Project management opportunities in Eurasia
Levent Akis Ahmet Koksal, PMP Emre Yavuz
Istanbul Project Management Association
PMI Global Congress 2003-Europe
22-26 May 2003
Den Haag (The Hague), The Netherlands
Table of Contents
Infrastructure and Energy
Steeplechase for Improvement
Against all odds
The way forward
A To-Do List
The Role PMI can Play
A new type of Cupertino is being defined between developed and developing countries to create a stable economic and financial environment. Whilst attracting capital, service and technology flow, developing countries export energy and industrial goods. Its vast resources put the Eurasian Corridor at the forefront of such an osmosis, but the threats it faces may not be undermined. This part of the world that is composed of the Balkan, Black Sea, Caucasus and Central Asian countries stretches from Adriatic Sea to the western borders of China, sometimes including the Middle East countries.
A population of around 450 million with a gross income of around $1 trillion houses an immense potential for development. Importing an approximate sum of $350 billion of goods of services renders this corridor an attractive market place that has been throughout its history a fertile field of social and political unrest as well.
Potentials and threats have been living side by side for ages: energy, precious metals, minerals, commodity resources, multilateral trade, a large population and its associated market have furnished its residents with the prosperity of the plenty and the fear of the invasion. Clashes, border and ethnic conflicts, radical movements and, recently, weapons of mass destruction have been business as usual.
Recent developments prove that European Union actively contributes to the Eurasian Development Program. The European economic and commercial diplomacy facilitate the exportation of the European values: the proliferation of the market economy, the democracy and the integration with the World will bring about two major benefits:
Economic development and welfare
Permanent security (Alkin, 2002)
In parallel, the Unites States places major importance on the democratic transition progress and the restructuring Eurasian economies; they are tailoring assistance programs to work with reformers at all levels of society. US have the objective of reducing the potential for conflict and terrorism while promoting human rights and democratic freedoms and strengthening economic opportunities in Central Asia.
US concert with the European Union's programs for technical assistance to transition countries in Europe (PHARE) and Eurasia (TACIS), the World Bank, European Bank for Reconstruction and Development (EBRD), European bilateral donors, and Japan. US also partner with the Asian Development Bank on activities in the Central Asian Republics. (USAID, 2001)
This article aims to create an interest for the Eurasian Corridor and to draw the attention of business development officers to the project management opportunities this geography presents while discussing ways to approach potential buyers of such services.
Infrastructure and Energy
With a shift from centrally planned to market-based economic systems, the traditional structures of the infrastructure and energy sector have become increasingly unsustainable. Hence, many countries in the region have embarked on structural reforms. However, progress toward commercialisation within an appropriate legal and regulatory environment is highly uneven. While there is considerable foreign and domestic private sector interest in participating in some energy and infrastructure sub-sectors, the readiness of private operators to take the associated commercial and political risks is low and the willingness of regional governments to embrace the private sector varies significantly among countries.
The infrastructure and energy sector have the following unique features that are relevant to determining the need for future assistance:
- Many countries are struggling to restore/maintain macro-economic stability, and the ramifications of this struggle are evident in the infrastructure and energy sector.
- Much of the infrastructure was designed to accommodate the politico-economic vision and requirements of the former Soviet Union. Countries are now faced with having to adapt this infrastructure to meet their own changing needs. Much of this infrastructure is also in serious need of reconstruction and repair.
