afm ann. con. of oil interests, page-4

Hi All,

Pursuant to my post on 01/11/2004 referring to the Geopolitical Risk Factor associated with AFM there has been some information brought to light that may affect AFM and other oil & gas companies in the Central Asian Republics indirectly and/or directly. Investing in companies with Geopolitical Risk is always risky and you should always assess that risk and your appetite for it.

Please read the articles below and do your own research and DD. This is not financial advise
just the ramblings of a retired international banker.

I am taking a neutral stance on AFM until I can see some clarification of the issues brought up in these articles this week.


Cheers,
Brantley

http://www.timesonline.co.uk/article/0,,2095-1347434,00.html

http://www.iags.org/n1104041.htm

http://www.terradaily.com/2004/041107031102.i7uz0gfv.html

===========================


http://www.iags.org/n1104041.htm

Institute for the Analysis of Global Security
04/11/2004

Baku-Tbilisi-Ceyhan pipeline: not yet finished and already threatened

The long-delayed 1000-mile Baku-Tbilisi-Ceyhan (BTC) pipeline to transport1 million barrels of oil a day from the Caspian to the Turkish port ofCeyhan is progressing toward completion as early as 2005. But even before
the construction is finished, terrorist elements may already be planning
attacks on this high quality target.

According to Azerbaijan’s National Security Minister, Namiq Abbasov, the country’s special services had obtained information that regional insurgents and members of al Qaeda are planning acts of sabotage designed to derail construction of the pipeline. If true, this means that the BTC, which traverses some of the world’s most unstable regions, could be target of a new terrorist campaign to disrupt the flow of much needed oil from the Caspian Sea to Western markets. The pipeline could provide livelihood for many people in Azerbaijan, Georgia and Armenia as well as
stimulate economic activity in eastern Turkey, and it will make a contribution to enhancing world energy security by developing a non-OPEC oil source. Therefore, failure of the countries involved to ensure the security of the project will have severe implications on the future of the region as well as global energy markets at large.

Who has an interest in damaging the pipeline? Of all the countries in the region Iran is perhaps the state actor with the strongest motivation to impede the BTC project.Engulfed by U.S. forces in both its neighbors
Afghanistan and Iraq, Iran is agitated by growing U.S. military presence in Central Asia and views the U.S. led war on terror as an American pretext to penetrate the region and seize control over Caspian oil. To disrupt the flow of oil in the BTC pipeline Iran could use its web of
proxies and the terrorist groups it sponsors. Iran is not only a major oil producing country but also a stepping stone between the Caspian region and the Persian Gulf. As such, it would like to see Caspian oil flowing
through its territory rather than through Turkey. It is therefore offering an alternative route which runs from Kashagan and Tengiz oil fields in Kazakhstan along the eastern Caspian shore, through Turkmenistan and on to
the Iranian border. From there the pipeline would run across the eastern part of Iran to the Persian Gulf terminal at Bandar Abbas. If the construction of the BTC pipeline is completed and the pipeline operates well, it will make very little sense for Iran to carry out its plan.
However, if the flow of oil in the BTC pipeline is interrupted due to sabotage, there will be strong incentive for major oil companies to seek an alternative route.

Other players who would like to see the project fail are terrorist groups operating along the pipeline route. Such groups strive to weaken the governments they oppose by denying them revenue from the pipeline. The Turks, for example, are a long way away from reaching a settlement with the Kurds and are involved in fighting with the Kurdish Workers' Party (PKK). Until the Kurdish issue is resolved, Kurdish groups might want to derail the project. The PKK has already attacked pipelines as recently as last month. Turkish television reported that on October 24 a remote controled device was detonated on a pipeline in the Garzan region. Two days later the PKK bombed an oil pipeline in southeastern Turkey. In
addition there is increasing threat by Islamist groups operating in the Caucasus such as the Islamic Party of Eastern Turkestan, the Islamic Movement of Uzbekistan (IMU), Chechen separatists and Hizb-ut-Tahrir
al-Islami. The later group seeks to seize power and supplant existing governments with Sharia-based Caliphate for the purpose of jihad against the west. The head of the Kazakh National Security Committee Nartai
Dutbayev said that the Hizb has recently increased its clandestine activities in Kazakhstan and poses "a real threat to Kazakhstan's security." In early September, Kazakhstan’s President, Nursultan Nazarbayev, publicly admitted that Hizb-ut-Tahrir is making significant
inroads in his country.

In the Armenian enclave of Nagorno-Karabakh the conflict between Armenian and Azeris still goes on. Armenian nationalists might decide to attack the
BTC in order to hurt Azerbaijan, which derives most of its income from oil sales.

Much of the stability along the BTC corridor would depend on Russia. Russia is not supportive of BTC. It sees it as a U.S. plot to gain control over the Caucasus and cut all links between Moscow of the former Soviet
states, building an economic infrastructure that would prevent the former Soviet states to ever reunite with Russia. Moscow also views BTC as a way to weaken its position as major supplier of oil to the European markets. In a recent article at Asia Times Online, John Helmer refers to the BTC project as an effort “to redraw the geography of the Caucasus on an anti-Russian map.”

