Weekly actual topics in Azerbaijan (Oct. 15-19)

Analysis Materials 22 October 2012 11:48 (UTC +04:00)

Central Asia's market to open with Baku-Tbilisi-Kars railway

The Baku-Tbilisi-Kars railway more clearly turns into the route of the historical Silk Road as far as the construction process reaches its completion. The project was originally designed to connect the transportation systems of Azerbaijan, Georgia and Turkey. Already it is gaining the interest of a growing number of countries wishing to join the route.

The project was initially supported by Kazakhstan and China. They expressed interest in transporting their products to European markets via this route. At present Turkmenistan and Uzbekistan are seeking to implement the Navoi-Turkmenbashi transport corridor by joining the Baku-Tbilisi-Kars railway and Afghanistan which is considering the transportation corridor to the Black Sea through Turkmenistan, Azerbaijan, Georgia and certain part of Turkey as an alternative route to the sea ports, has joined them.

The Central Asian countries have something to compete for in the global market. The region has large reserves of natural resources. Their development and diversification form the basis for the economic growth of the Central Asian countries.

According to the data published in the report of the Organisation for Economic Cooperation and Development (OECD 2011), Kazakhstan has oil reserves for at least 65 years and coal reserves for 308 years. Moreover, it is a major wheat exporter.

Turkmenistan has the largest natural gas reserves lasting for 223 years (the ratio of gas volume to the production volume). Kyrgyzstan and Tajikistan have great potential in hydropower and deposits of precious metals. Uzbekistan has significant natural gas reserves. It is the largest exporter of cotton. Afghanistan has huge reserves of iron, copper, cobalt, gold and lithium. Arable areas of the Central Asian countries annually bring about 25 million tons of wheat.

The attraction of the Baku-Tbilisi-Kars railway for Asian countries means that first of all it will be the shortest of the existing routes of delivering the goods from Asia to Europe. Moreover, this way it is being upgraded with the relevant infrastructure in the form of ports, tunnels, terminals, rail sections. This will facilitate direct transportation to Europe. After the construction is completed, the transport chain forming China-Central Asia-South Caucasus-Turkey-Europe or the so-called transportation corridor East-West, will be intensified.

Being built in the modern era, the Baku-Tbilisi-Kars railway will certainly be provided with the latest railway technology. A modern wagon fleet with roomy speed platforms for transporting international containers will appear. This significantly speeds up the delivery process.

The only negative feature is the repeated crossing of borders and customs points of transit countries. It could be helped by a flexible tariff policy and improved customs procedures.

The relative political and economic stability in the region, as well as joint work to improve the level of service conducted by ports and railways, shipping companies, foreign and domestic freight forwarders with the possible creation of a major multi-modal operator, will also contribute to the growth of cargo flow via the Baku-Tbilisi-Kars railway. The matter rests in organising the optimal transportation, administrative and technological procedures of customs and border control and introduction of harmonised approaches in the field of transport law and new technology at the borders.

There is an acute need for the Central Asian countries to deliver the goods to the European market in a quick, cheap and quality manner.

Uzbekistan with its growing economy from year to year has no route to the sea, therefore the railway has a special role. Afghanistan is also in this situation. Besides the existing transit routes in the east and west via Pakistan and Iran, it is promoting the idea of ​​creating the Black Sea corridor through the Baku-Tbilisi-Kars railway. Turkmenistan plans to transport liquefied natural gas in special containers and export its second competitive product Turkmen textiles to the European market via the railway.

Kazakhstan has even suggested the preliminary volume of freight transportation via this route as bearing 10 million tons of cargo a year. It should be stressed that Kazakhstan has used the Azerbaijani and Georgian rail transport systems for a long time to transport oil products and grain. After the Baku-Tbilisi-Kars railway is commissioned, Kazakhstan will abandon the Russian direction of grain delivery and will deliver the product to Europe through the territory of Azerbaijan. Moreover, the Kazakh grain terminal is located in Baku.

China's cargo base is the most important prerequisite of the demand for the Baku-Tbilisi-Kars railway. Developing and transferring the production facilities of household appliances, cars, electronics, clothing and footwear from developed countries to China also promotes a large scale growth of Chinese exports to various parts of the world and stipulates the search for new ways to world markets. According to the official data of the country, the trade turnover between China and Europe reached $410.99 billion in January-September 2012. The potential for future years is about $1 trillion.