The infrastructure and energy sector have inherited serious environmental problems, many of which have a regional dimension, e.g., high emissions of particulates, SO2, and NOX, poor nuclear safety, oil spills, gas leakages, water supply contamination, high vehicular lead emissions, etc. In a number of cases, development of the sector will require transnational initiatives. There is no long-term, multilateral or commercial orientation to the agreements on the use of resources. Consequently, downstream countries suffer as the increase in upstream use of hydropower results in a lack of downstream water supply for agriculture and unmanaged spills causing flooding. Likewise, countries requiring fossil fuel imports suffer as prices are distorted and supply is inconsistent. Furthermore, the Central Asian republics are landlocked and the construction of new energy outlets such as pipelines will, therefore, be dependent upon the negotiation of multi-country agreements. (The World Bank Group, 2002)
This is extremely vital for the EU in view of the structural weaknesses and geopolitical, social and environmental shortcomings of their energy supply. The European economy is steadily demanding more and more energy and is importing 20% of its consumption from Russia alone. By 2030 energy imports will amount to 70% of total needs; 90% of oil is likely to be imported. These facts place the Eurasia at a very crucial strategic position versus EU, who in turn commits itself to do whatever it takes to sustain the flow. (The European Commission, 2002)
A few Eurasian Projects will be cited in an effort to reflect the dynamism of the area.
Project #1 The Setting up of Economic and Commercial Cupertino Organisations:
The sub-projects of the above project may be summarised as:
- Setting up a free trade area
- Expanding regional trade
- Forming a common foreign trade policy
- Completing and harmonising the infrastructure
Major organisations are as follows:
Black Sea Economic Cupertino
Albania, Armenia, Azerbaijan, Bulgaria, Georgia, Greece, Moldova, Romania, Russia, Turkey and Ukraine.
Southeastern Europe Cooperation Initiative
Romania, Bulgaria, Greece, Albania and Macedonia.
Economic Co-operation Organisation
Afghanistan, Azerbaijan, Iran, Kazakhstan, Kyrgyzstan, Pakistan, Tajikistan, Turkey, Turkmenistan and Uzbekistan.
Project #2 Transportation of the Energy Resources to International Markets and Mediterranean Oil Exchange
The sub-projects of the above project may be summarised as:
- Baku-Tbilisi-Ceyhan Crude Oil Pipeline (Kazakhstan, Azerbaijan, Georgia, Turkey)
According to the International Energy Agency (IEA) figures on the Caspian Region's oil and gas supply potential, it is estimated that the proven oil reserves in Central Asia and Caucasus vary between 15 and 40 Billion barrels, with about 70 to 150 Billion barrels as possible additional reserves. This represents 1.5% and 4% of the World's proven oil reserves. The estimated economic value of these reserves is $5 Trillion USD for an average oil price of $25 per barrel.
The Sponsor Group, an international formation headed by the State Oil Company of the Azerbaijan Republic (SOCAR,) will build the BTC; the estimated total investment cost of the Project is US$2.4 billion while the estimated cost for Turkish section, including land costs, is US$1.4 billion. (Pala, 2001)
2. Interstate Oil and Gas Transport to Europe - INOGATE
The EU-funded INOGATE Program's objective is to improve the security of Europe's energy supply by promoting the regional integration of the oil and gas pipeline systems and facilitating their transport both within the region and towards Europe and the West in general, while acting as a catalyst for attracting private investors and international financial institutions to these pipeline projects. The INOGATE Umbrella Agreement (UA) is an interstate agreement that sets out an institutional system designed to rationalize and facilitate the development of interstate oil and gas transportation systems and to attract the investments necessary for their construction and operation.
The general beneficial effects of the UA are manifold, but most importantly for our purposes it introduces the concept of a Common Project Manager, responsible for the oversight of the construction of an interstate transportation system, in order to ensure synchronization and observance of common technical specifications of the several national segments. INOGATE projects are funded through different EU programs (namely TACIS, PHARE or MEDA) according to the countries involved.
Signatory countries are: Albania, Armenia, Azerbaijan, Belarus, Bulgaria, Croatia, Georgia, Kazakhstan, Kyrgyzstan, Macedonia, Moldova, Romania, Tajikistan, Turkmenistan, Ukraine and Uzbekistan.
Acceding countries are: Greece, Latvia, Slovakia, Turkey and Yugoslavia.
Interested to Accede countries are: Estonia, Lithuania, Poland, Iran, Czech Republic, Bosnia & Herzegovina and Hungary.
