Azerbaijan and Turkey: Back to the Drawing Board on TANAP Pipeline?

The final ownership agreement of the $6 billion Trans-Anatolian Pipeline (TANAP) has been put on hold as Turkey and Azerbaijan continue wrangling over who gets what. Currently SOCAR would hold an 80-percent stake in the project, and the two Turkish state-owned companies -- BOTAS (Petroleum Pipeline Corporation) and TPAO (Turkish Petroleum Corporation) -- 10-percent stakes each. 

Azerbaijan and Turkey are showing that even for the closest of strategic allies it’s not always smooth sailing. And it’s not especially a surprise that energy issues are what’s causing the two cultural cousins to bicker.

Few bilateral relationships have been closer during past two decades than Azerbaijan’s and Turkey’s, with strong linguistic and cultral ties acting like diplomatic super glue. But the bond has weakened in recent weeks, amid wrangling over a lucrative energy export arrangement to transport Azerbaijani gas westward.

Last December, the two countries signed a memorandum of understanding to construct a $6-billion pipeline, known as TANAP, to carry gas from Azerbaijan’s Shah Deniz-II field via Georgia to Turkey and on to Europe. Under the original pipeline plan, Azerbaijan’s State Oil Company of the Azerbaijani Republic (SOCAR) would hold an 80-percent stake, and two Turkish state-owned companies BOTAŞ  and TPAO would have 10-percent stakes each.

The deal was expected to be finalized in late March. But without explanation the signing ceremony never occurred.

In an interview with EurasiaNet.org, a SOCAR official who is privy to the talks with Turkey shed light on the reason for the delay: Turkish entities, the official said, are seeking an equal stake with SOCAR in the TANAP project. "Under the current ownership structure, Azerbaijan will enjoy control over gas exports on Turkish territory, but Turkey does not agree with it," the source said.

It had already been reported that Turkey wanted to raise its stake in TANAP, but analysts assumed that Azerbaijani and Turkish officials would reach an agreement without too much difficulty. But the revelation that talks are now revolving about a 50-50 relationship raises the possibility, however small, that the deal might not get done.

Contradictory statements from Azerbaijani officials indicate that Baku is still wrestling with the issue. Industry and Energy Minister Natig Aliyev told reporters on April 3 that "if the Turkish side has the necessary financial resources, we are not against an increase in their share” of TANAP.

But, the next day, SOCAR President Rovnag Abdullayev refuted that statement, saying that the division of TANAP shares has already been decided and “cannot be reconsidered.”

SOCAR officials may feel constrained because they plan to distribute parts of the company’s own 80-percent stake in TANAP to companies with gas drilling rights in Azerbaijan; namely, BP and Norway’s Statoil, which both have proposed to join the pipeline. "It is not only countries that want to become TANAP shareholders," news outlets reported Abdullayev as saying. Regardless of TANAP’s final ownership structure, SOCAR would insist on retaining control of the pipeline’s management, Abdullayev added.

Turkey’s motivation for wanting a last-minute revision of the ownership structure remain unclear. In recent weeks, though, Turkey has instituted a series of domestic energy price increases apparently designed to reduce the country’s energy imports. Increasing its stake in TANAP could be another compenent in that strategy.

The delay in finalizing TANAP could usher in a new round of infighting involving competing pipeline routes in the Caspian Basin.

Aside from TANAP, other bids to whisk Shah Deniz gas to European Union customers include: the Trans-Adriatic pipeline (Greece-Albania-Italy); Nabucco West (Turkey-Bulgaria-Romania-Hungary-Austria); and the South-Eastern Europe Pipeline (Bulgaria-Romania-Hungary-Croatia). SOCAR’s Abdullayev says that all ideas remain under consideration.

European Union representatives have made it clear that they are in a rush to open up a new energy delivery route. "We want long-term and uninterrupted functioning of the corridor, without any traffic jams and delays," Roland Kobia, head of a EU delegation to Baku, said during a March 6 press conference. TANAP, he reportedly added, is more of an idea than a detailed project.

Kobia’s comments suggest that the EU may still prefer the Nabucco West option, a downscaled version of a long-discussed export route that could cost as much as $10-billion to build, according to Baku-based energy expert Ilham Shaban.

Whereas companies from EU member states, as well as Turkey, would hold stakes in Nabucco, “in TANAP, Azerbaijan and Turkey would control the transit on Turkish territory, which would make Europeans dependent, and the EU is obviously not confident that gas supplies would be reliable," Shaban said.

Whatever pipeline eventually wins, Kobia warned that Baku should hurry to get it done. “It is time for Azerbaijan to take [a] decision,” he said. “Later, the window of opportunities could close.”

This article by Shahin Abbasov was originally published by EurasiaNet.org