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Update No: 307 - (27/07/06)
Azerbaijan, Kazakstan: BTC Pipeline Inaugurated
The Baku-Tbilisi-Ceyhan oil pipeline that sends Caspian Sea crude oil to the
Mediterranean Sea was inaugurated on July 13th. By the end of 2008 the BP-led
consortium that built and operates the line expects its throughput to total 1.0
million barrels per day, half of which will come from Azerbaijan and the other
half from Kazakstan.
It requires some US$1bn to build an underwater oil pipeline from Kazakstan to
Azerbaijan in order to export Kazak crude oil to the world market through the
BTC main export pipeline, Azerbaijani industry and energy minister Natig Aliyev
He said that building the submarine pipeline is economically efficient when
annual export of Kazak crude oil via Azerbaijan reaches 25m tons, but, in the
initial stage, the Caspian Sea Shipping Company's tankers can deliver Kazak oil
to the Baku-Ceyhan pipeline.
Total Company calculates that creation of the Caspian Sea Transportation System
requires US$4bn. This money should be spent on construction of undersea pipeline
and terminals on both sides.
The July 13th launch of the BTC oil pipeline marks the long-awaited completion
of a project that is as much about geopolitics as energy. This is the pipeline
that Russia absolutely did not want to happen, neither did the Iranians and
neither did the Chinese. The latter are focused on securing as much Kazak oil as
possible for a pipeline to China. Russia without the surface transit of Caspian
oil as it always had until the break-up of the USSR, has lost leverage over both
Azerbaijan and Kazakstan, let alone Georgia, who gains transit ties. Iran have
been competing to have the oil flow through their territory to the world market.
But amid the celebrations, questions persist about pipeline security.
The stakes are sizeable. Stretching 1,760 kilometres, with eight pumping
stations and 101 block valves, BTC is the second longest pipeline in the world.
The US$4 billion project, completed a year later than originally expected, is
projected to have a daily capacity of 1 million barrels.
Long hailed for its geopolitical significance, the BTC pipeline is likely to
take on additional prominence in 2007 when Kazakstan begins transporting 3
million tons of oil this year via the conduit.
Turkish-Kazak trade and investment ties mount; but with plenty of scope for
To put this all in a wider context, Turkey has always developed strong
relations with the Central Asian Republics since their independence in 1991,
including Kazakstan. Turkish companies have been investing in Central Asia for
years, even in Soviet times, due to strong geographic, cultural and even
language affinities with investments focused on sectors such as food, beverages,
oil and energy, banking, retailing and tourism in Kazakstan. This relationship
is one that many others from the Muslim world can look to leverage.
In 2000, the trade volume reported between Kazakstan and Turkey was US$465
million which was the highest amongst Turkey's trade with the Central Asian
countries. This is set to mount mightily with the opening of the BTC oil
Alarko Holding, a Turkish conglomerate is one of the biggest foreign
infrastructure contractors in the Kazakstan Republic. They also Chair the
Turkish - Kazak Business Council run under the auspices of DEIK (Foreign
Economic Relations Board) a non-profit private sector organization. The Council
serves to remove trade bottlenecks amongst the two countries as well as
disseminate information on business opportunities in Kazak market.
In early March, Dubai Bank signed an agreement with Daruma Corporate Finance of
Turkey to develop and market Shari'ah compliant corporate finance and merchant
banking services which would also be marketed to Turkey's Central Asian
neighbours including Kazakstan. This partnership is reflection of Turkey's
strength as a partner in helping launch many businesses into the Central Asian
Even with such strong relations, the feeling amongst the Turkish business
community seems to be that much more is desired. Yakup Kocaman, a Turkish
business journalist comments that, "Even though the Central Asian countries
have got very good relations with Turkey, many there say that Turkey has not
realized the full potential of its Central Asian opportunities." Perhaps,
partnering with other Muslim world investors to enter the Kazkahstan market is
just the impetus that is needed to boost its trade and investment relations
there, although the Muslim element of this is probably more important to lenders
than to Kazak recipients, this being a secular nation.
