise new jobs to woo local voters, but the pledges are never kept. The only jobs in the region are at the Russian military base.

Like many others in Akhalkalaki, Apet Tsaturian, who lives in the village of Alastan, was disappointed by Georgia's decision to run the pipeline elsewhere. "That pipe could make a real difference here," he said. "Georgian officials seem so eager to remove the [Russian] base and deprive us of our only source of income, but what can they offer in return? It could have created more jobs here, but Georgia denied us that opportunity, as if we were some hostile state."

In Azerbaijan, objections to this route are expressed openly. "It was impossible to lay it through Javakheti," said opposition leader Ali Kerimli. "This region is populated by Armenians and so it represents a threat to the project. Running the pipeline through Borzhomi is more secure."

The man who is now president of Azerbaijan has also pointed the finger at the Armenians. In February this year, Ilham Aliev, then vice president of the Azerbaijani oil company SOCAR, now president of Azerbaijan, said that "certain forces have always sought to hamper Azerbaijan's oil projects. However, they have only resorted to extreme tactics at the very last stage, when there is no other way to hold the project back. All this is the fault of Armenia and its communities abroad, as well as certain groups that are in league with them".

A PIPELINE FOR THE PEOPLE

The Shirvan Steppe in Azerbaijan is a parched wasteland punctuated with bare mountains and salt marshes. Drinking water is hard to come by as is water to irrigate the soil. Here, in the Gajigabul and Kurdamir districts, there is almost no land worth farming, and most of the men have left to work in Russia.

When we arrived in the village of Karasu in the Kurdamir District, we were shocked by the sight of teenage girls, aged 13 to 16, submerged up to their knees in mud and gathering mushrooms to sell to passing motorists at one dollar per bucket. Their faces brightened up when they learned we were on a fact-finding mission about the pipeline. "Are they going to pay us some compensation too?" they said.

The mother of one of the girls said, "We need to collect a large dowry for our daughter. We don't have that kind of money. And the land where the pipeline goes has already been snatched up by the municipal authorities."

Mehman Agayev, the father of the family, teaches history in Karasu's local school. He is considered one of the most educated men in the village and so villagers ask him to handle their paperwork for them. Agaev said that his fellow villagers had missed their chance of BTC compensation due to the negligence of local authorities, even though the pipeline runs several hundred metres from his house.

"Land reform was much delayed here," he said. "In other villagers, people have already been allotted land plots, but here we have no idea who the land belongs to."

Issues of compensation are causing big headaches for the pipeline investors in two countries where the legal status of land is still quite murky. The arrival of such a massive and wealthy project in the backwaters of Azerbaijan and Georgia has been a windfall for many, caused disappointment to others whose lands are too far from the route to qualify, and angered those who say they have been cheated of compensation payments.

BTC passes through 13 districts in Azerbaijan and eight in Georgia. During the construction period, a temporary corridor 44 metres wide will run across land owned by several thousand farmers in the two country. Most of it will be returned to the owners once the pipeline is in place, a process estimated to take three years. Compensation will be paid for the temporary loss of land, for the loss of crops, and for any property damage.

While the procedures have been worked out in detail, on the ground things do not always go to plan.

In Azerbaijan, rural residents feel they have been wronged by their local authorities. After they allotted land to local peasants in nationwide reforms, some local administrations voided the contracts before the land was properly apportioned. In other cases, local administrations reportedly threatened to sever farmers' contracts unless they paid over a share of their earnings.

"Sometimes, we were able to successfully settle controversies between farmers and their local authorities, but in most cases, we had no mandate to intervene," said Namik Abbasov, Azerbaijan-Georgia-Turkey pipeline development project manager for BTC Co.

In Karasu, local government head Islam Huseinov explained that land had already been earmarked for allotment to villagers, but not yet distributed. "The villagers were in no hurry to sort this out either," he said. "Our water supply is so erratic it's next to impossible to grow any crops here. In addition, once people get their land, they will have to pay tax on it. They have no money to pay, so why bother?"

When Karasu residents realised that compensation payouts had started in a nearby village, it was too late. The Karasu local authority received 11 million manats, or around 2,240 dollars, in compensation. "We don't yet know who we should complain to," said Mehman. "Not to BP - they have nothing to do with this. The municipal administration blames the executive body, and the latter swear that it's all the fault of the municipal administration."

Some local farmers were much quicker off the mark. Andulali Gulamov, an enterprising 45-year-old farmer from Gajigabul who goes by the nickname of Sarybala (Blond), knew better than to wait for handouts from the government. "I heard about the pipeline a year before it started," said Sarybala. "I had no land, but I quickly rented a plot from the government."

Sarybala's neighbours said he then planted various expensive crops on his land to maximise the compensation he would get.

"Do you know what amazed me most?" he said. "These people from BP wouldn't even have a cup of tea with me. I offered them a couple of watermelons, but they wouldn't take them. It's hot here and they were working the whole day under a blazing sun. They said it was a bribe and they couldn't take it. I've never seen anything like that in Azerbaijan."

The biggest beneficiary of the handouts is probably a grape farmer from the Geranboi district of northwestern Azerbaijan. In this case, he genuinely did not want to lose his lands, and for three years he resisted requests to rent it out to the pipeline.

"I'm just a regular grape farmer. My work is my whole life," he said. The farmer asked the pipeline builders to find a way around his vineyards, "They looked and looked but apparently couldn't find anything. Eventually I gave in. I didn't want to disrupt a project that means so much for the country. And when I signed the contract, I suddenly realised I was rich."

He received the largest compensation payment in the whole of Azerbaijan, 185,000 dollars. At the end of the conversation, the farmer asked not to be named. "It's a large amount of money and it's safer that way," he said.

Mehman Agayev in Karasu is one of the losers. "I've got no one [no relative working] in Moscow, that's why I'm so poor," he said. "I'm making a pittance as a schoolteacher. BTC was my only hope but now it looks like our local government blew my chance for me."

NO GOING BACK

Construction is now underway at dozens of points along the route, helped by news of the loan agreements from the EBRD and IFC.

A few worried voices are still heard. Manana Kochladze of the NGO Bankwatch argues that Georgians' euphoria will wear off when they discover that very few jobs have been created, and that in return the country has signed up to agreements which give the pipeline company very broad powers over Georgian territory for 50 years.

"We have created a bad precedent," she said. "If tomorrow other companies come here and want to start other projects, it means the government will easily give way and there will be permanent violations…. After this project there will be no rule of law in Georgia."

It is clear, however, that the governments of both Azerbaijan and Georgia see Baku-Ceyhan as a passport to European integration.

Speaking in November, two months after he made critical remarks and as he stood poised to become Georgia's next president, the country's opposition leader Mikael Saakashvili warmly backed BTC. "This is a strategic project, and it is vital for Georgia," he said.

Leila Amirova is a freelance journalist based in Baku. Nurlana Gulieva works for Ekho newspaper in Baku. Gennady Abarovich and Giorgi Kupatadze work for Black Sea Press news agency in Tbilisi.