EurasiaNet Business & Economics - The Oil Flows Through the BTC Pipeline, but a Problem May Loom

BUSINESS & ECONOMICS

THE OIL FLOWS THROUGH THE BTC PIPELINE, BUT A PROBLEM MAY LOOM
Mevlut Katik 5/31/06

Twelve years in the making, the Baku-Tbilisi-Ceyhan pipeline is poised to deliver its first batch of oil to Western markets. Turkish officials say a super tanker could load roughly 700,000 barrels of Azerbaijani crude at the Ceyhan terminal as soon as June 2.

Oil pumped from the Azeri-Chiraq-Guneshli field began flowing late on May 28 into storage tanks in Ceyhan, located on Turkey’s Mediterranean seacoast. A representative of the terminal, speaking on condition of anonymity, hailed the event, saying "oil’s Silk Road is open." About 140,000 barrels of BTC oil will be loaded, along with about 560,000 barrels already stored at the terminal, on to the tanker British Hawthorn for shipment to the West. First envisioned in 1994, the 1,760-kilometer pipeline cost roughly $4 billion to build. When operating at full capacity, BTC will pump a million barrels per day.

In an address to the people of Azerbaijan, distributed on May 29, President Ilham Aliyev said BTC would guarantee that the country enjoys a prosperous future. "It will bring us on the one hand huge economic benefits, and on the other hand, great political capital," Aliyev said in the address, according to a transcript distributed by the official Azertag news agency.

"Azerbaijan has great prospects, great achievements and undoubtedly, our country will significantly benefit from the operation of the Baku-Tbilisi-Ceyhan oil pipeline," Aliyev continued. "Every citizen will feel these changes in his everyday life."

Aliyev’s optimistic prediction is backed by estimates showing Azerbaijan enjoying a 40 percent growth rate during the first half of 2006. However, for many of the people who actually helped build the pipeline, the arrival of oil at the Ceyhan terminal is a bittersweet moment. Much of the oil infrastructure needed to get the oil flowing has been completed, and British Petroleum-Azerbaijan, the leading force in the development of Azerbaijan’s export potential, is now looking to trim staff. Bruce Luberski, a vice-president of BP-Azerbaijan, indicated in March that significant layoffs would occur before the end of the year. The company envisions that it can employ roughly 2,000 local staff during the post-construction phase of operation.

Mirvari Gahramanli, head of the Committee for Protection of Oil Industry Workers’ Rights, a Baku-based NGO, said that about 15,000 people are employed by different contractors and subcontractors under oil projects and "at least half of them will lose their jobs in coming years." Most workers were hired in 2003-2004, when construction reached its peak. A portion of those slated for layoffs are foreign laborers, most from Asian nations, including India and the Philippines. "Part of those employed under BTC had been switched to [the Baku-Tbilisi-Erzerum gas pipeline], but this pipeline is also close to its completion," Gahramanli told EurasiaNet.

The layoffs could bring simmering discontent with the BTC consortium’s labor practices back to a boil. In 2004 and 2005, the consortium was hit by strikes by Azerbaijani workers, who complained about poor working conditions and low wages. In addition, they expressed discontent that the foreign-born pipeline workers were taking jobs away from Azerbaijanis. [For background see the Eurasia Insight archive].

Inglab Ahmadov, director of the Public Finances Monitoring Center, a Baku-based non-governmental organization, said that the share of local workers employed by the BTC consortium in various projects was likely lower than contractually required. "I doubt that proportion is followed. The government should be more aggressive demanding oil companies employ more local labor," Ahmadov said. [The Public Finances Monitoring Center is supported by the Open Society Institute-Assistance Foundation Azerbaijan, which is affiliated with the New York-based Open Society Institute. EurasiaNet operates under the auspices of OSI].

Many local NGO activists believe the Azerbaijani government has encouraged the BTC consortium to employ foreign workers. A Baku-based foreign oil executive appeared to confirm this view, telling a EurasiaNet correspondent that Azerbaijani officials do not complain about the relatively large number of foreign hires. "There is a reason for that," the executive said, speaking on condition of anonymity given the sensitivities surrounding the issue. "Most of the contracts are expiring soon, creating a [potentially] big unemployment problem. ... The local labor force could become a headache for the government, while foreigners just leave the country."

According to Sabit Bagirov -- who served as president of the State Oil Company of Azerbaijan (SOCAR) from 1992 to 1993, and who now runs the Economic Research Centre NGO -- Azerbaijani official also encouraged foreign oil companies to keep wages for local staff low. "There is a huge gap between salaries of local and foreign employees in the oil companies," Bagirov said. "I can only assume that the government did not wish [to have] a situation in which locals working for a foreign company ... receive much more that colleagues at SOCAR"

Despite officials’ apparent efforts to restrain salaries for Azerbaijanis working in the oil-sector, Bagirov predicted that the planned layoffs could become a difficult issue for the government. "These people [Azerbaijani oil-sector workers] have gotten used to receiving relatively high salaries, and it will be difficult to them to find equal jobs. It [layoffs] may create some social tension in the country." [From 2002-04, Bagirov served as the board chair of the OSI-Assistance Foundation Azerbaijan].

For now, the government feels that it has a grip on the potential problem. In an April 13 policy speech, Aliyev stressed that top priorities of his administration were job creation and poverty reduction. "A lot of work had been done to reduce unemployment in Azerbaijan, while we still look forward to eliminating poverty and unemployment in the country," the president said.

Hadi Rajabli, an MP from the governing Yeni Azerbaijan Party, and chairman of parliament’s Social Policy Committee, predicted that most oil-sector workers who lose their jobs would eventually land on their feet. "Considering the growth tempo of the Azerbaijani economy, they can easily find another job. The only problem is a difference in wages between that they used to get from foreign companies and that can be offered in local labor market," Rajabli said to EurasiaNet. Rajabli went on to downplay the need for job creation schemes in the oil sector. "There is no special policy and there is no need for that in a market economy. These people will go to the labor market, and will be employed. The government should not interfere," Rajabli said.

Mirvari Gahramanli and other NGO activists do not share Rajabli’s optimism. "The government is not ready to adjust such a big number of workers with high expectations," Gahramanli insisted.

Editor�s Note: Mevlut Katik is London-based journalist and analyst. He is a former BBC correspondent and also worked for The Economist group.

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