ISSUE 3-2015
INTERVIEW
STUDIES
Павел Вензера Seray Özkan Ahmad Alili
RUSSIA AND VOLUNTEERS
Igor Yakovenko Bogdana Kostyuk
OUR ANALYSES
Bogdan Oleksyuk
REVIEW
Tomáš Strážay
APROPOS
Stepan Grigoryan


Disclaimer: The views and opinions expressed in the articles and/or discussions are those of the respective authors and do not necessarily reflect the official views or positions of the publisher.

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STUDIES
KEY TRANSPORTATION ROUTE FOR THE CAUCASUS: CASPIAN TRANSIT CORRIDOR
By Seray Özkan | Researcher, Caspian Strategy Institute, Turkey | Issue 3, 2015

Increasing Role of Transportation and Logistics in Economic Development and Revival of the Silk Road

The role of transportation and logistics sector in trade and economy has been increasing due to higher levels of the movement of goods and services, as a result of the globalization. Transportation is highly affected by the developments taking place in national economies and the global economy. The most important reason of this situation is the correlation between the economic growth and transportation sector. As the economies grow, it gives pace to the improvement of transportation and logistics sector to boost trade volumes.

Developments in transportation sector act as a catalyzer for the mobility of goods and services as well. Lower costs and easier access to markets have several impacts at the sectoral, regional and national levels. The investments made in the transport infrastructure, one of the important components of transportation, facilitate the mobility of traded goods. Transport infrastructure is definitely an essential factor to realize main growth objectives such as urbanization, industrialization, increase in exports and sustainable economic growth.

Silk Road is the foremost transport route that comes to mind as the first infrastructure within the historical context. This long and complex network of transportation contributed to the integration of the world centuries ago. Silk Road was a historical network of transcontinental trade routes connecting Asia, Middle East, Mediterranean Basin and Europe. For about more than 2000 years until the mid-17th century when the route started to lose its popularity due to new discoveries of trade routes and decreasing shipping costs thanks to Industrial Revolution taking place in England starting from mid-18th century, it was commanding the world trade both through land and maritime transportation. Merchants and traders used to exchange their goods along the trade routes between the continents. Silk Road represented one of the most important supply chains of the world trade.

In 21st century, this concept was revived once more by Chinese President Xi Jinping. During his visit to Kazakhstan in September 2013, President Xi Jinping announced the new concept of ‘Silk Road Economic Belt’ during his speech at Nazarbayev University.[1] It is a project to connect Asian industries and European markets as well as to connect countries of the Eurasia. Whole Silk Road Economic Belt concept covers around 40 countries with more than 4.4 billion population and total economic volume of $21 trillion. Even though the total amount of population accounts for 63% of world’s total population, economic volume accounts only 29% of the world. In that sense, one of the outcomes of this initiative would be economic integration of the Eurasian countries which will bring sustainable economic growth through larger intraregional trade volumes and economic activities.

Shift of the global trade dynamics towards the East put high importance to this initiative led by China. However, it is of vital importance that the sole beneficiary of this transportation based initiative shall not be only China, but all the stakeholder countries take part in Eurasian transport corridors.

Changing Dynamics of the Global Trade and Eurasian Transport Corridors

Integration of Asian countries into the global economic system, which started in late 1970s, accelerated with the collapse of the USSR. After the dissolution, members of the Commonwealth of Independent States, which were trying to adapt themselves to the liberal economic system, started to be included in the process of economic growth and development observed in East Asia. This situation changed the balances in world economy and made this region a center of production in the he 21st century.[2]

As the production has shifted towards East Asia, the center of trade has shifted towards the east consequently. The Modern Silk Road, revived by China at the first place, has a great potential to accommodate huge amounts of goods, traded along the transport routes between Asia and Europe. As China becoming a key actor in the world economy at the Asia-Europe axis, major logistics and transportation projects have started to be announced one after another. Most of these projects will revive the Ancient Silk Road which creates a trade flow from the east to the west, and it will also connect the European transit transport networks to the production centers of the Asia-Pacific region via Central Asia.

