NEW LIFE FOR AN OLD PROJECT

Problems with the implementation of major regional projects are inevitable - it is almost axiomatic. Even the super-successful Baku-Tbilisi-Ceyhan oil pipeline and the South Caucasus gas pipeline were questioned at some point and were regularly described as unprofitable, while difficulties in construction work resulted in increasing investment, which, in turn, combined with problems in finding credit resources etc. Perhaps, having experience of all these troubles, Azerbaijan, Georgia and Turkey have become less fussy about natural problems related to the Baku-Tbilisi-Kars (BTK) project, especially as the importance of this project, both politically and economically, increases with each passing day.

Warming in the cold

Despite constant speculation about Azerbaijan losing interest in this project, ostensibly because of a cooling in economic relations with Turkey, Baku continues to support the work, although a much smaller amount of money was allocated to it last year. For example, according to the State Oil Fund of the Azerbaijan Republic (SOFAR) in 2009, 22.1 million manats were allocated to finance the construction of the new Baku-Tbilisi-Kars railway. In accordance with long-term plans, the government had decided to allocate an additional 80 million manats for the construction of the Georgian section but, following a decree issued by Azerbaijani President Ilham Aliyev on 7 October 2009 on the restructuring of SOFAR's current budget, this amount was reduced to 30 million manats. In principle, it was this step that prompted some in the media to suggest that the attitude towards the project had changed due to a possible resumption of railway communication between the Armenian city of Gyumri and the Turkish city of Kars, which had been mothballed in the early 1990s.

However, Armenian-Turkish relations have enough political uncertainty, and any joint economic projects are unlikely in the near future. A completed railway line connecting Baku to Kars, conversely, could eliminate the need for Gyumri-Kars.

Anyway, since the beginning of 2010, a noticeable warming has been apparent in Baku's attitude towards BTK. President Ilham Aliyev said that this year the construction of the Baku-Tbilisi-Kars railway will continue and Azerbaijan will allocate the funds necessary for this purpose. "I think that enough funds have been provided to address the issue. If we see that the pace of construction is satisfactory and if there is a need for new funding, we can quickly increase the amount of funds," the head of state said at a cabinet meeting on the results of 2009. The president stressed that it is necessary to ensure that the project, which is important both for Azerbaijan and its neighbours, as well as for peace, continues without delay.

It must be noted that it was originally planned to complete BTK by the end of 2009, but then this date was postponed to 2011. Now the deadline has moved to 2012. The culprit in the delay in the construction of this strategically important route is Georgia. The parties involved expected that 2009 would see the construction of the 29.2-kilometre Marabda-Tetritskaro section and, by the end of 2010, Georgia would complete the reconstruction of several adjacent sections, a wheel changing centre, and service and maintenance centres on the border with Turkey. Another 160 km of Georgian railway, from Tbilisi to Akhalkalaki, are in need of renovation. By 2011, it is planned to complete the construction of a 68-km section from Kars to the Georgian border, in order for the two sections of the railway to be connected into a single corridor in the same year.

Money is no problem

Meanwhile, President Ilham Aliyev said that new circumstances had emerged during construction work. "Initially, it was planned to restore many sites, but later we came to the conclusion that they should be rebuilt," he said. "We know that most of the construction expenses are covered by Azerbaijan. Since we have started this project, we should not allow it to slow down. We should try to ensure the implementation of the project according to schedule," Aliyev said.

The thing is that the Azerbaijani side recently completed a study of the Baku-Tbilisi-Kars railway from the Georgian border to Kars. According to Azerbaijan's Deputy Minister of Transport, Musa Panahov, in contrast to studies in 2007-2008, the new results showed that the track in that sector is in very bad condition and it is impossible to carry cargo in previously specified quantities. "Therefore, rehabilitation work must be conducted more intensively. We plan to repair this 167-kilometre stretch of track thoroughly. Thus the project estimate will increase significantly," said the deputy minister.

