Russia fights for pipeline deal

PHIL REEVES

Moscow

A consortium of international oil giants helping to develop Azerbaijan's huge Caspian Sea reserves will today announce how the first flow of oil will be conveyed to Western markets, closing the first chapter in a bartering process that has revived some of the frostier emotions of the Cold War.

Meeting in the Azeri capital of Baku, the Azerbaijan International Operating Company (AIOC), which includes British Petroleum, is widely expected to reveal that it will use two pipelines - a compromise solution which will do little to ease the international tensions that have built up around what is widely billed as the "deal of the century".

The future of Azerbaijan's huge oil reserves, which some observers believe could turn the former Soviet republic into another Kuwait, is an issue in which money and politics are both at stake on a grand scale. The Russians have long lobbied for the oil - from three fields capable of eventually yielding 700,000 barrels a day - to be pumped across their territory from Baku to the Black Sea port of Novorossiysk through a pipeline system which is largely in place.

This would supply Moscow with many millions of dollars of much-needed tariffs, although Russia has offered discounts in an effort to get the contract. Far more importantly, it would allow the Kremlin both to reassert influence over its former territory and exert control over what may become one of the most important oil supply lines to the West.

Russian leaders play down concerns over the fact that the pipeline runs through Chechnya, although it helps explain Moscow's speedy move to crush the breakaway republic's bid for independence.

The Americans and the Turks feel equally strongly about the issue. They have pressed hard for the consortium, which is investing $8bn (pounds 5bn) in the project, to include a southern route, thus ensuring that Azerbaijan does not again fall under Russian dominance. Washington, in particular, does not want to see the Russians use their pipeline as a bargaining chip in other strategic wrangles.

At the end of last week, reliable leaks emerged confirming the consortium's compromise. "Early oil" would be split between the Russian route - which would get about 2.5 million barrels a year - and a pipeline to Supsa in Georgia, from where the oil would go on to northern Turkish ports.

The Russians were not pleased. "We are disappointed at the apparent level of US influence over the decision," said a spokesman for the Caspian Pipeline Project, a three-nation conglomerate which is building onto the Russian pipeline system.

The negotiating process has been fraught with behind-the-scenes politicking. Haydar Aliyev, president of Azerbaijan, has a poor human rights record and a doubtful curriculum vitae, which includes membership of the Soviet Politburo under Leonid Brezhnev and a stint as a senior KGB officer.

Yet last week the elderly president - whose state oil company, Socar, has a 10 per cent stake in the consortium - found himself playing Juliet to several of the most powerful Romeos on the planet.

President Bill Clinton spent 35 minutes talking to him by telephone from Washington. A Russian delegation arrived with a long list of helpful proposals, including assistance with a metro system, health care and cross border co-operation - a marked change from their attitude last December when Russia closed its border with Azerbaijan, claiming it was a possible arms route for Chechen rebels.

Nor have the Georgians sat quietly by. They, too, have been pushing their case hard - so much so that some within the country believe the Russians, angered by the rivalry, may have been behind one of the more sinister episodes in the former Soviet republic's recent history - the attempted assassination of their leader, Eduard Shevardnadze, on 29 August. The Georgian Prosecutor-General has issued a warrant for the arrest of Georgia's former head of security, Igor Giorgadze, a former KGB officer who was widely believed to be a puppet of Moscow.

Last week a delegation of senior Georgian officials were in the Russian capital, where they say Mr Giorgadze is in hiding, in an effort to publicise his alleged crime.

Although they have yet to produce hard evidence, they believe it is possible that the assassination attempt was a Russian-inspired warning shot intended to deter Mr Shevardnadze from pushing too enthusiastically for the pipeline.

"It is one theory that we cannot discount," according to a source close to the Georgian government.