Under these circumstances, one of the most important policies highlighted especially in the European agenda was to ensure sustainable economic growth by developing the trade relations of Eurasian countries among themselves and with other countries. European countries decided to expand their transportation network in this direction and formed Asia-Europe transportation corridors with the aim of benefiting from the economic growth not only among Asian countries but also in the east of Europe which is an important market.

European Union applies three fundamental network structures. These are; the Trans-European Transport Networks (TEN-T), Pan-European Corridors (PEC) and regional transport networks. Apart from these networks; Central Asia Regional Economic Cooperation (CAREC), which came into existence with the initiative of Central Asian countries, comes to the fore as an important project for the development of trade of Central Asian countries among them as well as with other countries.[3]

In addition to EU’s efforts to connect Eurasian transport corridors, Turkey being a bridge between Asia-Europe-Africa, has become one of the leading countries to develop intraregional connectivity. In Turkey, within the scope of the Tenth 5-Year Development Plan covering the period between 2014 and 2018, there have been efforts to connect national and international production and consumption hubs and to integrate the transportation means by developing the transport infrastructure. In this framework, the projects strengthening the links between the TEN-T, Caucasian countries and the Middle East have been implemented to a large extent.

Located at the heart of the Silk Road, the Caspian Region has substantial oil and natural gas reserves and in geostrategic terms it constitutes the junction point of east-west and north-south main transport axes which links Europe to Asia. Accordingly, the region has always maintained its importance throughout the history. Countries in the region have focused on economic growth and increasing their foreign trade volumes by using the advantages of the region.[4] Caspian Region and the Central Asian countries need to benefit from this increasing trade volumes along the Eurasian transport corridors and also contribute to these routes with their own products.

Although the geostrategic position of the Caspian Region allows it to be located at the crossroads of transport corridors, connectivity between the regional countries is not that advanced. The proportion of the regional trade to total trade volumes among the Central Asian countries accounts only for 5%. This figure reveals that intraregional trade should be increased. Hydrocarbon resources are the primary trade item in Caspian Transit Corridor countries, and therefore one of the crucial steps to develop non-oil economies in those countries is to improve the transportation infrastructure, ensure diversity in import-export products, and assume a key role in the transit transport of products especially from the main production centers of China. In that regard, Caspian Transit Corridor which utilizes the Caspian Sea to improve connectivity between the countries on the east and west sides of the sea gains more importance to talk about a fully functioning transport route on the east-west axis.

Crucial Branch of the Eurasian Connectivity: Caspian Transit Corridor

Strategic importance of the Caspian Region is derived not only from its location at the crossroads of major powers of Eurasia -Russia, Turkey and Iran- but also from its location on various transit corridors connecting Europe and Central Asia and from its capacity in terms of rich resources.

First of all, it is necessary to define what we mean by Caspian Transit Corridor. It is one of the components of the Modern Silk Road, stretching from the Pacific coasts of Asia and India towards Europe through Central Asia, Caspian Region and Turkey. It covers a wide range of countries, particularly by rail routes. The route extends in many countries; China, India, Afghanistan, Pakistan, Uzbekistan and Kyrgyzstan. The core countries to be focused on Caspian transits are the littoral states of the Caspian Sea; Kazakhstan, Turkmenistan, Azerbaijan and the transit countries to connect Asia with Europe through the Caucasus; Georgia and Turkey.

Even though Caspian Sea seems to be a natural bottleneck especially for the continuous rail lines and roads, Caspian Sea passages via Ro-Ro ships and train ferries provide an alternative to routes in the north and the south of the Sea and bring intermodal transportation opportunity to the region. Although Caspian transits were not part of the Ancient Silk Road, the modern route includes utilization of the Caspian Sea and this new route is a very promising one for the landlocked countries around the region.

