Unocal Quits Afghanistan Pipeline Project

by Steven Levine
The New York Times
December 5, 1998


ALMATY, Kazakhstan, Dec. 4 - The Unocal Corporation has withdrawn from a consortium that planned an $8 billion energy pipeline system traversing war-torn Afghanistan, a company official said today.

The decision was made under the pressure of low world oil prices, feminist groups that assailed Unocal's contacts with the Taliban, the fundamentalist Islamic movement that rules Afghanistan, and concern about the presence of the accused terrorist Osama bin Laden in the country.

In addition, Unocal has closed its offices in three of the four Caspian region republics in which it operated, making it the first large foreign oil company in the world to retreat from the area.

"The biggest reason is $12 oil," Scott A. Barber, the head of Unocal's remaining regional office in Baku, said in a telephone interview. "You have to make priorities."

The moves come against a backdrop of cost-cutting and huge mergers in the oil industry as world crude prices have plummeted.

Unocal has responded to the difficult business climate by slimming down. Last month it withdrew from another consortium that had proposed a $2.9 billion pipeline to ship natural gas produced in Turkmenistan to Turkey. The company has also said it will cut capital spending next year up to $650 million.

"There is a reassessment of activities everywhere, and especially the Caspian," said Julia Nanay, a consultant at the Petroleum Finance Company in Washington. "At oil prices at $10 or less, how do you make money? That is the question for this industry."

Unocal's withdrawal from the Central Asia Gas consortium, which has yet to be officially announced, took effect today. Without Unocal, and with little prospect of another big company taking its place, the project is probably dead, analysts said.

The other consortium members are the Government of Turkmenistan, the former Soviet republic; the Delta Oil Company of Saudi Arabia; the Itochu Corporation and Inpex of Japan; the Hyundai Engineering and Construction Company of South Korea, and the Crescent Group of Pakistan.

When Unocal joined the project in 1995, it was viewed by many analysts as the most audacious gambit of the 1990's oil rush on the Caspian.

The idea was to pre-empt other companies trying to solve the region's greatest problem -- it is landlocked -- and transport oil and natural gas from Turkmenistan across Afghanistan to Pakistan. Turkmenistan has the world's fourth-largest reserves of natural gas.

There was to have been a 1,005-mile oil pipeline and a companion 918-mile natural gas pipeline, in addition to a tanker loading terminal in Pakistan's Arabian Sea port of Gwadar. At the oil prices that prevailed until Asia's economic collapse, the company projected annual revenue of $2 billion, or enough to recover the cost of the project in five years.

While many industry officials and analysts questioned the wisdom of planning such a huge infrastructure project across a war-ravaged country, Unocal opened offices in Kazakhstan, Uzbekistan, Pakistan and Turkmenistan. To help it sell the project to the many governments involved, Unocal hired retired senior United States diplomats like the former Secretary of State, Henry A. Kissinger; the former Ambassador to Pakistan, Robert Oakley, and a Caucasus expert, John Maresca.

Problems began with the Taliban's capture of the Afghan capital, Kabul, in September 1996. Unocal initially took a positive view of the movement's triumph, but then retreated when world attention focused on the ruling clerics' treatment of women, who are forbidden to work or attend school.

The Feminist Majority Foundation, a Los Angeles group, petitioned the State of California to revoke Unocal's charter, and Mavis Leno, the wife of "The Tonight Show" host, Jay Leno, attended a company shareholder meeting last June to complain about its dealings with the Taliban.

Finally, on Aug. 20, the United States fired Tomahawk missiles into Afghanistan against Mr. bin Laden, whom it accused of masterminding deadly explosions at United States embassies in Tanzania and Kenya.

The next day, Unocal suspended the pipeline project until the Afghan Government was recognized by the United States. Some Unocal officials said the company feared sanctions if it was perceived as circumventing United States policy by remaining active in Afghanistan while a manhunt was on for Mr. bin Laden.

- Doctors, their faces hidden by white surgical masks, amputated the hand and foot of a convicted thief on Friday before thousands of people gathered at the Kabul Sports Stadium, eyewitnesses said.

A man identified only as Shoaib was convicted of stealing $9,600 from three different businessmen. According to Taliban officials, who presided over the amputation, Shoaib stopping people on the highway and took their money.

In the 90 percent of Afghanistan ruled by the Taliban religious army a harsh brand of Islamic law has been imposed. The Taliban publicly execute those convicted of murder and amputate the limbs of thieves. People are publicly beaten for lesser crimes.

The Taliban are fighting a northern-based opposition on several fronts in Afghanistan.


Copyright 1998 The New York Times Company

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