Category: Eastern Europe

Iran drops Russia for Turkey

Tuesday, 17 November 2009

Meir Javedanfar: As Ayatollah Khamenei sidles up to Recep Tayyip Erdogan, he could learn from Turkey’s leader about balancing his alliances

The famous Chinese strategist, Sun Tzu, wrote in his book, The Art of War: “If an enemy has alliances, the problem is grave and the enemy’s position strong; if he has no alliances, the problem is minor and the enemy’s position weak.”

Iran’s supreme leader, Ayatollah Ali Khamenei, is currently witnessing how the US, which he sees as the enemy for his nuclear ambitions, is working hard on building alliances, including with Russia. Khamenei is not happy.

So much so that Iran recently cancelled a deal with Russia to launch its communication satellite, and turned to Italy instead. This is in addition to recent complaints from Tehran regarding delays from Russia in the delivery of the S-300 anti-aircraft system. Until recently, Tehran kept its complaints away from the cameras and behind closed doors. But now that Khamenei sees the Russians as disloyal, his regime is not shy about airing its criticism publicly.

The Iranian government has decided to take the initiative and to look for a new partner to replace the Russians. Judging by the recent flurry of visits between Tehran and Ankara, it seems that Khamenei has found a willing partner in Turkey.

Unlike Russia, Turkey does not have a veto in the UN security council. However, its stock in the Middle East and the Islamic world is certainly rising. Its prime minister, Recep Tayyip Erdogan, is being seen more and more as a credible defender of Islamic and Arab issues. Many people on the Arab street respect his leadership, as he was elected in a genuinely democratic elections. The same can not be said about Egypt’s president, Hosni Mubarak, or King Abdullah of Saudi Arabia, who received their posts undemocratically.

Erdogan’s relations with the US and the EU also count in his favour. Although he has recently been getting closer to his Muslim and Arab regional neighbours, he has not severed his ties with the west, but is masterfully playing both sides. His relations with the US are also not based on Turkey’s weaknesses. On one occasion, he resisted US pressure and even walked away from a promise of $6bn in grants and $20bn loan guarantees, because he did not find the agreement suitable. And his verbal attacks on Israel after the recent Gaza war have certainly helped his image in the region.

Now that Khamenei has turned down Barack Obama’s nuclear offer, he feels that the prospect of sanctions is greater. Therefore, he needs a change of strategy to deal with the expected difficult time ahead. One strategy is to turn his struggle against Obama into a new west v Islam confrontation. Judging by the recent international TV debate in Qatar, where Iran’s nuclear programme was discussed in front of a select audience from the Middle East, there certainly is sympathy for his position. As far as many people in the region are concerned, Iran’s nuclear programme is the only way to counter Israel’s superior balance of power. Therefore this is a viable strategy. And Erdogan’s rising popularity in the region, and Tehran’s improving relations with his administration, will be a feasible way for Khamenei to improve his own position during the difficult times ahead. The absence of progress in the Israeli-Palestinian peace track will also help him.

However, the Iranian supreme leader should be careful about how he approaches his relations with Turkey and the price he is willing to pay for it, both at home and abroad. According to the Iranian news website Khabar online, the Ahmadinejad government concluded a secret gas agreement with Turkey in late October, without informing parliament. After the news was recently leaked to the press, parliament launched a full investigation. There are now discussions about cancelling the whole deal if, as the members of parliament say, it is found to be against the country’s interests. Many people suspect that Khamenei offered the deal in unfavourably good conditions to Ankara, as a means of buying its loyalty. Judging by its results it seems to have worked. However, the domestic backlash could damage the legitimacy of his regime even further.

There is also the issue of the Bushehr nuclear power plant. Turkey can not complete it. Only Russia can. Khamenei turning his back on Moscow could be even more detrimental to this important and expensive project. Perhaps Khamenei could learn from the Turks, and instead of constantly changing one ally for another learn to balance his alliances.

UTV

November 17, 2009
Turkey warm to storing Iranian uranium

By JPOST.COM STAFF AND AP

Turkish Energy Minister Taner Yildiz said on Friday that if asked, his country would be willing to temporarily store Iran’s enriched uranium to help defuse a standoff over Western suspicions that Teheran is trying to build an atomic bomb.

Yildiz stated that storing low-level enriched uranium in Turkey would not pose a problem, adding that although such a request had not been made, the issue was still being discussed.

If asked, he concluded, “we would not say no.”

