CASPIAN ECONOMIC MARATHON

Interview
with the Extraordinary
and Plenipotentiary Ambassador
of the US to Azerbaijan
Mr Reno Harnish

Development of deposits for strategic energy resources in the Caspian region and plans for transporting the hydrocarbon resources to world markets have significantly changed the balance of interests of the world powers in this busy and perspective subcontinent of the planet. In the beginning of the 1990s tensions of economic rivalry almost brought them to sharp political confrontations. With time, the tension was diffused by extending the belt of cooperation to embrace all sides that used to be diametrically opposed to each other.
Today, when the development of the oil and gas deposits has been shared and pipeline routes transferred from the map to the ground, a leader in the Caspian economic marathon has emerged. The indisputable favourite of this grand oil & gas game is the US. Multibillion investments from American companies and partnership in the arising infrastructure of littoral states have significantly changed the industrial and social image of the new independent formations. And US officials continue to confirm that "the development of Caspian energy resources and the construction of the pipeline have been, and remains, one of the main areas of the foreign political strategy of the US."

- Your Excellency, the US has fairly called modern 'Caspian diplomacy' as successful as a result of the realization of political and economic initiatives. In this light, may I ask you to kindly comment on the morphology of prospects of US diplomacy in the Caspian region?

- I think that the policy has been a successful one. The 1st one was to realize that the Caspian is one of the major basins of energy in the world. And this was back to early mid 90s I remember because I was working as an office director for Central Asia at that time. But the problem was that oil and gas were relevantly isolated and the question was how you could get it to markets. And I remember at that time there were many different ideas on how to get to international markets. And eventually we began to work with the industry and to look at this project which is developing - the East-West energy corridor. And I want to stress that in the beginning the companies were even a bit skeptical because this is a huge undertaking across three international boarders. And this pipeline… There was nothing like that in the world.
The second part of this diplomacy is only now beginning to be acknowledged. As we are bringing the energy sector to completion and it has success then we also want to work with the countries of the Caspian to ensure that it's a secure area. And you have seen some of this already as the US works with Georgia, Azerbaijan and Kazakhstan. In this policy area there's more to come.
I would say this has been a successful policy. It helped the countries of the Caspian by reinforcing their sovereignty and the territory integrity. It's helped the oil and gas market of the world. Because it's diversifying them, they are going to be less dependent on the Persian Gulf resources once the policy comes to the completion on the Caspian. And finally I'd say that it helps tie Azerbaijan, Georgia and the Caspian region into greater European political and economic space. The US supports the integration of this region into Europe-Atlantic structures. And I think it will be helped as gas flows up hopefully to Italy, Vienna and oil comes to European refineries.

- A collision of interests of many countries in this rich region gave rise to tensions. That quite seriously disturbs and at times blocks the realization of urgent economic projects. What conditions can US diplomacy initiate to neutralize this dangerous tendency?
- Yes, we are. I think a couple of points should be noted. One is that there's no competition between the US and Europe or the US and Russia with regard to the Caspian Basin. As I answered in my previous qestion we support integration of Azerbaijan, Georgia, this part of the Caspian region into the Euro-Atlantic. But also we are interested in working cooperatively with Russia throughout this region. I think sometimes some newspapers present some false picture of confrontation between the US and Russia. And the way we care about is that we keep a regular series of consultations with Moscow. And for example this week Dr. Rise is in Moscow discussing regional cooperation issues. But most importantly we work very closely with the nations of the Caspian. We have regular consultation in Astana, Ashgabat, Georgia, and Azerbaijan. We see what we can do here to reduce tensions. For example with regarding to the recent discussion on Adjaria our position was that there should be a peaceful resolution of the issues that Mr. Saakashvili and Mr. Abashidze were disagreeing about. So earlier in Nagornyi Karabakh we are actively engaged in the diplomacy of Nagornyi Karabakh. Recently our Caspian negotiator Steve….. was asked to take on a second task to be our representative on the OSCE in Minsk group. And that's a big step forward; he knows the region and would have, I think, very successful discussions between foreign ministers of Armenia and Azerbaijan and between the presidents of Armenia and Azerbaijan. And we hope for just and lasting negotiated solution after these discussions. So our desire to see this as a zone of stability extends to an active diplomacy throughout the region.

