[Congressional Record Volume 143, Number 59 (Thursday, May 8, 1997)]
[Senate]
[Pages S4207-S4209]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




              AMERICAN INTERESTS IN THE CASPIAN SEA REGION

  Mr. BYRD. Mr. President, American involvement and interests in the 
Caspian Sea Region, have been increasing recently. While this region is 
new on the political map of American policy-makers, in that the newly-
sovereign nations there were formerly Republics under the rule of the 
Soviet Union, they represent very substantial new opportunities for the 
United States.
  From the point of view of energy reserves, the tremendous hydrocarbon 
resources which are available for development in the region are of 
world-class potential. The extent of the resources which apparently 
exist, particularly in Kazakstan, Azerbaijan, and Turkmenistan could 
well serve as a long-term alternative to Western dependence on 
vulnerable supplies of Persian gulf oil. The proper development of the 
energy resources of the Caspian Sea region should also provide an 
invaluable impetus to the economic development of all the nations of 
the region. As a result of this growing potential, the Foreign 
Operations Appropriations Act for FY 1997 included a provision that I 
proposed for the Administration to develop a plan of action for the 
United States government to assist and accelerate the earliest possible 
development and shipment of oil from the Caspian Sea region to the 
United States and other Western markets.
  Mr. President, the Secretary of State has forwarded to the Congress, 
on April 15, 1997, the study which was required by the Appropriations 
Committee, and I am pleased to include the Summary, as well as 
recommended legislative and executive actions proposed by the report. 
It is a good report and should be of assistance to the Congress as it 
deliberates how to provide incentives for the United States to help 
promote the development of this new source of Western energy supplies, 
and to promote the future stability of the nations of the Caspian 
region, which is so necessary in order that our companies can operate 
effectively with the governments of those nations in developing these 
energy resources.
  Mr. President, the full report is available from the Department of 
State, which originated it. I would, however, like to point out that 
the interagency group which developed the recommendations puts great 
emphasis on the need for the Congress to review the prohibition on 
direct bilateral assistance to Azerbaijan which is contained in Section 
907 of the Freedom Support Act. The report indicates that Section 907 
has the effect of limiting the influence of the United States in 
Azerbaijan, including the ability of the United States government to 
``provide financial support, such as risk insurance and grants for 
pipeline studies, to companies that are involved with the Azerbaijani 
government,'' thereby giving advantage to other governments who have no 
such limitations placed on their ability to assist their companies in 
the competition for access and opportunities in Azerbaijan. Revisiting 
the necessity of retaining, revising, or eliminating Section 907, would 
allow our institutions, such as the Trade and Development Agency, the 
Department of Commerce's Foreign Commercial Service, and the Overseas 
Private Investment Corporation, to assist U.S. companies to compete 
against foreign corporations, which presently enjoy the support of 
their own governments in the competition for business and opportunities 
in Azerbaijan. The report also encourages high-level political and 
business visits to and from the region, and in this regard I would 
encourage the President to invite the President of Azerbaijan, Mr. 
Heydar Aliyev, to make an official visit to Washington. Furthermore, 
the report encourages the United States to continue to play a mediation 
role among the countries of the Caspian region, when they are involved 
in disputes. This is particularly important today with regard to the 
dispute between Armenia and Azerbaijan, which has inhibited joint 
development of energy and other projects, and has caused the 
dislocation and suffering of up to a million refugees in the region. As 
the report concludes, from a U.S. policy standpoint, ``Caspian energy 
development is not a zero sum game--all can benefit from the region's 
rapid economic development, including Russia.''

