Georgia's oil and gas transit fees

• Pages: 217-223

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Over the next couple of years, two new pipelines in the Caspian basin will start carrying oil and gas from Azerbaijan through Georgia to Turkey and the Mediterranean.What will this mean for Georgia? The transit fees for oil and gas are expected to bolster revenues, but just how much revenue can be expected and whether this additional revenue justifies the creation of a special natural resource fund are the subject of a recent IMF Working Paper.

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In the pipeline: Georgia's oil and gas transit revenues

Over the next few years, Georgia-situated between the Black Sea on the West and the Caspian Sea on the East-will become an increasingly important transit point for oil and natural gas exports from its neighbor, Azerbaijan, and from the Caspian Sea to Europe. Two new pipelines under construction hold out the promise of increased revenues from transit fees. How lucrative will this be for Georgia? In an IMF Working Paper, Andreas Billmeier, Jonathan Dunn, and Bert van Selm of the IMF's Middle East and Central Asia, and Asia and Pacific Departments make some revenue projections and suggest policies that could help to ensure effective use of these revenues.

Azerbaijan today uses two pipelines to export its oil (see map). One takes the western route to the Georgian Black Sea coast; the other a northern route through Russia. The western route is the preferred one for taking Azeri crude oil to world markets; it is much shorter, and, as a result, has much lower transport costs. In addition, Azeri light crude using the Russian pipeline system loses value when mixed with Siberian crude.

The western and northern routes, however, share a common disadvantage. They use Black Sea ports that require passing through crowded Turkish straits to reach the Mediterranean.

With oil exports from the former Soviet Union rising rapidly, the traffic bottleneck at the Bosporus and the Dardanelles has become increasingly problematic, prompting governments and oil companies with a stake in Azeri oil exports to build a new pipeline that will take Azerbaijan's crude oil directly to the Mediterranean. In 1995, two groups of companies-led by British Petroleum-began work on this pipeline, along with another that will carry gas from Azerbaijan to Turkey through Georgia.

The Baku-Tbilisi-Ceyhan (BTC) pipeline...