BTC PIPELINE HAS BEEN CONSTRUCTED FOR 90%

What is your estimation of the power realization intensity of transport bridge Azerbaijan - Georgia -Turkey (East - Western)?

- As you aware that the idea of creation of the power transport bridge the East - West arisen after signing of "Contract of the century" - of development project of the block "Azeri" - "Chirag" - "Guneshli" (ACG) fields of the Caspian sea, taking place at Azerbaijan sector. The route choice power bridge of the east - west preceded the consideration of several probable variants of oil export from Azerbaijan with final terminals in Georgia (Baku - Supsa), Russia (Baku - Novorossiysk), Turkey (Baku - Tbilisi-Ceyhan).

The analysis shown that Baku - Supsa and Baku - Novorossiysk routes were cha- racterized by lower capital expenses, nevertheless demanded the further transportation from the Black sea that in turn, assumed the decision of a transportation question of oil through the straits Bosphorus and Dardanel or search of variants of construction around straits. One of more important question was the question of regional production in the countries of the Caspian region and probable opportunities of the countries - consumers of crude oil.

The complex of the investigated political, technical, commercial and ecological criteria of various variants of Azerbaijan oil transportation route to the world market was resulted in unequivocal choice of the power bridge of Baku - Tbilisi-Ceyhan (BTC).

For today on the base of realization of the project was fulfilled of 90 % of works. At the end of December 2004 will be completed the construction of the Azerbaijan site of an oil pipeline, on February 2005 Georgian site will be ready. In Turkey the contractors promise to complete the construction by the end of March, but we accepting their assurances nevertheless do not exclude, that the works can be delayed for a month. So, we expect the completion of works at the Turkish site of the pipeline by the middle of May 2005. The current diagram will not affect to the terms of filling of BTC pipeline by oil, which is expected from "Azeri" field at the beginning of 2005. On January 2005 we shall get the first oil from the platform "Central Azeri". Approximately three weeks is necessary for oil achieved to the coastal Sangachal terminal, then it is necessary to fill it to tanks. Further 1,5 months are necessary for filling of the pipeline to Azerbaijan-Georgian border, even one month - for filling of the Georgian site and 2-2,5 months - of the Turkish site. For oil getting from Baku to the terminal locates in Ceyhan is necessary 5 months. So, we think that at the third quarter the first tanker with Azerbaijan oil will leave the terminal in the Ceyhan and will put the beginning of work of the power bridge of Azerbaijan - Georgia - Turkey.

What is the prospects of signing of the intergovernmental agreement by transit through Azerbaijan territory of Kazakhstan oil with taking into account of 15% individual share in the pipeline company BTC Co. of the companies working in Kazakhstan (on "Kashagan" field)?

- Kazakhstan purposefully studies the opportunities of hydrocarbon export to the European and Asian markets, among which there are besides BTC project such projects as "Western Kazakhstan - China" and "Kazakhstan - Turkmenistan - Iran". However route to Aktau-Baku and further to Turkish port Ceyhan for a long time is re- cognized by Kazakhstan as one of most perspective. The government of Kazakhstan, alongside with rendering of support to BTC project appealed to government of Azerbaijan with the request for joint to the current project.

Kazakhstan has begun the realization of economic researches and technical aspects of Aktau - BTC route, in parallel fulfilling and legal questions. On results of the carried out advices of the party have generated working groups on development of variants of the intergovernmental agreement between Kazakhstan and Azerbaijan and transit agreement concluded between the state-participant of the project and the oil companies.

We are ready to discuss with Kazakhstan the project of the intergovernmental agreement. The negotiation on this agreement goes normally, there are questions, which is discussed. Basically, as soon as Kazakhstan will declare, that this agreement is necessary for them - we shall sign it.

The intergovernmental agreement is almost ready, there is necessary to coordinate only 1-2 items in this agreement. "In particular, the matter in the privileges, privileges of any parties, though we against it. Second is ratification of the agreement in parliament. It is very important for some companies, so as they would like to get guarantees and reliance. Kazakhstan says that there was no such kind of precedent and if he is then it would be the result that all contracts will have to be ratified.

To show the haste in a matter of documents signing it is not desirable, there is a time to the beginning of the Kazakhstan oil priming via BTC. Besides the transit system construction of oil to Aktau-Baku demands not only the acceptance of laws, preparation of tax, fiscal systems, but also adjustment of fleet system, terminals, banker's discount of oil quality. "It is the very difficult system, which is discussed and solved. He noted, that while Kazakhstan oil decides trans-ship through BTC the parties will have a time to prepare the legal documents, legal base for the investments for both in Azerbaijan and Kazakhstan.