  Mr. President, the Senate will soon be taking up the Treaty on 
Conventional Armed Forces in Europe (CFE) Revisions of the Flank 
Agreement. I find it disturbing that some of the governments most 
directly affected by this agreement, particularly the governments of 
Georgia, the Ukraine, and Azerbaijan have refused to sign the 
agreement. I have received a letter from the ambassador from Azerbaijan 
on May 5, 1997, Mr. Hafiz Pashayev, in which he expresses his concern 
over what he describes as an imbalance of forces in the flank area, 
which includes his country, and says that the agreement poses a 
security concern for Azerbaijan. In this regard, he points out that 
there are credible reports of the provision of massive Russian arms 
shipments to Armenia, which could well have the effect of further 
destabilizing the situation in the caucasus. It is important to note 
that the chairman of the Defense Committee of the Duma, the lower house 
of the Russian parliament, Mr. Lev Rokhlin, is reported, by Russian 
newspaper Nezavisimaya gazeta, to have revealed that elements of the 
Russian government or armed forces, from 1993-96, shipped some $1 
billion in arms to Armenia, including 32 R-17's, or Scud missiles and 
associated launchers, 82 T-72 tanks, 50 armored combat vehicles, 
various howitzers, grenade launchers, and other missiles and armaments. 
This, of course, has alarmed American oil companies located within 
range of these missiles in Azerbaijan, and the ambassador says in his 
letter that there is concern in his country that these military 
shipments have caused an imbalance in forces in the so-called ``flank'' 
area, and pose a ``security concern for Azerbaijan.''
  The Russian Government, or elements of it, appears to have used its 
armed forces in recent years in Georgia, in Azerbaijan, certainly in 
Chechnya, and perhaps other states in the region to exert influence and 
pressure on those governments. I note that Russia has maintained 
military bases in both Georgia and Armenia, and I have been informed 
that Russian officials have brought pressure on the government of 
Azerbaijan to allow Russian forces to establish a base in that nation. 
The government of Azerbaijan has, wisely I believe, resisted these 
pressures and retains its sovereignty without the presence of Russian 
forces on its soil. Administration officials testified last week, on 
April 29, 1997, before the Senate Foreign Relations Committee, in 
connection with the CFE Flank agreement, and have pointed out that it 
is the policy of the United States not to support the stationing of 
foreign troops such as Russian forces on the territory of any other 
states unless that is achieved by means of free negotiations and with 
full respect for the sovereignty of the states involved. We need to be 
careful that we do not in any way appear to countenance the imposition 
of Russian forces or equipment on any nation through heavy-handed 
tactics, tactics which might push the states of the Caspian region into 
positions that they would not otherwise freely assent to. Thus, it is 
certainly of legitimate concern that key states of the Caspian region 
have not agreed to the terms of the terms of the revisions of the CFE 
Treaty. This is a matter which I am sure the knowledgeable Senators on 
the Foreign Relations Committee will be discussing when that Treaty 
comes to the Senate floor

[[Page S4208]]

for consideration, and I look forward to that discussion.

  I ask unanimous consent that the letter from the Ambassador from 
Azerbaijan and the letter of transmittal with the accompanying report 
be printed in the Record.
  There being no objection, the material was ordered to be printed in 
the Record, as follows:

                                                    Embassy of the


                                       Republic of Azerbaijan,

                                      Washington, DC, May 5, 1997.
     Hon. Robert Byrd,
     U.S. Senate
     Washington, DC.
       Dear Senator Byrd: During Senate consideration of the CFE 
     Treaty, I hope, members of the Senate will address concerns 
     of the Government of Azerbaijan regarding this Treaty.
       Specifically we are concerned about of an imbalance forces 
     in ``flank'' area, which could pose security concern for 
     Azerbaijan.
       I would also remind you about the one billion an illegal 
     arms shipments from unofficial sources in Russia to Armenia, 
     which has already created a strategic imbalance for my 
     country.
           Sincerely,
                                                Hafiz M. Pashayev,
     Ambassador.
                                  ____



                                     U.S. Department of State,

                                   Washington, DC, April 15, 1997.
     Hon. Robert Byrd,
     Committee on Appropriations,
     U.S. Senate.
       Dear Senator Byrd: On behalf of the Secretary of State, I 
     am transmitting to you a report as requested by the Joint 
     Explanatory Statement of the Committee of Conference 
     accompanying the Foreign Operations, Export Financing, and 
     Related Programs Appropriations Act, 1997, as enacted in P.L. 
     104-208, that contains a plan for action for the United 
     States Government to assist and accelerate the earliest 
     possible development and shipment of oil from the Caspian Sea 
     region to the United States and other Western markets.
       Please do not hesitate to contact us if you have questions 
     on this issue or on any other matter.
       Enclosure: Report on the Caspian Region Energy Development.
           Sincerely,

                                               Barbara Larkin,

                                              Assistant Secretary,
                                              Legislative Affairs.