The idea that Turkey could play a role in the crisis was raised in an American television interview by IAEA head Mohamed ElBaradei, who noted that Turkey, a Muslim country and a NATO member, has good relations with both neighboring Iran and the US.

Iranian President Mahmoud Ahmadinejad after a press conference in Istanbul, Monday.
Photo: AP

Iranian Chief of Staff Hassan Firouzabadi spoke later on Friday in support of the proposals to ship most of Teheran’s low-enriched uranium stockpile abroad for further processing, AFP reported, quoting the Mehr news agency.

The initiative will prove that the country’s “peaceful nuclear activities” are “bona fide,” Firouzabadi was quoted as saying.

Iran’s chief of staff also urged Russia to ship the S-300 surface-air missile system to Teheran in accordance with a contract signed between the two countries months ago, PressTV reported.

According to the report, Firouzabadi expressed confusion over Moscow’s six-month delay. “Don’t Russian strategists realize Iran’s geopolitical importance to their security?” the general was quoted as saying.

The system would significantly boost Iran’s defense capabilities, especially against aircraft.

November 13, 2009
STREAMS TAKING DOWN OBSTACLES

Tribuna
October 29, 2009

Fortunately, Russia has powerful allies in Europe nowadays
Author: Giulietto Chiesa
SOME EUROPEAN COUNTRIES HAVE THE PRESENCE OF MIND TO DISREGARD WASHINGTON’S ORDERS IN THE MATTER OF ENERGY COOPERATION WITH RUSSIA

   As soon as Nord Stream negotiated all bureaucratic and
technological obstacles, Europe and the United States initiated
debates or, rather, mounted a campaign aiming to circumvent the
whole project. It was then that Premier Vladimir Putin organized
informal meetings with his Italian counterpart Silvio Berlusconi
and Gerhard Schroeder of Germany.
   Nord Stream is the largest project Moscow designed in years.
It is a gas pipeline across the Baltic Sea to Germany that will
spare Russia inconveniences of transit via Ukraine. Victor
Yuschenko’s reign made the situation absolutely intolerable. The
so called Orange Revolution put Kiev under Brussels’ and
Washington’s protective wing and set it on a course into NATO via
the European Union. In other words, it fomented a deliberate
confrontation with Moscow. Why would Russia continue to try and
appease Kiev? Past friendship is kaput. Besides, not even all of
Europe is prepared to put up with the Ukrainian blackmailers. That
their methods lack finesse is putting it mildly. Whenever gas
bound for Europe disappears somewhere in Ukraine, Moscow turns the
valve. As a result, both Kiev and Europe remain without gas. Sure,
it costs Russia too but what really counts is that Europe is
swindled out of one fourth of the gas it needs.
   Moscow’s pragmatic policy secured it another prospective
buyer, one who desperately needs all energy it can lay its hands
on. This new customer can well reroute the channels still going to
the West in its own direction. The matter concerns China, of
course. Gas pipelines to China are already built.
   In other words, Putin has found someone interested and
prepared to pay. Nord Stream in the meantime costs more than 10
billion euros. Germany was the first country where the Kremlin’s
voice was finally heard. Ex-Chancellor Schroeder became the head
of the project. Frau Merkel backed him. Sarkozy in France wants
his slice of the pie too. There is South Stream as well, an
alternative to Nabucco. South Stream will send Russian gas via the
Black Sea to Bulgaria, Balkans, Greece, Italy. Putin’s plans found
enthusiastic supporters in official Rome – Berlusconi and Eni. So,
there is a new situation to be taken into account. It is in
Moscow’s power now to deliver gas, Russian and Central Asian, to
Europe without fearing that Ukraine will pull something off.
   Needless to say, official Washington does not take to all
these developments. Pretty well forgotten, Jimmy Carter’s National
Security Advisor Zbigniew Brzezinski raised his voice again.
Washington plainly announced that Moscow was out to divide West
and East Europe. Its satellites joined the critical chorus.
Estonia began complaining that the Baltic states had been
“ignored”. A bunch of exes (former heads of states and
governments) condemned Moscow for the intention “to restore its
sphere of influence”. All projects promoted by Moscow seek to
undermine economic stability of East Europe – that’s the most
popular tune in East European capitals, these days. The Kremlin is
condemned for what is called “energy blackmail”.
   But why wouldn’t Brussels itself rearrange gas in accordance
with market realities? Russia will keep exporting gas in any
event. East Europeans claim that Moscow has planned some foul play
and that demands will be put forth soon enough. Sikorski in Warsaw
went so far as to equate Nord Stream with the Molotov-Ribbentrop
Pact. (To listen to these guys, construction of gas pipelines must
be thwarted no matter what.) European allies sing hosannah to
Nabucco, a project lobbied by the United States. Nabucco is about
giving Russia the mitten and having the Central Asian work for the
West. Besides, Nabucco is to be built across Turkey and Georgia.
By and large, that’s a great plan, but… but Putin and Medvedev
have already struck back. They have powerful (not to say decisive)
allies in Europe now.
   Some events of considerable magnitude and importance are
bound to follow. Since Putin, Berlusconi, and Schroeder decided to
meet informally in St.Petersburg, it can only mean that a
counteroffensive is about to be mounted.


