LONDON, Oct. 1 -- Another important step in the process to build a gas export pipeline from Azerbaijan across Georgia and into Turkey has been taken with the signing of an agreement between Azerbaijan and Georgia on tariffs for the pipeline. The two countries signed the agreement in Baku over the weekend.
They were close to signing an agreement 2 months ago in Baku, but the deal was shelved following comments from World Bank observers.
The two governments also came close to signing an agreement a week ago in London. Georgian President Eduard Shevardnadze is understood to have wrung some concessions from his Azerbaijan counterpart, Heydar Aliyev, which led to the final agreement.
The pipeline will run from Baku via Tbilisi in Georgia to Erzerum in Turkey, and bring gas supplies to regions that are frequently affected by severe energy shortages in winter months.
Capacity will be 252 bcf/year. Azerbaijan plans to export 89.3 bcm to Turkey by 2018. Deliveries will start in 2004 at 2 bcm, rising to 3 bcm in 2005, 5 bcm in 2006, and at 6.6 bcm until 2018.
Under the agreement, Georgia will be paid $2.50/ thousand cu m in the first 5 years of operation, rising to $5 in the later stage of the 20 year contract. The original negotiations had broken down when Georgia demand initial payment of $5-10/thousand cu m, but it is understood that the new figures are close to those tabled recently in London.
Initially Georgia will take its tariff payment in gas. It also will buy up to 500 million cu m at an average price of $55/thousand cu m.
Construction of the $1 billion pipeline still requires the approval of the Azerbaijan, Georgia, and Turkey parliaments and a financial commitment from the shareholders in Shah Deniz field in the Azerbaijan sector of the Caspian.
BP PLC, the operator and major shareholder in the project, has said that it will proceed with the pipeline project only if it is commercially sound. BP said Monday it hopes project approval will be given at the end of this year and first gas will flow late in 2004.
BP has 25.5 % of the Shah Deniz project, Statoil 25.5%, LukAGIP 10%, SOCAR (the Azerbaijan state oil company) 10%, Offshore Iran Energy Co. 10%, and TPAO (the Turkish state oil company) 9%.
Contact David Young at [email protected].