The following interview is particularly revealing of what the experts are hoping
from, not only the BTC, but other collateral projects:-
Kazakstan's joining the BTC becomes more and more profitable - department
head of Turkish embassy
Trend's exclusive interview with Turkey'sAmbassador Reshid Uman, the head of
the Department for Russia, South Caucasus and Central Asia (as well as Belarus,
Ukraine and Moldova) of the Turkish Ministry of Foreign Affairs.
Question: Addressing the official opening ceremony of the Baku-Tbilisi-Ceyhan (BTC)
the Turkish Prime Minister Rejep Tayyub Erdogan reminded us of the new oil
pipeline, Samsun-Ceyhan. Could you inform us profoundly about the project?
Answer: At present the implementation of the project is in the initial stage.
Two companies - Italy's ENI and Turkey's Calik - have been issued with a license
for construction of oil pipeline. Turkey invites all countries, which can
deliver oil to the Samsun-Ceyhan oil pipeline, and Russia and Kazakstan rank as
the first among them. We expect that the two countries will deliver their oil
via the Samsun-Ceyhan pipeline, which will enable to essentially unload the
Question: Is there a preliminary agreement with Russia and Kazakstan?
Answer: The proposal was sounded during the last visit of the Azerbaijani
President to Russia. A feasibility study of the project has been submitted to
the Russian Foreign Minister in Turkey in June. The point is that there already
exists the Burgas-Aleksandupolis pipeline. Russia should study and promote the
most profitable of these two projects. Kazakstan has been informed of this
Question: If there is a feasibility study, it means the cost of the project is
Answer: The cost of the project is approximately US$1.5-2bn.
Question: Will the delay in Kashagan field development and the first oil
production for the fulfillment of the BTC affect other projects?
Answer: In the initial stage Kazakstan can deliver 7-8 million tons of oil via
the BTC with a further increase up to 20 million tons by the period when bulk
oil runs from Kashagan. BTC is a profitable project and Kazakstan's joining to
it makes it more profitable.
Moreover, it has of strategic importance not only for us, but also for Kazakstan.
It has actually obtained the third variant after Russia and China, which
Kazakstan can use for oil transportation. Of course, it is very good when there
are three variants.
Question: What are the perspectives of construction of the Aktau-Baku pipeline?
Answer: As you know, in the initial stage oil will run from Aktau to Baku by
tankers. The Aktau-Baku project is directed at future and we think more probably
it will be possible to lay a pipeline via the Caspian Sea bottom to pump oil to
the South Caucasus. But we know that the issue on the Caspian legal status is
still to be defined. Nevertheless, we still believe that the resolution of the
problem will easy the activities of the companies which will construct the
Question: Is the Kazak Foreign Minister expected to visit Turkey. What questions
are expected to be on focus of discussions?
Answer: It will come as a returny visit of Kasimjomart Tokayev to the previous
visit of the Turkish Foreign Minister to Kazakstan. There is nothing concrete.
At the same time the chairman of the Turkish parliament to Kazakstan is also on
schedule and the terms are still to be defined. It is planned to sign protocols
on cooperation in the interparliamentary activities and there are grounds for
cooperation. No considerable document will be signed during the visit.
Moreover, a summit of leaders of Turkic-speaking nations will be held in Antalia,
Turkey, on 17 November.
The following article is a sage reflection on shifting geopolitical realities in
Central Asia, so important for Astana among others:-
SCO: Cracks behind the façade
by Stephen Blank for Eurasianet
To the chagrin of American diplomats, the Shanghai Cooperation Organization (SCO)
has quickly emerged as a force to be reckoned with in Central Asia.
At the fifth annual SCO summit, held in mid-June in Shanghai, participants
castigated the United States in a not-so-subtle fashion. An SCO declaration
insisted that determining Central Asia's future was up to the states in the
region, and not outside powers. "Models of social development should not be
'exported,'" the declaration stressed.
Anti-Americanism is the glue that binds the six SCO member states - China,
Russia, Kazakstan, Kyrgyzstan, Tajikistan and Uzbekistan - together.
Washington's perceived role in stoking the Orange Revolution phenomenon - which
peaked in March 2005 with the overthrow of Kyrgyzstan's government - unsettled
Central Asian leaders, sending them running to Beijing and Moscow for political
succor. As a result, the SCO, which as recently as 2004 was receiving scant
attention from the State Department, rapidly developed into a geopolitical
threat to US interests.