It is necessary also to coordinate a number of questions concerning the taxation and obligations of governments of the parties - participants. We would like to establish the equal rights and obligations. Our purpose - to develop the agreements so that Kazakhstan has received not only right of transportation, but also would feel the responsibility before other participants of the project.

Azerbaijan and Kazakhstan have coordinated the basic conditions of transportation of the Kazakhstan oil via the pipeline BTC, and also basic legal aspects of the prepared agreements. The agreement on transportation of the Kazakhstan oil on the pipeline BTC should be signed between Azerbaijan, Kazakhstan and Georgia.

Speaking about transportation of the Kazakhstan oil through Azerbaijan, we would like to priority would become Baku - Tbilisi-Ceyhan direction, instead of right of use of all existing directions (Baku - Supsa or Baku - Novorossiysk). I should note, that the fundamental situation both of whole coincides. It is necessary to discuss questions connected to the existing legislation of Kazakhstan, particularly, as far as it meets the requirements the intergovernmental agreement.

Under the statements of the representatives of Kazakhstan companies, in 2010 they are able BTC direct to 500 mpbd of oil.

In Baku at the present time there is already a competition for creation of system on reception of the Kazakhstan petroleum. In particular, the company Middle East Petroleum, being the operator Dubendi terminal, offers to adjust receipt of oil to BTC through this terminal. The same system wants to adjust the company AzPetrol on the terminal in Sangachal and negotiates with the company BTC Co (operator on construction and operation of the pipeline) on reception of access to a pipe.

I shall note, that for management of system to Aktau - Baku the special company should be created, which basic investors become the foreign companies ENI, ConocoPhillips, Inpex and Total, working both in Kazakhstan, and in Azerbaijan. The general actions of these companies in the project of development of "Kashagan" field (Kazakhstan sector of Caspian Sea) make 59 %, and pipeline company BTC Co. (15 % is engaged by construction of BTC pipeline) - 15%.

At the first stage is planned the construction transshipment system of transport system to Aktau-Baku, including new terminal in port Kurik (former Yeraliyeva) with pipelines, will ensure the transportation of 7,5 mln. tons of oil, with finishing subsequently up to project capacity 20 mln. tons of oil per one year.

By the plan and budget of development of a field "Kashagan", authorized on February 2004, the beginning of commercial production of a northeast part of a deposit is supposed in 2007-08 that will allow Kazakhstan to extract from this field 21 mln. tons of oil in 2010. In the further expansion of east site of field will allow to increase the oil production in 2013 up to 42 mln. tons per one year. A maximum level of oil production on "Kashagan" makes 56 mln. tons per one year is planned to reach in 2016.

At the present time there is not the official agreement on transportation of the Kazakhstan oil from "Kashagan" field via BTC pipeline. While the Kazakhstan oil is transported up to Azerbaijan port Dubend by tankers.

Whether will be reflected in terms of rea- lization of BTC project some rise in price, and backlog of construction on its Turkish site?

- The total sum of the project made $ 3,6 bln., the reserve totally $ 200 mln was included in it., payment of oil cost necessary for filling of the pipeline, and other charges. Now we predict that the charges under the project will increase by $300-350 mln, but we enclose to the project a reserve of other charges and we predict that cost of the project can increase up to $ 4 bn. It only the general forecast, how many will be spent actually, it will be possible to tell only after complete of all works.

The rise in price of construction of the basic export pipeline Baku - Tbilisi-Ceyhan, first of all, is caused by delays, which have arisen because of the unreasonable claims of non-governmental organizations to safety BTC. Each day of BTC construction manages at $ 2 mln. "And on trials with OP was spent a lot of time. The special report was prepared in 1 thousand pages for bank creditors. It was necessary to employ in addition advisers there were even proceedings. Thus, work on elimination of the unreasonable claims has done without very dearly. Besides the passions were warmed up, that like were incorrectly given out indemnifications for the ground areas under a line of the pipeline, or worker on construction unreasonably underestimated the salary. All this resulted in separate areas in strikes, in promotion of the various requirements and as a whole has resulted to a delay of construction approx. 15 days", - noted N. Aliyev.

In connection with increase of cost of the civil-engineering project of Baku - Tbilisi-Ceyhan (BTC) pipeline the additional expenses of its shareholders will be made more than $ 120 mln. As well as project, its any rise in price will be financed under the scheme 30 % (own facilities of the companies - participants of the project) on 70 % (credit resources). "When we signed the credit agreement, we expected, that will be spent to the project of $ 2,4 bln. Proceeds of credit and about of $ 200 mln. remained as a reserve, as "pillows of safety" on a case of probable cost growth of the project. If we use these $ 200 of a mln., shareholders of the project should enclose about $ 120 of a mln.

