First, it was energy; now, transportation. The Kars-Akhalkalaki-Tbilisi-Baku railway project, run by Azerbaijan, Georgia and Turkey, is strengthening a sense of regional cooperation in the South Caucasus.
Azerbaijani President Ilham Aliyev and Turkish Prime Minister Recep Tayyip Erdogan met in Tbilisi on February 7 with Georgian President Mikheil Saakashvili to sign a framework agreement on the project, which will link Turkey, Azerbaijan and Georgia via a 258-kilometer-long railway. The agreement must then be submitted to the Azerbaijani, Turkish and Georgian parliaments for ratification.
The railroad, 14 years in the making, has been touted as the shortest route for commercial traffic between Asia and Europe. Some observers have forecast that, if completed, it could become a competitor to the Trans-Siberian Railway. Construction is scheduled to begin in June 2007, with a tentative completion date by the end of 2008, Azerbaijani Transportation Minister Ziya Mammadov told the Azerbaijani independent television station ANS on January 18. A January 16 statement from the Azerbaijani foreign ministry predicted that the railroad "will create conditions for the revival of the historical Silk Road and will develop the Europe-Caucasus-Asia transport corridor," thereby advancing "the region's integration with Europe."
In many ways, the project is a case study in regional self-reliance. The United States, an influential backer of such regional projects as the Baku-Tbilisi-Ceyhan oil pipeline and the South Caucasus gas pipeline, has declined to support the rail link since it excludes Armenia. The European Union has expressed similar reluctance.
Instead, Turkey, Azerbaijan and Georgia have looked to themselves to cover the $600 million in estimated costs. "The US can issue any decisions it wants, but there will be no problems with financing the project," commented Georgian Foreign Minister Gela Bezhuashvili on January 10, the Azerbaijan's news agency Trend reported. "There are other sources."
One of those sources is Azerbaijan. At a January 13 meeting in Tbilisi, the three sides agreed that Azerbaijan will loan Georgia $200 million for the construction of a 29-kilometer stretch of the railroad through Georgian territory and for the reconstruction of existing sections of Georgian railways that the new line will use. Georgia will pay an annual interest rate of just 1 percent on the 25-year loan, according to Economic Development Minister Giorgi Arveladze. The Georgian government has already approved the proposed terms for the loan and expects a final agreement with Azerbaijan to be signed soon, Prime Minister Zurab Noghaideli has said.
The agreement comes on the heels of a gas deal between Georgia and Azerbaijan that the government in Tbilisi hopes will allow it to replace higher-priced Russian gas with gas from Azerbaijan's Shah Deniz field. [For details, see the Eurasia Insight archive].
Turkey also plays a key role in this assistance scheme. At a February 7 joint press conference in Tbilisi with Azerbaijani President Ilham Aliyev and Georgian President Mikheil Saakashvili, Turkish Prime Minister Recep Tayyip Erdogan said that Turkey would try by July 2007 to funnel 800 million cubic meters from its share of Shah Deniz gas to Georgia. Saakashvili, however, told reporters that Georgia would receive Turkey's gas "as soon as Shah Deniz is put into operation," adding that Azerbaijani gas supplies are expected to steadily increase.
The agreements underline Azerbaijan’s growing importance for Georgia. To highlight that significance, part of the embankment of the Mtkvari River in central Tbilisi was renamed during the summit to commemorate the late President Heydar Aliyev, father of the current Azerbaijani leader.
Some opposition members in Georgia have questioned this relationship.
Analysts in Baku say that the railway deal's long-term advantages for Azerbaijan justify the cost of footing the bill for construction of Georgia's section of the railway.
"The project has significant importance for Azerbaijan. It will be the final link for providing Azerbaijan with a transportation corridor to Europe," said Inglab Akhmadov, an economic expert and the director of the Public Finance Monitoring Center. "The oil and gas routes already exist and construction of the railroad to Europe, bypassing Armenia and Russia, will complete the process for Azerbaijan." (The Public Finance Monitoring Center is funded by the Open Society Institute. EurasiaNet.org operates under the auspices of the Open Society Institute in New York.)
The profitability of Baku's Caspian Sea port and the Azerbaijani State Railroad will also increase, noted independent political analyst Rasim Musabekov, who argued that the project is more important for Azerbaijan than for Georgia.
"The length of the Kars-Akhalkalaki-Tbilisi-Baku railroad on Azerbaijan's territory is much longer than on Georgian territory, so Azerbaijan's railroad will make a greater profit on tariffs," he said. Plus, a key strategic benefit also exists: "For the first time, Azerbaijan will get direct railroad access to its most important ally, Turkey."
