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THE BAKU-AKHALKALAKI-KARS RAILWAY LINE: CEMENT FOR A STRATEGIC ALLIANCE?
By Lili Di Puppo In Tbilisi
Caucaz.com, Georgia
March 1 2007
The signing of an agreement to start construction work on the
Baku-Akhalkalaki-Kars railway line linking Georgia, Azerbaijan and
Turkey took place on 7 February in Tbilisi. The occasion brought
together Turkish Prime Minister Recep Tayyip Erdogan, Azeri President
Ilham Aliev and Georgian President Mikhail Saakashvili. During the
ceremony, the three leaders signed a declaration on a "Common vision
for regional cooperation." Despite the geopolitical dimension of the
railway project, some observers question the real long-term benefits
Georgia might reap from the rail link.
The construction of the new railway line is an additional step designed
to cement the strategic alliance between the three countries after
the inauguration of the Baku-Tbilisi-Ceyhan (BTC) oil pipeline in
July 2006 and the completion of the Baku-Tbilisi-Erzurum (BTE) gas
pipeline. The potential of these projects to link Europe and Asia
transcends the immediate benefit of regional integration. Kazakhstan
has already expressed interest in joining the three projects and
Astana's participation would thus open a door to China.
But the similarities between these projects stop here. In comparison
with the other energy links, the Baku-Akhalkalaki-Kars project has
received much less support from Western players in the region. The
United States and the European Union are uneasy about Armenia's de
facto isolation. As a result of the Armenian lobby, the U.S. Congress
passed a bill which prevents US companies from financing the
construction of the railroad.
Economic costs
Armenia opposes the construction of the railway line by pointing to
the already existing Kars-Gyumri (Armenia) -Tbilisi rail link, which
ceased to operate in 1993 following the closure of the Turkish-Armenian
border. Although Armenia argues that the railroad could be easily
refurbished, Azerbaijan has stated that before it will use the railway,
Armenia must first end the "illegal occupation of Azeri territories."
The three countries will eventually finance the railroad without
external support. On 13 January, Baku and Tbilisi agreed that
Azerbaijan would provide a 220 million dollar loan to Georgia,
repayable over 25 years with an annual interest rate of 1%. Georgia
will use transit revenues from the operation of the railway line to
repay the loan.
The overall cost of the Baku-Akhalkalaki-Kars project is estimated at
USD 400 million. The section between Baku and Tbilisi already exists,
but Georgia will build a new 29 kilometre line between the Turkish
border and the town of Akhalkalaki in the Javaketi region. Turkey,
for its part, will build a 76-kilometer line from Kars to the Georgian
border. The Akhalkalaki-Tbilisi railway section will also be restored.
Not everyone is convinced of the project's economic benefits. Archil
Gegeshidze, a foreign policy expert at the Georgian Strategic Institute
for International Studies (GFSIS) remarks that "it will be difficult in
the first year to find cargo commodities for the new railway corridor."
5 million tonnes of goods will be transported on the railway in the
initial stages of its operation, while the capacity of the railroad
is planned to reach 15 to 20 million tonnes in the future. However,
Mr. Gegeshidze says that these figures represent the current
approximate volume of goods being transported through Georgia.
Therefore, one may ask from where the additional goods will come.
As in the case of the BTC oil pipeline, the project's costs have
moved some observers to argue that political considerations actually
outweigh economics. A debate has started in Georgia on the railway
line's profitability for the country.
Railway against ports?
Tbilisi is certainly pursuing its own political agenda with the
construction of the railway line. The Georgian government hopes to
boost economic development in the Javaketi region, where the economic
situation has deteriorated since the closure of a Russian military
base. The aim is also to promote the integration of the region,
populated by an Armenian majority, with the rest of Georgia.
Furthermore, Georgia is interested in cementing a strategic alliance
with Turkey and Azerbaijan, with the goal of reducing Georgia's energy
dependency on Russia. Turkey announced on 7 February that it wants
to allocate part of its gas share from Azerbaijan's Shah Deniz field
to Georgia. Negotiations are underway.
In reaction to the Russo-Georgian energy row, Azerbaijan supplied
Georgia with gas in January 2006. As a sign of the importance
the current government assigns to the strategic partnership with
Azerbaijan, the Georgian government renamed a section of the Mtkvari
River's embankment in Tbilisi after former Azeri President Heydar
Aliev, Ilham Aliev's father.