Translated by Aleksei Ignatkin

October 29, 2009
Crimean Tatar Leader Claims FSB Behind Murder Plan

Mustafa Dzhemilev (center) said he knows from diplomatic sources about FSB plans to have him killed.

October 29, 2009

KYIV — Crimean Tatar leader Mustafa Dzhemilev says he believes Russia’s Federal Security Service (FSB) is behind a special operation to assassinate him, RFE/RL’s Kazakh Service reports.

Two members of the Islamist group At-Takfir wal-Hidjra were arrested on October 26 during a special operation in several parts of the Ukrainian region.

Leaders of the movement are alleged to have issued a fatwa to kill Dzhemilev and some of his associates for their criticism of radical Islam.

Dzhemilev told RFE/RL that members of a radical Islamic movement who were recently arrested “could hardly” initiate such an assassination plan.

Dzhemilev said the spiritual direction of the Crimean Muslims and radical Islamist organizations share a “mutual enmity.” He added that radical Islamists have nothing in common with Islam and should be called extremists.

But Dzhemilev said he knows from diplomatic sources about FSB plans to have him killed. He said “some states who are not interested in allowing democratization in Ukraine” might be sponsoring the extremist Islamic organizations.

Ukrainian Interior Minister Yuriy Lutsenko said the arrested members of the Islamist group are refusing to talk. He said they refuse to recognize Ukrainian laws and say they are subordinate only to their religion.

Crimean police chief Gennady Moskal told RFE/RL that an estimated 100 members of extremist organizations are active in Crimea. He said security forces are searching for At-Takfir wal-Hidjra’s leader.

Moskal added that some refugees from Uzbekistan join up with Ukrainian extremist organizations.

He said he does not believe there is “a Russian trace” in any assassination plan for Dzhemilev.

Dzhemilev, who is the chairman of the Crimean Tatar Assembly and spent many years in the gulag as a Soviet dissident, had previously called on the Ukrainian government to allow the 33 Crimean Tatar parliament members to carry arms due to threats from Islamic extremists.

https://www.rferl.org/a/Crimean_Tatar_Leader_Claims_FSB_Behind_Murder_Plan/1864556.html

October 29, 2009
JOINING BATTLE FOR CRIMEA

RUSSIA IS LOSING THE BATTLE OVER THE CRIMEA TO WASHINGTON AND BRUSSELS
Author: Tatiana Ivzhenko
[The European Union vies for clout with the Crimea.]