Inclusion of the Caspian Region and the Caucasus into Eurasian transport network complies with transport policies of the European Union as well. Transport Corridor Europe-Caucasus-Asia (TRACECA) is an international transportation regulation administrated by the European Union, which is supplementary for the Pan-European Transport Corridor. Foundations of TRACECA were laid in May 1993 in a conference in Brussels with the participation of the ministries of trade and transportation of eight countries, including five Central Asian Republics (Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan, Uzbekistan) and three Caucasian Republics (Georgia, Armenia, Azerbaijan).[5]

TRACECA Program is currently a regional transport network project, and it is planned and designed to be integrated with the TEN-T (it is one of the EU policies designed to foster the links between member states, built on 30 primary transport corridors) in accordance with global European Union strategies. The fundamental goal of the TRACECA Program is to build a transport corridor between the Black Sea, Caucasia, Caspian Sea and Central Asia by utilizing the EU funds and receiving technical assistance under the guidance of the European Union. TRACECA Program combined with TEN-T policy of the EU constitutes an uninterrupted transportation corridor from Europe to Asia. TRACECA corridor is especially important for landlocked Central Asian countries in terms of developing their foreign trade and transport networks.

Modernized transport infrastructure is the foremost step to achieve to be a part of the intercontinental trade relations and transport routes, which has gained pace for the last few years and become important for the economies of the region.

Significant Transport Infrastructures Along the Caspian Transit Corridor

Integration of the modes and networks of transport will allow easier access to production and trade centers, and reduce transport costs and time. Considering that sustainable economic growth is one of primary objectives, determining a concrete and effective transportation strategy is crucial for developing countries. Transportation has become a significant factor for higher trade volumes and integration of the regional economies and countries entered into a competition to upgrade their transport system. Especially China accelerated this competition by putting into practice many transport projects or declaring the start of many others almost every month.

Transport infrastructure along the Caspian route is not complete yet but each and every country along the corridor invests on their transport system. Caspian Corridor which stretches from Turkey’s Georgia border to Kazakhstan’s China border is approximately 9,900 kilometers long by land with highways and Caspian Sea transits, and 9,700 kilometers by railway.[6] This route was shortened for approximately 1,000 kilometers with the newly constructed railway between Zhezkazgan-Beineu in addition to the railways that Kazakhstan inherited from Soviet Russia. Besides, the investments made in ports and railways by the countries around the Caspian Sea become more and more important every day as a strong alternative.

If this route is actively used, it may create economic opportunities in Europe-China trade traffic for Central Asian countries. Especially the logistic centers and free trade areas that will be created in the Port of Turkmenbashi in Turkmenistan, Port of Kuryk in Kazakhstan –currently being constructed in the south of existing Aktau Port-, and the Port of Baku in Azerbaijan -first stage of which is completed- will allow the supply chains to pass through the region.

Kazakhstan and China are effectively collaborating to achieve full connectivity in terms of transport infrastructure. Littoral states of the Caspian Sea are putting efforts to increase maritime capacity and attract cargoes to transit from this point towards both ends of the route, China and Europe.

The Aktau Port, one of Kazakhstan’s ports in the Caspian Sea, is one of the key points in the Caspian Transit Corridor. The Aktau Port is not only a center for transit cargo transport with Azerbaijan in the east of the Caspian Sea, but also it constitutes a crucial point for Kazakhstan’s involvement into foreign markets. Kazakhstan is making investments in port and railway infrastructure with the aim of increasing the exports of its hydrocarbon reserves -particularly oil, but also grain products for which Kazakhstan is the leading exporter of the world. Those investments will also minimize the disadvantages of Kazakhstan’s landlocked status, and strengthen its role in the transportation sector of the region.

By 2020, capacity of the Aktau Port will increase by 48% to 15.17 million tons. Of the total capacity, 7.5 million tons will be used for oil and oil products, 7.67 million tons will be used for dry cargo, particularly grain products.

The Turkmenbashi Port is the only port of Turkmenistan and it links the country to the west by the sea. Ro-Ro and train-ferry ships that are active in the Caspian Sea connect Turkmenistan to Baku and the west. Currently the cargo handling capacity of the port is 9.2 million tons per year, including oil products. 5 million tons of this capacity is used by the ferry terminal. However, Turkmen government launched the construction of the International Turkmenbashi Port by “GAP İnşaat” under Çalık Holding on August 15, 2013 in addition to the current port which is projected to be insufficient to meet the increasing trade volume in the region. When construction works of the port are completed, cargo handling capacity will be increased to 25-30 million tons per year.[7]

The Baku Port is the exit point of Azerbaijan to the Caspian Sea. It is also a crucial center that links Azerbaijan to Kazakhstan and Turkmenistan. But the port is now insufficient due to increasing trade and transit transport in parallel to rapidly-growing economy. Moreover, there is heavy traffic on the road to the port because of intensive urbanization. The rising traffic and capacity problem paved the way for the construction of a new port in Alat. A 400-hectare area is allocated for this new port, and the establishment of a logistics and free trade area in that region is also included in the construction project.