Thus, the combination of a flexible tariff policy and customs procedures upon the European standards with a shorter route for cargo transportation rather than sea routes from Asia to Europe, turns a relatively small project into one of the priority and strategically important in terms of international trade.

Baku-Tbilisi-Kars is missing link between Europe and Asia

Along with the importance of energy and food security for every sovereign country, world countries have another important issue - transport independence. The availability of multidirectional import and export routes for goods is related to numerous pipelines and hydrocarbon sale markets.

Azerbaijan has a regional leadership in this process as in energy projects. The country is at the crossroads of different transport routes following from North to South, East to West and back again due to its geopolitical location. The country is the initiator of the largest infrastructure projects in the region. One such is the opening of the Baku-Tbilisi-Kars railway in 2013 initiated by Azerbaijan which has a special place. Azerbaijan, Georgia and Turkey are closely connected with such largest pipeline projects as the Baku-Tbilisi-Ceyhan and the South Caucasus gas pipeline. Opening a new railway will bring these links to a new level.

The Baku-Tbilisi-Kars railway will be the final link in the transportation of goods between Europe and Asia. Today, the main point of moving goods in Asia is China, which has already expressed interest in the new cargo transportation route.

The goods for Central Asian countries and primarily Afghanistan, can take a significant transportation volume in the opposite direction. However, the large undeveloped natural resources of the country may become one of the components of the cargo flow from Asia to Europe.

Several years ago, the U.S geologists discovered huge reserves of lithium, iron, cobalt, gold and copper, totalling more than $900 billion, in Afghanistan. According to The New York Times, this country has iron reserves worth $421 billion, copper - $274 billion, niobium - $81.2 billion, cobalt - $50.8 billion, gold - $25 billion and molybdenum - $24 billion.

At present, Afghanistan receives cargo through Russia and Pakistan. However, the relations between Kabul's main ally - the U.S. and these countries are not unclouded. This leads to the need to find a new supply route and the Baku-Tbilisi-Kars railway may become most promising. It will be continued in the Caspian littoral and Central Asian countries thanks to a new and existing infrastructure.

At present, Azerbaijan is modernising the railway infrastructure on its territory. The construction of the most modern and the largest port on the Caspian Sea has been launched. The new port will be multimodal, because besides a logistics centre, a free economic zone is planned to be established in this area in the future.

A 400 hectare site has been allotted for the construction of the port complex. A transportation capacity of the complex in the first phase will reach about 10 million tons of cargo, about 40,000 TEU containers, Phase II about 17 million tons of cargo and about 150,000 TEU containers and Phase III up to 25 million tons of cargo and about one million TEU containers.

The importance of the Baku-Tbilisi-Kars project for Baku also highlights the fact that Azerbaijan allocated a preferential loan worth $ 775 million for Georgia to construct and reconstruct the Georgian section of the railway.

The available infrastructure for container multimodal transportation using the Baku-Tbilisi-Kars railway will be the key to success. This type of cargo transportation has recently become important. This is confirmed by the fact that one should not expect large volumes of liquid cargo transportation.

First, several large oil pipelines have been laid from Azerbaijan to the Black Sea and the Mediterranean Sea. Second, there is a well-established route of transporting Turkmen and Kazakh liquid cargo to the Black Sea ports in Georgia. Thirdly, the effectiveness of liquid cargo transportation via railways over long distances is greatly reduced due to delivery times. So, apparently, the focus will be made to container shipping.

The fact that all countries participating in the project are TRACECA members is another advantage of the Baku-Tbilisi-Kars railway. Kazakhstan, Turkmenistan and Uzbekistan are the participants of this corridor. They have already expressed great interest in transportation of goods along this line. The sides will be able to negotiate special lowering tariffs and other benefits while transporting goods within the TRACECA unified platform.
The Marmara project implementation which is the railway tunnel under the Bosphorus will be another factor increasing the importance of the Baku-Tbilisi-Kars railway. It will connect the railways of Turkey and Europe and as a result, ensure the delivery of goods via the Baku-Tbilisi-Kars railway to Europe.

The closer the time for completing the Baku-Tbilisi-Kars railway project, the more attention is being paid by potential shippers. This means the new railway, along with the oil and gas pipelines, will be another strategic project initiated by Azerbaijan and increasing its importance not only in the region, but in the whole continent.