Nezavisimaya Gazeta
October 20, 2009

The European Union joins the Russian-American backstage battle for
the Crimea. Web site of the Ukrainian government posted a brief
note to the effect that implementation of the EU’s Joint
Initiative of the Commonwealth in the Crimea was going to begin
right after election of the president. The program in question
included investment projects in all economic and social spheres.
   Sources in the government claim that European countries’ plan
of actions on the peninsula was already charted and that its
endorsement was scheduled for spring 2010. Each EU participant
will be put in charge of some particular sphere like economic
development (Great Britain), environmental protection (Sweden),
and civil society (the Netherlands). Finland, Germany, Hungary,
Poland, Lithuania and, perhaps, Estonia are prepared to join the
program too. Kiev counts on up to 12 million euros worth of
investments in the Crimea in 2010 alone. Gunnar Wiegand who
represents the European Commission in the project recently met
with the government of Ukraine. He informed the Ukrainians that
the European Union regarded the Crimea as an extremely important
region, “one with a powerful potential for all of Europe”.
   As far as Senior Deputy Premier Alexander Turchinov was
concerned, the new Crimean project meant rapid rapprochement with
Europe and a wholly new level of relations with it.
   “The project is of paramount importance for the government of
Ukraine and for Yulia Timoshenko… particularly at the onset of
the presidential campaign,” Konstantin Bondarenko of the Gorshenin
Institute of Management Issues confirmed. “It offers them an
opportunity to show that the Crimea is part of Ukraine and, also
importantly, that Ukraine is a country to invest in.” Bondarenko
recalled that President Leonid Kuchma had approached the Russians
with analogous ideas in 2002 – 2003 [with the idea of joint
investments in development of the peninsula]. “Unfortunately, I
cannot call the Russians particularly enthusiastic or energetic,”
he said. “At the very least, I do not think much of the economic
results of the Russians’ activeness. The impression is that they
erroneously made an emphasis on politics but people cannot be
expected to last long on slogans alone.”
   Vladimir Kazarin of the Sevastopol administration seconded
this opinion. “It is clear now that Russia is losing the battle
for influence with the Crimea. It was Russia and the United States
vying for clout with the peninsula once, but no longer. The
European Union is joining them too, these days, and Brussels makes
an emphasis on investments rather than on politics.”
   Kazarin pointed out that the new player moved in just as
Russia was losing ground. “We witness these days what would have
been considered impossible barely a year ago,” he said. “We see
pickets with anti-Russian slogans and posters in front of the
Black Sea Fleet HQ. What counts is that these protest actions are
organized by Black Sea Fleet’s ex-employees. I can only surmise
that the Russian authorities are not informed, that they do not
grasp long-term political consequences of the current underfunding
of the Black Sea Fleet… when 8,000 employees including 1,000
officers are to be laid off, when wage arrears mount along with
debts to Sevastopol’s department of public works and to the
pensions foundation. The situation is challenging indeed. Anyone
capable of solving economic problems of Sevastopol and, broader,
all of the Crimea will earn the locals’ gratitude,” Kazarin said.
   Neither did the United States withdraw from the battle for
the peninsula. Establishment of a diplomatic mission or
information bureau in Sevastopol was suggested this spring but
protests from the population and the local authorities persuaded
Washington to table the idea then. It is on the agenda again,
these days. It is the US Consulate General that the Americans want
to set up in the Crimea now. “The way I see it, problems were
encountered because the Crimean authorities had deliberately gone
too far in their efforts to make the whole matter political,”
Vladimir Nalivaichenko of the Ukrainian Security Service said.
“What can be so political about an American mission? We all see
how the Russian Consulate General operates in the Crimea.
Diplomats were the first to arrive, followed by Russian
businesses, capitals, and so on.”
   Valery Chaly of the Razumkov Center did not think that the
Americans could really count on unproblematic existence in the
Crimea. The population was thoroughly suspicions of all and any
Washington’s initiatives concerning the peninsula, he said. Not so
the EU’s initiatives which the locals never associated with
politics.
   Political scientists meanwhile comment that Russia does not
even try to counter these Western moves. Crimean pro-Russian
organizations complain of the lack of support. The Russian
Community of the Crimea, Russian Bloc, Russian Crimea, Tavria
Alliance, Faith, Crimean Civil Activists, and Crimean Russian
Youth Center set up a coordinating council. This body will chart a
common strategy and coordinate joint efforts aimed at “promotion
of the Russians’ legitimate rights and interests.”
   One of the activists explained that interests of the Russians
were vulnerable and needed promotion because “the Ukrainian
authorities and their Western patrons are determined to drive the
Black Sea Fleet out of the Crimea while everyone is distracted by
the crisis.” The activist commented that the news of the EU’s
initiatives was released in the midst of fresh scandals involving
the Black Sea Fleet. Ukrainian media outlets reported movement of
the fleet’s units and forces – allegedly to training grounds – the
Ukrainian authorities had never been notified of in advance. Local
nationalists appealed to the authorities to confiscate military
hardware of the Black Sea Fleet for violation of the terms of
presence specified by Ukrainian-Russian agreements.
   Ukrainian experts point out that Moscow deliberately refuses
to acknowledge the latest scandals involving the fleet and the
Ukrainian organizations that volunteer to promote interests of
Russia. Political scientists agree that political actions are
pointless when there is an economic crisis to grapple with.
Economic projects, ones that offer jobs, salaries, and security
are the only thing capable of swaying public opinion. Economic
projects are precisely what the European Union might beat the
United States and Russia with.

