Problems with BTC pipeline cost Turkey $208 mln
Once hailed as ?the project of the 21st century,? the BTC now seems to have lost its charm as the pipeline has been costing Turkey millions of dollars in losses for the past three years.
Relations between BOTA? International Limited (BIL), an affiliate of the Turkish Pipeline Corporation (BOTA?) that operates the Turkish section of the BTC, and the BTC Co., the major firm responsible for the operation of the entire route, have been at odds for some time. According to claims that have recently surfaced, BIL complains that the BTC Co. failed to meet the criteria stipulated in their contract and that this has led to the loss of around $300 million for BIL over the past three years.
BIL signed a contract with the BTC Co. to operate the Turkish part of pipeline in 2006. BIL had a condition in the deal that the BTC must drill oil at full capacity, to which the BTC Co. agreed. However, an unexpected alteration to the contract ?- a switch to natural gas from oil in drilling operations ?- cost BIL millions of dollars in losses. In 2007, BIL decided to use natural gas in compressor and drilling stations since it is relatively cheaper; however, a swift rise in gas prices starting from that year led to large losses for the company. The company is now demanding that the BTC Co. compensate BIL for their loss.
BIL recently applied to the Prime Ministry"s arbitration committee to solve the problem. The company said they would not be able to profit from the project until the year 2012 unless the current issue is solved.
Turkey faces another problem in the project: According to the contract, if the pipeline operates at full capacity, Turkey would receive $170 million for transit services per year. However, the pipeline was operating at 57 percent capacity in 2007, 67 percent in 2008 and 79 percent in 2009, incurring a loss to Turkey of $165 million in transportation revenue alone. BIL paid $32 million for oil compared to $10 million in 2009. The use of natural gas has cost BIL $70 million in three-and-a-half years. With these amounts combined, BIL"s loss is anticipated to exceed $300 million by the end of 2010.
The BTC is a crude oil pipeline that covers 1,768 kilometers (1,099 miles) connecting Baku, the capital of Azerbaijan, Tbilisi, the capital of Georgia and Ceyhan, a port on the southeastern Mediterranean coast of Turkey. The BTC is the second longest oil pipeline in the world after the Druzhba pipeline. The first oil that was pumped from the Baku end of the pipeline on May 10, 2005 reached Ceyhan on May 28, 2006.