- The presence of American interests in the Caspian Sea basin has been established in the most convincing form. I mean the multibillion investments in the basic sectors of the economies of these countries in the region. And the situation over the recent past has shown that US businesses in practice does not experience any threat or danger. In that case how proven are plans to deploy a military contingent from the US or NATO in the region?
- That's quite a question. There are a lot of elements in it. Let me address some of them. First of all I believe that the primary threat to the primary asset here is the question of the successful operation of the energy corridor of the Southern Caspian pipeline for gas and BTC pipeline for oil. And I'd like to emphasize that the way we see that being stabilized against the threats is two ways, but neither of them has to do with American soldiers. The first way is something we pioneered along with the producing companies and the owners of the BTC pipeline and this is social stability. Both the members of the pipeline consortium and agencies such as the US agencies for international development began to do projects along the pipeline route so that people in Georgia and Azerbaijan could see the benefits of the pipeline in their lives, for better education, better medical care, streets, and these things that are practical and beneficial. That creates social security and social stability for the East-West energy corridor.
The second element of security for the pipeline, of course though cannot be only social security, it has to be a good security system, good police protection system. In Azerbaijan that responsibility is taken by the President's special protective service led by general Akhundov and we are working closely with special protection services in providing training on the skills necessary to be successful in predicting problems of the pipeline. And they are also receiving a great deal of training from the oil companies such as BP. Finally they need a good communication system and control network and we are beginning talks with Azerbaijan to see how they can have a crises management control centre that allow them to find out about problems developing and move resources to resolution of that security threat. That is a question of security for East-West energy corridor. With regard to security to other American investments I'd say that an important matter to consider is whether it's an oil sector or non oil sector. President Aliyev made a very wise policy when he established the idea of PSAs which provided a clear rule of law for oil companies and their investments. So I would say that oil industry investments are quite secure. In the non-oil and gas sector there's an insecurity of investment. The American companies that have invested here and operated here have tended to find it difficult to secure or to enforce their contracts in the court system. They found that the tax and customs that face them are vague and tending threat. So the remedy there again is not military, it would be the decision by Azerbaijan policy makers to change the laws to enforce the laws and to create a climate where business is not afraid.

- The issue of creating a 'Caspian cartel' like OPEC has become a burning issue. It is noted that the US is lobby this idea in the hope of placing an end to the pricing dominance of OPEC. How true are such assumptions?
-The US generally opposes cartels. And in fact we have very strict laws against the monopoly in the US. So my guess is that we would not favor a Caspian cartel. We believe that energy like other products should be priced at the cost that it takes to produce it versus the amount of demand for consuming. Right now there seems to be a shortage on the world energy markets versus a demand as we know the price of oil has risen up to 40 $ a barrel. It could have been a good thing for the Caspian Basin to be developed and brought to the world energy markets. This gas has got to be getting to Europe. We need to get Caspian gas to Europe. Let me mention that in this regard it could only be beneficial to the world community if there were a gas line, that were developed from Turkmenistan across the Caspian to connect to the BTC Shah Denis. For that matter, the US would very much favor the development of the so called ABTC, a pipeline from Kazakhstan to connect with the BTC. And because of the huge amounts of oil that need to be moved out of Kazakhstan which can't all go through one particular pipeline it makes sense for the world community to get some of that oil going by different routes to western markets. And in fact we are talking to those governments about the importance of doing this. So we favor the pricing of oil and gas and energy at the price which reflects the demands of the markets and the costs of production meeting and equalizing and over the long term we think this is the way to manage the energy market.

