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C O N F I D E N T I A L SECTION 01 OF 02 BAKU 000333 
 
SIPDIS 
 
SIPDIS 
 
DEPARTMENT FOR EUR/SNEC AND EB/ESC 
USDOE FOR FE - SWIFT AND OS - WILLIAMSON 
 
E.O. 12958: DECL: 03/02/2016 
TAGS: ENRG ECON EPET AJ KZ GG TR
SUBJECT: BP BUILDS PICTURE OF SPLIT GOAJ ON OIL TRANSPORT 
AGREEMENT WITH KAZAKHSTAN 
 
REF: BAKU 305 
 
Classified By: Ambassador Reno L. Harnish, III, reasons 1.4 (b), (d) an 
d (e). 
 
¶1. (C) SUMMARY. In his February 28 meeting with Ambassador 
and the British Ambassador, BP Azerbaijan senior executive 
David Woodward reported that the South Caucasus gas pipeline 
project (SCP) is continuing on schedule and the 
Baku-Tblisi-Ceyhan oil pipeline (BTC) should remain on 
schedule as well if a cost-overrun agreement is achieved with 
Turkish pipeline company BOTAS later this month.  BTC has 
experienced its first hot-tap (in Turkey), but BP was pleased 
by the first successful prosecution of a hot-tap in Georgia. 
Woodward also discussed the recent labor unrest at the Baku 
maritime construction yards operated by BP's contractor 
McDermott and described his recent meeting with State Oil 
Fund chief Samir Sharifov, whom he characterized as 
Azerbaijan's leading strategic thinker on energy.  Sharifov 
seems to be in favor of a version of the proposed 
Inter-Governmental Agreement for the transportation of 
Kazakhstan's oil through Azerbaijan that would designate BTC 
as the exclusive route.  This is the complete opposite of the 
current text, backed by others in the GOAJ, such as Valekh 
Alasgarov, that would include but not be limited to BTC.  END 
SUMMARY. 
 
--------------------------------------------- -------- 
PROGRESS IN FIGHTING HOT-TAPS, BUT NOT IN SELLING GAS 
--------------------------------------------- -------- 
 
¶2. (C) In BTC news, David Woodward said that the first 
lifting of BTC oil from Ceyhan still looks set for the end of 
May, again assuming that the USD 400 million claim of BOTAS 
is settled in March (reftel).  BOTAS has given BP a deadline 
of March 20 to settle the claim.  The next stage of line-fill 
begins on March 6, Woodward noted.  In SCP matters, the TPG 
platform is set to be floated out to the Shah Deniz field in 
March and the project is on track to deliver gas by the third 
quarter of this year. 
 
¶3. (C) BTC has experienced its first hot-tap, said Woodward. 
The hot-tap occurred in northeastern Turkey.  On a related 
subject, BP was pleased to see the first successful 
prosecution of a hot-tap case in Georgia -- previously, 
Woodward said, persons arrested in connection with hot-taps 
had been allowed to plea bargain and pay fines instead of 
serving jail sentences. 
 
¶4. (C) On gas, Woodward reported that SOCAR continues to not 
respond to BP's project proposal to provide more ACG 
associated gas to Azerbaijan in exchange for drilling rights 
to the deep gas reservoir there (reftel).  Woodward said that 
Georgian Prime Minister Noghaideli has requested a meeting in 
March with the Shah Deniz partners, presumably to discuss 
getting more Phase I gas for Georgia or to discuss 
accelerating Phase II. 
 
--------------------------- 
LABOR TROUBLES AT MCDERMOTT 
--------------------------- 
 
¶5. (C) Woodward briefly commented on the recent "strike" at 
McDermott Caspian Construction Inc. (an American maritime 
construction company operating on contract to BP in 
Azerbaijan), which followed an incident when two expatriate 
managers removed grisly photographs of the Khojaly massacre 
from a company bulletin board.  There was a brief strike by 
employees, with plenty of press coverage, which ended when 
McDermott's country manager apologized.  The two managers 
were reassigned and have left Azerbaijan, one of them 
escorted to the airport by security forces. 
 
¶6. (C) Woodward and many others feel the incident to have 
been orchestrated, as the news media seemed to know it was 
coming.  Yet, he asked rhetorically, what is the motivation? 
Who would benefit from such an incident?  One goal may be to 
 
BAKU 00000333  002 OF 002 
 
 
create a new union for the work force.  There may be other, 
more nationalistic goals as well, said Woodward.  There are 
three major construction yards in Baku -- Bosshelf, ATA and 
McDermott.  McDermott is the only one that has non-Western, 
third-country nationals -- Indians, Pakistanis, Philippinos 
-- supervising locals.  ATA uses primarily Turkish 
supervisors and Bosshelf uses locals in supervisory positions 
as much as possible. 
 
--------------------------------------------- ------- 
SAMIR SHARIFOV:  NO PROGRESS ON ECONOMIC MODELING... 
--------------------------------------------- ------- 
 
¶7. (C) Woodward met recently with Samir Sharifov of the State 
Oil Fund.  Woodward considers Sharifov to be the primary 
strategic thinker on energy in the GOAJ today, and President 
Aliyev's closest energy advisor.  Sharifov, for example, will 
attend the next BTC Periodic Review Board meeting in Ankara. 
Woodward raised with Sharifov the issue of SOCAR's 
non-responsiveness on the proposed ACG associated gas project 
and other initiatives.  Woodward also brought up the question 
of economic modeling.  One year ago BP offered assistance in 
the creation of an economic modeling unit for oil revenue 
management, but the GOAJ has never given a final response 
(other than to say that any such unit would be housed in the 
State Oil Fund).  Sharifov told Woodward that he is concerned 
that the Asian Development Bank may be working on a 
duplicative modeling project with the Ministry of Economic 
Development.  Woodward said that BP's Oxford partners on this 
issue would soon travel to Azerbaijan and make sure that 
unnecessary duplication is not taking place. 
 
--------------------------------------------- ------------ 
...BUT WANTS KAZAKH OIL TRANSITING AZERBAIJAN ONLY IN BTC 
--------------------------------------------- ------------ 
 
¶8. (C) Sharifov told Woodward in the same meeting that he 
does not support the current draft of the Inter-Governmental 
Agreement for bringing Kazakhstan's oil to world markets 
through Azerbaijan.  Sharifov says that he wants the IGA to 
specify that this oil will be transported only via BTC. 
Ambassador noted that the influential Valekh Alasgarov, a 
deputy speaker of parliament and chair of the parliament's 
energy committee, has expressed exactly the opposite view -- 
that the IGA should permit the movement of Kazakhstan oil by 
any transportation system, including but not limited to BTC 
(reported septel).  The current text of the IGA reflects 
Alasgarov's view.  Woodward also said that Kazakhstan has 
expressed a willingness to sign the IGA during the 
first-lifting ceremonies at Ceyhan in June. 
HARNISH