The Times, UK
May 25 2005
Black gold brings hope of return to the glory days of a century ago
By Jeremy Page
A new pipeline will pump Azeri oil to the mediterranean directly
THE elegant mansions of Baku’s first boom town are crumbling and
overgrown, hollow relics of the days when this port on the Caspian
Sea provided half the world’s oil.
The original oil barons – the Nobels and Rothschilds – abandoned them
when Baku’s oil industry was nationalised after the 1917 Bolshevik
Revolution. But almost a century later, the city stands on the brink
of a second oil boom with the official opening today of a
controversial pipeline built to take Caspian oil to the energy-hungry
West.
President Aliyev of Azerbaijan will open the taps of the
Baku-Tblisi-Ceyhan (BTC) pipeline this morning in front of world
leaders and oil executives at the Sangachal oil terminal, south of
Baku, the Azeri capital.
The pipeline, billed as the world’s biggest energy scheme, winds its
way for 1,094 miles from Baku, through Tbilisi, the capital of
neighbouring Georgia, to the Turkish Mediterranean port of Ceyhan.
When fully operational by 2009, it will carry a million barrels of
oil a day – 1 per cent of global production – from fields off the
coasts of Azerbaijan and Kazakhstan.
The $4 billion (£2.1 billion) pipeline – built by a consortium led by
BP – will alter the geopolitical map by allowing Caspian oil to
bypass Russian pipelines and the congested Bosphorus strait.
It will provide the West with a long-sought alternative energy source
to the Middle East, and consolidate the strategic foothold of the
United States in Moscow’s traditional backyard.It will allow Baku to
reclaim its status as the original oil boom town. `I do not doubt
that very soon Azerbaijan will turn into a rich state,’ President
Aliyev said last week. `Each citizen of Azerbaijan should take
advantage of this chance.’
Already the city’s historic Old Town is being smothered by high-rise
flat blocks, neon-lit shopping malls and the fumes from countless
top-of-the-range SUVs and Mercedes.
The pipeline’s proponents talk breathily about Azerbaijan becoming a
new Kuwait – even a Norway. The risk, analysts say, is that it turns
into another Nigeria. And some question the wisdom – and huge cost –
of building a pipeline through one of the world’s most volatile
regions to access oil reserves that have so far failed to meet
expectations.
The pipeline passes close to Azerbaijan’s tense ceasefire line with
neighbouring Armenia, runs near to separatist regions in Georgia and
skirts Kurdish areas in Turkey.
Horseback security guards will patrol it daily in Georgia and
Azerbaijan, which have also formed special forces units to combat
terrorist attacks.
And in the past week, a government crackdown on the opposition in
Azerbaijan has highlighted another potential source of political
instability that could disrupt the pipeline.
On Saturday, Azeri police detained 30 leading opposition members and
then severely beat and arrested another 45 during a peaceful
prodemocracy demonstration in central Baku. The Azeri authorities
said that the rally was banned because it was too close to today’s
ceremony, which will be attended by foreign dignitaries including
Lord Browne, chief executive of BP, the Duke of York and Sam Bodman,
the US Energy Secretary. But David Woodward, the president of BP
Azerbaijan, told The Times: `It’s very unfortunate. I don’t see that
there was a risk to those attending the ceremonies.’
He added: `We want to be operating in a country where people are
fairly represented. Stability is most likely to be ensured by
continuing the democratic process so that all people can benefit from
our presence and the revenues from the oil business.’
Richard Boucher, the US State Department spokesman, also said that
the Azeri Government’s actions were `regrettable’. The crackdown was
especially embarrassing for Washington as only two weeks ago
President Bush hailed neighbouring Georgia as a `beacon of liberty’
in a speech in Tblisi and vowed to spread democracy around the
region.
Azerbaijan is considered to be one of the former Soviet Union’s most
authoritarian regimes – and a potential site of a revolution like
those that overthrew the corrupt postSoviet elites in Georgia in 2003
and in Ukraine last year.
The Azeri opposition accuses the Government of rigging the last
presidential election, when Mr Aliyev succeeded his late father,
Heydar, and of planning to fix parliamentary elections in November.
It has urged Western governments and companies to put pressure on the
Azeri Government to guarantee media freedom and a fair election. `We
will struggle to end this dictatorial regime. The international
community must react seriously and apply pressures on Azerbaijan,
which is heading towards authoritarianism,’ said Sardar Jalaloglu,
deputy-chairman of the opposition Azerbaijan Democrat Party.
Yet Western governments and oil firms have backed the pipeline
project which, starting from next year, will bring some $5 billion
annually into the Azeri Government’s coffers.
The key issue, analysts say, is how that money is spent. Farhad
Aliyev, the Azeri Minister for Economic Development, said that the
Government would use the oil revenues to improve basic
infrastructure, education and healthcare. `Our objective is not just
to sell Azeri oil abroad, but to contribute to the social, economic
and political development of Azerbaijan,’ he said. `We need to use
the oil revenues in the most effective way. As oil revenues grow, we
must try to make sure the economy does not just depend on oil.’
But he grew defensive when asked about the opposition crackdown. `The
opening of the BTC pipeline is a historic occasion,’ he said. `There
was no reason for the opposition to hold their demonstration.’
The Government has taken some steps in the right direction. It has
won international praise for setting up a state oil fund, where a
large chunk of oil revenues is placed to be invested for future
generations. But some economists already see danger signs. Inflation
is in double figures; the economy is at risk of overheating as
investors rush to cash in on a property and retail boom.
A recent assessment by Transparency International, the
anti-corruption watchdog, placed Azerbaijan 140th out of 146 in its
world rankings. With Azeri oil expected to run dry by 2020, the pace
of economic and political reforms needs to increase dramatically if
the country is to avoid the sort of upheavals that struck Georgia,
Ukraine and Kyrgyzstan.
`Unless people feel they are benefiting from our presence then it’s
not going to be a sustainable environment for us to do business,’ Mr
Woodward said. `We need to be here not just for a few years, but for
the next few decades.’