TURKEY: Early Azeri oil compromise welcomed

20 October 1995

Ankara has welcomed the compromise decision announced in Baku on 9 October to route early oil exports from a massive Caspian Sea concession through both Georgia and Russia (see Regional Focus). The concession's consortium, Azerbaijan International Operating Company (AIOC), chose the compromise after eight months of intense debate and lobbying by interested parties including Turkey and Russia.

Calling it a historic decision, Prime Minister Tansu Ciller said it opened the way for a pipeline transporting exports from the concession's main oil production across Turkey to an existing oil terminal at Yumurtalik in the Gulf of Iskenderun. Securing the main oil pipeline has been Ankara's long-term objective throughout the early oil debate.

A routing through Turkey for the main oil line was AIOC's present preference, said the consortium's head, Terry Adams, in Baku on 9 October. Talks on the pipeline, which will reach a peak of 700,000 barrels a day (b/d) by around 2010, are not scheduled before mid-1997, according to industry sources.

In the closing stages of the debate, Ankara had lobbied hard for its preferred early oil routing from Baku to Soupsa on Georgia's Black Sea coast against the rival northern routing, pushed by Moscow, to the Russian oil port of Novorossiysk, also on the Black Sea. The Turkish lobbying efforts included an offer to purchase all the early oil output of around 4 million tonnes a year.

Analysts say the compromise decision will probably mute Ankara's objections for the time being to the environmental risk of increased tanker traffic through the already congested Bosporus strait in Istanbul. However, they also believe that the Russian route will most probably come into operation first, as it requires less work than the Georgian option, notably 20 kilometres as opposed to 140 kilometres of new pipeline.

Two Turkish proposals for a project and finance group, or alternatively for preferential credit to AIOC, seek to facilitate the Georgian option, but the consortium is free to seek financing from other sources, say the officials. The project and finance group is also open to Russian participation, they emphasise.

Turkey has offered AIOC preferential credit with an eight-and-a-half year term and two-and-a-half years' grace at annual interest of around 7.25 per cent, say the officials. The credit would be backed by Turkish treasury and political risk guarantees. However, a condition of this credit offer is that Turkish contractors receive 51 per cent of the work. By contrast, shares in the project and finance group can be divided between US, Russian, Turkish, Azeri and Georgian interests, say the officials.

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