AMERICAN DIPLOMAT SEES ENCOURAGING SIGNS ON BAKU-CEYHAN PIPELINE
Q & A with Steven R. Mann: 11/20/01

Correction: A version of this Q&A posted on November 8 contained several errors of fact. EurasiaNet is posting a new version on November 20.

For three years, Azerbaijan has lured Western energy firms to commit to shares in a pipeline from its seacoast capital, Baku, through the Georgian capital of Tbilisi into the Turkish port of Ceyhan. [For background see the EurasiaNet Business archives]. The pipeline has aroused skeptical responses from Western energy experts.

Stability has proven elusive in the Caucasus, but Steven R. Mann remains upbeat about the prospects for pipeline-driven economic development in Georgia and Azerbaijan. Mann was the American ambassador to Turkmenistan from 1998 until this May. Since then, he has served as the US State Department's Senior Advisor for Caspian Basin Energy Diplomacy. He spoke with EurasiaNet about Baku-Ceyhan and the murky prospects of Azerbaijani transactions with Turkmenistan. Mann took time out to speak with EurasiaNet on pipeline issues. The text of his comments follows:

EurasiaNet: What effects will the events around Afghanistan have on US Caspian energy policy?

Mann: It would be a mistake to look for dramatic changes in US actions and policy on Caspian energy affairs as a result of events further south. There's a fundamental logic to US policy, and this policy has been affirmed by two successive US administrations. Also, the projects involved are multibillion-dollar projects with very long lead times. That is another reason why [one should] not expect any sharp change.

EurasiaNet: Could you explain, then, a quotation I saw that rather struck me? The Teheran-based Caspian News Agency says it was taken from your speech to the US-Russian Business Council three or four weeks ago. It seemed, at least according to this quotation, that you hinted that the United States could now support a route through Iran for Turkmenistan's gas to Turkey.

Mann: It would be an understatement to say that that account has nothing at all in common with my actual remarks. I have a copy of that speech, I know it well, and I cannot recognize anything I said that could even be interpreted that way. It is possible that during the question-and-answer period I may have alluded to projects that the Turkmen government might consider. But I can't see how any US official would offer warm words for pipeline projects through Iran.

EurasiaNet: What about a Turkmenistan-Afghanistan-Pakistan gas pipeline, which Unocal was interested in during the mid-1990s? That idea has been resurfacing lately in various commentaries and analyses.

Mann: [Turkmen] President Saparmyat Niyazov raised this with me when I was in Ashgabat a few weeks ago. I repeated to him what I had been saying for years when I was ambassador to Turkmenistan. The most serious problems for a pipeline taking Turkmenistan's gas through Pakistan - to anywhere - have nothing to do with Afghanistan. They concern, rather, the financial situation in Pakistan, the continued heavy regulation of natural gas prices in Pakistan, and the fact that prospects for Pakistani exports to India are less than sure. All these elements make the downstream from Turkmenistan very difficult, and none of them has anything to do with Afghanistan - which is a separate, large problem.

EurasiaNet: What is your view of the growing body of opinion that there may be significant amounts of gas under the ground in Pakistan itself?

Mann: Yes, that is another complication. I have mentioned this fact in my discussions with the Turkmen government over the years, that Pakistan is exploring its natural gas resources. Indeed, this fact points out a fundamental wisdom about Caspian energy. Early pipelines count. When you have a chance to build a pipeline, you should do it, because new energy resources are coming on line all the time.

EurasiaNet: It is generally agreed that the Turkmen government's negotiating strategy over the Trans-Caspian Gas Pipeline (TCGP) project was suboptimal. But in the Caspian region, the United States is sometimes blamed for the project's failure to get off the ground. How did the exploration of Azerbaijan's Shah-Deniz field affect the TCGP negotiations? Did the United States. revise its recommendations about allocating volumes between Turkmenistan and Azerbaijan for the TCGP throughput, and were those revised recommendations unacceptable to [Turkmen officials in] Ashgabat?

Mann: The US never took sides between Turkmenistan and Azerbaijan, and never made proposals about volumes. We pointed out many times, in our discussions with the Turkmen government, that they would have to engage Azerbaijan directly on TCGP issues. As development of the Shah-Deniz deposit proceeded, it became clear that this was one of several issues that would have to be addressed. But the government of Turkmenistan never contacted the government of Azerbaijan on this subject. Presidents Niyazov and Aliev had some telephone conversations about it, but there was never any serious, sustained contact with Azerbaijan on the part of the Turkmenistan government. In fact, at that point two countries did not have embassies in each other's capital.

EurasiaNet: As I recall, after March 2000, the project was left in companies' laps. I believe President Niyazov said the offer was insufficient and that he would be waiting to be contacted after it was revised. Is that right?

Mann: I remember the March 2000 meeting extremely well. At that point the US and Turkey made a joint mission to Turkmenistan for one final attempt to save the TCGP. Ambassador John Wolf came out with Turkish Undersecretary for Foreign Affairs Mithat Balkan, and the three of us met with President Niyazov for two hours. Among the many things we said, was that the financial deal on offer by PSG and Shell (which by then had joined the TCGP consortium) was the best offer that the consortium could make. We emphasized that there could be no better offer, and we urged him in the strongest terms to take it. However, he wanted a greater financial return on the package, and moreover, an immediate financial return.

EurasiaNet: You're referring there to the infamous "pre-financing"?

Mann: Yes. In simple terms, if you are building a $2 billion pipeline, you cannot saddle it with $300-500 million additional debt right up front.

EurasiaNet: To switch gears, I heard several weeks ago that industry teams are going out to Baku to prepare for the actual work on the Baku-Tbilisi-Ceyhan (BTC) pipeline. Has the decision been taken to proceed with BTC, even though the second phase of the engineering study is not yet completed?

Mann: BTC is looking very good. They have put out the initial tender documents, they are about to freeze project design, and they have started the financing phase by contacting major lenders.

EurasiaNet: What about the Kazakh-Azerbaijani negotiations to define the framework of the intergovernmental arrangements, the rules of game, to make it possible for Kazakh oil to enter BTC from across the Caspian later in the decade?

Mann: Progress there also looks very good. There is a draft intergovernmental agreement on table, Azerbaijan has reviewed it and given good comments on it, and I need to touch base with Kazakhstan about it in the next month. Also the Turks have already had somewhat detailed discussions with both Azerbaijan and Kazakhstan about this. In sum, I'm very optimistic.

Editor's Note: This EurasiaNet Q&A was conducted by Dr. Robert M. Cutler, Research Fellow at the Institute of European & Russian Studies at Carleton University in Montreal, Canada.

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Posted November 8, 2001 © Eurasianet
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