EQUATION WITH MANY UNKNOWNS

About two years ago, the presidents of Azerbaijan, Turkey and Georgia launched the largest regional transport project - the Baku-Tbilisi-Kars railway (BTK). Construction work started early last year at several sites in Georgia and Turkey. Due to a number of technical problems, project participants have twice postponed the commissioning of the railway. The global economic crisis, which began late last year, reduced the level of world trade by more than 20 per cent, in turn reducing the volume of cargo transportation between Asia and the western hemisphere. The decline was felt by almost all the states involved in the TRACECA Eurasian transport corridor, including Azerbaijan. Accordingly, there is no rush to complete BTK. But no-one is saying that the project is not a priority for the future.

Time shift

The BTK was originally scheduled for completion by the end of 2009, but this target was postponed to 2011. Now the deadline has moved to 2012 and, perhaps, to an even later period. The Georgian side is to blame for these delays in the construction of a strategically important highway. "The schedule of work was really disrupted: problems arose this spring in connection with political instability in Georgia, which had a negative impact on the financing of the project. There were also technical problems. In particular, it turned out that the 2.6 km tunnel on the Georgian-Turkish border was wrongly sited in an avalanche-prone area," said Bidzina Bregadze,general director of the Marabda-Kartsakhe railway company. The Georgian side had to develop a new draft for the tunnel, and this was only recently approved.

A year earlier, the parties had expected that the 29.2 km Marabda-Tetritskaro section would be constructed this year and, by the end of 2010, Georgia was to complete the reconstruction of multiple sections adjacent to the railway and build a wheel change, service and maintenance centre on the border with Turkey. Another 160 km of Georgian rail lines from Tbilisi to Akhalkalaki are in need of repair. And, by 2011, it is planned to complete the construction of a 68-km section from Kars to the Georgian border and to connect the two segments of the railway to form a single corridor in the same year.

But reality dictates its own terms: the commissioning of BTK has, apparently, been postponed once again, until at least 2012.

It must be noted that work on the Georgian sector is funded by a $200 million loan provided by the State Oil Fund of Azerbaijan (SOFAR) over 25 years at an annual rate of 1 per cent.

Recently, Sahmar Mov-sumov,executive director of SOFAR, said that Georgia has been advanced only 27.1 million manats of state credit to date. The small size of the advance is due to the very sluggish progress of construction work in Georgia and the actual failure of commitments on the commissioning of railway sections. This year our government had planned to allocate an additional 80 million manats for the construction of the Georgian section, but this was reduced to 30 million manats by a 7 October 2009 decree of Azerbaijani President Ilham Aliyev concerning a restructuring of the current SOFAR budget,.

Has the project lost relevance?

Some media and experts interpret the cut in the funding of the BTK project as a decline in Azerbaijan's interest in the early implementation of this initiative. Others indirectly attribute it to the Turkish-Armenian rapprochement. Incidentally, in this context it is useful to recall the still unresolved issue of land allocation in Javakheti (Georgia), which is mainly populated by separatist Armenians. It is planned to build the Baku-Tbilisi-Kars steel road in this troubled territory. However, it would be more logical to seek the reason for the reduction in capital-intensive infrastructure projects in the global financial crisis, which, objectively, affects the government's priorities. Azerbaijan is channelling the savings into improving the living conditions of refugees and the implementation of a number of water and irrigation projects.

Incidentally, Azerbaijan's tra-nsport sector was one of the first to feel the impact of the global crisis: in the first half of this year the volume of cargo and passenger traffic decreased in several areas. Thus, the number of air passengers fell by 7 per cent in the first six months, while the volume of rail freight was down by more than 30 per cent. Relative stability was maintained in road freight and passenger transport - an 8-per-cent growth actually being recorded here.

Shipment by sea rose by 8.7 per cent during the same period, but oil comprised three quarters of the cargo. It is necessary to clarify that, in the long term, the increase in oil production in Central Asia and Azerbaijan and the corresponding increase in marine and rail freight in no way affect the prospects for filling the BTK corridor. Oil (both ours and transit) is exported to the Kulevi terminal via the Baku-Tbilisi-Ceyhan, Baku-Supsa and Baku-Novorossiysk oil pipelines as well as by rail. And no-one ever planned to use BTK for oil shipment.

The Baku-Tbilisi-Kars railroad was originally designed to carry dry cargo - ferrous and nonferrous metals, coal, sulphur, containers etc. Hauliers from Southern Europe and the Middle East could send and receive goods via Turkey, Georgia, Azerbaijan and then by sea to Central Asian states, China and Southeast Asia. According to experts' calculations made in the pre-crisis period, after the opening of this corridor, it was planned to carry 6.5-7 million tonnes per year, while passenger traffic would amount to about one million people. These numbers could rise in the future, given the increasing amount of transit traffic between Europe and Asia.

But all these calculations were disrupted by the global crisis, which had a huge effect on cargo transiting across our country, reducing the intensity of traffic through the Azerbaijani section of TRACECA. Thus, in January-May, the total volume of cargo transited through the territory of Azerbaijan fell by 13.6 per cent compared to the same period last year. These negative processes also affected the volume of goods transported by the Azerbaijani section of the Corridor Europe-Caucasus-Asia, reducing it to 11.5 per cent, compared with the same period last year. Experts believe that the drop in transit is mainly due to falling world demand for metallurgical and mining products, building materials, cotton and other agrarian raw materials and consumer goods. All this affected the volume of non-oil cargo traffic from China and Central Asia to Europe. Part of the cargo moved to significantly cheaper maritime routes, and partly to the Trans-Siberian route, reducing transit via the South Caucasus section of the Eurasian corridor. That is to say, in the segment of dry cargo and containers transported along the TRACECA corridor, there is disparity between low supply from the owners of cargo and the untapped potential of hauliers. Indeed, TRACECA was unable to find an appropriate answer to the discount policies of the Trans-Siberian route and, especially, sea hauliers. First, because collective tariff agreements have still not been settled between the parties to the Eurasian corridor. Second, attempts to increase multi-modal transportation and run East-West container trains on a continuous basis remain at the pilot stage. To make the Eurasian corridor attractive to shippers, member states should implement a much more effective transport strategy, improve the infrastructure, increase its throughput capacity, especially at border crossings, and, most importantly, reach final agreement on tariffs and a regulatory framework. Meanwhile, in the non-oil transit sector along land routes between Europe and Asia, the tune is called by His Majesty the Global Crisis, reducing the already small chances of filling the BTK corridor.

However, there are still more than three years to 2012 and it is possible that by that time, stagnation in the global economy will become a thing of the past and the TRACECA countries will come to a common understanding, reducing the cost of end-to-end tariffs and establishing effective logistics schemes for handling non-oil goods. In this light, the BTK project still has ample opportunity to get its share of the traffic.