[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.
____________________