   Caspian Region Energy Development Report, As Required By H.R. 3610


                                summary

       This report to congress addresses the request of the FY 97 
     statement of managers accompanying the FY 97 Foreign 
     Operations bill as incorporated in Public Law (104-208).
       The Caspian Basin region is made up of the five littoral 
     states of the Caspian Seas (Azerbaijan, Iran, Kazakstan, 
     Russia, and Turkmenistan). With potential reserves of as much 
     as 200 billion barrels of oil, the Caspian region could 
     become the most important new player in world oil markets 
     over the next decade. The United States supports the 
     development of secure, prosperous, and independent energy-
     exporting states at peace with each other and their neighbors 
     in the region. We want to see these countries fully 
     integrated into the global economy. As the newly independent 
     countries of the Caspian region work to enhance their 
     sovereignty and to create stability within their own borders 
     and in the region, energy resource development has emerged as 
     a critical factor and means to these ends. The speed and 
     depth of macroeconomic reforms and democratization of these 
     states will provide the foundation for a favorable climate to 
     attract foreign investment and will determine their future 
     economic prosperity as well as the extent of their 
     integration into the world economy. Resolution of regional 
     conflicts in Nagorno-Karabakh, Abkhazia, and Chechnya is also 
     critical for successful and comprehensive energy development 
     in the region.
       As a consumer nation, the United States is interested in 
     enhancing and diversifying global energy supplies. It is the 
     Clinton Administration's policy to promote rapid development 
     of Caspian energy resources through multiple pipelines and 
     diversified infrastructure networks to reinforce Western 
     energy security, and provide regional consumers alternatives 
     to Iranian energy. It is our judgment that the scale of 
     Caspian basin energy resources not only justifies--but will 
     demand--multiple transportation options for moving production 
     out into world markets. Multiple pipelines will prompt 
     competition, will ensure reliable, more efficient operations, 
     and will promote commercial viability.
       The United States has a policy that focuses on expanding 
     and strengthening the web of relations with the region's 
     newly independent states across bilateral, regional and 
     multilateral levels; supporting the development and 
     diversification of regional infrastructural networks and 
     transportation corridors to tie the region securely to the 
     West and providing alternatives to Iran; and constructively 
     engaging these states in a dialogue on Caspian energy 
     development, particularly through trade and investment.
       We are encouraging these countries to adopt open, fair, and 
     transparent investment regimes which will create favorable 
     climates for U.S. companies to participate directly in the 
     development of the region's energy resources. We are 
     confident that their participation will bring strong partners 
     and environmentally sound technology and practices to the 
     countries in the region. The Clinton Administration has an 
     active dialogue with the private sector and has developed 
     working relations with the countries in the region to reduce 
     or remove barriers to investment by U.S. companies. However, 
     U.S. companies are disadvantaged in some crucial respects, 
     preeminently by the burden that Section 907 of the FREEDOM 
     Support Act places on companies working in Azerbaijan. 
     Furthermore, foreign companies benefit significantly from 
     unrestricted political and financial support from their 
     governments.
       In addition, the division of development rights to the 
     significant oil and gas deposits beneath the Caspian Sea 
     remains a critical issue for the five littoral states. The 
     U.S. Government has encouraged the littoral states to adopt a 
     legal regime in the Caspian Sea which includes the division 
     of seabed resources through clearly established property 
     rights and unrestricted transportation.
       Another U.S. policy goal is to continue to isolate the 
     Iranian regime until such time as its unacceptable practices, 
     including support for international terrorism, cease. Iran's 
     economic isolation imposed by U.S. sanctions is leading 
     Teheran to look for new opportunities as well as new markets 
     in the region. This presents a particular challenge as the 
     USG works to balance its commercial interests in the region 
     with its foreign policy goals.
       An interagency working group for Caspian energy chaired by 
     the National Security Council meets regularly to discuss U.S. 
     policy toward the Caspian Basin. The Administration believes 
     that significant progress is being made on these goals but 
     suggests the following steps which can further advance U.S. 
     interests in the region:
       (1) Repeal Section 907 of the FREEDOM Support Act which 
     restricts the provisions of USG assistance to the Government 
     of Azerbaijan and limits U.S. influence and assistance in 
     Azerbaijan;
       (2) Take the necessary legislative and administrative 
     actions to make TDA, OPIC, and EXIM programs available to our 
     companies in the Caucasus, Central Asia, Afghanistan, and 
     Pakistan;
       (3) Encourage high-level visits to and from the region;
       (4) Continue active U.S. support for international and 
     regional efforts to achieve balanced and lasting political 
     settlement of conflicts in Nagorno-Karabakh, Abkhazia, and 
     elsewhere in the region. Be prepared to contribute a fair 
     share to reconstruction and development costs of warn-torn 
     zones following achievement of peace agreements;
       (5) Make available USG resources to support a UN-led peace 
     process in Afghanistan if/when the Afghan parties agree on 
     terms for these elements;
       (6) Encourage installation of upgraded navigation systems 
     in the Bosporus;
       (7) Encourage the development of new markets in the Black 
     Sea region;
       (8) Structure assistance to the region to encourage 
     economic reform and the development of appropriate investment 
     climates in the region.