Energy deals between the three countries have prompted opposition
leader Salome Zurabishvili to ask in January 2007 whether the railway
agreement is part of a compromise in exchange for receiving gas
from the Shah Deniz field. She has underlined that Georgia risks
jeopardizing the earning potential of its ports in this transaction.
As an argument against the profitability of the railway for Georgia,
some observers say that it may undermine the potential of the Georgian
Black Sea ports of Batumi and Poti as major transport gateways to
Central Europe.
The Georgian ports, which are currently under renovation, and their
future liaison with Black Sea East European ports, certainly represent
serious competition for Turkey in the long term. Despite the two
countries' apparent shared interests, Turkish and Georgian ports may
well compete in the future as gateways to Europe.
Furthermore, the European Union (EU) itself is more in favour of
using Georgia and its ports as a transit link towards the Balkans and
Central Europe, especially in light of Bulgaria and Romania's new EU
memberships. The original idea of the EU-funded Transport Corridor
Europe Caucasus Asia (TRACECA) was to link Central Asia with Europe
via the Black Sea and the Balkans rather than via Turkey. The EU has
refused to include the Baku-Akhalkalaki-Kars railway project in the
European Neighbourhood Policy (ENP) Action Plans with Azerbaijan
and Georgia despite demands by Baku and Tbilisi. The Poti port,
however, has received financial assistance for its renovation under
the TRACECA framework.
The major problem is the lack of a governmental long-term strategy
on how to exploit Georgia's potential as a transit country. As Mr.
Gegeshidze remarks, "Georgia should have a sophisticated view of
its transit policy. There should be one government oversight body
to examine these issues as a whole and to prevent the promotion of
a railway system while neglecting the impact of the railway on the
country's ports. The government should develop a sound transit policy
with the aim of fully exploiting Georgia's geographic location."
The rapid pace of privatization in the country has led some to fear
that the government may sell some of Georgia's most valuable and
strategic assets.
In light of the vote of the U.S. Congress, American investment in
the Georgian railway sector is unlikely. The privatization of the
railway system may well interest Kazakh companies or even Russian
investors which, as some believe, would eventually further Russia's
aim of controlling transport routes in the region.
By Lili Di Puppo In Tbilisi
Caucaz.com, Georgia
March 1 2007
The signing of an agreement to start construction work on the
Baku-Akhalkalaki-Kars railway line linking Georgia, Azerbaijan and
Turkey took place on 7 February in Tbilisi. The occasion brought
together Turkish Prime Minister Recep Tayyip Erdogan, Azeri President
Ilham Aliev and Georgian President Mikhail Saakashvili. During the
ceremony, the three leaders signed a declaration on a "Common vision
for regional cooperation." Despite the geopolitical dimension of the
railway project, some observers question the real long-term benefits
Georgia might reap from the rail link.
The construction of the new railway line is an additional step designed
to cement the strategic alliance between the three countries after
the inauguration of the Baku-Tbilisi-Ceyhan (BTC) oil pipeline in
July 2006 and the completion of the Baku-Tbilisi-Erzurum (BTE) gas
pipeline. The potential of these projects to link Europe and Asia
transcends the immediate benefit of regional integration. Kazakhstan
has already expressed interest in joining the three projects and
Astana's participation would thus open a door to China.
But the similarities between these projects stop here. In comparison
with the other energy links, the Baku-Akhalkalaki-Kars project has
received much less support from Western players in the region. The
United States and the European Union are uneasy about Armenia's de
facto isolation. As a result of the Armenian lobby, the U.S. Congress
passed a bill which prevents US companies from financing the
construction of the railroad.
Economic costs
Armenia opposes the construction of the railway line by pointing to
the already existing Kars-Gyumri (Armenia) -Tbilisi rail link, which
ceased to operate in 1993 following the closure of the Turkish-Armenian
border. Although Armenia argues that the railroad could be easily
refurbished, Azerbaijan has stated that before it will use the railway,
Armenia must first end the "illegal occupation of Azeri territories."
The three countries will eventually finance the railroad without
external support. On 13 January, Baku and Tbilisi agreed that
Azerbaijan would provide a 220 million dollar loan to Georgia,
repayable over 25 years with an annual interest rate of 1%. Georgia
will use transit revenues from the operation of the railway line to
repay the loan.