Baku International Sea Trade Port (Port of Baku) is located 75 km south of Baku is currently a transportation center as it stands at the intersection point of many pipelines, rail lines and highways. Trailer trucks and railcars that come to Baku can have direct access to the new Port of Baku without covering additional 75 kilometers, entering into Baku city center, and waiting for the allowed hour to enter to the city center at nights. Depth characteristics of the Caspian Sea were considered for the design of the new Port of Baku, and necessary measures were taken during the construction works in accordance with the capacities of ships. In order to facilitate the maneuvers of ships at the pier level, the sea was deepened by creating a 160 meter wide and 7 km long canal.[8]

Currently the first phase construction works of the port has been completed. Consisting of 3 different stages, other two phases of the port construction will continue in accordance with the rising cargo volume, and capacity increase will be ensured. Handling capacity of the new port complex;

  • is 10,000,000 tons of cargo and 50,000 TEU containers in the finalized first phase.
  • will be 17,000,000 tons of cargo and 150,000 TEU containers at the end of the second phase, depending on the increase in cargo and traffic.
  • will be 25,000,000 tons of cargo and 1,000,000 TEU containers at the end of the third phase –the last phase of the plan.[9]

Baku, Aktau and Turkmenbashi Ports are the key transit hubs along the transport corridor to connect east and west sides of the Caspian Sea. Moreover, there is one critical infrastructure that connects the Caspian Region with Europe and MENA Region through Turkey and the Caucasus: Baku-Tbilisi-Kars (BTK) Railway. The BTK Railway Project which was designed by Turkey, Georgia and Azerbaijan –although not planned within the framework of the TRACECA– continues to be implemented as part of the TRACECA corridors and as a project that supports TRACECA Program.[10]

BTK Railway Project was announced as the joint decision of Turkish, Azerbaijani and Georgian governments in early 2007 after a long negotiation process. Actually, this railway project was first brought to the agenda in 1990s but the Intergovernmental Agreement was signed on February 7, 2007. Furthermore, groundbreaking ceremony was held in July 2008.

Total length of the project is 838 km, 502 km of which is within Azerbaijani borders. The renovation works for the electrification and signalization of this two-way line were completed within the scope of the BTK Project. In the Georgian section, renovation works of the line from the Azerbaijani border to Marabda and from Marabda to Akhalkalaki was financed by Azerbaijan. Following the line, the railway between Akhalkalaki and Kartsakhi terminal at the Turkish borders -total length of which is 29.3 km-, and the railway from Turkish borders to Kars –total length of which is 75.6 km need to be renovated. Besides, there is a need to construct a tunnel which will run 2.07 km in Georgia and 2.38 km in Turkey. Azerbaijani and Georgian sections of the project are completed, and the first test train set off on December 26, 2014. Moreover, construction of the tunnel between Turkey and Georgia which is an important phase of the project is almost completed. However, the 76-kilometer railway in the Turkish section is still under construction due to various reasons.

When the line becomes operational, 4.5 million tons of import and export cargo and 2 million tons of transit cargo will be transported in the first year, and initially the total volume of cargo is expected to be 6.5 million tons.[11] In the long run, 17 million tons of cargo is projected to be transported via this line. Nonetheless, in addition to the freight projection calculated as 6.5 tons in the short term, transit time in Georgian, Azerbaijani, Kazakh and Turkmen customs should be calculated and notified to the countries on this route.

Although the rail connection between Turkey and Georgia is not completed yet, the first test train left from northwest of China arrived at Port of Baku on August 3, 2015. It was the first successful and concrete step along the Caspian Transit Corridor to launch a cargo train from China to reach western side of the Caspian Sea. Moreover, the test train arrived at Port of Baku in 6 days, which shows that a train launched from China can reach to Europe within less than 2 weeks. It brings a competitive advantage to this corridor in terms of time efficiency, compared to other alternative routes that connect Asia and Europe.

