PIPELINE PROBLEMS PLAGUE TURKEY.

Jon Gorvett reports from Istanbul

A midst much fanfare last November, at the Istanbul summit of the Organisation for Security and Cooperation in Europe (OSCE), US President Bill Clinton presided over what was billed as the signing of a milestone treaty in the distribution of Central Asian oil. Finally, it seemed, the much discussed pipeline from the Azeri capital of Baku to Turkey's Mediterranean port of Ceyhan was about to get under way. However, three months down the road, the pipeline's future is looking far less rosy -- and along with it the whole Turkish and US strategy for Central Asia.

The signing ceremony in Istanbul saw heads of state from Turkey, Georgia and Azerbaijan -- the three countries through which the pipeline is set to pass -- sit down with a clutch of other regional leaders brought along as witnesses to the agreement. But the event did not go at all as planned. Originally, the treaty was to have been signed on a boat moored in the Bosphorus -- the narrow channel that runs through the heart of Istanbul, which is itself a controversial topic in the Central Asian oil game.

Symbolic of the difficulties being faced, the ship board ceremony was cancelled at the last moment due to rough weather and `security concerns'. The Turks have for years protested that the Bosphorus cannot be used as a route for oil tankers carrying Central Asian reserves to western markets.

`Security concerns' were also to prove a stumbling block to the pipeline when Georgia later declared that it might have difficulty ensuring safety for the stretch of pipeline that would cross its territory. It also turned out that despite the pictures from the Istanbul signing ceremony, Georgia had, in fact, failed to sign some crucial parts of the agreement.

The pipeline issue is something of a classic case of grand geo-strategic designs versus dollars and cents. For Turkey, faced with an energy deficit for its rapidly expanding population, the Baku-Ceyhan pipeline is a vital concern. Ankara sees it as a central plank in its energy strategy and also in its geo-political aims to establish itself as a regional power, linking up with the Turkic republics of the former Soviet Union.

The US has a similar strategic concern, seeing the opportunity to pull countries such as Azerbaijan, Georgia and Turkmenistan into a western sphere of influence through the development of Central Asia's vast potential oil and natural gas wealth.

Meanwhile though, there are some other important players. Principal among these are Russia and Iran. By itself, the Baku-Ceyhan pipeline will come nowhere near fulfilling energy demand in Turkey, and as a result, Ankara is also engaged in a number of other pipeline schemes. One of these, the `Blue Stream' project, has the advantage over the others that work has already begun on building it. In mid-January, the foundations were laid for the terminal of a pipeline that is set to go from Russia under the Black Sea to the northern Turkish port of Samsun. This will supply Russian natural gas and gas from fields in Kazakhstan.

Elsewhere, another pipeline has been partially completed to convey Iranian gas to Turkey. Teheran has finished its part of the route, but the Turkish section remains incomplete. This is partly due to US pressure, leaving Turkey short of vital compressor units. As a result, January saw the Iranians helpfully putting a positive spin on things by announcing that the gas burning off at the disconnected end of their stretch of the pipeline at the Turkish border was a `flame of friendship' with the Turks. Soon after, a Turkish delegation headed for Teheran to try and negotiate a satisfactory settlement to the thorny question of how much Ankara should pay Iran for this `flame of friendship' since the original deal had been on a take-or-pay basis.

There is another projected pipeline to take cheaper Turkmen gas to Turkey -- the Trans Caspian Pipeline (TCP). This lengthy route hopes to take advantage of the construction of the Baku-Ceyhan pipeline by using many of the same facilities, the idea being that construction costs would be slashed if two pipelines were laid in the same trench.

This project has also been in deep trouble since the discovery of major gas reserves in Azerbaijan's Shah-Deniz field. The TCP would have to run across the Caspian from Turkmenistan to Azerbaijan before passing on to Turkey. With the Shah Deniz field on stream though, another pipeline going straight from Azerbaijan to Turkey would remove the need for the TCP and cut the Turkmens out of the loop. Baku has already been dragging its feet on signing further TCP deals, and this has made Turkmenistan highly nervous, with the Turkmens now saying they are thinking of selling their gas to Russia instead.

Meanwhile, Ankara has been trying to address the Georgian `security concerns' and its request for a higher transit fee for oil passing down the projected Baku-Ceyhan pipeline. As of the beginning of March, talks on a Georgian demand for a $0.20 per barrel transit fee had stalled after several rounds of negotiations in Baku and Istanbul.

The oil companies which are exploiting the energy reserves of the area are represented as far as the Baku-Ceyhan route is concerned by the BP-Amoco led Azerbaijan International Operating Company (AIOC). It has been recently muttering that the stalling over fees may leave it no choice but to look at other options. The AIOC has never been red hot in its enthusiasm for the route, in the past citing low world oil prices and the massive cost of construction as strong reasons for not going ahead. Now it is reportedly considering expanding existing pipelines rather than constructing new ones.

There are a number of already existing routes. One that was designed and built in the Soviet era runs from Baku to the Russian Black Sea port of Novorossiysk, but it goes via Chechnya, meaning that aside from a short period in 1997, it has been inoperative since the Chechen breakaway. Another alternative is to use a pipeline to the Georgian port of Supsa, where tankers could take the oil to the Mediterranean through the Bosphorus or to another terminal on the Black Sea coast. The Bosphorus has now been largely ruled out as a route due to strong Turkish objections over safety, but other plans exist for a terminal in Bulgaria and a Trans-Balkan pipeline across to the Adriatic, or down to the Aegean. Elsewhere, the Ukranian Black Sea ports may be an alternative, feeding oil and gas back into Russian and east European networks.

Another network already in place is the old Soviet-era web of pipelines that spread down into the Caucasus from Russia. Moscow has begun putting these forward as alternative lines to distribute Caspian energy northwards and Russian gas southwards to Turkey and Georgia, and as possible spoilers for east-west routes.

One stumbling block here though is that foreign, which means mainly western, companies are reluctant to invest in development projects around the Black Sea because of a high degree of corruption and mafia involvement. Organised crime is also powerful in the Caucasus, as is its reputation as an area of high instability. The war in Chechnya has also sent a signal that Moscow is certainly back, and the continued presence of five large Russian army bases in Georgia, together with the failure of attempts to find a long-term solution to the Abkhazia dispute, have left a question mark over Tiblisi's already shaky capacity to resist Russian pressure.

For the cash strapped states of Central Asia, the grand designs of Turkish and western policy makers may end up being less important than setting the flow of petrodollars going. With the average income in Azerbaijan at around $40 a month, whether that flow comes via the country's giant neighbour to the north or its aspiring neighbour to the west may be less of an issue for Azerbaijanis than that something starts coming in soon.