Southern Gas Corridor Pipe Dream at Risk
The financial backing for Azerbaijan's much-heralded Southern Gas Corridor (SGC) is at its shakiest since the project to bring Caspian gas to Europe was first proposed in 2008. Earlier this week, the board of the Extractive Industries Transparency Initiative (EITI), an international petrochemical industry group, laid out the conditions Baku would need to meet to maintain its member status.
International financial institutions, including the World Bank and EBRD, have made their billions of dollars in financing for the project contingent on Azerbaijan staying in the EITI's good graces. It is highly unlikely that private financing would be able to replace these lost funds, and the project would essentially be dead.
To keep it alive, Azerbaijan needs to end a reregistration requirement that it uses to eradicate independent-minded NGOs as well as stop requiring foreign and domestic NGOs to register grants with the government. If it concedes, it would be the first positive legal development for civil society in the country in years.
Reactions from international activists who campaigned on the issue have varied, with some arguing Azerbaijan was permitted to cross a "red line" by dodging expulsion for four more months, while others were cautiously optimistic about a what may turn out to be a positive development in 2016, a year that has seen more than its share of misery. As a member of an organization that signed a statement calling for Azerbaijan's expulsion this week, the writer of this piece can only state that he is ambivalent.
Azerbaijan now finds itself in a difficult position: comply with the EITI, or lose the Southern Gas Corridor. It may be a bitter pill for President Ilham Aliyev to swallow after years of boasting of his "independent foreign policy," which may explain how state-friendly media has barely mentioned the decision. The truth of the matter is that after years of showing zero interest in diversifying the national economy away from petrochemicals, the nation's elite may have tied their own hands - Azerbaijan literally cannot afford to not build the SGC.
A curious detail of the decision are rumors that the United States led the push to save Azerbaijan from expulsion, out of a view that the SGC would serve as a counterweight to Russian dominance of Europe's gas market. If this is the case, it's a rather opaque argument, as a recent assessment from respected independent analysts at the Oxford Institute for Energy Studies estimate Azerbaijan will be able to supply Europe with only 10 bcm of gas per year by 2025, or less than 2 percent of the continent's anticipated need. Gazprom, the Russian state gas giant, provided Europe with 198 bcm in the first half of 2016 alone. In other words, the SGC will be very profitable for Azerbaijan, but its impact on European gas prices or security is likely to be both far-off and negligible.
It is important to remember the EITI is not a radical institution; although the conditions it laid down are undoubtedly positive steps towards protecting human rights in Azerbaijan, their implementation is not going to significantly alter the status quo. In the decade Azerbaijan was a fully-fledged member of the EITI, it was also the worst one - submitting content-free reports, releasing no data on how its oil riches were spent, and always doing the bare minimum.
An Azerbaijan in full compliance with the EITI is still free to torture innocent Azerbaijanis and imprison them for years for crimes as mundane as graffiti. It can still mete out collective punishment on Sunni believers to quiet an outspoken imam. It can maintain an expensive surveillance apparatus that hacks its citizen's emails and post fake ads for sexual services listing female activists' phone numbers. It can even defy international courts and imprison opposition leaders for years without consequence.
It's difficult to fathom a situation in which Baku's need for investment won't overpower its anti-western instincts and concedes in four months time. But what is most important its partners abroad do not forget that Azerbaijan's problems go far beyond issues of NGO registration. The saga of Azerbaijan and the EITI is far from over.
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