             recommended legislative and executive actions

       1. Repeal Section 907 of the FREEDOM Support Act (FSA) 
     which limits U.S. influence and assistance in Azerbaijan.
       Section 907 of the FSA, enacted in 1992, provides that U.S. 
     assistance ``may not be provided to the Government of 
     Azerbaijan until the President determines, and so reports to 
     Congress, that the Government of Azerbaijan is taking 
     demonstrable steps to cease all blockades and other offensive 
     uses of force against Armenia and Nagorno-Karabakh.'' 
     Unfortunately, this statutory restriction on assistance to 
     the Government of Azerbaijan limits our ability to advance 
     U.S. interests in Azerbaijan. The Clinton Administration has 
     from the start opposed this restriction on assistance to the 
     Government of Azerbaijan. Section 907 hinders U.S. policy 
     objectives, including the provision of humanitarian aid, 
     support for democratic and economic development, support for 
     the Nagorno-Karabakh peace process, and promotion of U.S. 
     investment opportunities in Azerbaijan. Section 907 
     restrictions have placed American firms at a disadvantage 
     because they limit the ability of the U.S. Government to 
     provide financial support, such as risk insurance and grants 
     for pipeline studies to companies that are involved with the 
     Azerbaijani government of its institutions, including the 
     State Oil Company of Azerbaijan (SOCAR), on projects that 
     involve substantial Azerbaijani government ownership or 
     control. Section 907 prevents the U.S. from offering many 
     kinds of technical assistance and exchange programs offered 
     to other governments throughout the NIS and which are needed 
     to help create an attractive business climate and commercial 
     infrastructure. When the European Union, Japan, or 
     International Financial Institutions step in to fill this 
     void, the U.S. loses influence and U.S. businesses lose 
     opportunities. This also creates hostility towards the U.S. 
     and U.S. businesses. As foreign competition for oil and gas 
     resources in the region increases, American companies--
     particularly smaller firms--will lose out and may be unable 
     to compete with other, government-supported, foreign 
     companies in Azerbaijan due to the restrictions Section 907 
     places on U.S. Government-funded support for American 
     investment involving Government of Azerbaijan owned or 
     controlled enterprises in Azerbaijan.

[[Page S4209]]

