AZERBAIJAN, GEORGIA AND TURKEY: BUILDING A TRANSPORTATION TRIUMVIRATE?
Rovshan Ismayilov

EurasiaNet, NY
Feb 7 2007

First, it was energy; now, transportation. The
Kars-Akhalkalaki-Tbilisi-Baku railway project, run by Azerbaijan,
Georgia and Turkey, is strengthening a sense of regional cooperation
in the South Caucasus.

Azerbaijani President Ilham Aliyev and Turkish Prime Minister Recep
Tayyip Erdogan met in Tbilisi on February 7 with Georgian President
Mikheil Saakashvili to sign a framework agreement on the project, which
will link Turkey, Azerbaijan and Georgia via a 258-kilometer-long
railway. The agreement must then be submitted to the Azerbaijani,
Turkish and Georgian parliaments for ratification.

The railroad, 14 years in the making, has been touted as the shortest
route for commercial traffic between Asia and Europe. Some observers
have forecast that, if completed, it could become a competitor to the
Trans-Siberian Railway. Construction is scheduled to begin in June
2007, with a tentative completion date by the end of 2008, Azerbaijani
Transportation Minister Ziya Mammadov told the Azerbaijani independent
television station ANS on January 18. A January 16 statement from
the Azerbaijani foreign ministry predicted that the railroad "will
create conditions for the revival of the historical Silk Road and
will develop the Europe-Caucasus-Asia transport corridor," thereby
advancing "the region’s integration with Europe."

In many ways, the project is a case study in regional self-reliance.

The United States, an influential backer of such regional projects
as the Baku-Tbilisi-Ceyhan oil pipeline and the South Caucasus gas
pipeline, has declined to support the rail link since it excludes
Armenia. The European Union has expressed similar reluctance.

Instead, Turkey, Azerbaijan and Georgia have looked to themselves
to cover the $600 million in estimated costs. "The US can issue any
decisions it wants, but there will be no problems with financing the
project," commented Georgian Foreign Minister Gela Bezhuashvili on
January 10, the Azerbaijan’s news agency Trend reported. "There are
other sources."

One of those sources is Azerbaijan. At a January 13 meeting in Tbilisi,
the three sides agreed that Azerbaijan will loan Georgia $200 million
for the construction of a 29-kilometer stretch of the railroad through
Georgian territory and for the reconstruction of existing sections
of Georgian railways that the new line will use.

Georgia will pay an annual interest rate of just 1 percent on the
25-year loan, according to Economic Development Minister Giorgi
Arveladze. The Georgian government has already approved the proposed
terms for the loan and expects a final agreement with Azerbaijan to
be signed soon, Prime Minister Zurab Noghaideli has said.

The agreement comes on the heels of a gas deal between Georgia and
Azerbaijan that the government in Tbilisi hopes will allow it to
replace higher-priced Russian gas with gas from Azerbaijan’s Shah
Deniz field. [For details, see the Eurasia Insight archive].

Turkey also plays a key role in this assistance scheme. At a February
7 joint press conference in Tbilisi with Azerbaijani President Ilham
Aliyev and Georgian President Mikheil Saakashvili, Turkish Prime
Minister Recep Tayyip Erdogan said that Turkey would try by July 2007
to funnel 800 million cubic meters from its share of Shah Deniz gas
to Georgia. Saakashvili, however, told reporters that Georgia would
receive Turkey’s gas "as soon as Shah Deniz is put into operation,"
adding that Azerbaijani gas supplies are expected to steadily increase.

The agreements underline Azerbaijan’s growing importance for Georgia.

To highlight that significance, part of the embankment of the Mtkvari
River in central Tbilisi was renamed during the summit to commemorate
the late President Heydar Aliyev, father of the current Azerbaijani
leader.

Some opposition members in Georgia have questioned this relationship.

Analysts in Baku say that the railway deal’s long-term advantages for
Azerbaijan justify the cost of footing the bill for construction of
Georgia’s section of the railway.

"The project has significant importance for Azerbaijan. It will
be the final link for providing Azerbaijan with a transportation
corridor to Europe," said Inglab Akhmadov, an economic expert and
the director of the Public Finance Monitoring Center. "The oil
and gas routes already exist and construction of the railroad to
Europe, bypassing Armenia and Russia, will complete the process for
Azerbaijan." (The Public Finance Monitoring Center is funded by the
Open Society Institute. EurasiaNet.org operates under the auspices
of the Open Society Institute in New York.)

The profitability of Baku’s Caspian Sea port and the Azerbaijani State
Railroad will also increase, noted independent political analyst
Rasim Musabekov, who argued that the project is more important for
Azerbaijan than for Georgia.