In addition, one of the main stages in the construction of Baku-Tbilisi-Kars is the restoration of the station at Akhalkalaki, which is mainly used to change trains. "Railway standards in Azerbaijan and Georgia are very different from those in Turkey. For example, the width of the railway track here is 1,520 mm, while in Turkey it is 1,435 mm. Therefore, the station in Akhalkalaki will be used to replace wide gauge with narrow gauge," Panahov said, adding that, for the time being, construction work had been frozen due to bad weather.

Either way, the project budget for this year alone eventually amounted to about $100 million - this is the amount approved at the eighth meeting of the coordinating council (CC) of the project to open the BTK railway in Tbilisi. It should be remembered that the work on the Georgian sector is funded by a $200 million loan granted by the State Oil Fund of Azerbaijan over 25 years at an annual rate of 1 per cent (the SOFAR expenditure budget for 2010 also contains a point on the allocation of 80 million manats). The loan will be repaid by Georgia with money received from the exploitation of the railway. By the way, the total cost of construction of the corridor was originally estimated at $422 million, of which $202 million would be spent on construction of the Georgian section and $220 million on the Turkish section. Meanwhile, according to Azerbaijani Transport Minister Ziya Mammadov, "if additional amounts are required, we are ready to discuss this issue."

He noted that at the initial stage of the project some objective difficulties were identified, but now "everything is okay and it is going according to plan." "According to our calculations, the construction work will be completed in 2011 and in 2012 we will be able to travel to Europe by this railway," the minister said.

According to Georgia's Minister of Economic Development, Zurab Pololikashvili, currently, 30-35 per cent of the work on the Georgian section of the railway has been completed, while the remaining part will be completed within two years. "This railway corridor is very important for the development of the region and we are making every effort to implement this project," he said.

Politics or economics?

Here is our conclusion about all this: the BTK project has been given a new lease of life and the interest in its implementation is certainly higher today than it was before. This is happening against the background of a waning but ongoing global crisis and a slump in revenues in the transport sector.

Therefore, some experts tend to believe that the political factor has played a greater role than the economic one in revitalizing the project. First, as we have already said, BTK is another regional project that bypasses Armenia, and the fact that Turkey is more inclined to implement it than to restore railway communications with Armenia is remarkable against the backdrop of ongoing political upheavals.

It is no accident that Turkish Foreign Minister Ahmet Davutoglu recently described Baku-Tbilisi-Kars as one of the most important projects for the preservation of stability in Eurasia and worldwide. He said that in the past, economic and political ties between the countries of the continent were maintained through the Great Silk Road. Therefore, according to the Turkish minister, countries need to create a network of rail, land and sea communications.

On the other hand, the role of this branch is invaluable in meeting other strategic objectives on a regional scale, in particular the rapid and safe transit of cargo to Afghanistan. This issue was raised by Azerbaijan's Foreign Minister, Elmar Mammadyarov, at an international conference on Afghanistan in London, which was held on the initiative of the UK, the UN and Afghanistan. "Azerbaijan is making a significant contribution to cargo transportation to Afghanistan using the existing infrastructure, but the commissioning of the Baku-Tbilisi-Kars railway project will create opportunities for the fast and safe transit of cargo to Afghanistan," he said.

According to calculations made by experts in the pre-crisis period, after the opening of this transport corridor, the volume of cargo carried was planned to be at 6.5-7 million tonnes per year and passenger traffic volume at one million people. And we suppose that with a successful marketing approach, this task is quite plausible, especially as Kazakhstan and China have shown great interest in the BTK project. In any case, according to Azerbaijani Transport Minister Ziya Mammadov, Kazakhstan is now ready to transport 10 million tonnes of cargo per year by this railway, once it is put into operation. "This interest gives us the opportunity to predict the development of this transport infrastructure, and it has great prospects, because this railway will link Europe and Asia," the minister said.

In other words, the economic benefit of the project is obvious, while its political merits can only enhance its attractiveness in the future.