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P 240430Z APR 06
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C O N F I D E N T I A L SECTION 01 OF 02 BAKU 000624 
 
SIPDIS 
 
SIPDIS 
 
USDOE FOR FE - SWIFT AND OS - WILLIAMSON 
 
E.O. 12958: DECL: 04/24/2016 
TAGS: AJ PGOV EPET KZ PINR PREL TX
SUBJECT: AMBASSADOR'S FAREWELL CALL ON ENERGY MINISTER 
NATIK ALIYEV 
 
 
Classified By: DCM Jason P. Hyland, reasons 1.4 (b), (d) and (e). 
 
¶1. (C) SUMMARY.  In a wide-ranging discussion on the eve of 
Ambassador's departure from post, Azerbaijan Energy Minister 
Natik Aliyev argued for a trans-Caspian gas pipeline bringing 
natural gas from both Kazakhstan and Turkmenistan through 
Azerbaijan to European markets.  Aliyev also expressed mild 
irritation with the ongoing negotiations to establish an 
Inter-Governmental Agreement (IGA) for the transport of 
Kazakhstani oil through BTC, arguing that ministries need to 
be stopped from endlessly revising the agreement so the 
project can move forward.  Aliyev stressed the need for a 
peaceful solution to the Nagorno-Karabakh dispute and stated 
that he felt Azerbaijan still needed to work with foreign 
energy companies for successful energy exploration and 
development projects.  Lastly, in discussing BTC, Aliyev said 
that while the Turkish state pipeline company had demanded 
USD 333 million to cover alleged overruns, BP had countered 
with an offer of a guaranteed USD 250 million and a clean 
slate, eliminating any future claims or arbitrage.   END 
SUMMARY. 
 
¶2. (C) Ambassador paid a farewell call on Natik Aliyev (no 
relation to President Ilham Aliyev), Minister of Energy and 
Industry, on April 14.  Aliyev expressed his gratitude for 
U.S.-Azerbaijan cooperation on energy issues and said that 
without U.S. support projects like BTC would have been 
impossible to achieve.  Aliyev added that he had just 
attended the Black Sea energy conference in Bucharest where 
he had sensed a new European interest in Caspian energy 
resources.  Aliyev said that he felt Caspian energy resources 
could move in two directions -- either to Europe through 
Azerbaijan and Turkey as pioneered by the SCP pipeline, or 
perhaps towards eastern markets such as India. 
 
----------------------------- 
GETTING CASPIAN GAS TO EUROPE 
----------------------------- 
 
¶3. (C) Aliyev argued that a Trans-Caspian Pipeline (TCP) 
could play a very important role in meeting Europe's energy 
needs.  A Trans-Caspian pipeline could link Central Asian gas 
to the proposed Nabucco infrastructure, bringing gas from the 
Caspian through Turkey, Bulgaria, Romania and Hungary, 
culminating in Austria where the gas would be distributed to 
France, Germany and other EU countries.  Ambassador asked 
about the one trillion cubic meters of gas that may lie at 
Shah Deniz and the role it could play in meeting Europe's 
energy needs.  Aliyev agreed that this is a significant 
amount, potentially 20 bcma.  However, Aliyev said, 
Azerbaijan's gas resources alone will not be enough to export 
meaningful quantities to Europe.  The best solution, he 
argued, would be to bring gas from both Turkmenistan and 
Kazakhstan across the Caspian to join with Azerbaijan's gas 
resources for export. 
 
¶4. (C) The Ambassador asked if there are other potential 
export routes besides Nabucco.  Aliyev said that other routes 
are being discussed, such as one culminating in the Balkans 
and another running across the Black Sea to Ukraine and 
ultimately Poland.  The Turkish-Greek-Italian connection is 
another active concept, he said.  Aliyev voiced mild 
criticism of Turkey's recent approach to gas, saying that the 
Turks are trying to buy gas at one price and then resell it 
at a higher price.  Aliyev said that Europe is moving towards 
a freer market and that Turkey should follow this example, 
letting gas transit its country and collecting a single fee. 
There is a lot of movement in the European gas market now, 
Aliyev noted, driven primarily by fear of Russia.  The 
Ambassador brought up the idea of President Aliyev's making a 
statement about Azerbaijan's willingness and ability to play 
a role in bringing gas to Europe during his upcoming visit to 
Washington.  Natik Aliyev agreed the idea should be 
considered. 
 