October 20, 2009
Nabucco: A challenge for the EU and a partially fulfilled promise for Turkey
- Ferruh Demirmen
September, 2009

When the Nabucco Intergovernmental Agreement (IGA) was signed in Ankara on July 13, much euphoria was created in the media, especially in Turkey. It was reported that Turkey and the European Union, in a cooperative deal on energy, had jointly scored a big victory. While a claim of victory may well be justified for the EU, the verdict for Turkey is less flattering.
What is in Nabucco?
Nabucco is a gas pipeline project designed primarily to ship Caspian and Middle East natural gas to Europe across Turkey, reducing Europe’s dependence on Russian gas. It will serve as the fourth artery bringing gas into the European Union. It will also enable the EU to avoid or minimize transit-country risk of the type it experienced with Ukraine.
Officially started in 2002, the pipeline is estimated to cost 7.9 billion Euros to build and have a maximum capacity of 31 billion m3/year. The pipeline will run from the eastern and southeastern border of Turkey and terminate at Baumgarten, a natural gas hub in Austria. The total pipeline length is 3,300 km-2,000 km of which will be in the Turkish territory. Construction is foreseen to start in 2011, with first gas flow in 2014. The project duration is 25 years.
The project is being developed by a consortium (Nabucco International Company, or NIC) formed by six companies each from Turkey, Bulgaria, Romania, Hungary, Austria and Germany. The consortium is seated in Vienna. All six partners have an equal 1/6 share in the enterprise. BOTAŞ, the partner on Turkey’s side, will carry 1.3 billion Euros of the total construction cost. Five Nabucco National Companies, owned by the NIC, will handle construction and operation of the pipeline in transit countries.
Thirty percent of financing will be met from NIC’s internal (equity) resources and the remaining 70% from the credit market.
Potential suppliers of gas include Azerbaijan, Iraq, Iran, Turkmenistan, Egypt, Kazakhstan and Russia. But none of these countries has yet committed to supply gas for the project.
The NIC will generate income by trading gas transport capacity through a tender process. It is estimated that 64% of the transport capacity would be marketed in Turkey. Fifty percent of the the rest to the partners and third parties.
The intergovernmental agreement (IGA) signed in Ankara on July 13 commits the signatory governments to give full political support for the implementation of the project. The IGA is valid for 50 years.

