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CORRUPTIN SCANDAL THREATESN TO SINK BLUE STREAM PIPELINE PROJECT

Amberin Zaman 5/31/01

A corruption scandal that has engulfed top Turkish officials, including Deputy Prime Minister Mesut Yilmaz, is threatening a Russian-Turkish pipeline project, known as Blue Stream. Yilmaz insists graft allegations are part of a campaign to discredit him, and Russian diplomats and energy officials describe the claims as "baseless propaganda." The outcome of the Blue Stream controversy could have profound ramifications for the fierce competition to determine Caspian Basin oil and gas export routes, as well as for Turkey’s future development.

Charges being leveled against Yilmaz range from lobbying for Blue Stream in order to help

his construction magnate cronies secure deals in Russia, to awarding the contract to build the pipeline’s Turkish section to associates in the Motherland Party. The allegations are being investigated by a special Ankara state security court.

The most serious charge involves a $50 million payment made to the Turkish-Russian consortium in charge of constructing the Turkish portion of the pipeline. That payment reportedly circumvented established vetting procedures. Trying to offer additional evidence of corruption, Turkish media have published photographs showing Yilmaz on a September 1999 visit to Moscow, hobnobbing with Viktor Chernomyrdin, the former Russian prime minister and erstwhile boss of the state oil giant, Gazprom.

Already, Cumhur Ersumer, the former energy minister and a close Yilmaz ally, was forced to step down in April. On May 24, Cengiz Koksal, the chief prosecutor of Ankara’s State Security court staged a late night raid together with special gendarmerie forces on the headquarters of Turkey’s state pipeline authority, Botas, raising further questions about the future of Yilmaz, as well as that of Blue Stream. According to Turkish press reports, the gendarmerie seized 17 sacks full of documents including copies of the agreement signed between Gazprom and Botas pertaining to Blue Stream.

Only days before, Botas director Gokhan Yardim had said in a statement that the project was "proceeding as planned."

Yilmaz, a leader of the center-right Motherland Party and the Blue Stream project’s most fervent backer in Turkey, has sought to paint the campaign against him as a conspiracy hatched by Turkey’s influential military, which effectively control the gendarmerie. The aim of the generals, according to Yilmaz, is to undermine what he portrays as his efforts to bolster Turkey’s shaky democracy.

Russian officials have rushed to the defense of Yilmaz. On May 16, the Russian Embassy in Ankara staged one of the most unusual news conferences ever witnessed by Ankara’s diplomatic press corps. During the two hour meeting, Yuri Komarov, a top ranking Gazprom official, promoted Blue Stream and heaped praise on Yilmaz. Komarov also complained that the controversy had been stirred by "baseless propaganda spread by the enemies of Russian-Turkish cooperation."

The scandal over Blue Stream extends well beyond Turkey’s internal political squabbles, and strikes at the heart of the geopolitical struggle centered on Caspian Basin natural resources. Blue Stream would aid Russia in its efforts to retain a controlling interest over the export of regional energy supplies. Conversely, Blue Stream threatens a US-led effort to build alternate energy export routes that would permit oil-and-gas rich Caspian Basin states to cut Russia out of the export process.

The United States remains bitterly opposed to Blue Stream in large part because it endangers prospects for the Trans-Caspian Pipeline, or TCP, one of the main pillars of the "East-West Energy Corridor" touted by US officials. The TCP would carry Turkmenistan’s vast reserves of natural gas via the Caspian Sea and Turkey on to Western markets. A parallel line would transport Kazakhstani and Azerbaijani oil to Turkey and beyond. US officials have long argued that construction of both lines would ensure economies of scale, and therefore render the multi-billion-dollar project commercially viable. It would concurrently undermine a competing scheme to export Turkmen gas through a swap deal with Iran.

Turkmenistan’s president, Saparmurad Niyazov, has buttressed US opposition to Blue Stream with complaints of his own. During a summit of Turkic Speaking Countries, held in Istanbul on April 26, Niyazov said Turkey would have paid only $75 per cubic meter of his gas compared with the $120 per cubic meter he claimed Turkey would be paying for Russian gas.

Other opponents raise technical objections to Blue Stream, saying the corrosive nature of the Black Sea’s bed would threaten the pipeline’s stability.

At his memorable news conference, Komarov, the Gazprom official, was dismissive of Niyazov’s cost assessment. "Turkmenistan has only produced words" he said, pointing out that Russia had produced "real work."

Indeed, more than two thirds of the Russian section of the line is already completed. Much of the financing for its ever-ballooning price tag, now set at about $5 billion, is secured by the Blue Stream consortium’s Italian and Japanese partners. "Our message to everyone is that Blue Stream has gone so far," said a Russian official present at the new conference "that there is no turning back."

But Blue Stream opponents appear poised to keep up the fight against the pipeline. Some Turkish observers argue the pipeline could seriously damage Turkey’s long-term strategic interests. Blue Stream would increase Turkey’s dependence on Russia for gas supplies. Turkey already secures a hefty 80 percent of its natural gas needs from Russia through an existing grid crossing Ukraine, Romania, and Bulgaria. Deliveries through Blue Stream could climb up to 16 billion cubic meters after the pipeline’s completion, which is projected for early 2002. That would raise the total amount of Russian gas imports to around 26 billion cubic meters per year.

Completing the Blue Stream project would constitute "an unforgivable strategic and political blunder at the very least," wrote Cengiz Candar, a prominent liberal columnist for the Islamic-leaning daily Yeni Safak.

Editor�s Note: Amberin Zaman is The Economist’s corespondent in Turkey.

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