Another problem BTC poses Russia has to do with its tense relations with Georgia. As it is, the Georgia suffers from many domestic problems: it is emerging from a civil war and is rife with corruption, but perhaps its most serious problem is the growing likelihood of war with Russia over the two breakaway territories of South Ossetia and Abkhazia. The August 8 Moscow News quotes Georgian leader Mikheil Saakashvili: “If war begins it will be a war between Georgia and Russia, not between the Georgians and Ossetians. … We are very close to a war [with Russia], the population must
be prepared.”

As a result of the above Russia will not shed tears if BTC is sabotaged. It might even clandestinely lend its hand to groups that might do just that. Russia might also team up with Iran in an effort to promote the
alternative route southward out of the Caspian to the Persian Gulf.

If Russia decides to undermine the project, this will surely have implications on its relations with the U.S. BTC is the linchpin of the shift in U.S. energy policy away from the Middle East and it is in America’s best interest that the project succeeds. Secretary of Energy
Spencer Abraham called the project “one of the most important energy undertakings from America’s point of view.” U.S. Special Forces are already training 1,500-2,000 Georgian soldiers in “anti-terrorism”
techniques under a $64 million program initiated in May 2002. In addition, the U.S. provided the Georgian army with new combat helicopters and other weapons. The 17,000 strong Georgian military has many tasks related to the defense of the country from external enemies such as Russia and Armenia but if attacks against the Georgian section of the BTC pipeline are mounted the Georgian military will have to take on the role of protecting the pipeline against saboteurs.

Azerbaijan is another country along the pipeline route which stands in the center of U.S. diplomacy in Central Asia. In early August, U.S. Defense Secretary Donald Rumsfeld visited Azerbaijan, where he concluded an
agreement on the deployment of American forces to the former Soviet republic. This despite a recently adopted law which forbids foreign military forces on Azeri soil. U.S. military specialists have already conducted preliminary examinations of airfields in Kyurdamir, Nasosny, and Gala, and have commenced the installation of long-range mobile radars in Sanchagal, near the pipeline. General Charles Ward, the Deputy Commander of the U.S. European Command, revealed in a Senate hearing that “provisionally deployed mobile forces” will soon patrol the BTC.

The BTC pipeline could be as strong as its weakest link. An attack on the pipeline in any place along its route will hurt not only the country where the attack took place but also the other countries which benefit from it.
This is why multinational cooperation to secure the pipeline is of particular importance. [u]On August 21, the armed forces of Turkey, Azerbaijan, and Georgia embarked on a series of joint military exercises
in the Azeri capital of Baku. The goal of the six-day maneuvers was to strengthen coordination and cooperation among the land forces of the three
nations in preparation for defending the BTC from a terror attack. According to Natig Aliyev, president of Azerbaijan’s State Oil Company, $170 million have already been spent on safeguarding the pipeline. In
addition, unlike many other pipelines around the world, BTC will be fully buried and its pumping stations will be surrounded by walls and fences.


But as the sabotage campaign in Iraq, in which to date oil and gas pipelines have been attacked more than 150 times, shows, investment in physical security is not enough to secure oil infrastructure. Pipelines are long and vulnerable and a determined terrorist would always succeed in blowing it up somewhere along its route. If BTC were to succeed this would be mainly due to active diplomacy to resolve the lingering conflicts in the region and address the grievances of those who want to see this significant project failing.

Gal Luft is Executive Director of the Institute for the Analysis of Global Security


======================================

http://www.timesonline.co.uk/article/0,,2095-1347434,00.html

November 07, 2004

BP cover-up set to fuel MPs’ wrath
By Michael Gillard and David Connett

BP is on a collision course with a parliamentary inquiry that it has misled over the safety of a strategic international pipeline project backed with £60m of public money.

MPs could demand an independent audit, thereby delaying construction of the Baku-Tbilisi-Ceyhan (BTC) pipeline, which runs from Azerbaijan through
Georgia to the Turkish Mediterranean coast.

This would leave BP facing a large repair bill and financial penalties under its loan agreements with various parties, including the World Bank.

The oil giant is withholding evidence, including confidential laboratory results that cast serious doubt on the project’s long-term safety and a secret plan to bury the 1,000-mile oil pipeline without fully testing it for leaks.


Internal reports further show BP is suppressing the fact that a row has erupted between its own staff over the cover-up. Operations managers have accused construction engineers of limiting safety inspections to prevent the true scale of the safety flaws from emerging.

Unless operations managers certify the pipeline as fit for purpose by the year’s end, BP cannot offload the financial liability on to the commercial banks. The revelations come as environmental campaigners and British motorists unite to condemn BP’s bumper profits of £17,000 per minute for the third quarter of 2004, largely due to record oil prices.

The BTC pipeline is the result of the “contract of the century” signed 10 years ago between the Azerbaijani government and western oil companies to unlock the former Soviet republic’s enormous oil and gas wealth in the Caspian Sea.
--------------------
R/Brantley