The facilities volume of SOCAR stipulated to share financing, of Azerbaijan in the BTC project in 2005 will make 105 bln. manats ($ 21 mln.), as at government has 17,5 %. Accordingly, to SOCAR share will come of $ 9 mln. Since beginning of BTC construction for financing of Azerbaijan share was spent totally $ 260 mln.

The rise in price of the project is observed in all three countries - Turkey, Azerbaijan and Georgia. One of the reasons it, considers the chapter a SOCAR, - tendency of increase of the prices in the world market. Cost of a labour, electric power and fuel has increased.

N. Aliyev in this connection has reminded that there is an agreement between Azerbaijan and Turkey on BTC construction. "Turkish site, as is known, is appreciated at $ 2,4 bln. The exchequer of Turkey has taken the obligation, that if this sum is exceeded Turkey will be ready to compensate of 250 mln. Besides if the construction is not completed in time, BOTAS (the contractor of construction of a Turkish site) will provide the payment for each delayed day BTC Co of $ 500 thousand. But now for the sake of the project we wouldn't like to discuss about these questions", - declared N. Aliyev.

However, according to Aliyev's words in Turkey of work at tubing BTC stations will not be completely completed to ending of pipeline construction so, the temporary circuit prepares according to which the pumps and compressors will be established for reception of the first oil, and then the works at stations will be continued. In opinion of SOCAR chapter, the first tanker loaded with Azerbaijan oil will leave Ceyhan port on June, 2005.

After completion of construction of the pipeline "Baku - Tbilisi - Ceyhan" for filling by oil is required 4 mln. bbl of crude petroleum. The loading of the pipeline will be carried out at the expense of 11 mln. tons of petroleum, which will be extracted the next year from a deposit "Azeri" - "Chirag" - "Guneshli".

The largest bank of Italy Banca Intesa, invested of $ 60 mln. to construction project of BTC oil pipeline sold a part of the share in financing and negotiates for sale of the rest?

- Among the major creditors are European bank of reconstruction and development, International financial corporation, Japanese bank of the international cooperation, syndicates of commercial banks and oil companies. In the organization by financing of BTC project participated following banks ABN AMRO, Citibank, Mizuho and Societe Generale, Banca Intesa, BNP Paribas, Credit Agricole Indosuez, Dexia, HypoVereinsbank, ING, KBC, Natexis Banques Populaires, San Paolo IMI, West LB, Royal Bank of Scotland.

I guess that the left of Banca Intesa from the BTC project financing will not influence to its realization. "If they sold their share than they decided so. We should not interfere in their matter. We signed the credit arrangements with European Bank of Development and Reconstruction and International Financing Corporation, also there are 15 commercial banks, and the left of this bank from the project will not influence to it.

Whether will join ExxonMobil and other partners of ACG to BTC project?

- Exxon Mobile concluded the contract with the Azerbaijan company Azpetrol, providing during 5 years the transportation of 10 mln. tons of oil from "ACG" by railway through Georgia.

The current decision of the company that ExxonMobil has not achieved an arrangement with BTC Co (operator on construction and operation of BTC oil pipeline) under the tariffs to oil priming via of this pipeline. "It is connected that ExxonMobil within negotiation with BTC Co., has not reached desirable result under the tariffs, which have offered it. Nevertheless, the negotiation with BTC Co proceeds. I would like to ExxonMobil joint to BTC Co.

Presumably, average tariffs for oil priming through BTC pipeline will make $ 3,3 - $ 3,5 per one bbl. But these tariffs will effect only for the companies, which took part in the construction of the pipeline and have jointed to BTC Co. For the same companies, which subsequently want to oil transport via BTC, will be established the higher tariffs.

During formation of BTC Co. pipeline company from all shareholders of development project of the contract pulley "Azeri - Chirag - Guneshli" becoming the participants of the project BTC, only ExxonMobil alongside with Devon Energy has refused enter to its structure and thereby to become one of the shareholders of this project. So, the company has lost an opportunity to receive the reduced rate to oil priming through the BTC, stipulated only for the participants of the project (on the average hardly more than $ 3 per one bbl). For all other companies wishing to oil transportation by this oil pipeline will be established higher tariffs.