The hassle ahead: Gas supply
A major hassle for the Nabucco partners will be supply of gas. Among the potential suppliers of gas, Azerbaijan, through its Shah Deniz-2 gas, was initially the most likely candidate to supply the start-up gas (some 8 billion m3/year). But after the SOCOR-GAZPROM agreement signed at the end of June in Baku, Azerbaijani input cannot be counted on.
Azerbaijan’s president Ilham Aliyev practically pulled the plug on the Shah Deniz-2 gas after Turkey entered into secret negotiations with Armenia on opening the Armenian-Turkish border. Aliyev, alarmed that the solution to the Nagorno-Karabakh problem could be side-stepped in the secret negotiations, showed his displeasure by signing a gas-supply contract with Russia. The agreement gives Russia’s GAZPROM priority in buying Shah Deniz-2 gas. The price is an attractive $350/1,000 m3.
Aliyev did not bother to attend the IGA signing ceremony in Ankara.
According to a post-discovery agreement (addendum to the PSA) signed by the Shah Deniz consortium members in 2001, Turkey is the preferred export market for Shah Deniz gas. If Shah Deniz-2 gas is shipped to Russia instead of Turkey, it will prompt calls for accountability in Turkey. Further, it will be a case of troubling irony if the same gas finds its way to the EU via South Stream.
The supply problem with the other potential supplier countries should also not be discounted. Iran, otherwise a very logical choice, is out of the supply equation for the foreseeable future because of political problems. Turkmen input first requires resolution of the Caspian maritime boundary dispute, and Russia is not expected to be cooperative in resolving this issue.
Separate from the boundary issue, considering its gas sale agreements with Russia, China and Iran (a deal to increase Turkmen gas export to Iran to 14 billion m3/year was recently signed), Turkmenistan may not have sufficient developed gas resources to supply a significant volume of gas for Nabucco.
Russia, eager to promote its rival South Stream project, is least interested to see Nabucco succeed. Russia may eventually supply gas to Nabucco, however, if South Stream, with its exorbitant price tag (19-24 billion Euros), fails, and the transit fee across Nabucco is favorable. After all, Russia will view favorably any route that bypasses Ukraine.
Offsetting its cost disadvantage, South Stream would have no throughput problem.
Kazakhstan, apart from the boundary dispute in the Caspian, is more inclined to sell its gas to Russia than to the West, and Egypt already has a running LNG system (3 LNG trains) to export its gas.
Currently, unassociated gas in a number of fields in northern Iraq is the most likely source for initial gas for Nabucco. (Iraq’s proven gas reserves are mostly tied up in oil fields in the south). Still, given Iraq’s fragile peace, and its urgent need for gas for domestic consumption, it is unlikely that any Iraqi gas will be reaching Nabucco soon.
Egyptian gas, via the Arab Gas Pipeline, is also a good bet, but the export volumes currently planned for this pipeline (2 billion m3/year by 2013) will have to be substantially increased to make a difference for Nabucco. That, too, will take time.
Of late, Qatari gas has also been mentioned in the Turkish media as a potential source for Nabucco. But at the moment this is a mere fantasy. The logical choice for exporting Qatari gas to Turkey, as well as to Europe, is via LNG.
The fact that no gas supply agreements have been concluded with producers will render financing of Nabucco problematic. Creditors will want to have some assurance to safeguard their investment. Even with the backing of the European Union and the United States, a pipeline with no assurance of throughput is sure to raise eyebrows in credit circles.
Another issue that may dampen creditors’ interest in Nabucco is a recent study by Cambridge Energy Research Associates that suggests that gas consumption in the EU could drop by 16% by 2020 and 35% by 2030.
The IGA does not oblige any of the participating countries to finance the Nabucco project or to accept financial liability in regard to the project, but some kind of host-country guarantee may eventually be needed. In any case, the 2011 construction start date and the 2014 first-gas target for the Nabucco project appear unrealistic.
An unfulfilled promise for Turkey
Notwithstanding the high-flying comments made by Turkish Prime Minister Recep Tayyip Erdoğan at the signing ceremony of the IGA, Nabucco is somewhat of a disappointment for Turkey.
A Nabucco-type project, enabling Turkey to be an east-west energy corridor, had long been a strategic vision for Turkey. The Baku-Tbilisi-Ceyhan (BTC) pipeline, bringing Azeri crude oil to Turkey’s Mediterranean coast, partially fulfilled this aspiration.
Next, would be a similar pipeline for natural gas. Gas imported from the Caspian region and the Middle East would meet Turkey’s gas needs, enable Turkey to engage in local and regional gas trade, and funnel excess gas to Europe via an east-west pipeline. This would enhance Turkey’s strategic role in the region, promote a vibrant domestic gas sector in the trade and flow of gas, and bring attendant economic benefits.
This was the long-held vision, written, re-written, and lectured about. Turkey was seen as the driver in the purchase, re-sale and transport of gas.
The Nabucco project does not fully fulfill this promise. Although the project raises Turkey’s strategic importance as an energy corridor, it reduces Turkey’s role to that of a passive transit country. Turkey’s ability to control the flow of gas across its territory, to secure its gas supply, and engage in gas trade, while still possible and expected, will be considerably curtailed by the project.
Nabucco is essentially an EU gas transport project, designed primarily to serve the EU’s interests by diversifying gas supply sources and routes. Meeting Turkey’s domestic gas needs and creating conditions favorable for local and regional gas trade will be incidental to the main goal. The enterprise will be managed from Vienna, with Turkey having a minor say in corporate decision making.