The overall cost of the Baku-Akhalkalaki-Kars project is estimated at
USD 400 million. The section between Baku and Tbilisi already exists,
but Georgia will build a new 29 kilometre line between the Turkish
border and the town of Akhalkalaki in the Javaketi region. Turkey,
for its part, will build a 76-kilometer line from Kars to the Georgian
border. The Akhalkalaki-Tbilisi railway section will also be restored.
Not everyone is convinced of the project's economic benefits. Archil
Gegeshidze, a foreign policy expert at the Georgian Strategic Institute
for International Studies (GFSIS) remarks that "it will be difficult in
the first year to find cargo commodities for the new railway corridor."
5 million tonnes of goods will be transported on the railway in the
initial stages of its operation, while the capacity of the railroad
is planned to reach 15 to 20 million tonnes in the future. However,
Mr. Gegeshidze says that these figures represent the current
approximate volume of goods being transported through Georgia.
Therefore, one may ask from where the additional goods will come.
As in the case of the BTC oil pipeline, the project's costs have
moved some observers to argue that political considerations actually
outweigh economics. A debate has started in Georgia on the railway
line's profitability for the country.
Railway against ports?
Tbilisi is certainly pursuing its own political agenda with the
construction of the railway line. The Georgian government hopes to
boost economic development in the Javaketi region, where the economic
situation has deteriorated since the closure of a Russian military
base. The aim is also to promote the integration of the region,
populated by an Armenian majority, with the rest of Georgia.
Furthermore, Georgia is interested in cementing a strategic alliance
with Turkey and Azerbaijan, with the goal of reducing Georgia's energy
dependency on Russia. Turkey announced on 7 February that it wants
to allocate part of its gas share from Azerbaijan's Shah Deniz field
to Georgia. Negotiations are underway.
In reaction to the Russo-Georgian energy row, Azerbaijan supplied
Georgia with gas in January 2006. As a sign of the importance
the current government assigns to the strategic partnership with
Azerbaijan, the Georgian government renamed a section of the Mtkvari
River's embankment in Tbilisi after former Azeri President Heydar
Aliev, Ilham Aliev's father.
Energy deals between the three countries have prompted opposition
leader Salome Zurabishvili to ask in January 2007 whether the railway
agreement is part of a compromise in exchange for receiving gas
from the Shah Deniz field. She has underlined that Georgia risks
jeopardizing the earning potential of its ports in this transaction.
As an argument against the profitability of the railway for Georgia,
some observers say that it may undermine the potential of the Georgian
Black Sea ports of Batumi and Poti as major transport gateways to
Central Europe.
The Georgian ports, which are currently under renovation, and their
future liaison with Black Sea East European ports, certainly represent
serious competition for Turkey in the long term. Despite the two
countries' apparent shared interests, Turkish and Georgian ports may
well compete in the future as gateways to Europe.
Furthermore, the European Union (EU) itself is more in favour of
using Georgia and its ports as a transit link towards the Balkans and
Central Europe, especially in light of Bulgaria and Romania's new EU
memberships. The original idea of the EU-funded Transport Corridor
Europe Caucasus Asia (TRACECA) was to link Central Asia with Europe
via the Black Sea and the Balkans rather than via Turkey. The EU has
refused to include the Baku-Akhalkalaki-Kars railway project in the
European Neighbourhood Policy (ENP) Action Plans with Azerbaijan
and Georgia despite demands by Baku and Tbilisi. The Poti port,
however, has received financial assistance for its renovation under
the TRACECA framework.
The major problem is the lack of a governmental long-term strategy
on how to exploit Georgia's potential as a transit country. As Mr.
Gegeshidze remarks, "Georgia should have a sophisticated view of
its transit policy. There should be one government oversight body
to examine these issues as a whole and to prevent the promotion of
a railway system while neglecting the impact of the railway on the
country's ports. The government should develop a sound transit policy
with the aim of fully exploiting Georgia's geographic location."
The rapid pace of privatization in the country has led some to fear
that the government may sell some of Georgia's most valuable and
strategic assets.
In light of the vote of the U.S. Congress, American investment in
the Georgian railway sector is unlikely. The privatization of the
railway system may well interest Kazakh companies or even Russian
investors which, as some believe, would eventually further Russia's
aim of controlling transport routes in the region.