US company Devon Energy is owner 5,6 % in the project of development of offshore Azeri-Chirag-Guneshli fields, is to pump its oil via Baku-Tbilisi-Ceyhan pipeline, claimed State Oil Company of Azerbaijan (SOCAR) president Natig Aliyev. He said only one ACG project partner, ExxonMobil, declined from its oil transit via BTC pipe. But Devon, not being a partner in BTC Co. Pipeline Company, will accede to the project as a shipper.

On which level are the matters with financing of SOCAR share in the project "Shah Deniz"?

- We defined the scheme of financing of 10 % share in the project of offshore development "Shah Deniz" field. SOCAR has achieved the agreement with the European bank of reconstruction and development about attraction of the credit at a rate of $ 170 mln. to realization of this project. The rest volume of facilities SOCAR will finance due to its own facilities. Is supposed that $ 60 mln. of EBRD's credit facilities will be transferred for the construction of Baku - Tbilisi - Erzurum pipeline and $ 110 mln. to financing of SOCAR share in the development of "Shah-Deniz" field. In 2003 SOCAR has directed to financing of its own share in the project approx. $ 40 mln. from the facilities of special accounts.

In 2004 we expect the receipts to this fund in volume of $ 41 mln. Though in view of the current prices for oil they can be more. We spend these facilities for payment of share part in the project "Shah-Deniz", - told SOCAR chapter. In case of necessity EBRD can allocate the sum above stipulated. We asked of $ 170 mln., but if there is a necessity, the bank will be able to enlarge of financing.

ExxonMobil has the obligation to drill onto the "Zafar" - "Mashal" one more well, and one more onto the Nakhchivan?..

I would like to note that the well onto the "Zafar-Mashal" was empty. At present Exxon Mobile interprets the results of wells' drilling, seismic, etc is continued the same work on the contract areas.

"ExxonMobil expenses to drilling of a well onto the "Zafar" - "Mashal" structure made $ 150 mln. It is the most expensive well in the Caspian Sea. To his opinion in view of the too large charges suffered by the company to drilling of this well, because of the well has not revealed hydrocarbon reserves in result it was failure, and ExxonMobil will not agree to drill the second prospecting well onto the same area stipulated on its contract obligations. SOCAR chapter noted, that in default from the further prospecting drilling ExxonMobil should pay a SOCAR the appropriate indemnification.

ExxonMobil company interprets the data on "Nakhchivan" structure. Our represented advises to them will result the company begin to drill there one more prospecting well. As he said, the agreement with ExxonMobil is constructed so that "we lose nothing". "If the company not to drill we do not receive the information abut the well, but we receive money. But we are able to drill a well and receive the information, but we will lose money, which they had to pay. Therefore agreement, which we signed, protects interests of the owner bosom.

I don't think so, because on all parameters, which at us are and under that tendency in the world (high cost oil bbl.), today any deposit represents commercial interest. We shall continue negotiation. The agreement is constructed in such a manner that Azerbaijan nothing loses. If we lose the information, in default from drilling, we receive means at a rate of cost of this chink. But well's drilled we shall lose money, but we shall receive the large information. Therefore I think that agreement, which we signed, is especial about the prospecting period, corresponds(meets) and protects interests of the owner bosom, in this case states. Wants ExxonMobil, let to drill a well, we give them one more chance to open a deposit, does not want - should execute the obligations under indemnification that it not to give to us of the geological information, which was made in the agreement.

What is SOCAR's financial position?

- Financial condition of State Oil Company (SOCAR) can worsen because of cancellation of indirect subsidies, SCAR president Natig Aliyev thinks. The system of mutual settlements introduced last year allowed to reduce substantially SOCAR's debts to State Budget, accumulated for many years. Subsidies allocated by State Budget to three state-run organizations - Azerenerji (power), Azerigaz (gas) and Azerkimya (chemistry) were transferred to SOCAR for supplied oil, gas and electric power (purchased in Russia). At their expense SOCAR settled its oil debts before State Budget. As a result, N. Aliyev said, by the end of this year SOCAR will almost get rid of them.

"The proposals for refusal from indirect subsidizing include that next year all large recipients of SOCAR products will pay for them. But I doubt that as the situation can repeat and SOCAR can be eras in old unwrapped debts," he claimed. He added the matter is under discussion with the government.

"Since 2005 of grant for joint-stock company "Azerigaz" are not stipulated. Means that they should complete the settle with us for natural gas supplied. However in reality it won't so, if they could pay then they would pay now", - said N. Aliyev. As he said, in case of not payment of "Azerigaz" for the supplied natural gas the financial situation of SOCAR again will be worse.