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A stumbling block to Nabucco project

We are at the last quarter of June, and it looks like it will take a miracle to have a signing ceremony in the remaining days of the month.

In contrast to the expectations, it was not possible to reach an agreement on taxing issues.


It seems that we are back to square one on the Nabucco project, the pipeline that will carry Central Asian natural gas to Europe via Turkey. Last month there was information that Turkey had eased the terms by which gas will transit its territory. Tough disagreement on tax issues remained to be the last problem; hopes were high that it will be solved quickly in order to have the intergovernmental agreement laying the legal framework among the transit countries ready to be signed by late June.


We are at the last quarter of June, and it looks like it will take a miracle to have a signing ceremony in the remaining days of the month.


In contrast to the expectations, it was not possible to reach an agreement on taxing issue. But this is not the only reason why there is a delay on getting the intergovernmental agreement ready.


Turkey’s requests to have 15 percent of the gas allocated to itself seems to have come back on the agenda, a European source familiar with the issue told me.


"Fifteen percent lift-off drops from the agenda then it comes back.We have the feeling that there is disagreement between Prime Minister Recep Tayyip Erdoğan and President Abdullah Gül. The latter seems to be more flexible on the issue.But it is Erdoğan who has to decide," he said, asking to remain anonymous, due to the sensitivity of the subject.


But the problems apparently are not limited to these two issues. It seems that there is now an additional issue that needs to be solved. As it is evident that Azerbaijan will not provide enough gas to fill the pipeline, there was a general agreement that, in addition to the Georgian point of entry (dedicated to Central Asian gas) there will be two more entry points to the pipeline: Iran and Iraq. But although Turkey had given its consent to have Iraq as an additional point of entry, it has now changed its mind and does not want to have Iraqi gas included in the agreements. "We think the Turkish side wants to keep Iraqi gas for itself," said the European source.


It looks like there is an additional source of unease for Turkey as far as Iraqi gas is concerned. Newsweek has reported that a consortium of gas companies from Austria, Hungary and the United Arab Emirates recently struck an $8 billion deal with Iraq's Kurds to source gas from their region, run it through the pipeline via Turkey and thus solve Nabucco's supply problems. Turkey reacted to the deal, said the report of Newsweek, adding: "Rather than allowing Iraqi Kurds to enrich themselves with gas money - which would likely bolster their de facto independence from Baghdad - Turkey prefers to bank on the chance that its ally Azerbaijan will be able to produce enough gas to fill the pipe."


The European expert on the Nabucco project, whom I met at the renowned Halki International Seminar last week, has shared his concerns on the future of Nabucco during discussions at the seminar. "We understand Turkey’s concerns, they are legitimate. But a 15 percent lift-off is not acceptable to us since it does not make the project economically viable for us," he said. "It is definitely in the interest of the European Union to have pipelines passing through Turkey. But there are also alternatives to Turkey. The Turkish government should not overplay its hand. Turkey has an interest in making this work, too."


It was interesting to hear an official from Azerbaijan who was present at the seminary to echo the same message. "Turkey should not think it is the only alternative route to Central Asian natural resources," he said, implying that the Turkish government stance to see itself as the only alternative destination is complicating negotiations between Turkey and Azerbaijan too. "An agreement between Turkey and Azerbaijan especially on the transit fees is critical for Nabucco, too," said the European expert. "There should be a fixed price for the transit fee. Azerbaijan does not want to renegotiate the deal each time. This is an issue other companies are following carefully as well," he said.


Nabucco takes its name from an opera but we are far away from the finale. In fact, it is starting to look more like a never-ending soap opera.