While surprised by the speed of the SCO's emergence, US diplomats and experts
are now finding flaws in the organization that can potentially be exploited down
One of the SCO's chief weaknesses is connected with the expansion dilemma that
the organization is currently facing. The SCO's rapid emergence has made it
attractive to other states in the region: both Iran and Pakistan, for instance,
are openly eager to join. But many existing members are reluctant to accept
these two controversial states, both currently observer members, believing that
they could be a source of future geopolitical headaches.
Concerning Iran, both Russia and China withheld support for Tehran's full
membership out of a desire not to enrage Washington at a particularly delicate
time in the effort to resolve the Iranian nuclear program crisis. Beyond that,
however, it is clear several other SCO members, especially Kazakstan and
Kyrgyzstan, strongly oppose membership for Iran. Both believe that Iran, given
its confrontation with the United States on the nuclear issue, could drag the
SCO into a global crisis in which the organization is not directly interested
Astana and Bishkek aren't losing sight of the fact that under the SCO charter,
members can potentially be asked to come to the defence of another member in
case of an attack.
Meanwhile, Pakistani President Pervez Musharraf attended the Shanghai summit,
where he lobbied for Islamabad's membership, emphasizing Pakistan's location as
the bridge to the Indian Ocean. SCO members remain wary of Pakistan, due to the
country's ongoing association with the Taliban and other Islamic radical groups.
Even if the SCO didn't have such concerns, the organization would probably be
reluctant to accept Pakistan as a full member without doing the same for India.
Thus the fact that India doesn't seem interested in full membership at this time
constitutes a substantial obstacle for Pakistan. India's stance toward the SCO
was underscored by Prime Minister's Manmohan Singh absence from the Shanghai
summit. New Dehli has been improving its relationship with Washington, and
believes Russia and China want to use the SCO mainly as a platform from which to
launch diplomatic attacks against the United States. At the same time, India
wants to maintain touch with the organization out of a desire to cooperate with
Beijing and Moscow on energy issues and direct security threats affecting the
Outside of the expansion matter, Beijing and Moscow have differing visions for
the SCO, but these differences are being papered over at present by both
countries' shared desire to drastically reduce, or eliminate altogether US
influence in Central Asia. Russia wants to transform the SCO into a club of
energy producers, of which it would be the dominant partner. This notion, of
course, not only goes against the interests of Central Asian producers, it also
poses a threat to China and India, both of which are major consumers of Russian
and Central Asian energy.
In sharp contrast to the Russians' view, China wants to use the SCO as a
facilitator of regional trade and investment, something that would enable
Beijing to play the leading role. In political terms, China sees the SCO as a
catalyst for the establishment of a new pan-Asian order, in which American
military power and calls for democratisation are either excluded, or are
Prior to 2005, Russia did not take the SCO so seriously, tending to see it as
Beijing's creature. But with the sudden turn of events in 2005, which saw the
United States lose its military base in Uzbekistan, while China pursued bases in
Kyrgyzstan and Uzbekistan, Russian interest in the SCO rapidly increased. Moscow
found itself determined to breathe new life into the SCO and advance its own
agenda for the organization. Russia favours a US withdrawal only from Central
Asia, not the entire Asian continent. Keeping a US presence on the Korean
Peninsula, for example, would serve as a check on China's growing
power-projection capabilities. Russian officials worry that without a US
presence in East Asia, China would establish itself as the dominant partner in
the SCO and other multilateral groupings - an unsavoury prospect for Russian
Thus, behind the shared anti-American feelings, China, Russia and the other SCO
members and observers harbour serious differences of opinion. Given these, it is
unlikely that the SCO can develop anytime soon into an anti-NATO-like grouping
along the lines of the Warsaw Pact. The SCO's consensus is a negative one, in
which the parties agree only on what they don't like.
Since China and Russia show signs of wanting to use the SCO to pursue their own
interests at the expense of smaller members and external powers, it is quite
possible that differences will grow behind the facade of unity. Washington will
no doubt be alert to exploit any openings to gain geopolitical advantage. While
the political, ideological, and military dimensions of the New Great Game in
Central Asia continue to heat up, it should be clear to all players that plenty
of time remains in the contest. The SCO now appears to have momentum on its
side, but such an advantage can dissipate quickly.
