The Calgary Herald (Alberta)
May 29, 2005 Sunday
Final Edition
Azerbaijan: Is it a re-emerging oil power or totalitarian nightmare?
by Jeremy Page, Times of London
BAKU, Azerbaijan
The elegant mansions of Baku’s first boom town are crumbling and
overgrown, hollow relics of the days when this port on the Caspian
Sea provided half the world’s oil.
The original oil barons — the Nobels and Rothschilds — abandoned
them when Baku’s oil industry was nationalized after the 1917
Bolshevik Revolution. But almost a century later, the city stands on
the brink of a second oil boom with the official opening last week of
a controversial pipeline built to take Caspian oil to the
energy-hungry West.
President Ilham Aliyev of Azerbaijan opened the taps of the
Baku-Tbilisi-Ceyhan (BTC) pipeline on Wednesday in front of world
leaders and oil executives at the Sangachal oil terminal, south of
Baku, the Azeri capital.
The pipeline, billed as the world’s biggest energy scheme, winds its
way for 1,750 kilometres from Baku, through Tbilisi, the capital of
neighbouring Georgia, to the Turkish Mediterranean port of Ceyhan.
When fully operational by 2009, it will carry a million barrels of
oil a day — 0ne per cent of global production — from fields off the
coasts of Azerbaijan and Kazakhstan.
The $4-billion US pipeline — built by a consortium led by BP — will
alter the geopolitical map by allowing Caspian oil to bypass Russian
pipelines and the congested Bosphorus strait.
It will provide the West with a long-sought alternative energy source
to the Middle East, and consolidate the strategic foothold of the
United States in Moscow’s traditional backyard.
It will allow Baku to reclaim its status as the original oil boom
town. “I do not doubt that very soon Azerbaijan will turn into a rich
state,” President Aliyev said recently.
“Each citizen of Azerbaijan should take advantage of this chance.”
Already the city’s historic Old Town is being smothered by high-rise
flat blocks, neon-lit shopping malls and the fumes from countless
top-of-the-line SUVs and Mercedes.
The pipeline’s proponents talk breathily about Azerbaijan becoming a
new Kuwait — even a Norway. The risk, analysts say, is that it turns
into another Nigeria. And some question the wisdom — and huge cost
— of building a pipeline through one of the world’s most volatile
regions to access oil reserves that have so far failed to meet
expectations.
The pipeline passes close to Azerbaijan’s tense ceasefire line with
neighbouring Armenia, runs near to separatist regions in Georgia and
skirts Kurdish areas in Turkey.
Horseback security guards will patrol it daily in Georgia and
Azerbaijan, which have also formed special forces units to combat
terrorist attacks.
And recently, a government crackdown on the opposition in Azerbaijan
has highlighted another potential source of political instability
that could disrupt the pipeline.
Two weeks ago, Azeri police detained 30 leading opposition members
and then severely beat and arrested another 45 during a peaceful
pro-democracy demonstration in central Baku. The Azeri authorities
said that the rally was banned because it was too close to last
week’s ceremony.
David Woodward, the president of BP Azerbaijan, told The Times: “It’s
very unfortunate. I don’t see that there was a risk to those
attending the ceremonies.”
He added: “We want to be operating in a country where people are
fairly represented. Stability is most likely to be ensured by
continuing the democratic process so that all people can benefit from
our presence and the revenues from the oil business.”
Richard Boucher, the U.S. State Department spokesman, also said that
the Azeri government’s actions were “regrettable.” The crackdown was
especially embarrassing for Washington as only two weeks ago
President George W. Bush hailed neighbouring Georgia as a “beacon of
liberty” in a speech in Tbilisi and vowed to spread democracy around
the region.
Azerbaijan is considered to be one of the former Soviet Union’s most
authoritarian regimes — and a potential site of a revolution like
those that overthrew the corrupt post-Soviet elites in Georgia in
2003 and in Ukraine last year.
The Azeri opposition accuses the government of rigging the last
presidential election, when Aliyev succeeded his late father, Heydar,
and of planning to fix parliamentary elections in November. It has
urged Western governments and companies to put pressure on the Azeri
government to guarantee media freedom and a fair election. “We will
struggle to end this dictatorial regime. The international community
must react seriously and apply pressures on Azerbaijan, which is
heading towards authoritarianism,” said Sardar Jalaloglu,
deputy-chairman of the opposition Azerbaijan Democrat Party.
Yet Western governments and oil firms have backed the pipeline
project which, starting from next year, will bring some $5 billi0n US
annually into the Azeri government’s coffers.
The key issue, analysts say, is how that money is spent. Farhad
Aliyev, the Azeri Minister for Economic Development, said the
government would use the oil revenues to improve basic
infrastructure, education and health care.
“Our objective is not just to sell Azeri oil abroad, but to
contribute to the social, economic and political development of
Azerbaijan,” he said. “We need to use the oil revenues in the most
effective way. As oil revenues grow, we must try to make sure the
economy does not just depend on oil.”
But he grew defensive when asked about the opposition crackdown. “The
opening of the BTC pipeline is a historic occasion,” he said.
“There was no reason for the opposition to hold their demonstration.”
The government has taken some steps in the right direction. It has
won international praise for setting up a state oil fund, in which a
large chunk of oil revenues is placed to be invested for future
generations.
But some economists already see danger signs.
Inflation is in double figures; the economy is at risk of overheating
as investors rush to cash in on a property and retail boom.
A recent assessment by Transparency International, the
anti-corruption watchdog, placed Azerbaijan 140th out of 146 in its
world rankings.
With Azeri oil expected to run dry by 2020, the pace of economic and
political reforms needs to increase dramatically if the country is to
avoid the sort of upheavals that struck Georgia, Ukraine and
Kyrgyzstan.
“Unless people feel they are benefiting from our presence then it’s
not going to be a sustainable environment for us to do business,”
Woodward said.
“We need to be here not just for a few years, but for the next few decades.”