Georgia Intent to Revise BTK Project
27 December, 2012
Georgia Intent to Revise BTK Project
Tbilisi questions upcoming Baku-Tbilisi-Karsi (BTK) railway project’s economic benefits to Georgia and is intent to revise the project. New Prime Minister Bidzina Ivanishvili presumes that after BTK railway becomes operational, the active trunk railway of Georgia, connecting Caspian Sea with the Black Sea as well as Georgian ports, may lose cargo.
To find out whether or not the BTK possible benefits may offset the expected losses of Georgia and revise the contract terms in line
to Georgian interest, Ivanishvili plans to discuss the issue during his visit in Azerbaijan scheduled in coming days in Baku until New Year. Ivanishvili does not question implementation of the BTK as such, but the project terms.
“The project should be completed” he said during his briefing with Georgian media on December 24, 2012, “But terms should be revised.”
Georgian economic analysts agree with the Premier as they find decisions of previous government taking around UDSD 770 million of preferential loan from Azerbaijan to construct Georgian section of the BTK project, that cuts much bigger ice with Azerbaijan and Turkey, premature and to be corrected.
Ditrikh Muller, a co-founder of Georgian Investment Group, believes BTK undermines geopolitical importance of Georgian east-west corridor incorporating Georgian main railway line and Black Sea ports in Poti and Batumi – this entire infrastructure package is one of the core chains of TRACECA transit corridor connecting Asia with Europe through the shortest route. And Georgian ex-government had better attract loans for enhancing productive capacity of this corridor first of all the railway [with more than 2 thousand kilometer in length] running from Baku to Poti and Batumi ports rather than take a huge loan to construct its alternative route with twice less productive capacity and unclear tariff policy, and that on the top of all was strongly disapproved by western partners of Georgia the US and the EU for the BTK aimed at isolation of Armenia from regional projects.
Washington went as far as prohibited American financial institutions to participate in the BTK but the interest of Azerbaijan and Turkey, both having closed borders with Armenia due to past political conflicts, was so high in building direct overland connection detouring Armenia that they launched the project based on their own resources.
The thing is that the BTK route provides an alternative route bypassing the already existing historical railway route running from Kars to Baku through Armenian city Giumri and Tbilisi that was cut out after Turkey closed its borders to Armenia to support Azerbaijan in its territorial conflict with Armenia over Nagorno-Karabakh region. Yerevan stressed on this route’s activation when talks on BTK started as it required less investments and might facilitate to the economic integration of the countries in the region. However Azerbaijan preferred to pay political price and lay down a completely new rail bypassing Armenia that baffles the latter’s prospects to restore the existing Giumri-Kars route in a long run.
According to Muller, Turkey’s interest was even higher. It is an open secret that the north-east part of Turkey near Kars is quite underdeveloped from infrastructure and economic point of view. This region may avail a lot of the railway construction connecting with the Bosporus Strait, one of the most developed parts of the country. Besides, this on-rail route is believed to discharge the Turkish ports of Bosporus off permanent bottlenecks once the planned rail tunnel under the Bosporus Strait in Istanbul is complete.
Georgia is the only BTK participant that faces losses: its major railway loses monopolist position of the vertically integrated rail carrier in the Europe-Caucasus-Asia transport corridor and Georgia took USD 770 million to finance its rival venture. While Georgian Railway (GR) revenues account for 2.1% of Georgian GDP and the lion’s share on GR cargo transportation comes on Azerbaijan and Caspian countries.
GR productive capacity handling with 20 million tons at the moment is expected to be enhanced to 30 million tons per year by 2017 after its infrastructure will be rehabilitated and the railcar fleet enhanced. Meantime the estimated productive capacity of BTK is forecasted to reach 15 million tons of cargo and three million passengers’ transportation by 2030. But on its initial phase the BTK is supposed to transport a million passenger and 6.7 million tons of cargo. And this initial phase may last for 10 years.
On the other hand, the state owned GR has always been complaining that cannot attract due financial resources to improve GR infrastructure for enhancing GR’s productive capacity. Mullers believe that had Georgian government applied due efforts it might have easily found sufficient sources from international financial institutions like World Bank [and its group members] for enhancing GR’s productive capacity at much softer credit terms than the questioned USD 770 million designed to the BTK and refuted by the west.
“Georgia should evaluate more expensively transit of cargos through its territory, the transit price and the geopolitical benefit that Azerbaijan and Turkey will enjoy by connecting overland route through Georgia. Georgia is at loss, ports are at loss, turnover of cargos decline toward Black Sea and it comes out that we borrowed USD 770 million to construct a railway the benefit of which to us is less,” Soso Archvadze, an economic analyst told Georgian Journal.
However both Muller and Archuadze think that once BTK project is already at its final phase it should be completed by all means but by revised terms. Muller believes BTK may be profitable to Georgia eventually if the tariff policy will be properly streamlined with the GR tariffs.
“More and more cargos are expected to come from the east to west. China that became number two economic power as well as emerging Middle Asian countries like Kazakhstan and Turkmenistan are interested to send more cargos to Europe bigger part of which is transported through quite a long way onward Russia and Baltic ports at the moment. China and Asian countries seek for shorter alternative routes that obviously lay on Georgia if you look at the map, but GR cannot handle with the real cargo demand even with extended turnover capacity. The BTK may take off the extra cargos and neither GR nor Georgian ports will be at loss due to increased demand but this is possible only if equal tariffs will be fixed by GR and BTK. If BTK comes out by lower tariffs it may really affect our part of TRACECA corridor,” Muller elaborated.
As far as nobody is aware of exact contract and tariff terms, Muller finds it more than apt to negotiate the BTK project terms
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