US Denies Loan for Baku Ceyhan Pipeline

ANKARA (Reuters)–American officials on Wednesday denied a Turkish minister’s claim to a $827 million US-supported loan to finance a Turk-backed plan for a pipeline transporting Caspian oil reserves to a Mediterranean port.

They say Turkey will be given only a $823,000 grant for consulting services.

"The US Eximbank (Export-Import Bank)–TDA (Trade and Development Agency) and OPIC (Overseas Private Investment Corporation) will provide a $827 million loan to finance the project," Turkey’s economy minister Isin Celebi said earlier after a meeting with a senior State Department official.

But officials from the US delegation told Reuters there had been a misunderstanding–and that the amount would be $823,000 in rent–not credit–for consulting services to be provided by the US TDA.

The officials also said that US Eximbank and OPIC would support the Baku-Ceyhan pipeline if it is approved.

International oil companies preparing to recommend a new pipeline route for exports from Azerbaijan have all but ruled out an expensive option favored by the United States for a route through Turkey–industry sources familiar with the project said on Wednesday.

The pipeline from Azerbaijan to Turkey’s Mediterranean outlet Ceyhan looked extremely unlikely to get the companies’ vote despite pressure from the governmen’s of Azerbaijan–Turkey and the United States–the industry sources said.

Instead–said the sources–the consortium of companies were leaning heavily towards recommending building a cheaper line to the Georgian Black Sea port of Supsa.

The Azerbaijan International Operating Consortium developing oil fields in the Azeri sector of the landlocked Caspian Sea expects to make a recommendation by end-October to the Azeri government for its main export pipeline route.

The recommendation was likely to be made in such a way as not to offend Azerbaijan or Turkey and would probably not exclude latter extending the line to Ceyhan once it became economically viable–the industry sources said.

The government in Baku–which has repeatedly voiced support for the route to Ceyhan–has the final say in the matter but is expected to implement AIOC’s recommendations because the consortium is the only available financier.

A spokeswoman for AIOC would not comment on which route the consortium favored but added that a draft recommendation would be with the Azeris by the end of the month.

British Petroleum and Amoco Corp.–soon to be merged–hold the largest shares in AIOC which combines 12 companies including state Azeri SOCAR.

Baku to Ceyhan is the longest–and most expensive–of three possible routes to deliver Caspian crude to world markets.

The others are through Georgia to Supsa–and to Russia’s main Black Sea oil port of Novorossiisk. There is already a pipeline carrying relatively small volumes of "early" oil to Novorossiisk–and a small line to Supsa is now under construction.

The cost of the Ceyhan route could not be justified given current knowledge of the Caspian Sea’s reserve base–industry sources said.

They said original reserve estimates provided by the US State department were vastly overstated.

Recent drilling results proved disappointing–and there was not enough oil definitely in place to justify the $4 billion cost of Baku-Ceyhan.

Instead–they said–members of the consortium were leaning heavily toward the Supsa option–justified by the reserve base currently proven in Azeri Caspian oil fields.

A Supsa line would pass close to the Turkish border–and could be extended to Ceyhan in future if reserves and the oil price justified it.

Any pipeline would have to be financed by the private sector–in effect by AIOC–the only party which could provide guaranteed throughput for the line. Even third-party financing would have to be repaid by AIOC in the form of tariffs.

Despite US pressure to run the line to Ceyhan–any direct US government funding would appear politically unacceptable.

There had been suggestions that AIOC might make its recommendation on October 29–but the AIOC spokeswoman’said this date was not on its agenda.

Turkey has campaigned for the pipeline arguing that its narrow Bosphorus and Dardanelles straits cannot support the additional tanker traffic.

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