Given the continuous efforts of Kazakhstan, Turkmenistan and Azerbaijan, as the littoral states of the Caspian, Georgia is a significant country to pay attention for Black Sea connections and as a transit country to connect Caucasus with Turkey. Georgia has been a key actor of major regional projects such as Baku-Tbilisi-Ceyhan Oil Pipeline and Baku-Tbilisi-Erzurum Natural Gas Pipeline projects.

Georgia’s location in the Caucasus makes the country an important transit point and it is also the case for transportation on the east-west axis. Currently the Trans Caucasus railway’s cargo capacity is 12-13 million tons per year. This line extends from Baku to Georgia’s Samtredia terminal. A significant part of this line has been renovated within the scope of the BTK Project. Apart from the BTK Railway as an important project that will run through the Caucasus; Georgia has launched a major deep sea port project in Anaklia located on the coast of the Black Sea with the support of the EU, in addition to Batumi, Poti, Supsa and Kulevi ports with the aim of supplying the road transport and Trans Caucasus railway transport lines. Anaklia New Deep Water Black Sea Port Project is underlined as strategically important in terms of the revival of the Silk Road.

Construction of the port consists of 7 phases; the first phase will be completed within 3 years following the start of the construction process and the initial capacity will be 3 million tons. The second phase will be completed in 7 years, and it will allow handling 20 million tons of cargo. In the last phase of the project, it is planned to be able to handle 100 million tons of cargo-equivalent containers per year. It is announced that the first phase of the port construction will be completed in 2017.[12]

It is obvious that each and every country invests heavily on their infrastructures to improve connectivity within the country to reach foreign markets at a shortest way. However, given the accelerated competition on transport infrastructure in abovementioned countries of the Caspian Transit Corridor, there are non-infrastructural steps to be taken to achieve a full functioning transport corridor.

Some Important Obstacles and Immediate Solutions

Countries of the Caspian Corridor are very much willing to be actively involved in the route. Political authorities and higher officials from these countries often come together in the meetings of international and regional organizations. The importance of Caspian Sea transits, supplying multimodal transportation in the region and creating a transport line operating for the common interest by increasing the regional partnership are emphasized and supported in each international platform. Kazakhstan, Azerbaijan, Georgia and recently Turkey joined a regional platform, Trans Caspian Coordination Committee. State railways, port authorities and representatives from transportation ministries regularly come together to discuss ways for improved cooperation and find solutions to existing problems.

It is certain that political authorities show their will to be a part of the transport corridor to boost their trade volumes and transit revenues but it also requires concrete political actions to be taken to overcome certain legislative problems.

The problems resulting from the differences in the legislation constitute a more important obstacle than the ones resulting from the lack of infrastructure or high costs, and this problem requires an immediate solution. Legislations have to be compatible with the ones in other countries in the region and national regulations should be adapted and updated to the international regulations.

Caspian Transit Corridor connects the EU markets with Asian countries. Problems that emerge due to the differences in transportation regulations between the member states of European Union and the countries of Asia and the Caucasus should be analyzed and official meetings should be held in order to overcome these differences. Necessary regulations must be adopted with regard to the trade and transport relations of the countries along the corridor. In addition, different regional dynamics of those countries must be considered while drafting the amendments and compatible legislations must be created to solve this problem.

Overcoming the differences in legislations is important to eliminate difficulties faced in border crossing and customs procedures. Most of the time lost during transportation is at the border crossing points. Especially when it is the case for land transportation, it takes much more time than usual for a truck to reach the destination point due to different regulations and uncertain procedures. It also causes higher costs for deliveries. Harmonization of customs procedures is of vital importance to decrease total transport time and cost along the route. In addition to harmonization of the customs procedures, border crossing gates need to be modernized and capacity increase is necessary to meet rising number of vehicles. Border gates between some countries do not operate at full capacity due to the differences between the two countries’ working hours and days, and the infrastructure works. This also creates congestion at border gates and causes long waiting times.