- In the new post-Soviet countries in the region, namely Azerbaijan, Kazakhstan and to some extent Turkmenistan, American capital has a decisive influence in the fuel and energy complex. However the non-oil sector of the economy of these countries for the time being is not of considerable interest to US business circles. What is the reason for that?
- I think to a certain extent we have already begun to invest in non oil sector in the Caspian region. In fact this goes back to the early 90s when I was in the State Department for Central Asia. I remember assisting an American company to operate a gold mine in Uzbekistan and a copper mine in Kazakhstan. So, we were already investing in the early 90s. And we also looked at investing in sectors that were representing western opportunities for example telecommunications. The US has great strength in telecommunications sector, for example, here in Azerbaijan a number of companies have invested. However in that sector we found some of the facts I was talking about before, the courts, the unstable tax and customs facing the companies. All of these factors draw them out of the market...
Now looking to the future when we say these things, it has to be something that has a potential of making money. We are interested in investing in Azerbaijan and I presume that any of my American ambassador colleagues around the Caspian could tell you similar things. In the case of Azerbaijan which I know best some of the opportunities might be in agriculture. We have certainly a lot of experience in food production and see great opportunities in providing services and providing technologies for canning, processing and helping the Azerbaijan agricultural sector get back to work and be a primary resource of food. And to start down this road, we've set up several major assistance programs for agriculture which should help us to get off the ground there. And another area that is interesting here is tourism. You have so many assets in Azerbaijan, the high Caucasus, the beaches, the historical monuments; someone should be making them into the same kind of tourist attractions that say Turkey has. To start that out, we have given recently a Trade Development Agency grant of USD350 000 where the American consultants will help the Tourism Ministry study the market here and make recommendations on how to get it up and moving.

- Mr Ambassador, the expanding contours of partnership is encouraging. However the unresolved Azerbaijani-Armenian territorial conflict is a matter of concern. There is growing dissatisfaction in Azerbaijan for the mediatory missions of the international community and influential countries like the US, Russia and France that have joined the mediatory process. One gets that impression that the mediators limit themselves to organization functions, by simply seating the conflicting sides behind a table. Diplomatic activities from these mediators are hardly felt…
Do you agree with that?
- I'm happy to answer this. It's relevant to the Caspian Basin. I have answered this question many times but basically I think that diplomacy has done tremendous job here in the region with regard to this conflict. And I think there'll be the final solution. Let me say that I completely disagree with anyone here who says the solution is armed conflict. And we know Azerbaijan lost 16% of its territory and has 750 000 people internally displaced. Taking the diplomacy of the Minsk group - we're not merely being operational but we're working on a concept of a step-by-step resolution of the Nagornyi-Karabakh conflict. An agreement was reached, but unfortunately in Armenia thought that this was not favorable to them and Mr. TerPetrosyan was forced to leave the presidency and Mr. Kocharan ascended the presidency. The Minsk group continued to provide its ideas and energy and including our deputy secretary Mr. S. Talbot was deeply involved in the negotiations which led up to a new solution on a land for land agreement. Unfortunately as he was leaving for the airport, radicals in Armenia shot down a lot of the supporters of this agreement in the Parliament. Finally in 2001 again it was close to resolution this time on a package solution basis. This time it's not clear to me exactly who to blame and what caused the problem but we were not able to clench the deal. The point is that there are negotiated solutions to this conflict. And we are interested in bringing this conflict to a conclusion with negotiated just and lasting solutions now.

- Integration is the dictate of today and it is difficult not to agree. In harmonizing this important process a significant role is genuinely played by the spiritual and cultural relations of the people. The form the foundation of trust on which layers of cooperation is built. For that reason I would want to know your assessment of the state of Azerbaijani-American cultural relations…
- I think you have put your finger on an important question. I think that the people of Azerbaijan particularly in some of the cities and rural areas are much cut off from outside world. This kind of tendency takes its beginning since times of Soviet Union. This makes it difficult to think about other cultural, political and economics solutions. We tried to improve this situation. We have created a program of exchanges, which has recently been as much as 1.25 million dollars. I think it is a wonderful program for reducing cultural differences. We have various programs for high school students, for colleges, for MBA students (Musqui, FLEX).
But we have many others ways of amplifying these cultural connections. For example -jazz. Jazz is American tradition and it is also your tradition. So it is a unique instrument for bringing our cultures together. We have educational exchanges and a lot of new programs that can show and explain American culture to the Azerbaijan people. I think cultural exchanges are very important as we try to work together on some important projects and issues like political change and market economy. We have to speak a common language.

- Mr Harnish, we thank you for these interesting thoughts and wish you success in carrying out your difficult mission.
- Thank you.