Although Azerbaijan's booming energy sector has so far allowed it to play benefactor to its poorer neighbor, Georgia, Baku has kept a sharp eye on potential sources of outside financing for the project, as well. China, which has a growing interest in Central Asian energy sources, has featured among these sources. An official in Azerbaijan's foreign ministry told EurasiaNet that Azerbaijani Foreign Minister Elmar Mamedyarov tried to convince China to support the Kars-Akhalkalaki railway project during a visit to Beijing in the spring of 2005. "However, while China's leadership stated its interest in an alternative route for railway traffic to Europe, they politely refused to finance the project," said the source, who asked not to be named.
Meanwhile, other sources of financing remain trapped in a tightly intertwined circle of conditions. While the US does not exclude the possibility of its active support for the project in the future, it insists on Armenia's inclusion. With the Bush administration's support, the US Congress in 2006 banned any government funding for the railway for this reason.
"We'd love to get to that point when the railroad from Turkey to Baku could transit Armenia, " commented US Assistant Secretary of State for European and Eurasian Affairs Matthew Bryza in a January 9 interview with the Azerbaijani state-run news agency AzerTag. While the US does not oppose the project, he continued, "We hope there'll be [a] time soon when the transit scheme will embrace all of the countries."
After long expressing opposition to the project, Armenia itself, however, has announced that it is ready to sign on. But not without one key condition being met the opening of Turkey's border with the South Caucasus state. (The border was closed in 1993, following Armenia's support for the breakaway Azerbaijani region of Nagorno-Karabakh.) The Russian news agency RIA Novosti quoted Armenian Deputy Foreign Minister Gegam Garibjanian as saying on January 18 that his country could join the project by reopening a section of railway that runs from the Turkish town of Kars to Akhalkalaki in Georgia via Armenia "the day after the border between Armenia and Turkey is opened." Such a section could significantly reduce transportation costs.
But Azerbaijan has its conditions, too. Azerbaijani President Ilham Aliyev has stated that Armenia's participation in the project "is not possible" until the country ends its support for the ethnic Armenian leadership of the self-declared Republic of Nagorno-Karabakh, a breakaway region of Azerbaijan. [For background see the Eurasia Insight archive].
"Until Armenia liberates the occupied Azerbaijani territories [Nagorno-Karabakh and seven adjoining regions] all transportation projects will bypass this country," Aliyev said at a January 22 government meeting in Baku. "The countries and organizations that support Armenia and speak out against the project will fail," he added.
Ongoing negotiations between Armenia and Azerbaijan over Nagorno-Karabakh give no indication that that condition may soon be met or softened. However, other project partners have softened or otherwise changed participation conditions over time.
Georgia for years hesitated to join the railway project, first demanding compensation for any economic losses related to the new railway that its two Black Sea ports, Batumi and Poti, would sustain. Both Turkey and Azerbaijan refused such a pay-out. But, after the imposition of a transportation blockade by Russia in 2006, Georgia reconsidered. [For background see the Eurasia Insight archive].
"We have to support this project amidst the economic blockade of Georgia from the North," Economic Development Minister Giorgi Arveladze said on January 17, in an oblique reference to Russia. "It [the Kars-Akhalkalaki-Tbilisi-Baku project] will be a very important transportation corridor for us."
That corridor could prove particularly significant for the Caspian Sea region's oil industry, noted Akif Mustafayev, the Azerbaijani representative to TRASECA, a regional transportation program backed by the European Union. Already, oil and oil-related products is projected to make up most of the railway's freight, noted Mustafayev, who predicted that freight could equal at least 20 million tons in the first year of operation.
Train-ferry connections already exist between Baku and fellow energy giants Kazakhstan (from Aktau) and Turkmenistan (from Turkmenbashi). With the completion of a railway link under the Bosphorus by 2008, transportation times to Europe could be reduced still further.
"It may encourage foreign investors to construct new oil refineries in the region and to export to the European markets not just crude oil, but more expensive oil products," Mustafayev said.
Turkey first proposed the project in 1993 as it looked for ways to increase its influence in the South Caucasus after the collapse of the Soviet Union. However, a protocol on the project was only signed between Turkey, Georgia and Azerbaijan in 2004. Feasibility studies began that same year. In May 2005, the presidents of the three countries reaffirmed their support for the railway with a formal declaration in Baku.
Rovshan Ismayilov is a freelance journalist based in Baku.