"The length of the Kars-Akhalkalaki-Tbilisi-Baku railroad on
Azerbaijan’s territory is much longer than on Georgian territory,
so Azerbaijan’s railroad will make a greater profit on tariffs," he
said. Plus, a key strategic benefit also exists: "For the first time,
Azerbaijan will get direct railroad access to its most important
ally, Turkey."

Although Azerbaijan’s booming energy sector has so far allowed
it to play benefactor to its poorer neighbor, Georgia, Baku has
kept a sharp eye on potential sources of outside financing for the
project, as well. China, which has a growing interest in Central
Asian energy sources, has featured among these sources. An official
in Azerbaijan’s foreign ministry told EurasiaNet that Azerbaijani
Foreign Minister Elmar Mamedyarov tried to convince China to support
the Kars-Akhalkalaki railway project during a visit to Beijing in
the spring of 2005. "However, while China’s leadership stated its
interest in an alternative route for railway traffic to Europe,
they politely refused to finance the project," said the source,
who asked not to be named.

Meanwhile, other sources of financing remain trapped in a tightly
intertwined circle of conditions. While the US does not exclude the
possibility of its active support for the project in the future,
it insists on Armenia’s inclusion. With the Bush administration’s
support, the US Congress in 2006 banned any government funding for
the railway for this reason.

"We’d love to get to that point when the railroad from Turkey to Baku
could transit Armenia, " commented US Assistant Secretary of State for
European and Eurasian Affairs Matthew Bryza in a January 9 interview
with the Azerbaijani state-run news agency AzerTag. While the US
does not oppose the project, he continued, "We hope there’ll be [a]
time soon when the transit scheme will embrace all of the countries."

After long expressing opposition to the project, Armenia itself,
however, has announced that it is ready to sign on. But not without one
key condition being met – the opening of Turkey’s border with the South
Caucasus state. (The border was closed in 1993, following Armenia’s
support for the breakaway Azerbaijani region of Nagorno-Karabakh.) The
Russian news agency RIA Novosti quoted Armenian Deputy Foreign
Minister Gegam Garibjanian as saying on January 18 that his country
could join the project by reopening a section of railway that runs
from the Turkish town of Kars to Akhalkalaki in Georgia via Armenia
"the day after the border between Armenia and Turkey is opened." Such
a section could significantly reduce transportation costs.

But Azerbaijan has its conditions, too. Azerbaijani President
Ilham Aliyev has stated that Armenia’s participation in the project
"is not possible" until the country ends its support for the ethnic
Armenian leadership of the self-declared Republic of Nagorno-Karabakh,
a breakaway region of Azerbaijan. [For background see the Eurasia
Insight archive].

"Until Armenia liberates the occupied Azerbaijani territories
[Nagorno-Karabakh and seven adjoining regions] all transportation
projects will bypass this country," Aliyev said at a January 22
government meeting in Baku. "The countries and organizations that
support Armenia and speak out against the project will fail," he added.

Ongoing negotiations between Armenia and Azerbaijan over
Nagorno-Karabakh give no indication that that condition may soon be
met or softened. However, other project partners have softened or
otherwise changed participation conditions over time.

Georgia for years hesitated to join the railway project, first
demanding compensation for any economic losses related to the new
railway that its two Black Sea ports, Batumi and Poti, would sustain.

Both Turkey and Azerbaijan refused such a pay-out. But, after the
imposition of a transportation blockade by Russia in 2006, Georgia
reconsidered. [For background see the Eurasia Insight archive].

"We have to support this project amidst the economic blockade
of Georgia from the North," Economic Development Minister Giorgi
Arveladze said on January 17, in an oblique reference to Russia. "It
[the Kars-Akhalkalaki-Tbilisi-Baku project] will be a very important
transportation corridor for us."

That corridor could prove particularly significant for the Caspian
Sea region’s oil industry, noted Akif Mustafayev, the Azerbaijani
representative to TRASECA, a regional transportation program backed
by the European Union. Already, oil and oil-related products is
projected to make up most of the railway’s freight, noted Mustafayev,
who predicted that freight could equal at least 20 million tons in
the first year of operation.

Train-ferry connections already exist between Baku and fellow energy
giants Kazakhstan (from Aktau) and Turkmenistan (from Turkmenbashi).

With the completion of a railway link under the Bosphorus by 2008,
transportation times to Europe could be reduced still further.

"It may encourage foreign investors to construct new oil refineries in
the region and to export to the European markets not just crude oil,
but more expensive oil products," Mustafayev said.

Turkey first proposed the project in 1993 as it looked for ways to
increase its influence in the South Caucasus after the collapse of
the Soviet Union. However, a protocol on the project was only signed
between Turkey, Georgia and Azerbaijan in 2004. Feasibility studies
began that same year. In May 2005, the presidents of the three
countries reaffirmed their support for the railway with a formal
declaration in Baku.

Editor’s Note: Rovshan Ismayilov is a freelance journalist based
in Baku.