       2. Take the necessary legislative and administrative 
     actions to make TDA, OPIC and EXIM programs available to our 
     companies in the Caucasus, Central Asia, Afghanistan and 
     Pakistan.
       Since U.S. companies will frequently not be participating 
     as majority owners in pipeline and consortia agreement, we 
     need to find creative ways in which we can assure their 
     access to these programs within existing requirements on U.S. 
     content and equity participation. Our competitors, as noted 
     below, are already operating in the area with government-
     backed credit lines. Repealing Section 907 of the FREEDOM 
     Support Act would make it easier for these programs to 
     operate effectively throughout the Caspian region. We 
     recognize that opening these programs in individual countries 
     is contingent upon decisions from respective Boards of 
     Directors taking into account legal strictures and country 
     risk assessment.
       3. Encourage high-level visits to and from the region.
       Many observers point to high-level visible government 
     support as major factor in the successful involvement of 
     British, French, and Japanese firms throughout the Caspian 
     region--support which gives these companies a significant 
     competitive edge against American companies. This support 
     typically takes two forms--high level, high visibility trade 
     missions and export credits. The Caspian Basin is new to many 
     political and business leaders in the U.S. High-level 
     congressional, administration, and business travel to the 
     region--for example cabinet-level participation in the oil 
     and gas shows in Baku, Ashgabat, and Almaty, and in support 
     of companies' bids for contracts--would be particularly 
     useful. These visits should be reinforced by invitations to 
     decision-makers from the region to come to the U.S.
       4. Continue active U.S. support for international and 
     regional efforts to achieve balanced and lasting political 
     settlement of conflicts in Nagorno-Karabakh, Abkhazia, and 
     elsewhere in the region (e.g. Chechnya, Tajikistan). Be 
     prepared to contribute a fair share to reconstruction and 
     development costs of war-torn zones following achievement of 
     peace agreements.
       5. Make available USG resources to support a UN-led peace 
     process in Afghanistan if/when the Afghan parties agree on 
     terms for these elements.
       A lasting Afghanistan peace settlement is not only in the 
     interests of the Afghan people but would promote regional 
     stability and development. U.S. companies are eager to 
     participate in exporting Caspian energy via Afghanistan.
       6. Encourage installation of upgraded navigation systems in 
     the Bosporus.
       This issue should be kept separate from consideration of a 
     main export pipeline through Turkey: it stands on its own 
     merits. As noted earlier, the capacity of the Bosporus to 
     carry Caspian oil safely and efficiently will eventually be 
     exceeded. The present system is inadequate and needs 
     replacement regardless of the additional volume of oil which 
     transits this area. Turkish concerns for the safety of the 13 
     million people who live along the straits are valid and we 
     should work through the International Maritime Organization 
     (IMO) to set reasonable standards for safe and secure transit 
     through the Straits. The adoption of more advanced technology 
     would further improve the flow of traffic in the Straits and 
     increase safety for shippers and reduce the risk of an 
     environmentally devastating oil spill. Currently, while there 
     are some aids to navigation, there is no continuous tracking 
     of ships. The USG should continue to urge and work with the 
     Turkish government to install a state-of-the-art Vessel 
     Tracking System (VTS) for the Turkish Straits, preferably 
     from an American supplier, which would provide complete radar 
     coverage throughout the Straits and would have the ability to 
     communicate with ships by radio. The U.S. Coast Guard is 
     currently working on installing 17 such systems across the 
     United States. The Coast Guard estimates that complete 
     coverage of the Straits would cost $60 million to install, 
     and up to $1 million annually to operate. The Turkish 
     government has prepared a tender to install a world class VTS 
     three times. The USG should support efforts to secure 
     international financing for such a system.
       7. Encourage the development of new markets in the Black 
     Sea Region.
       All current oil export routes from the Caspian Basin 
     terminate at the Black Sea. Given the limitations on the 
     volume of oil which can be exported through the Bosporus as 
     outlined above, alternatives to the Straits must be 
     identified and developed. One possibility is to develop the 
     oil, gas, and power markets in the Black Sea Region and to 
     develop the infrastructure to transport Caspian energy to 
     other markets. Additional sources of energy for the countries 
     of this region and increased transit fees would stimulate 
     economic development, reduce existing monopolies over 
     supplies, and provide lucrative marekts for the producing 
     countries.
       8. Structure assistance to the region to encourage economic 
     reform and the development of appropriate investment climates 
     in the region.
       Continued USG support through technical assistance is 
     essential in assisting these countries to establish strong 
     market economies and encourage the emergence of a financially 
     vibrant energy sector. Transparent legal and regulatory 
     environment, and restructured and privatized energy sectors 
     in these countries will ensure the commercial viability of 
     new investments and expand opportunities for U.S. industry. 
     To a great extent, the Clinton Administration's ability to 
     tailor assistance strategies to address U.S. interests is 
     hampered by restrictions on how assistance money can be 
     spent. Besides the restrictions imposed by Section 907 of the 
     FSA on USG funded assistance to the Government of Azerbaijan, 
     Congressional earmarks limit assistance flexibility and often 
     channel money away from projects and programs which might 
     further U.S. interests more rapidly. We recommend that 
     earmarks and other restrictions be kept as low as possible, 
     if not completely eliminated.

                          ____________________