Fitch assigns Halyk Bank Eurobond rating
Fitch Ratings assigned Kazakstan-based Halyk Bank's (Halyk) 300 million Euro
7.75 per cent Eurobond due May 2013 a final Long-term BB+ rating, the ratings
agency said in a press release, New Europe reported.
Halyk is rated Long-term Foreign Currency IDR BB+ with a Stable Outlook, Local
Currency IDR BBB- with a Stable Outlook, Short-term Foreign Currency B,
Short-term Local Currency F3, Individual C/D, and Support 3, the release read.
Halyk is the third largest bank in Kazakstan holding 12 per cent of the system's
assets at end-2005. The bank operates the largest branch network in the country
with 546 branches, reflecting its roots as the former state savings bank and
also acts as a non-exclusive pension and social security payment and settlement
Agreement to join Baku- Tbilisi-Ceyhan opens roads
Kazakstan has officially joined the Baku-Tbilisi-Ceyhan oil and gas transport
project. Recently the heads of Kazakstan and Azerbaijan signed an agreement that
concluded three-years of negotiations. However, the new document signifies not
the end of a long road, but the beginning of a new and more important one for
Kazakstan, allowing it to create its own system to deliver volumes of black gold
from its massive oil fields to Europe.
Kazakstan President, Nursultan Nazarbayev, had started the BTC accession talks
with late president of Azerbaijan, Heidar Aliev, and he finished them with his
son, Ilham. The agreement signing took place exactly one month before the
official ceremony of oil pipeline commissioning that was held in Ceyhan on July
13th this year, New Europe reported.
Three years ago, in 2002, when Baku held an official launching of the oil
pipeline construction project, three presidents had attended it: Geidar Aliev
from Azerbaijan, Eduard Shevarnadze from Georgia, and Ahmet Necdet Sezer from
Turkey. Out of the three, only the Turkish leader will be attending the
forthcoming commissioning ceremony. Now the guests will include Ilham Aliev,
Georgian President Mikhail Saakashvili, and Nazarbayev. It's worth mentioning
that Kazakstan's accession to the project was achieved with some difficulty, as
was the construction of the pipeline. First of all, Russia opposed it, as large
volumes of the Caspian oil would flow west bypassing the Russian territory.
According to the experts, BTC will cost Russia US$200 million in annual losses.
But, in spite of the fact that Russia has been an old and reliable partner for
Kazakstan in the oil sector, Astana has managed to balance the interests.
In addition, at the Baku summit in May this year, Ilham Aliev said the BTC could
do without Kazak oil, as the pipeline was designed only for the oil from the
Azerbaijan fields. However, a week before the summit, Aliev made a U-turn saying
in his project presentation progress report that Azerbaijan could be used as a
transit country to deliver Kazak and Uzbek hydrocarbons to the world markets.
"Considering that the Baku-Tbilisi-Ceyhan pipeline is a regional project,
in 10 to 15 years, through global projects, it could transport four million
barrels of oil to the world market," he said. So, the Azeri leader did
admit that Kazakstan oil would be transported through the BTC, and the agreement
on Kazakstan's participation in the pipeline project has been signed. According
to experts, oil production in Azerbaijan is expected to decline in 2009, and it
would be simply necessary to include Kazakstan, which will continue to increase
oil production. Kazak oil output is expected to grow to 100 million tonnes by
2010 and to 150 million tonnes by 2015.
The new document has become not only a logical conclusion of the three-year long
negotiations between Azerbaijan and Kazakstan, but it will also become a
reference point for the two countries for construction of an Aktau-Baku
trans-Caspian pipeline to deliver Kazak oil to the new pipeline. The initial
transport of Kazak oil by the BTC is planned to be 7.5 million tonnes, with
eventual growth to 20 million tonnes. "As long as the volume is within 20
million, we will sea-ship oil by tankers. But as soon as we hit this level,
tanker shipment will become uneconomic and the question of construction of an
underwater pipeline from Aktau to Baku will come up," KazMunaiGaz Managing
Director, Kairgeldy Kabyldin, said. However, construction of the pipeline seems
a distant proposition as its implementation would not be possible until the
littoral countries determine the status of the Caspian Sea. Also, ecological
considerations put construction of the pipeline under question. Any rupture of
an underwater pipeline could cause serious environmental damage. Russia, which
is among the five Caspian states, is categorically against such a project. All
eyes and efforts are now set on the development of the Aktau and Kuryk ports
that will handle the transit of oil.
