Thursday, May 14, 2009

Nabucco starts to shape up

Nabucco starts to shape up...?
By Robert M Cutler

MONTREAL - The European Union (EU) and Turkey have resolved two major differences that were preventing agreement on the terms for the Nabucco natural gas pipeline, and the Turkish President Abdullah Gul is reported to have promised that a signing ceremony will take place on June 25 in Ankara.

Principals behind the Nabucco project, on the drawing-boards for years, intend to build the 3,300-kilometer pipeline from the eastern border of Turkey through the Balkans to the Baumgarten gas hub in Austria, where national energy company OMV leads the Nabucco Gas Pipeline International consortium. Other members of the consortium are Botas (Turkey), Bulgargaz (Bulgaria), Transgaz (Romania), MOL (Hungary), and RWE (Germany).

The two problems that were solved in Prague last week involved pricing and the legal regime for Turkish consumption of gas flowing through the pipeline. The EU had insisted that Turkey pay the equivalent of European prices; Turkey had proposed a figure 15% less than that. The common-sense resolution that was adopted provides for Turkey's price to be based on the cost of transportation: the gas consumed in Turkey will hardly go all the way to Baumgarten, so it will cost less. As for the legal regime, the EU has abandoned its insistence that the norms of its acquis communautaire apply in Turkey, a non-member of the European body, and a middle ground within Turkish law has been found.

While part of the breakthrough is due to the EU dropping of unrealistic demands, the electoral defeat of the AKP of Prime Minister Recep Tayyip Erdogan in recent municipal elections appears to have played a role in facilitating the agreement. (See
Turkish magic, Asia Times Online, April 16, 2009.) That is because subsequent cabinet changes brought new people with more practical experience, pragmatism and realism directly into decision-making roles.

In particular, the professional background of new Energy Minister Taner Yildiz is as an electrical engineer with experience in the electricity production and distribution industries. Turkey has been increasing its natural gas demand by between 6% and 8% for much of the current decade, and that gas goes mostly directly into the electricity industry. The number of cities on the natural gas distribution grid has increased from nine in 2002 to 63 last year.

New Foreign Minister Ahmet Davutoglu also played a significant role. Formerly chief foreign policy advisor to the prime minister, his background is that of an academic international relations expert. He has been a main architect of the AKP regime's foreign policy, to such a degree that his influence in contemporary Turkey is compared with the influence of Henry Kissinger on US foreign policy in the 1970s.

Davutoglu has crafted the country's controversial openings to the Middle East, including to Hamas, and also the Israel-Syria negotiations, as well as talks concerning relations with the Kurdish region in northern Iraq, all while declaring the EU and the North Atlantic Treaty Organization to be "the most important pillars of the policy of setting a balance between security and freedom". His brief is now not only to help to formulate foreign policy but also to execute it.

There are still two or three more rounds of negotiations to be conducted before the expected June 25 signing. On May 13, Erdogan visited Baku to discuss natural gas pricing with Azerbaijani officials and to assure them that, despite some thawing in relations between Turkey and Armenia, the long-standing Turkish blockade of Armenia will not be lifted until the situation in the contested region of Nagorno-Karabagh is resolved to Azerbaijan's satisfaction. It is consequently necessary that the US continues its attempts for a breakthrough on the Karabagh issue.

The Nabucco project would in the first instance take gas from the further development of Azerbaijan's offshore Shah-Deniz project, which has so far been delayed even though it is piping some gas through the Baku-Tbilisi-Erzerum line (BTE, also called the South Caucasus Pipeline, or SCP). In Prague for the first time, EU officials spoke to the press about the possibility of an undersea pipeline from Turkmenistan to Azerbaijan (see
Another trans-Caspian pipe dream, Asia Times Online, February 28, 2008, and New chance for Trans-Caspian pipeline , Asia Times Online, October 24, 2008).

The Turkmenistan government sent an observer delegation to Prague. At a minimum, Ashgabat will use Nabucco as a bargaining chip with Moscow, but OMV, the Nabucco principal, along with Germany's RWE established a joint venture several months ago for energy relations with Turkmenistan and are already working on confidence-building through such projects as ameliorating electricity production and distribution in the country.

On May 16, Erdogan is visiting Sochi in southern Russia for talks with Russia's Prime Minister Vladimir Putin. However, Erdogan's new foreign minister, Davutoglu, seems to be charting a course away from ideas of an all-encompassing Turkish-Russian energy condominium in the region, which had led to the construction under the Black Sea of the Blue Stream pipeline between the two countries as a blocking move by Moscow against prospects a decade ago for a Trans-Caspian Gas Pipeline from Turkmenistan.

This can only be constructive, as Azerbaijan's experience over the last 20 years demonstrates the benefits to the national economy as well as sovereignty, of having a multiple-pipeline policy. It is perhaps this lesson that Turkmenistan's President Gurbanguly Berdimuhammedow is now appreciating.