And the winner is … Azerbaijan


No, it is not Eurovision but energy in South Eastern Europe I am talking about. There is a reason why a statue of the late leader Heydar Aliev adorns a square in downtown Belgrade. Balkan governments are all busy courting Baku eager to fuel their crisis-ridden economies with Azeri gas. On average, local energy firms pay more for Gazprom deliveries than their counterparts in the West, with Macedonia reportedly holding the European record.

But quite understandably for Baku, fast-growing Turkey, whose energy needs are rising, remains a top priority in the wider region, and not the tiny and struggling Western Balkan economies. Earlier this week, SOCAR, Azerbaijan’s state-owned oil and gas company, closed a deal for building a  $4.3bn refinery close to Izmir, Turkeys’ third largest city.  SOCAR Turkey (the local subsidiary set up in 2008) says that once constructed the STAR refinery will help reduce, by as much as $2.5bn annually, the current account deficit dogging the Turkish economy.  Currently, fast growing Turkey has only one refinery in operation. The deal, involving also a consortium of Spain’s Tecnicas Reunidas, Italy’s Saipem, South Korea’s GS Engineering and Construction and Japan’s Itochu, comes after Prime Minister Recep Tayyip Erdogan and Ilham Aliyev, president of Azerbaijan, inaugurated the project with a big bang in October 2011. And in June 2012, the two leaders kicked off the Trans-Anatolia Gas Pipeline (TANAP) which will be shipping by 2017  Azeri gas all the way to Turkey’s border with the EU. TANAP is a key piece of the much talked Southern Gas Corridor, meant to diversify Turkey and Europe’s energy supplies away from Russia.

The list goes on: last April SOCAR acquired a major Turkish news conglomerate including the Star newspaper and its TV channel whose previous owner is known to be close to Erdogan himself.  In Turkey, the oft-heard mantra “one nation in two states” stresses the ethnic and linguistic relations between Turks and (mostly Shia) Azeris, but it is clear that Baku is not satiefied with the role of a smaller brother. What we see instead is an effort to build influence in Turkey itself, averting unpleasant surprises such as Ankara’s failed Armenian opening of 2009. In addition to media outlets, Azerbaijan has taken interest in Turkey’s thriving think-tank scene, funding at least one institution working in the field of foreign policy.

Move to neighbouring Greece and we see SOCAR making an $450m bid for DESFA, owner of the national gas grid, which is being privatised in line with the EU-sanctioned structural reform agenda to get the economy into shape. (Meanwhile Gazprom has placed an offer for DEPA, the gas trading company.). Prime Minister Antonis Samaras was in Baku over the weekend to discuss the deal. The rumour is that Greece is offering DESFA in exchange for the Azeris backing the Trans-Adriatic Pipeline (TAP) projected to ship gas all the way to Italy via Greece and Albania involving Norway’s Statoil, E.ON and Axpo (Switzerland). Croatia is also pushing for the pipe eager to join the bandwagon, it recently signed a memorandum with Montenegro and Albania.

TAP is a rival of Nabucco West, a joint project of Turkey, Bulgaria, Romania, Hungary and Austria (represented by their respective national champions) which seeks to channel Caspian gas to Central Europe, reducing dependency on Russia. Yesterday, the intergovernmental committee called on the European Council (in session today) to renew its support for Nabucco West. EU backing is important to nudge the Shah Deniz consortium (BP and Statoil hold 25.5% each; SOCAR, France’s Total, LUKoil – Russia, Nioc – Iran each have 10%, and TPAO from Turkey – 9%) to decide in favour of Nabucco and against TAP in June. The upcoming decision will have long-term consequences with regards to the Southern Gas Corridor. Significantly, the European Commission has exempted both projects from the legal requirement to provide third-party access to the future pipeline.

In a nutshell, Azerbaijan will be delivering gas in the foreseeable future to the EU market. European governments are already scrambling to win favour with Baku. Turkey is ahead in the game but its case is far from exceptional.

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