The Aktau port expansion works are already underway. The port's throughput
should increase to 20 million tonnes for oil cargo and to 3.2 tonnes for dry
cargo. For these purposes, the government has already issued a state guarantee
for a private loan of US$25 million.
According to the accession agreement, Kazakstan is to build a 20 million tonne
oil terminal in Kuryk. For its part, Azerbaijan is to build a similar terminal
in Baku. KazMunaiGas has developed a general plan of development of the Kuryk
port, but it is not known yet who will implement this plan and where the
financing will come from.
This is for the Kazak government to decide. But, it will most likely be financed
by the BTC shareholders that operate in Kazakstan and that are keenly interested
in having their crude delivered by their "own" pipeline. Such
shareholders include Total, Eni, ConocoPhillips and Impex. All these companies
will start to deliver oil from Kashagan in 2008. Presently, though, only 7.5
tonnes of Chevron oil goes from Tengiz to the pipeline. Chevron holds a slightly
more than eight per cent interest in the BTC.
But the Kazak oil will go to the BTC not only under the foreign flags. Last
year, the Kazak government regained its interest in the Kashagan project - 8.33
per cent. And this interest will mean KazMunaiGas' participation in the pipeline
plus a portion of the profit oil that the republic receives under a PSA with
each foreign company operating in Kashagan and Tengiz.
Cost of connecting Kazakstan to BTC at 4bn Euro
It would cost an estimated four billion Euro to form the Kazakstan Caspian
Transport System (KCTS), which would enable Kazakstan to transport its own oil
via the Baku-Tbilisi-Ceyhan (BTC) pipeline, Alain Przybysz, vice president of
Total for Azerbaijan, Kazakstan and Turkmenistan said, Interfax News Agency
Przybysz said work on the system might begin in 2009 and take a year to
complete. He said Total, ENI, ConocoPhillios and Inoex, which are involved in
the BTC project and in developing Kazakstan's offshore fields, would invest in
the new system.
The project involves building a terminal in Kazakstan, a pipeline from the
offshore Kashagan field to that terminal, a terminal in Azerbaijan, a Caspian
tanker transport system and a connection with the BTC, he said. This is one
option for transporting Kashagan's oil without causing environmental damage to
the Caspian, Przybysz said. The transport system could eventually be linked with
that of Russia, China and Kazakstan, he said. The system could be used to
transport not just oil produced by the four investors but oil produced by other
companies in Kazakstan, he said. Kashagan, which holds more than two billion
tonnes of oil, is expected to go on stream in 2008.The State Oil Company of the
Azerbaijani Republic (SOCAR) and Kazakstan's KazMunaiGaz started to discuss
linking Kazakstan to the BTC pipeline back in November 2002.
KazMunaiGaz seeks oil and gas projects abroad
Zhaksylyk Kulekeev, KazMunaiGaz's first vice-president for finances, told New
Europe in an interview that the Kazak national oil and gas company is only
interested in projects where it can buy a controlling share.
Market observers have said that if KMG fails to acquire Mazeikiu it would be
looking at a refinery in Romania. "We are interested in only those projects
where we can buy a controlling share. We are not interested in the offers of 10
to 20 percent, including the Bucharest refinery. As regards to new acquisitions,
we have interests not only in Europe, but also in Southeast Asia, China, but, at
this point, we are not in a position to discuss them," Kulekeev explained.
KazMunaiGaz (KMG) lost a bidding war for the Lithuanian concern Mazeikiu Nafta,
which was the Kazak company's second attempt to open a window to Europe.