Candidate countries for future accession are: Morocco. Algeria, Libya, Egypt, Israel, Palestine, Lebanon, Syria, Iraq, Jordan and Saudi Arabia.
Project #3 Commodity Markets
Commodity Exchange for Cotton
Mediterranean Oil Exchange
Mediterranean Water Exchange
Such projects will play vital roles in the enhancement of regional cooperation and fulfillment of a need for a trading platform. (Alkin, 2003)
Project #4 Technical Assistance for the Commonwealth of Independent States (TACIS) Project
EU's relations with the countries of Eurasia were underpinned in 1991 through a program of technical assistance called TACIS. The Program supports the process of transition to market economies and democratic societies in the Eurasia countries, and in the first eight years of its operating, committed a total of €4.2 million of funding to projects. A Council Regulation adopted in January 2000, opened the co-operation between EU and the partner countries, aiming to provide assistance totaling €3.1 million until the end of 2006 and to focus on certain key areas of activity in the region, to name few:
- Support for the private sector and assistance for economic development.
- Development of infrastructure networks.
- Nuclear safety.
- Promotion of environmental protection and management of natural resources.
The countries covered by EU's co-operation programs are: Armenia, Azerbaijan, Belarus, Georgia, Kazakhstan, Kyrgyzstan, Moldova, Mongolia, Russian Federation, Turkmenistan, Tajikistan, Ukraine and Uzbekistan. (The European Commission, 2002)
Project #5 Transport Corridor Europe-Caucasus-Asia (TRACECA) Project and the Silk Road
The TRACECA Program was launched in May 1993; it was agreed to implement a program of EU funded technical assistance to develop a transport corridor on a west - east axis from Europe, across the Black Sea, through the Caucasus and the Caspian Sea to Central Asia. The TRACECA states are Armenia, Azerbaijan, Bulgaria, Georgia, Kazakhstan, Kyrgyzstan, Moldova, Mongolia, Romania, Tajikistan, Turkey, Turkmenistan, Ukraine and Uzbekistan.
EU offers this program as an additional route that would complement other routes. The project corresponds to the global EU strategy towards these countries and retains the following objectives:
- To support the political and economic independence of the republics by enhancing their capacity to access European and World markets through alternative transport routes
- To encourage further regional co-operation among the partner states
- To increasingly use TRACECA as a catalyst to attract the support of International Financial Institutions and private investors
- To link the TRACECA route with the Trans - European Networks
To date the TRACECA program has financed 39 Technical Assistance projects (€57.4 million) and 14 investment projects for the rehabilitation of infrastructure (€52.3 million.) The leaders of the partner states consider that the TRACECA route is of strategic importance, by assuring them of an alternative transport link to Europe. TRACECA stimulates competition between and with their previously exclusive route to the north, and newer alternative routes to the south. Furthermore, it is seen as complementary to their renewed commercial exchanges with the Far East, evoking the possibility of the ancient Silk Route becoming once again a major trade corridor. (The European Commission, 2002)
Since its inception TRACECA has received widespread acceptance and welcome by public and private sector stakeholders and governments who supported its development and sustainability, including the World Bank's Trade and Transport Facilitation Project in Southeastern Europe, the IRU (International Road Transport Union) and FIATA (International Federation of Freight Forwarders Associations.) They are focusing on the following projects:
Collection of indicators at major border crossing points
Support for public- private dialog on trade facilitation
Improving information mechanisms
Establishing logistic/distribution/industrial zones (The World Bank Group, 2001)
Steeplechase for Improvement
Eurasia faces many developmental and security problems including a lack of transparency, rule of law, and healthy democratic institutions. For example Azerbaijan faces the additional potential danger of unbalanced economic growth due to massive investment in its oil and gas sectors. Meanwhile, both Azerbaijan and Georgia will soon undergo succession of their top political leaders.
