US Envoys Push Interest in Caspian But Warn of Risks

NEW YORK (Reuters)–American ambassadors from six Caspian countries on Tuesday urged US companies to weigh $9 billion of mostly energy projects available there–but warned of the political risks in the oil-rich region.

The diplomats were in New York on the second of a three-leg tour to promote US investment in the Caspian–a key element in Washington’s foreign policy aim of bringing the republics into the Western fold.

The ambassadors from Azerbaijan–Armenia–Kazakhstan–Turkmen’stan–Uzbekistan and Georgia are on a unique "roadshow," taking in New Orleans–New York and Washington–to lay out for US businesses the opportunities in those countries.

But the diplomats–speaking at an international power conference in New York–said regional conflicts would have to be solved before large-scale foreign capital could be attracted to the region.

"Without durable security and stability in the region–it is going to be a challenge to attract the tens of billions of dollars of investment capital for the Caucasus to reach its full potential," US Ambassador to Armenia Michael Lemmon said.

Regional economic integration was necessary–Lemmon said–adding: "Individually–none of the Caucasus countries is large enough in itself as a market to offer the economies of scale that normally make major industrial investment attractive."

While lauding economic reforms by countries like Armenia and Azerbaijan–the envoys also pointed out other risks–such as the lack of sanctity of agreemen’s–weak banking systems–lack of currency convertibility and low transparency.

"As with all the former Soviet Union–corruption both official and unofficial is a major deterrent to foreign investment," said Kenneth Yelowitz–US ambassador to Georgia.

"There is significant risk in investing in Kazakhstan–but there’s also undeniable potential," said Richard Jones–Washington’s ambassador in Kazakhstan.

The US Trade and Development Agency–a federal agency sponsoring the tour–said in a study that the economic outlook for the Caspian nations had shifted for the worse last year due partly to falling oil and commodity prices and to Russia’s financial crisis.

The shocks were magnified by poor economic management and by legal and institutional structures unable to cope with them–the study said–adding–the immediate challenge will be to regain macro-economic stability and re-ignite economic reform.

Recent consolidation in the oil industry has reduced the Caspian’s attractiveness while some disappointing early oil exploration results have prompted companies to either pull out or reevaluate their strategies for the region–it added.

But as international oil prices firm–the prospect of developing the "potentially enormous hydrocarbon reserves" in the region again becomes very attractive–the report also said.

The US Department of Energy–one of the conference sponsors–puts Caspian proven oil reserves at up to 32 billion barrels–exceeding those of the US or the North Sea. It said possible reserves were nearly five times this amount.

International firms expressing faith in that potential have signed multi-billion-dollar exploration deals. Three US firms recently signed $10 billion of agreemen’s with the Azerbaijan government.

US firms could also be looking at stakes of up to $2.1 billion in the Transcaspian natural gas pipeline from Turkmen’stan to Turkey and between $400 million and $2 billion in the main export oil pipeline from Baku to the Turkish port of Ceyhan.

Other projects included over $2 billion in the power sector–nearly $1 billion in transportation. There were also related opportunities in the telecommunications–agriculture–tourism–utilities–environment and health sectors.

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