-------------------------------- 
GETTING KAZAKHSTANI OIL INTO BTC 
-------------------------------- 
 
¶5. (C) Ambassador asked about Natik Aliyev's view of the slow 
pace of the negotiations over the draft Inter-Govermental 
 
BAKU 00000624  002 OF 002 
 
 
Agreement (IGA) to bring Kazakhstan's oil to Azerbaijan. 
Aliyev said the IGA is taking a long time because the 
documents are being circulated again and again among the 
ministries for revisions -- a process, he said sardonically, 
which could theoretically go on forever.  "If we had done 
this with the BTC agreements," Aliyev declared, "we never 
would have achieved anything."  In what was perhaps a 
backhanded swipe at President Aliyev, the minister recalled 
the days of the BTC negotiations and then-President Heydar 
Aliyev, who at a certain point made a decision and told the 
inter-ministerial process that the document was finished. 
Kazakhstan representatives will arrive in Baku shortly and 
another round of talks will begin. (NOTE: Kazakhstan 
representatives arrived the week of April 17 and negotiations 
are currently in progress.) 
 
------------------------- 
VIEWS ON NAGORNO-KARABAKH 
------------------------- 
 
¶6. (C) Ambassador asked about the Nagorno-Karabakh (N-K) 
conflict, adding that he worries about the future when he 
hears bellicose rhetoric on the subject.  Aliyev agreed, 
opining that it is a bad idea to constantly talk about war. 
Aliyev said he feels the GOAJ must take every possible chance 
for a peaceful resolution of N-K.  "War destroys everything," 
he said, pointing out that Azerbaijan has made much progress 
over the past few years that would be put at risk by renewed 
hostilities. 
 
------------------------------ 
AZERBAIJAN: OPEN FOR BUSINESS? 
------------------------------ 
 
¶7. (C) The Ambassador shared the perspective of some 
international companies that the GOAJ is discouraging new 
projects by foreign firms in the energy sector.  Aliyev 
denied that this is the case and said that his philosophy is 
to invite international investors into projects in order to 
share risk.  In his view, the risk is still considerable and 
for the next few years Azerbaijan will have to continue 
partnerships with foreign companies on most ventures. 
 
¶8. (C) The Ambassador pointed out that many American 
companies are looking to grow their presence in Azerbaijan, 
noting the maritime construction company McDermott as an 
example.  McDermott would like to make Azerbaijan the hub for 
all its Caspian projects, similar to its operations in the 
UAE and Indonesia, but needs a duty-free zone if this is to 
make commercial sense.  Aliyev said that in order to 
establish a duty-free zone, the parliament has to pass a law, 
based on advice from SOCAR, the Energy Ministry and the 
Presidential Administration.  Ambassador urged Aliyev to look 
seriously at such proposals, which would benefit Azerbaijan 
as well as American investors. 
 
-------------- 
COMPLETING BTC 
-------------- 
 
¶9. (C) Ambassador asked for Aliyev's take on the current 
state of BTC.  Aliyev said that BP is still in negotiations 
with BOTAS, the Turkish state pipeline company, and that the 
May 27 deadline to finish all work still stands.  A six-day 
delay between pump stations 3 and 4 has just ended.  As 
Aliyev described it, BOTAS has claimed USD 333 million from 
BP.  BP, says Aliyev, has made a counteroffer of a guaranteed 
USD 250 million that would settle all outstanding debts and 
eliminate any need for arbitrage. 
HARNISH