Regional conflicts pose additional dangers. The tension in Chechnya continues, Armenia and Azerbaijan have only the most basic of diplomatic relations, Georgia suffers from separatism in Abkhazia, Adjara, and Javakhetia. Azerbaijan's close ties to Turkey further strain Turkey's already poor relations with Armenia. HIV/AIDS, drug abuse, terrorist networks and resources, transnational crime and human trafficking present major challenges. (CSIS - Centre For Strategic & International Studies, 2003)
Against all odds
However nothing will stop this area from developing: Most of the economies in the region grew during 2002. Recent household data from Bulgaria, the Kyrgyz Republic and Russia indicate that economic recovery has significantly reduced poverty without worsening inequality. The incidence of poverty, however, has not yet declined in countries where growth has been more narrowly based, such as Armenia and Georgia. In Turkey, macroeconomic crises have pushed more people into poverty, especially in the urban areas. The prevalence of poverty - although now generally declining as a result of the region's continuing growth - ranges from under 5 percent to over 50 percent of the population.
Eastern Europe and Central Asia remain highly diverse and may vary as much as fifty folds both in terms of per capita income and global integration. Per capita income ranges from $10,070 in Slovenia to $170 in Tajikistan. While many countries, especially those in Eastern Europe are firmly headed toward European and global integration others still struggle with long-simmering tensions and the constraints of geography. (The World Bank Group, 2003)
The way forward
With the legacy of thousands of years of cross-border trading, the area is full of potential energy, but kineticizing it appears to be rather not very straightforward. Lack of funds, fuzzy nature of the terms of references, hidden agendas of the project sponsors and many more are amongst the barriers of entry. However ABC Co.'s Business Development Officer need not feel discouraged: there are a multitude of ways to obtain leads that will end up in contracts. The information that may be found at http://www.atlas-holding.com on Universal Ensco Eurasia, a Turkey based company, that was jointly established by Universal Ensco Inc. of USA and Atlas Holding Inc. of Turkey is encouraging. They have signed the Project Management Consultancy I Contract with BOTAS for the 1070 kilometre Baku-Tbilisi-Ceyhan Crude Oil Pipeline Project that was mentioned previously.
Analogously, one may consider taking part in the natural gas distribution projects set to go in more than 50 cities in Turkey. Similarly; improving the management skills of electric distribution network refurbishment project officers may be another project. Environmental problems (and associated opportunities therewith) are there for ABC Co.'s Business Development Officer, ranging from non-existence of any kind of mitigation to comprehensive technological repositioning of operating systems. The Kyrgyz Rural Water and Sanitation Project, Moldova Power Project, Tajikistan Pamir Private Power Project are examples. (Tonge, 2003)
The accession of Bulgaria and Romania to the EU is making Caucasus an immediate neighbour of EU via the Black Sea; United States' presence in Afghanistan and Uzbekistan are at once unimaginable levels. A new Eurasia is being quickly defined; Russia, China and India are considering concerted action, not only in diplomacy, but also in economic fields. (Erkin, 2003)
A To-Do List
ABC Co.'s Business Development Officer should without any delay:
- Start with determining a base and establish.
- Contact the home country's trade missions and nag the diplomats.
- Continue with Eximbank and any other foreign trade incentive institutions.
- Secure (at least obtain reliable promises for) the funding of proposed services.
- Talk to other venturers, learn from their mistakes.
- Investigate and contact potential partners from the countries in target.
- For staffing, hire from within the host country to the maximum possible extent.
- Leave alone the “mega projects” ; concentrate on small to medium size ones.
- Be part of the community, socialize at appropriate occasions.
- Talk to everybody; be flexible, but keep the arm's length.