And again, as in the case with the Czech refinery Unipetrum, it was snatched
from under KazMunaiGaz's nose by Polish company PKN Orlen, which, as was
officially reported, had offered a higher price. "We also were prepared to
pay a higher price. It is not the price that matters here. It is a question of
big politics," Kulekeev said. There is information that a Russian bank has
helped to finance the deal.
Regarding building a relationship with its competitor, Orlen, which is planning
to enter the Kazak oil market in order to participate in the development of oil
fields, KazMunaiGaz's first vice-president for finances said his company is also
interested in entering the Polish market. "Orlen operates outside Poland
too. It has a wide network of service stations all over Europe, especially in
Western Europe, and we also want to enter that market," he said. However,
in Kazakstan KMG controls only two per cent of retail oil products market.
"We plan to increase our presence from two per cent to 10-15 per cent, and
this year we intend to spend over US$450 million to expand the service station
network," he said.
Kulekeev had mentioned earlier two more proposed major acquisitions by the
national company. They include the purchase of a 50 per cent share in JV
KazGerMunai and 33 per cent of PetroKazakstan from China National Petroleum
Corporation (CNPC). Both deals are quite expensive: the first is evaluated at
US$ one billion and the second will tip the scale at US$1.37 billion. Asked
where KazMunaiGaz will acquire the money to pay for the shares, Kulekeev said
part of it will be borrowed from western banks and the other part will be its
"We have a few financing options. The problem is that the shareholders do
not want to part with their shares ... But I think we should be able to resolve
this issue by the end of the year," he said. "The same is true for the
33 per cent of PetroKazakstan. A source of financing is available. The only
problem is to persuade the partner to sell the shares. To buy the 33 per cent,
we can raise over US$ two billion if we issue an IPO for 40 per cent of our
subsidiary. But the government has not made any final decision yet, although we
have done a lot of preparatory work," Kulekeev said. Regarding Kazakstan
participation in the Baku-Tbilisi-Ceyhan, he said the BTC accession work is
underway. "By 2010, the company intends to build the Iskene pipeline in the
Atyrau Region to the Kuryk port, including an oil loading terminal. The pipeline
will be 950 kilometres long. It will initially carry five million tonnes of oil,
with a prospect of carrying up to 36 million tonnes, to Kuryk, from where oil
will go by the Caspian Sea to Baku and then to the BTC," he said.
He also said that the construction of an Aktau-Baku underwater pipeline can be
considered only after the status of the Caspian Sea has been defined. Assuming
that all the issues get resolved, it should not be difficult to build a pipeline
in one to one and a half years. The pipeline would carry at least 20 million
tonnes. Kazakstan intends to supply up to 40 million tonnes to Baku in the
Asian Development Bank to loan Alyans 50 million
Asian Development Bank (ADB) and JSC Alliance Bank (ALB) of Kazakstan signed a
US$50 million five-year senior loan. ADB is to issue this loan to Kazakstan's
Alyans Bank so that the bank can increase financing to small and medium
business, the ADB press service said in a release, New Europe reported.
The diversification of the Kazak economy toward non-oil investments,
particularly through the small and medium enterprise (SME) sector, is a crucial
factor for Kazakstan's sustainable and inclusive economic development,
especially after the oil boom recedes. The loan marks "the first ADB
project for the financing of the Kazak private sector" and also "the
first project without the issuing of governmental guarantees," the release
says. "To achieve sustainable and inclusive economic development, creating
conditions for growth of the SME sector is of key importance," said Stephen
Wermert, country director of ADB's resident mission in Kazakstan. He added that
the loan will help ALB grow its SME loan portfolio by providing part of the
needed debt funding. It will also demonstrate viability and boost investors' and
creditors' confidence in the country's banking sector.
Hambledon Mining starts developing Kazak gold field
Hambledon Mining Plc has started to develop the Sekisovskoye-Tserkovka gold
deposit in Kazakstan, the company said in a statement for the London Stock
Exchange, Interfax News Agency reported.
Hambledon received the necessary permits from Kazakstan's government in April to
start an open pit development at the Sekisovskoye-Tserkovka gold deposit. The
field is estimated to contain 2.8 million ounces of gold. The section that
Hambledon Mining intends to start mining this year contains seven percent of the
gold. It is expected that the section will yield 30,000-35,000 oz of gold per
year over a life of six years.