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EurasiaNet.org provides information and analysis about political, economic, environmental and social developments in the countries of Central Asia and the Caucasus, as well as in…

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Controversial Azeri Pipeline Receives $500M Funding


The European Bank of Reconstruction and Development’s board on October 18 approved $500 million in funding for the Azerbaijan-led TANAP pipeline, which will facilitate the delivery of Caspian Basin natural gas to Western Europe. The decision prompted swift criticism from watchdog groups, which accused the bank of disrespecting the “fundamental principles of multiparty democracy [and] the rule of law.”

The bank confirmed in a press statement that the allocation of $500 million would be made from its own funds, but made no mention of a syndicated loan of up to $1 billion that the bank had been expected to arrange. The decision comes despite concerns over Azerbaijan’s suitability for support following the country’s decision early this year to drop out of an international oil-and-gas monitoring agreement, as well as new allegations of high-level corruption.

Representatives of watchdog groups asserted that the bank was sending the wrong signal by proceeding with the disbursement. “We regret to see the extraction and import of additional fossil fuels into Europe, benefiting only a handful of corporations and oppressive governments, is valued more than sustainable development and freedom of ordinary people,” said Anna Roggenbuck, a policy officer at CEE Bankwatch Network. “We regret to see the extraction and import of additional fossil fuels into Europe, benefiting only a handful of corporations and oppressive governments, is valued more than sustainable development and freedom of ordinary people.”

Decisions on the $500 million of EBRD funding were expected earlier this year but were delayed after Azerbaijan pulled out of the Extractive Industries Transparency Initiative (EITI), a body that promotes transparency and good governance in the oil and gas and mineral sectors. Compliance with EITI rules was supposed to be a condition of the EBRD funding.

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The decision has been further complicated by allegations stemming from investigative reports published by The Guardian on the “Azerbaijan Laundromat,” a Baku-financed effort to gain influence and prestige by funneling nearly $3 billion to influential organizations and individuals in Europe.

Baku’s ultimate aim appeared to be to blunt criticism of Azerbaijan’s dismal human rights record, and in particular, to promote the construction of the Southern Gas Corridor, a larger project (of which TANAP is one part) to ship Caspian gas to Europe, providing an alternative to Russian gas exports.

The EBRD already has provided funding for Azerbaijan’s Shah Deniz field, gas from which will fill half of TANAP’s capacity, and announced last year that it was ready to allocate $500 million in funding for TANAP and to arrange with commercial banks for a syndicated loan of up to $1 billion.

The “Azerbaijan Laundromat” investigation revealed that one of the EBRD’s board members, Kalin Mitrev, received at least €425,000 in fees from an Azeri company, alleged to be fronting for Baku.

Mitrev has denied any wrongdoing and has asserted that the payments were legitimate fees for consultancy work. However, Mitrev’s links to the Azerbaijan government are not limited to consultancy. His wife, Bulgarian politician Irina Bokova, is the director general of UNESCO, which somewhat controversially awarded the organization’s highest award to Mehriban Aliyeva, the wife of Azeri president Ilham Aliyev.

The potential conflict of interest was something of which the bank appeared to be aware of, and Mitrev did not attend the October 18 board meeting. “We take any such allegations seriously. These would appear to relate to a period before Kalin Mitrev was sent to the Bank to represent his country,” bank spokesman Jonathan Charles told EurasiaNet.org. Charles added that as a board member Mitrev is not an EBRD staff member, and that he is a diplomat “appointed by and sent by the Bulgarian government.”

With the EBRD publicly committed “to promote integrity, good corporate governance and high ethical standards in all its business operations,” the allegations put the bank in a difficult position. Membership of EITI and compliance with its standards was a condition of the EBRD’s planned loans for TANAP.

As regards the Southern Gas Corridor, the European Commission remains solidly committed, at least publicly.

“The EU’s objective has not changed,” the European Commission said in a statement to EurasiaNet.org. “The EU is committed to and supports Southern Gas Corridor and the role that it plays in the EU’s strategy to diversify our energy supply sources and transportation routes, as well as the crucial role of Azerbaijan as ‘enabler’ of this grand project.”

The commission points out that Azerbaijan already meets around 5 percent of Europe’s crude oil demand and that negotiations are ongoing with Azerbaijan and Turkmenistan over the development of a gas pipeline across the Caspian which would allow Turkmen gas to be transited to Europe via Azerbaijan.

With respect to gas, Azerbaijan and its Caspian neighbors hold a trump card: they are not Russia. The entire point of the Southern Gas Corridor is to weaken Russia’s market share in Europe.

That point is not lost on Azeri President Ilham Aliyev. Meeting with a delegation from the Political and Security Committee of the Council of the European Union this week, he took pains to point out that, through development of the TANAP and TAP pipelines, Azerbaijan is creating a gas transit system stretching from Baku to Italy.

“European natural gas demand will grow, and Azerbaijan is the only new source of energy for Europe. We closely cooperate with the European Commission (in this),” he said.

While EBRD funding helps cut the cost of constructing the TANAP pipeline, even if that funding were imperiled that would not likely have had a substantial effect on its development.

Completion of its first phase and delivery of first gas to Turkey is expected on time mid-next year, with completion of the second phase and delivery of gas for transit to Europe is still slated for 2020.

Upstream investment, too, appears unlikely to be seriously affected. Only days after the “Laundromat” revelations, BP and its seven international partners signed a new production agreement for Azerbaijan’s giant Azeri Chirag Guneshli (ACG) oil and gas field, which will run to 2050, suggesting that as far as investment in extracting Azeri oil and gas is concerned, it is very much business as usual.

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No less significant perhaps was the letter of congratulations on the new ACG deal sent to Aliyev by UK prime minister Theresa May, suggesting that some current – at least for the moment – EU states may not be taking the “Laundromat” allegations too seriously.

Where disruption could occur is in the projected next phase of development, when TANAP’s capacity is slated to be expanded from 16 to 31 billion cubic meters per year, and that of the TAP pipeline – which will carry gas across Greece and on to Italy – from 10 to 20 billion cubic meters per year.

But any danger to European funding in future stages would be due not to human rights concerns, but market forces. “When the EU first envisaged the Southern Gas Corridor in the late 1990s, it was seen as a way to introduce Caspian, Iraqi and Iranian gas into Eastern Europe as competition for Russian gas,” said William Powell, editor-in-chief of Natural Gas World.

However, 20 years on that picture has changed. “Declining gas demand across Europe, new interconnector construction in the Balkans, and rising LNG capacity have reduced prices and increased competition, reducing the risk of monopoly. So by 2020 when it starts, the landscape will be very different from that envisaged even a decade ago,” said Powell.

By Eurasianet

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  • Thomas on October 21 2017 said:
    I have lived and worked in Baku. It is the most corrupt country I have ever lived in. There are a small minority of individuals who benefit from these deals and usually they are all relatives of the president Ilham Aliyev. this has been reported for over a decade now but because oil majors like BP are involved in this country Western governments turn a blind eye towards the endemic corruption in this country. When will Western European governments finally say no more and punish this dictarship by refusing to buy Azeri oil and gas?

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