Considering most of the current transport along this route is based on land transportation, there is need for the improvement of railway connectivity and infrastructure. Railway transport is going to be supplementary to road connections when trade volumes increase along the east-west axis. Moreover, railways will create an extra capacity and increase the volume of foreign trade of the trade items which are not taken into consideration due to high transport costs.

At this point, BTK railway project should be completed immediately to provide railway connectivity between Turkey and the Caspian Region. Not only the railway infrastructure must be completed but also the border crossing treaty must be finalized and related legislation must be harmonized in order to carry out effective and efficient railway transportation between Turkey and Georgia. Although the difference in rail gauge and axle pressure between Turkey and regional countries in the region seems as an obstacle for trade with the countries using the CIS railway system (broad rail gauge), these are actually not time-consuming operations and it takes maximum 2 hours to change the bogie for a wagon. The cost and time of changing a bogie is much lower when compared to freight transfer from one wagon to another.

Enhanced coordination, political action, harmonization of regulations and uninterrupted railway connectivity among the countries are the major points should be the goals to achieve immediately to overcome existing problems. Coordination is a must among related stakeholders in the sector for all modes of transport. More effective and efficient operation committee will play a crucial role in ensuring dialogue and collaboration among countries.

Despite ongoing political instabilities, increasing foreign trade operations thanks to efficient and effective logistic service support among regional countries will contribute to the welfare of people by raising the competitive power of all regional countries at the global level.

Within this context, if the rich hydrocarbon resources of regional countries are used for lowering the energy costs to support transportation and trade, the countries may gain competitive advantage over their neighbors and other countries.

Finding a solution to infrastructure-related problems will contribute to economic growth by increasing production which has recently declined due to logistic issues, and launching the products that have not been traded before.

Among the largest logistics and transportation infrastructure projects of Turkey with Caspian and Central Asian countries, the BTK Railway Project is one of the most important components of the Caspian Transit Corridor which is a route along the Ancient Silk Road. When the project is completed and the railway becomes operational, Turkey will have a stronger connection with the Caspian Region and Central Asia.

Transportation projects will be realized in a faster and more coordinated manner if the transportation corridors, which will make a contribution to raising the regional development level by triggering economic growth, are regarded as a tool that offers advantages for all parties and stimulates intra-regional trade by enhancing cooperation. The importance of leading projects and cooperating with partner countries must be underlined, and projects must be regarded as the most important part of economic growth strategies.


[1] Chronology of China’s “Belt and Road” Initiative, Xinhuanet (online),  2015-02-05, (quot. 2015-10-22). Available at: http://news.xinhuanet.com/english/china/2015-02/05/c_133972101.htm

[2] The World’s Shifting Centre of Gravitiy, The Economist (online), 2012-06-28,  (quot. 2015-10-23). Available at: http://www.economist.com/blogs/graphicdetail/2012/06/daily-chart-19

[3] Caspian Transit Corridor, Caspian Strategy Institute (HASEN), August 2015, p. 23, ISBN: 978-605-65529-6-0.

[4] Ibidem, p.8.

[5] History of TRACECA, TRACECA. Available at: http://www.traceca-org.org/en/traceca/history-of-traceca/

[6] Ministry of Investments and Development Republic of Kazakhstan (2014). Development of transit and transport potential of the Republic of Kazakhstan, Astana.

[7] General Development Plan of Turkmenbashi International Seaport and The Marine Merchant Fleet of Turkmenistan Till 2020, TRACECA. Available at: http://www.traceca-org.org/uploads/media/10.Presentation_TKM_Eng_01.pdf

[8] Caspian Transit Corridor, Caspian Strategy Institute (HASEN), August 2015, p. 37, ISBN: 978-605-65529-6-0.

[9] Baku International Sea Trade Port, Project Description, 2015-04-16.

[10] Caspian Transit Corridor, Caspian Strategy Institute (HASEN), August 2015, page: 26, ISBN: 978-605-65529-6-0.

[11] Ibidem, p. 38.

[12] Ministry of Economy and Sustainable Development of Georgia, Department of Transport Policies, Anaklia Deep Sea Port Project.

 

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