BTC pipeline financing deal signed

Turkey, Azerbaijan, and Georgia signed four deals with oil firms, government agencies, and a banking syndicate to finance the 1,760-km US-backed project, whose total costs have risen by 20% from initial estimates to $3.6 billion due to interest and the expense of filling the line with oil.

“That (the deals) has effectively sealed the commercial viability o the project. This is a solid financing basis for the BTC,” a senior Turkish energy official said. “After years of reluctance, international financial institutions have decided to support it. This means we are now in effect in the final step to realising this project.”

The BTC, due to pump a million barrels per day of Caspian crude to the Mediterranean coast from April, 2005, has been seen as a way for the United States to weaken Iranian and Russian influence in the oil-rich Caspian region.

Turkish and Azeri officials said their governments had decided to name the pipeline in honour of Azerbaijan’s late President Haydar Aliyev, who died late last year. Turkey also proposed naming the terminal at the Ceyhan end after Mr Aliyev, a senior Soviet bureaucrat who although stifling dissent and nurturing a ubiquitous personality cult, is nevertheless credited with bringing stability to the troubled ex-Soviet state.

Last week’s ceremony formally completed pre-arranged financing agreements under which 30% of construction costs are covered by the pipeline shareholders, which include oil majors BP, ENI, Itochu, Unocal, Statoil, ConocoPhillips, and Total. Remaining loans for the pipeline, which is already half-built, are being provided by shareholders and banks.

BP, Statoil, Conoco, and Total will lend a total of $923 million, of which BP will put up $566 million. Japanese JBIC will lend $480 million, the European Bank for Reconstruction and Development and the International Financial Corporation will provide $125 million each. A 15-member banking syndicate, led by Japan’s Mizuho, Societe Generale, of France, Dutch ABN Amro, and US Citicorp, will lend a total of $936 million. The project participants told a news conference they still estimated the pipeline’s net costs at $2.95 billion, but they will need another $250 million to buy the first 10 million barrels of oil to fill the pipeline.

Another $400 million will be required to pay back interest on the $2.6-billion financing, which puts the total project’s cost at around $3.6 billion. The group will start paying back the principal at the end of 2006, and will fully re-pay in 2015. The huge pipeline, whose return on investment is set at 15%, will deliver profits for the first time from 2024.

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