THE IRON SILK ROAD ADVANCES FURTHER
Vladimir Socor

Eurasia Daily Monitor
July 25 2008
DC

Presidents Ilham Aliyev of Azerbaijan, Mikheil Saakashvili of
Georgia, and Abdullah Gul of Turkey inaugurated on July 24 in Kars
the construction work on the Turkish section of the Kars-Tbilisi-Baku
(KTB) railroad. A project of inter-continental significance, connecting
Europe and Asia through the South Caucasus, this "Iron Silk Road"
is being built by the region’s countries through their own efforts.

Azerbaijan is the locomotive in the KTB railroad, as in the
region-wide energy projects. Baku single-handedly finances the
railroad’s construction on Georgian territory, drawing on early oil
revenues to invest in this strategic railroad. Azerbaijan rescued the
project after the European Union, international financial institutions,
and Turkey for various reasons had declined to finance the Iron Silk
Road. According to Turkish Transportation Minister Bineli Yildirim,
"If Ilham Aliyev had not demonstrated resolve, this project would not
have been possible. Azerbaijan’s decision to finance the Georgian
section is the most important step in the implementation of this
project" (Trend Capital, July 14).

The KTB project involves construction of 105 kilometers of new rail
tracks from scratch, including 76 kilometers on Turkish territory
to the Georgian border and 29 kilometers within Georgia. It also
necessitates repair and upgrading of 183 kilometers of existing rail
track on Georgian territory. The overall costs are estimated (in 2007
U.S. dollar terms) at $600 million, including $422 million for the
railroad itself and nearly $200 million for associated infrastructure.

The International Bank of Azerbaijan has provided a $200 million loan
for the project on uniquely preferential terms: 25-year repayment
period, at only 1 percent annual interest. Georgia will repay the
loan by using part of the revenue generated by the railroad on
Georgian territory.

Azerbaijan, Georgia, and Turkey signed the intergovernmental agreement
on KTB in February 2007. Construction work on the Georgian section
started in November 2007, with Azerbaijan’s Azerinshaat Service
company acting as general contractor.

Speaking at the inauguration of work on the Turkish section on July 24,
Saakashvili remarked that Azerbaijan is acting in practical terms as
a "guarantor of Georgia’s independence," financing the railroad now
after having supplied Georgia with low-cost gas during the Russian
blockade of January-February 2006. "The Georgian people will never
forget this," Saakashvili commented (Kavkas-Press, July 24).

The railroad is scheduled for completion in 2011. It is expected to
carry 1.5 million passengers and 6.5 million tons of cargo per year
during the first three years of operation. Traffic is projected to
increase to 3 million passengers and 15 million tons of cargo per
year until 2015. This could stimulate a substantial expansion in
the capacity of Turkish State Railways, which currently handles 19.5
million tons of cargo annually (Anatolia Agency, Turkish Daily News,
July 20, 21).

Functionally interrelated with the KTB, though a distinct entity,
is Turkey’s Marmaray project to build a railroad tunnel under the
Bosporus. With completion expected by 2010, the tunnel will enhance
the KTB railroad’s commercial attractiveness. Trains will be able to
travel without interruption from any point in Europe (e.g., London)
continuously to the Caspian Sea.

On the eastern Caspian shore, Kazakhstan is interested in a
trans-Caspian linkup with KTB’s terminal in Baku. The KTB railroad
will open direct access for Kazakhstan to European Union territory
for the first time. Kazakhstan plans a massive increase in its
commodity exports to Europe, including grain exports. With this in
mind, Kazakhstan is completing an 800,000-ton grain-handling terminal
near Baku, for trans-shipment from barges to the railroad.

Asked about Armenia’s absence from the KTB project, President Gul
commented in general terms that countries wishing to participate
in region-wide projects should respect the territorial integrity of
their neighbors (Zaman, July 24). This diplomatic comment reflects
the ongoing feelers between Turkey and Armenia about a possible
high-level meeting to ameliorate relations (see article by Gareth
Jenkins below). In fact, Yerevan had actively opposed the KTB project
and worked with its allies in the United States and Europe to block
international funding for it.

Yerevan had hoped to force a change of route, diverting the KTB line
from Kars to Gyumri in Armenia. This would have made no economic sense
inasmuch as the Kars-Gyumri line (existent, but closed by Turkey
due to Yerevan’s occupation of Azerbaijani lands) is a sideline,
of merely local interest. Earlier, and similarly, Yerevan and allied
groups in the West had unsuccessfully opposed the Baku-Tbilisi-Ceyhan
oil pipeline.

Thanks to KTB, Azerbaijan and Turkey will be linked with each other
by railroad for the first time, albeit through Georgia. In addition,
Baku and Ankara intend to connect Nakhchivan, the Azerbaijani exclave,
with Turkey’s railroad system. President Aliyev and Turkish Prime
Minister Recep Tayyip Erdogan agreed during their recent meeting in
Nakhchivan to go ahead with this project (Trend Capital, July 14).

In a related development, Turan Air company in Baku inaugurated on
July 21 regular direct flights between Haidar Aliyev International
Airport and Kars (Day.az, July 21). Azerbaijan, Georgia, and Turkey
are beginning to form what amounts to a common economic region,
increasingly connected with Europe and potentially with Central Asia,
on either side of this region’s territory.