Surely, by geographic necessity, the pipeline’s major section and operations (60%) will be in Turkey, but this does not translate to Turkey being in the driver’s seat. Most significant, the eventuality of Turkey being a regional energy hub vis-à-vis gas trade with Europe has been largely relinquished to Baumgarten. (Admittedly, Turkey’s existing gas storage capacity, being highly limited, is a disadvantage in this respect).
Economically, gas trade is generally far more profitable than engaging in gas transport. It also gives greater leverage to the host country to deliver gas at competitive prices to its consumers.
The issue of gas supply
Before the signing of the IGA, there were widespread media reports that Turkey had initially demanded to reserve (at netback price) 15% of the pipeline’s throughput for its own needs, and that this demand had been rejected by the consortium. Considering the scope of the IGA, however – unless the original scope was different – this seems to have been pure speculation. For within the context of the IGA, such a request is meaningless.
Although Turkey’s Energy Minister Taner Yıldız has stated in the press that each of the transit countries hosting the Nabucco pipeline has the right to take 50% of the throughput for its own need, and that this is “even better than the 15% provision,” there is no such provision in the IGA.
Regarding gas supply security, a nebulous “reverse flow” clause was included in the IGA, evidently at the last minute to mollify Turkey. A “reverse flow” contingency does not yet exist even within the EU, and a proposal to this effect was introduced in July by the European Council. The member states will give their opinions by the end of September 2010. Whether the proposal will be accepted (many EU countries are reluctant to cede control of their energy supply), and how it will function, is unclear. Even if the proposal gets a green light, there will certainly be restrictions and extra cost.
“Reverse flow” is an emergency provision Turkey should not rely on for its domestic gas needs.
In fact, Nabucco is not a project about gas supply at all. The IGA contains no provision as to gas supply. It is solely about financing, construction and operation of a pipeline. Purchase and supply of gas from producer countries is left to others, i.e., third-party enterprises of Turkish or foreign origin.
Stiff competition
Turkish companies, i.e., BOTAŞ, but also private-sector players such as Koç Group, Sabancı Group, Zorlu Group, will no doubt want to conclude gas purchase agreements with the suppliers and engage in local and regional gas trade. But the extent to which they will compete in such efforts with EU-backed companies that will enter the race, is a question mark.
Interestingly, in bidding for 50% of the transport capacity reserved for the partners in Turkey, BOTAŞ will also compete with the other partners. Until recently, BOTAŞ held virtual monopoly in Turkey in purchase, import and transport of gas.
One EU-backed company, the Caspian Development Corporation, created by the European Commission, is actively pursuing Turkmen gas for the Nabucco project. Another, the German firm RWE, has recently secured an upstream project offshore Turkmenistan, evidently with an eye to prove up new gas reserves for Nabucco.
Eventually, Turkish firms may find the competition less daunting if they team up with foreign firms.
State coffers, and more
According to the IGA, Turkey will not be able to impose transit fees or levy corporate income tax of its own as regards Nabucco. Instead, Turkey will receive “tax” revenues (similar to royalty) as determined by a separate agreement among the partners.
It is estimated that Turkey’s “tax” entitlement, out of a total 7.8 billion Euros, would be 4.2 billion Euros. This is a nominal amount to be received over 25 years. Because most of the revenues would be generated in later years, and assuming 3% annual inflation for the Euro, in present value terms this would correspond to approximately 2 billion Euros.
The tendering procedures the NIC will follow in capacity trade and its tariff methodology will be exempt from the regulatory jurisdiction of Turkey’s Energy Market Regulatory Authority (EMRA). (In both respects, the NIC has received exemption from the regulatory directives of the EU). Turkey will also help the NIC to acquire land rights in Turkey.
These are concessions rarely, if at all, accorded to companies, native or foreign, in Turkey.
Finally, considering Turkey’s Gas Market Law no. 4646, it is difficult to see how BOTAŞ would function as envisioned in the IGA. New legislation will be required to overcome the difficulty.
The euphoria expressed in the media, and in circles close to the government in Turkey, after the signing of the Nabucco IGA is overblown. Nabucco is primarily a project to serve the EU’s interests. It will allow the EU to reduce its dependence on Russian gas through direct access to the hydrocarbon (gas) resources to the east and southeast of Turkey. The enterprise (NIC) running the project will be directed from Vienna and have a privileged status in Turkey.
Although the project enhances Turkey’s strategic role in the region, in many respects it does not fulfill the promise such a project was originally conceived to deliver. In particular, Turkey will have a limited role in controlling the transport of gas in its territory, in securing its gas supply, and in engaging in gas trade. Considering its geographic location, Turkey had better alternatives.
There is little doubt that Turkey’s AKP government, eager to endear itself with the EU, decided to endorse Nabucco in its present form to advance its political agenda. But in return for what?
All the while the EU will continue keeping Turkey “safely” out of the Union for the foreseeable future. Even opening the energy chapter for Turkey’s accession negotiations is stalled indefinitely.
Turkey’s energy strategists have a long way to go to master their trade. Political cronyism unfortunately does not always advance the cause of national interests.
Ferruh Demirmen, Ph.D., is an independent oil and gas expert. He may be contacted at ferruh@demirmen.com.
October 18, 2009