Azerbaijan to play important role in strengthening and development of ECO

Azerbaijan is in the center of the world attention, becoming a regional leader, due to rapid development in politics and economic development. Further evidence of this is XII Summit of the Economic Cooperation Organization (ECO), which was held in Baku on October 16.

Bringing together ten countries of Central Asia and the Middle East, the summit reaffirmed the solidarity of the member states in the development of cooperation in the interest of the overall sustainable development, their commitment to economic reforms and the resolution of political conflicts in the region. There was no doubt in the success of the summit, as it brings together the countries, united by a common history, cultural values, economic and political interests.

This time, the chairmanship of ECO has moved from Turkey to Azerbaijan, which will do everything for the development of institutional initiatives, and the countries can rely on mutual trust and support. Political successes of Azerbaijan due to the election as a non-permanent member of the UN Security Council, the rapid economic development, the implementation of important infrastructure projects for the region will play a significant role in the development of the organization. Azerbaijan is a shareholder of ECO Bank and intends to take an active part in the necessary infrastructure and economic projects in the member countries of the organization. Thus, in next two years, Azerbaijan as ECO Chairman will make every effort to promote the goals and objectives of the organization.

For 20 years, ECO participants were able to pass the transition period, get up, get stronger, but there are still many unresolved issues, the resolution of which will allow to use the organization's potential more efficient for the benefit of people and countries. The development of transport and energy infrastructure, the efficient use of water and energy of natural resources, the creation of free trade zones, providing conditions for the free movement of people, vehicles and goods were marked as the priority objectives of ECO.

The member countries have put forward a number of initiatives, including the creation of a free trade area by 2015, which will increase trade between ECO countries by 8 times, creation of mutual food aid system in the form of Regional Fund by type of FAO (Food and Agricultural Organization), aimed at quick response, timely assistance and increase of the financial instruments in the event of a sharp change in food prices in a country and the deterioration of its population's life. Iran proposed to create the ECO political forum to coordinate actions in the international arena, to assist Member States in the settlement of disputes, as well as to protect the rights and interests of ECO countries in international organizations and make joint efforts to reform international institutions, including the United Nations.

Terrorism, poverty, illiteracy, violation of fundamental rights of the people and the drug trade were called as the main dangers for the region. Calls for assistance and economic reconstruction of Afghanistan, the situation in which has an impact on the socio-economic stability and sustainable development of the region as a whole, were voiced.

In the end, all ECO member countries agreed that only a business, healthy, critical approach to activities can transform the organization into an effective lever of regional trade and economic relations. Joint political efforts will make the states more powerful, and the economic potential of the Member States, expressed in work on specific projects, will strengthen the organization and ECO's initiatives in various fields.

Therefore, ECO must move forward if it wants to remain competitive in the regional and international levels, and to play a role in the world.

ECO summit and future of Syria

Turkey's Prime Minister Recep Tayyip Erdogan and Iranian President Mahmoud Ahmadinejad discussed the events in Syria along with a number of political and economic issues at the summit of the Economic Cooperation Organisation (ECO) in the capital of Azerbaijan.

During the discussions, Erdogan said there are three options to resolve the crisis in Syria.

Turkey, Egypt and Iran have to start working together in accordance with the first option, Turkey, Russia and Iran according to the second and Turkey, Egypt and Saudi Arabia according to the third to solve the Syrian crisis.

As you can see, all three options supposed the mandatory participation of Turkey meaning the final word automatically belongs to Ankara.

On the other hand, the proposed three-way scheme shows that the resolution of the Syrian crisis depends not only on Turkey, but also on countries that were listed by Erdogan.

Regarding the effectiveness of the proposed options, it is more than likely that none of them will create the ground for the settlement of the Syrian conflict.

Russia's interests in Syria will be at least partially under the threat in first option - 'Turkey, Egypt and Iran' which will not satisfy Moscow.

An option, Turkey, Russia and Iran can be considered as optimal, but the decision of the Arab state's fate by non-Arab countries will not be accepted by the regional Arab states. Not accidentally the most active with a political point of view, Qatar has repeatedly called on the Arab States to intervene militarily in Syria.

As for the third option - Turkey, Egypt and Saudi Arabia, it can lead not to a settlement of the conflict, but on the contrary, even to a worsening of it. Iran will not turn a blind ear to the fate of Syria because to lose that because the loss of Syria will mean the end of Iran's relations with Lebanon.

Taking into account all of that, it can be assumed that the proposed Erdogan scheme would not be effective and only lead to a further delay in the Syrian crisis.