World Bank backs tariffs

["Ian Murray" <seamus2001@xxxxxxxx>]

[NYT]
AUG 26, 2001
World Bank Intervenes in Georgia's Deal on Fees for Caspian Gas
Pipeline
By DOUGLAS FRANTZ

BAKU, Azerbaijan, Aug. 25 - In an unusually blunt approach, the World
Bank has warned Georgia that it will lose all financial assistance if
it does not negotiate higher tariffs on a proposed gas pipeline from
the Caspian through Georgia to Turkey.

The threat was made in a letter to President Eduard A. Shevardnadze of
Georgia, which depends heavily on foreign assistance, from a senior
official of the World Bank. The bank sent the sharply worded letter
after it appeared that Mr. Shevardnadze was ignoring advice from bank
officials that he seek higher fees.

"This failure to heed the advice that has been provided will also call
into question the justification for future support to Georgia from
institutions such as the World Bank," Judy M. O'Connor, the bank's
director for Georgia, wrote in the letter. A copy of the letter was
provided to The New York Times by officials involved in the pipeline
negotiations.

Mr. Shevardnadze, who had postponed signing the pipeline agreement,
responded to the letter by reopening negotiations on the transit fees.
This will further delay approval of the pipeline agreement that
negotiators worked out in July.

Although the World Bank and other international lenders play important
roles in Georgia and other developing countries, they have been
criticized for becoming too involved in country decisions. The letter
to Mr. Shevardnadze was considered an unusually strong example of how
the bank sometimes expands its role.

Nicholas van Praag, a spokesman for the World Bank, said that the
warning had been intended to help Georgia negotiate a better deal for
itself and that the tough language was because Georgia receives loans
on extremely good terms.

"If they don't take advantage of the opportunity to get what the
country deserves, there is not much point in getting such favorable
treatment," he said in a telephone interview on Thursday from
Washington.

The disagreement between Mr. Shevardnadze and World Bank officials
centers on $20 million a year that Georgia would collect in transit
fees from a proposed pipeline running from a big natural gas discovery
in an offshore field in Azerbaijan through southern Georgia to Turkey.
Azerbaijani officials want lower tariffs than the World Bank believes
Georgia should get for carrying the natural gas across its territory.

The pipeline is expected to follow the route of another proposed
pipeline that would carry oil from the Azerbaijani capital, Baku, to
the Turkish port of Ceyhan on the Mediterranean.

The two pipelines would link the energy resources of the Caspian Sea
with energy-starved Turkey and Western markets. They are considered
important to economic prosperity and political stability in the
Caucasus.

Next week, the oil companies involved in the Baku-Ceyhan oil pipeline
are scheduled to sign an agreement with the Azerbaijan government to
spend $3 billion to expand oil production from the so-called Azeri
field in the Caspian.

Company officials said the investment made it more likely that the $3
billion oil pipeline would be built because an existing pipeline to
the Black Sea did not have the capacity to handle the increase in
production from the new field.

The oil companies, led by BP, will not make a final decision on the
Baku-Ceyhan line until next year, when they have the results of a
detailed engineering study now under way.

The companies planned to begin construction on the gas pipeline first
and then lay the oil line alongside it.