The Role PMI can Play
PMI provides global leadership in the development of standards for the practice of the project management profession throughout the world. Project management stakeholders take advantage of the extensive products and services offered through PMI. As an example, The International Development SIG (Internationally Funded Projects in the Public Sector in Developing Countries) focuses on the specific and specialized project management needs and issues. The international aid program for developing countries is a major undertaking on a global scale. One of the main problems is the poor quality of implementation of development projects/programs. They face delays, cost overruns, and delays in disbursement, and many require major costly re-engineering. While there are many factors which contribute to the poor performance, the most significant problem is lack of trained and certified project managers, staff and professionals responsible for preparing and managing economic and social development projects/programs in both the lending & borrowing countries. (PMI International Development SIG, 2003)
The urgent need for qualified project investment and management professionals is there for the Eurasian countries. Unlike the US or EU countries however, neither the recognition of the profession nor a desire for soliciting the services of project management prevail. Thus PMI is urged to craft a strategy for the promotion of the profession in the Eurasian Corridor. Whether this takes place by convincing various lending organizations, international NGOs, and independent professionals influential in Eurasian countries, or by holding Global Congresses in the area, or by approaching US and EU governments for conveying the message to their Eurasian counterparts deserve to be discussed separately. PMI's leadership in developing business via concerting its members' efforts will pave the way of project management into this unexploited geography and will lessen the financial and otherwise burden of individual ventures. This may be through PMI missionaries visiting the area and spreading the word or a permanent embassy to indoctrinate the target audience. To constitute an example and as a result of PMI's contributions to China, Dr. Michael Price received the China Friendship Award and stated that the award symbolized the importance the Chinese government placed on project management and PMP certification. (PMI, 2002)
A recent initiative that deserves to be hailed is The PMI Regional Service Centre for Europe, the Middle East and Africa (EMEA Regional Service Centre) to be opened on 16 June 2003, in Brussels, Belgium. EMEA Regional Service Centre's goals will be, among others, to promote project management as a global profession and maintaining relationships with business, government and academia. (PMI, 2003) Hopefully such a “Centre” will shortly be operational in Eurasia since the global project management community should not deprive the peoples of Eurasia from the blessings and benevolence of the PMBOK®.
Turkey - at a glance
Turkey, a potential member of the European Union, is bound to play a vital and strategic role for the implementation of the aforesaid: integration with the rest of the World, membership to international institutions, customs union with the EU, infrastructure, young and dynamic population, qualified human resources constitute, among others, Turkey's major advantages for being a base for expanding project management into Eurasia.
Her first leader - Mustafa Kemal Atatürk, founded the Turkish Republic in 1923. Since the foundation of the Republic, the Turkish people have concentrated their efforts on the transformation of their country into a pluralistic and secular democracy. The major urban centres and the greatest economic development areas are Istanbul, Ankara, Izmir, Bursa and Adana. Turkey is a country of 790,000 sq km. Flying the longest domestic route in Turkey is like flying from Istanbul to Vienna or Munich.
Turkey's population is around 67 million and the population growth rate is around 1.5%. The local civilian work force is about 22 million. The population is much younger compared to European countries (approximately 70% of the population is below the age of 35.) Turkey shall continue to constitute one of the largest populations in the Middle East and Eastern Europe.
Turkey, situated at the crossroads where two continents meet, is an ideal centre for investors looking for a location at the heart of Euro-Asia. With its dynamic and growing economy, huge market, competitive and skilled labour force, Turkey offers numerous opportunities to international investors. The liberal foreign investment legislation and the experience of more than 5450 foreign capital firms ensure a stable and reliable investment environment.
Turkey is the leading investor in Caucasian and Central Asian Turkic Republics. Due to her strong cultural and historic ties, Turkey provides privileged access and a perfect base to develop business with these countries.
May we please welcome you aboard?
Alkin, K. (2003, April). Project opportunities in the Eurasian corridor and project management. Dynamics 2003, 5th National Project Management Congress. Istanbul.
USAID, The United States Agency for International Development. (2002) Eurasia National. Activity Data Sheet. Retrieved from http://www.usaid.gov/pubs/cbj2002/ee/eur_reg/110-015.html.
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